Case Study

Creating a winning mine with our clean sheet capital redesign approach

A large South African mining company, focused on bulk commodities, was planning the development of a new mine. This mine would add about a third more volume to the company’s current volumes, enabling increased exports at a time when demand and prices for this commodity are at an all-time high.

The project had been in development for some time and was approaching the time when "feasibility approval" would be required from the board. In addition to internal pressure to make the project feasible, there were external factors that complicated the picture (e.g., dependence on logistics providers who needed to also increase their capacity to allow the new mine to deliver its product to market).

Reviewing the business case
The first step in the engagement was to review the business case in detail, challenge the underlying assumptions, and assess the market demand for the product and the fit of the specific products proposed.

The net present value (NPV) of the project changed quite significantly in this phase, as assumptions were adjusted and updated. While not "value creating" in their nature, this created a robust fact base from which to go forward.

Developing a view on risk
Any project has significant risks, for example the risk of revenues changing as sales price for your product decreases, or the risk of running late on production start-up due to delays in building the project. This mine had a typical comprehensive list of risks. However, it is hard to act on a long list without a good way to compare the relative significance of each of the risks.

We ran a Monte Carlo simulation (using random numbers and probability to solve problems) and developed a risk-adjusted NPV as a result. The insights were highly actionable and correlated well with recent project experiences our client had in another mine.

Enhancing the project financially with ideas to boost NPV
Next, a range of ideas were developed to increase the NPV and to mitigate the quantified risks (both improve the mean and "chop off" the tail). The overall result was an increase in the risk-adjusted NPV of greater than 60 percent. This helped the project get through various approval gates and moved it a lot closer to the start of production.