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Nineteen percent of mines are 'corporate disasters'

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Nineteen percent of mines run 100% over budget due to unrealistic feasibility studies, said McKinsey in a recent study.

McKinsey classified mines that were 15% to 100% over-budget as project disasters, and mines 100% over-budget were corporate disasters. Only 20% of mines surveyed actually came in at or under budget.

McKinsey blames the feasibility study process, which "lacks rigor."

"Many mining executives still rely on the same FS processes they did years ago, when resources were more accessible and projects less risky to plan and execute," said the study's authors. "That's a problem because today's projects are becoming larger, more complex, and often more remotely located—making them more susceptible to cost overruns."

Feasibility studies could be improved with better and more comprehensive data.

"While some standards exist for resource estimation and reporting at FS stage, companies have few benchmarks to go by for a wide swath of other elements, such as engineering definition, execution and operational readiness, business objectives, or commodity price predictions—all of which can change a project calculus significantly."

Other culprits driving up costs are sub-par management practices, lack of proper contractor incentives and poor familiarity with the current state of technology.

McKinsey said old methodologies no longer suffice when only a fifth of mines built meet their predicted financial returns.

Fixing the feasibility problem could be an economic win with McKinsey estimating that a change could be worth over $100 billion to the mining and metals project industry over coming five years.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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