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Project value erosion due to non technical causes

Project value erosion due to non technical causes. SME: Current Trends in Mining Finance Andy Churr and Jennifer Collins. Environmental and social risks can materially affect NPV. Concept. Prefeasibility. Feasibility. Execution. Operation. Closure . Theoretical NPV. Option 1. NPV.

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Project value erosion due to non technical causes

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  1. Project value erosion due to non technical causes SME: Current Trends in Mining Finance Andy Churr and Jennifer Collins

  2. Environmental and social risks can materially affect NPV Concept Prefeasibility Feasibility Execution Operation Closure Theoretical NPV Option 1 NPV NPV including risks Option 2 Option 3 Option 4

  3. Delayed extractive projects with CAPEX greater than $500m Source: ERM Analysis

  4. Less than a third of mining projects were delivered on schedule Mining project delays (2008 – 2012) Non technical causes Other causes *Does not sum to 100% due to multiple causes of delays Source: ERM Analysis

  5. Projects with non-technical causes had longer delays 81% of delayed projects had one or more non-technical cause Source: ERM Analysis

  6. Greenfield projects suffered greater delays than expansions Greenfield versus brownfield project delays Number of projects 64% of greenfield projects were delayed compared to 29% of brownfield expansions Source: ERM Analysis

  7. Understanding external stakeholders is key to project success Mining projects have a number of impacts Environmental impacts Which create risks when stakeholder acceptance is not obtained • Water reduction / pollution • Visual impacts • Biodiversity loss • etc. Consequences Stakeholder expectations and perceptions • NPV erosion • Loss of access to future resources • Loss of shareholder trust • Careers limited Social impacts • Physical displacement • Economic displacement • Change in quality / way of life • etc.

  8. Key questions to consider • How well are stakeholders understood and how do they perceive the project? • Is there a compelling external value proposition for key stakeholders? • How effective are the mechanisms that identify and review the key risks that could arise over the project’s lifecycle? • Are the financial and other consequences of these risks well understood by all? • Are the controls that have been identified adequate to reduce these risks to an acceptable level, and are they understood by the organisation?

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