Project Risk Management Spotlight: Craig Rice
Updated: May 31, 2020
Responsible Project Development
Project development is a vital part of the mining lifecycle to turn economically viable orebodies into operating mines. The methods and approaches for project development can be expanded so that the resulting asset – the mine and processing facilities – is more responsible to communities, people, and the environment. Below are a few ways that we can make mining projects more responsible.
1.) Life-of-Asset longer-term thinking: Ownership of mining properties can change several times throughout the life of a property, from initial prospecting and exploration, through development and operations, all the way to closure. Organizations that don’t intend to own a property for the long-term might not engage in long-term thinking with respect to communities, environment, and sustainability. Likewise, new owners may not have the same level of commitment to community and social engagements agreed to by previous owners. Consistent planning and reliable execution of community, social, and environmental commitments is essential for responsible mine operators.
2.) Going beyond legal requirements: Over the past several decades, mine health and safety initiatives have progressed from simple health and safety legal compliance to operators wanting world-class health and safety performance. The same approach should be applied to community, social, sustainability, and environment. Complying with laws and regulations is the minimum, mining companies should look to exceed and overperform wherever possible. This is already happening in areas such as transitioning from diesel powered to electric mine fleets, and reduction in the amount of water needed for mining operations
3.) Improved partnering with communities: The focus on community relations in the mining industry has increased considerably over the past decades. Where once communities were satisfied with local jobs for residents, they are now looking for mine operators to be a partner in the long-term vitality of the community, including after mine closure. To secure community support for development projects, mining companies must work with local communities and indigenous communities as stakeholders, moving beyond a transactional or philanthropic approach to community relations and towards a view of increasing shared value with communities. The project stage is an especially crucial one for communities – it is the stage where they have the greatest ability to influence the design and construction of what will be built.
4.) Expand project valuation methods: Using discounted cashflow (DCF) methods to value mining projects will almost always show that an asset with a larger throughput and shorter life has a better return and higher value (NPV, IRR, Payback) than a mine with smaller throughput and longer life. This is because the further in the future cashflows are, the more they are reduced through discounting. Depending on the discount rate used, any revenue generated that is more than 20 years in the future has a minimal increase on NPV. While large mines with shorter lives may be better for mining companies, they are likely not better for communities. A smaller mine with a longer minelife means it can be staffed and supplied more reliably by local workers and can help prevent the community from going through the unfortunate but typical transition of “boomtown to ghost town” when the mine closes.
5.) Designing for adaptivity and flexibility: There are many market-based uncertainties and risks in developing a mining project and operating a mine. Foremost of these are uncertainties in the commodity prices. Declining commodity prices can impact the economic viability of mining operations. Engineering and designing mines to be robust and adaptive to changing market and operating conditions could help mining operations weather storms caused by market risks. Often, this flexibility must be embedded in the mine and processing facilities during the study and engineering stages of a project. Project developers must seek out ways to embed flexibility in the project and apply methods for valuing this flexibility in their investment decisions.
Craig has over 15 years of practical and academic experience with developing projects in the mining industry. He is a doctoral candidate at the Norman B. Keevil Institute of Mining Engineering at the University of British Columbia. His research is on adaptive project risk management for the mining industry, focusing on developing flexible and adaptive methods for managing project risks with high-uncertainty in situations with changing information and knowledge. Craig is also the owner and principal consultant of Redteam Projects Inc, a consulting firm that offers services in the areas of project controls, risk analysis and management, and decision analysis in the mining industry.
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