001 PWC Capital Investment Mining Bisaga-Millan

Advisory
PwC Mining Conference

2015 America's School of Mines
Driving value from capital investment strategy
through execution and into operations
Strictly Private
and Confidential
Draft
19 May 2015
6 PwC CP&I - Who we are and what we do
Discussion Leaders
Germn Milln
Partner
PwC CP&I, Santiago, Chile
german.millan@cl.pwc.com
+56 2 2940 0689
Germn is a Partner of PricewaterhouseCoopers and

part of PwCs global Capital Projects & Infrastructure
(CP&I) practice leadership team. He is responsible for
the CP&I practices activities in the Spanish-Speaking
Countries of South America.
He has over twenty years of experienced in project,
program and procurement management in both Latin
America and Europe. He has led and/or delivered
Technical, Project Management, Procurement,
Commercial, Facilities Management and specialized
Public Private Partnerships assignments.
Germn has also provided strategic advice, developed
estate management strategies, and led the development
of business plans and business cases for a number of
capital investment projects.
PwC
Brett Ryan Bisaga

P.E.
Director
PwC US (Philadelphia)
Brett.bisaga@us.pwc.com
+1 267 330 - 1784
Professional Engineer with 16 years experience
providing program, project, and construction
management services.
Structural Engineer with experience in the design,
project management and construction of several
complex capital projects with a BS - Civil
Engineering and BS Architectural Engineering.
Assist clients with the development and construction
of various mining infrastructure projects throughout
North and South America.
Recent South America mining experience includes
open pit extraction, copper and gold flotation,
leaching, flotation concentrator and solution
extraction (SX) and electrowinning (EW) facilities.
Confidential Information for the sole benefit and use of PwCs Client.
Draft
4 May 2015
2
Agenda
Page
1
2
3
4
5
6
4
7
12
20
30
33
Trends in the market

Increased selectivity for capital projects
Contracting Strategy
Reducing Risk
Case Studies and Sector Experience
PwC CP&I - Who we are and what we do

PwC
Draft
4 May 2015
3
1 Trends in the market

Mining companies historically face significant
challenges developing and delivering capital
projects to meet the need for production while
balancing speed, profitability, and safety. Over
the last few years, PwC identified several core
differentiators to help mining clients drive value
even during times of commodity price decline
and limited capital investment.
PwC has identified three core differentiators
drive value.
1. Increased selectivity in capital
investments,
2. Commitment to capital discipline, and
3. Increased transparency, in costs and
performance
PwC
Draft
4 May 2015
4

Increased focus on capital deployment on projects. Increased selectivity while
considering cash flow and capital efficiency.
We must be disciplined with our deployment of
physical and financial resources to focus on those
assets that will provide us with the greatest
returns and potential upside Mark Cutifani,
CEO Anglo American
Vale S.A. (Vale) announces that its Board of
Directors approved the investment budget for
2015, with capital expenditures of US$ 6.358
billion for project execution and US$ 3.809 billion
dedicated to sustaining existing operations.
This is the fourth consecutive year in which Vale
reduces its capital expenditures, maintaining
capital discipline and focusing only on world class
projects. - Vale CAPEX 2015 Report
PwC
Draft
4 May 2015
5

With primary focus on cost reduction, mining
clients require effective and agile decision making.
Reducing future production capacity and
neglecting capital investment may leave the
company in a weak position to react to
opportunities ahead. Emphasis on operational
excellence is crucial, but alignment between capital
investment programs and long-term strategy needs
to be maintained.
Todays discussion will focus on
1. Increased selectivity for capital projects
2. Implementing the appropriate
Contracting Strategy, and
3. Reducing Risk for the company

PwC
Draft
4 May 2015
6
2 Increased selectivity for capital projects
Increased selectivity for

capital projects
Increasing the likelihood of success for a
capital project
- establish effective governance at
the outset

PwC
Draft
4 May 2015
7
Stage gate approval process

Capital Discipline and Governance are supported by a gated project development
process. Stage gate approval require incremental planning and design of projects, to
encourage orderly development of the project while enabling executives to make
informed decisions about interim funding authorizations and allowing for project
off-ramps prior to full funds authorization.
Project Lifecycle Stages
Pre-concept
Is the business
need
legitimate?
Does it
generate
sufficient
ROCE?
Prefeasibility
Concept
Do any
feasible
options
exist?
Is the best
option still
viable after
scoping?
Are lower
risk options
availably?
Can it be derisked?
Feasibility
Post-imp.
review
Operations
Construction
Engineering
Start-Up
Execution
Is best
option still
viable given
the refined
estimate?
Is there any
reason the
project
should not be
built?
Is the project
ready to begin
operation?
Is the project
ready to be
turned over?
Were
project
benefits
realized?
(ROCE,
capacity)
How well is the stage gate process understood, deployed,

monitored and updated for effectiveness?
PwC
Draft
4 May 2015
8
Portfolio Management Identifying Options
Financial metrics
Strategic
alignment
Risk
Embedded value
Who develops, confirms and updates the investment selection criteria and
prioritization based on constraints, long-term strategy, ROI and risk profile?
PwC
Draft
4 May 2015
9
More defined scope and quantified risk at FID

Pre-concept
Plan for
resources
Define roles
Define
success
criteria
Define
models and
scope
Concept
Identify
opportunities
and scenarios
Classify risks
Align
objectives
Identify quick
wins
Concept
Pre-feasibility
Feasibility
Quantify
economics
Define options
and portfolio
Rank by value,
risk and effort
required
Basic
engineering
Operations
plan
Risk plan
Contracting
Sanctioning
Pre-feasibility
Feasibility
Detailed
design
Plan and
logistics
Risk
management
Execution
Supervision
Measurement
Track plan
vs. real
Measurement
KPI
monitoring
Plan
correction
Implementation
Detailed Design Construction Operations
FID
Influence
Post Imp.
Review
Implementation
Cost
Front End Loading
Mechanical
Completion
Based on the investment selection criteria and long-term strategy are capital
projects receiving appropriate scope definition and risk identification?
PwC
Draft
4 May 2015
10
Three lines of defense within the delivery model

Oversight
Assurance
Project
Sponsor
Internal
Audit
Executive
Steering
Committee
External
Advisor
Execution
Project
Director
Project Controls
Engineering
Procurement
Contractor
Construction
Fabricators
Quality
Management
Commissioning
EHS
Material
Suppliers
Subcontractors
Are checks and balances in place to select, advance and execute the capital
portfolio?
PwC
Draft
4 May 2015
11
3 Contracting Strategy
Contracting
Strategy

PwC
We have a good
mining project, now
what?
Draft
4 May 2015
12
Organizational delivery capability

Ensure Readiness aligns with Contract Strategy
Integrate capital project planning and execution with corporate functions

Scale organization to align with planned and active projects
Establish transparency and early warning mechanisms
Create the framework and financial mechanisms for driving capital efficiency
Portfolio Management
Project Management and Controls
Strategic
Planning
Portfolio
Optimization
Project Planning
Project Accounting
Project Estimating & Costing Norms
HR
Management
Annual Planning & Budgeting Norms
Contractor
Management
P & SC
Management
Financial Management
Fully understand the internal capabilities before selecting any contracting

strategy
PwC
Draft
4 May 2015
13
Contracting strategy discussion overview

Contracts are risk allocation tools, but there
are limits to risks that can or should be
transferred to vendors.
Project Delivery Strategies

Traditional Design-Bid-Build/
Self-Perform
General Contractor DBB
Risk allocation should consider:
Which party is best capable of mitigating risks?

To what extent is the Owner willing to pay the
contractor for assuming risk?
Is the owner willing to transfer authority to

mitigate risk along with accountability for risk?
What controls are necessary to monitor risks

allocated to others?
Can the Owner enforce risk shifting contract
provisions that may be contrary to public policy
(i.e., No Damage for Delay clauses)?
Does the vendor have the financial capacity to
assume and mitigate risk allocated to it?
Construction Manager Agency

(CM in an Advisory Role) &
Engineer, Procure, Construction
Manage (EPCM)
Construction Manager At-Risk
Design-Build (EPC)
Contract Pricing Strategies

Fixed price / lump sum
Unit price
Guaranteed Maximum Price (GMP)
Time & Materials (T&M)
Cost Plus Fee
Consider both project delivery and contract pricing strategies

PwC
Draft
4 May 2015
14
Our view of the drivers that impact a projects risk

environment
Different project, business, and market drivers define a capital projects risks,
which are allocated to project participants.
Project
drivers
Design maturity, cost v.

schedule driven, ROI
requirements
Risk
environment
Risk
allocation
Contract
strategy
Control
environment
Schedule
Mitigation
capability
Delivery
Strategy
Governance
Cost
Business
drivers
Market
drivers
Internal project
delivery capabilities,
risk tolerance, public
relations
Quality
Accountability
consideration
Pricing
Strategy
Production
and reliability
Tradeoffs
Award options
Contractor / skilled
labor shortages, supply
chain capacity,
regulatory
environment
Resource
availability
Project
management
processes
Project
execution
procedures
Contract
compliance
Key to successful project execution is the alignment between the selected contract
strategy and capabilities of organization, processes and system to establish and
manage the appropriate control environment throughout the project life cycle.
PwC
Draft
4 May 2015
15
Evaluating strategy options
Define strategies & drivers
Define project requirements
Analyze inputs &

choose best fit strategy
Identify gaps in strategy and

assess contract, control &
governance mitigation

PwC
Define the available strategies (project delivery & contract

pricing) as well as the important drivers that will impact
selection of each.
Each strategy is ranked by its relative effectiveness to
implement each driver.
Define the project requirements with respect to each driver

chosen.
Analyze requirements in context of the drivers, and select

most appropriate strategy for each driver.
Choose the best fit strategy based on an aggregate view of the
most important drivers.
Identify gaps in the chosen strategy and the associated risks.

Based on the identified gaps and risks, assess contract, control
& governance mitigation measures that can be taken to
increase likelihood of project success.
Draft
4 May 2015
17
Owner or EPCM Project Management Systems & Tools

High Performing EPCMs:
Leverages multiple accelerators,
frameworks, tools and
proprietary methods.
Process and procedures based on
best practice, experience and
lessons learned.
Reporting tools that help the
team accelerate analytics and
early warnings
As a Result:
Timelines are shortened
Increased efficiencies at all
stages
Reduced disruption to
procurement, mobilization,
execution and start-up
Effort is more predictable,
Project Development has higher
level of confidence
PwC
Draft
4 May 2015
18
Owner or EPCM Project Management Systems & Tools

PwC
Draft
4 May 2015
19
4 Reducing Risk
Reducing
Risk
Increasing the likelihood of success

for a capital project
- Promote a risk based
management approach with
enhanced decision support

PwC
Draft
4 May 2015
20
4 Reducing Risk
Establish consistent requirements

Governance protocols and common processes should be established
with a defined hierarchy that takes into account all types of capital
projects across the organization.
Portfolio Oversight Policy
Project Procedure
Manual
Project Execution
Plan

PwC
Portfolio Oversight Policy (POP)

Corporate standards applied to all projects
within the capital project portfolio.
Project Procedure Manual (PPM)
The PPM includes detailed processes,
procedures, standards and requirements.
Project Execution Plan (PEP)
The PEP is the detailed execution plan for each
of the projects within the portfolio.
Draft
4 May 2015
21
4 Reducing Risk
Implement playbook document framework
Policies
Mandates compliance with the Stage Gate Process

for large projects; defines the model for project
segmentation
Standards
Defines mandatory project management

requirements by project stage (project scope, cost
estimating, scheduling, project GOES, risk
analysis, etc.)
Implementation
Guides
Provides instructions, examples, and best

practices on how to meet the requirements within
the Standard
Templates
Provide the documentation for the business case,

technical, and project management requirements
(Project Charter, Project Execution Plan, Risk
Register, Dashboards, etc.)
Training
Educates project stakeholders on clients Project

Delivery System including Policy, Standard,
Implementation Guide and Templates

PwC
Draft
4 May 2015
22
4 Reducing Risk
Establish chain of custody Time management

Integrated schedules that provide visibility to the time management
from the work face of a sub-project through the required project
management levels up to the highest level portfolio summaries
Portfolio- high level overview for
project schedules within the portfolio
Program - Level 1 schedules with some
level of integration between projects
Project Level 2 schedule integrated
with all sub project data
Detail Detailed level 3-4 schedules
using standard coding for activities at
the work face for sub-projects

PwC
Draft
4 May 2015
23
4 Reducing Risk
Estimating uncertainty and scope definition

Recognizing the direct correlation between estimate accuracy and the level of
project definition (design) [need for appropriate contingency]

PwC
Draft
4 May 2015
24
4 Reducing Risk
Consider equipment lead times and labor supply

Heavy equipment lead time
Grinding mills
Locomotives
Barges
Draglines
Ship
Loaders
Crushers
Worse case delivery time
Large Haul trucks
Current delivery time
Tyres
Normal delivery time
Reclaimers
Rope Shovels
Wagons
Gas generators
0
Lead time outlook (years)

PwC
Draft
4 May 2015
25
4 Reducing Risk
Quantitative Risk Management

All estimates include assumptions.
Expected
Value
(Estimate)
0.12
Contingency is;
Contingency
- a recognition that project costs are likely

to exceed the base estimate due to
known-unknowns
Contingency is not;
0.1
Confidence
- a risk-based estimate of unforeseeable

factors in defined scope.
0.08
0.06
0.04
- an allowances for escalation, unforeseen,

revised or additional work scopes
(unknown-unknowns)
0.02
13.2
13.5
13.7
14.0
14.2
14.4
14.7
14.9
15.2
15.4
15.7
15.9
16.2
16.4
16.7
16.9
17.2
17.4
17.6
17.9
18.1
- a "cushion" or a "safety net." Expect to

spend it during execution.

PwC
80%
Confidence
Estimated Cost $M
Draft
4 May 2015
26
4 Reducing Risk
Comprehensive Cost to Complete Modeling

PwC
Draft
4 May 2015
27
4 Reducing Risk
Cost variance monitoring

Earned Value and Quantitative Risk
Assessment tools provide insight into
project performance, trending and cost
growth to enable:
Confirmation of base estimate and targets
The ability to develop effective mitigation
measures to minimize impact or avoid
risks
Prioritization of mitigation actions would
most efficiently benefit the project
Allow cost overruns and deviations to be
quickly identified and investigated
Allows drilling down into cost variances by
Work Breakdown Structure (WBS) detail
Focus on top risks driving the project.
Focus on disciplines, areas of project
driving cost deviations.

PwC
Draft
4 May 2015
28
4 Reducing Risk
Schedule Analytics Beyond Critical Path

Constraint analysisidentify areas of
potential schedule manipulation and
constraints
Changing logic, open ends and logic
integrity over time preferential logic,
excessive leads and lags
Criticality over timeFloat is a relative,
quantifiable value which can and should be
treated as a resource.
Float degradation float reduction over
time, sub-critical path monitoring, pacing
and concurrent delays
Activity duration analysis - original and

actual durations over time and excessive
activity durations.
100
90
Number of Activities Scheduled to Complete
Float density analysisprovides insight

into areas of the schedule that are
compressing at risk of delay
80
70
60
50
40
30
20
10
0
11/23/2010
12/20/2010
1/24/2011
2/21/2011
3/21/2011
4/25/2011
5/23/2011
7/25/2011
Activity level variance planned vs asbuilt start/finish date tracking

PwC
Draft
4 May 2015
29
5 Case Studies and Sector Experience
Case Studies
and Sector
Experience

PwC
Increasing the likelihood of success for a

capital project
- Lessons Learned from Mistakes of
Others
Draft
4 May 2015
30
Recent PwC CP&I Mining Experience

Client
Project Location
Project Attributes
Project Cost
Type of Engagement
Global
Mining
Company
Peru
Our client acquired the greenfield mining Project

from another mining company including the
construction of all of the facilities required to
process copper ore from mineralization through to
a new sulfide flotation concentrator at a rate of
140,000 tonnes of ore per day. As well as all
associated processing, transportation, and
infrastructure supporting facilities.
The project includes the construction of a newbuild community, to resettle displaced area
residents
+$7.0 B USD
Cost Review focused on the

increased EAC during and
following the due diligence
period
North
American
Mining
Company
Republic of Panama
Largest base metal reserve open pit, greenfield

mine with main earthworks, port, process and
power plants, coastal road, pipeline, balance of
plant and tailings management facility
$6.2 B USD
Project Excellence Baseline

Governance and Controls
Review
Developed IA plan for
quarterly deep dive reviews
Global Gold
Mining
Company
Islamic Republic of
Mauritania (West
Africa)
New processing facility with primary crushing,

grinding, gravity separation, 38,000 t/d Carbon In
Leach (CIL) capacity, CIL circuit, thickening and
cyanide destruction, and reagents mixing, storage
and distribution.
Upgrade and expansion to existing facilities,
infrastructure and utilities.
$1.77 B USD
Project Excellence
Review for Internal Audit
and Executive Steering
Committee

PwC
Draft
4 May 2015
31
Recent PwC CP&I Mining Experience

Client
Project Location
Project Attributes
Project Cost
Type of Engagement
North
American
Mining
Company
Canada
Brownfield mine expansion from 7.1Mtpa to

14.3Mtpa including pre-stripping new pits, mine
development and mobile equipment, concentrator,
infrastructure, environmental upgrades, tailings
management, port and rail.
Due to iron ore pricing volatility project was
delayed. PwC helped with the restart efforts.
$1.14 B CAN
Restart assessment of work

completed, contract closure ,
and governance and controls
assessment. Contract
strategy support.
Conducted a quantitative
risk assessment of the restart
estimate.
Developed risk management
process and procedures.
Global
Financial
Organization
Quebec
Greenfield project including road, airfield, open pit

mine and processing equipment
$900M CAD
Project Excellence
Review
Global
Mining
Company
Canada
Hematite direct ore project that consists of mining,

crushing, washing, screening and shipping the
sinter fines and pellet fines to our clients Steel's
European steel making facilities.
$453 M CAD
Project governance, budget,

forecast, schedule and risk
review, as well as an internal
controls review.
Global
Mining
Company
Chile
Design and construction of a leach pad, solution

extraction (SX) and electrowinning (EW) facilities
with a capacity to produce 40,000 tonnes annually
of high quality copper cathode from the oxide ore
$450 M USD
Readiness Assessment,
Business Case review and
contracting strategy /
procurement review.
North
American
Mining
Company
United States
Project is an open pit gold mine that delivers sulfide

ore to a 7,000 tpd (short tons per day) grinding,
flotation, cyanide leach, carbon handling and
refining facility.
$329 M USD
Project Excellence Readiness

Assessment

PwC
Draft
4 May 2015
32
PwC CP&I - Who we are and what we do

PwC
Draft
4 May 2015
33
PwCs mining practice

- PwC is the worlds leading adviser to the mining industry,
serving more of the worlds top global mining companies than
any other professional firm.
PwC Mining CoEs

specialised Mining teams
- More than 80 percent of the worlds mining companies are our

clients.
- Our strength serving the global mining industry comes from the
skills, experience and strong interconnectivity we maintain
among our 1,700 mining professionals globally.
- Mining companies in the various regions can benefit from our
Mining Centers of Excellence (CoEs) and the specialised
work of our teams in all significant mining territories.
- Operational, Financial and Technology

specialists work with our clients to achieve their
unique goals, with a strong focus on change
management, sustainable savings and knowledge
transfer.
- To keep miners abreast of industry issues and
opportunities, our mining professionals share
perspectives on emerging trends, best practices,
methodologies and approaches in our mining
thought leadership series and publications.
PwC
Draft
4 May 2015
34
PwCs Capital Projects & Infrastructure (CP&I) practice

PwCs CP&I practice is represented by over 700 practitioners worldwide encompassing civil, environmental, mechanical
and chemical engineers as well as project management, construction, accounting, litigation and IT professionals. This
network of professionals allows us to provide our clients with:
Energy, mining, and power and utilities industry focus;
Experienced group of portfolio, program and project controls specialists;
Large scale capital project execution and forensic analysis expertise; and
Diverse perspective from our international client base across industries and sectors.
PwC CP&I team serves the full asset life cycle from strategy through execution.
Exploration

PwC
Planning and
Design
Execution
and Testing
Maintenance
& Operations
Draft
Closure/
Rehab
4 May 2015
35
Thank you...
pwc.com/cpi
2015 PricewaterhouseCoopers Consultores, Auditores y Compaa Limitada. Todos los

derechos reservados. Prohibida su reproduccin total o parcial. PwC se refiere a la red de
firmas miembros de PricewaterhouseCoopers International Limited, cada una de las cuales es
una entidad legal separada e independiente.

001 PWC Capital Investment Mining Bisaga-Millan

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

001 PWC Capital Investment Mining Bisaga-Millan

Uploaded by

Copyright:

Available Formats

Advisory

PwC Mining Conference

6 PwC CP&I - Who we are and what we do

PwC Mining Conference

Germn is a Partner of PricewaterhouseCoopers and

Brett Ryan Bisaga

PwC Mining Conference

Trends in the market

PwC Mining Conference

1 Trends in the market

PwC Mining Conference

Trends in the market

1 Trends in the market

PwC Mining Conference

Trends in the market

1 Trends in the market

PwC Mining Conference

Trends in the market

PwC Mining Conference

2 Increased selectivity for capital projects

PwC Mining Conference

Increased selectivity for

PwC Mining Conference

2 Increased selectivity for capital projects

PwC Mining Conference

Stage gate approval process

How well is the stage gate process understood, deployed,

2 Increased selectivity for capital projects

PwC Mining Conference

Portfolio Management Identifying Options

2 Increased selectivity for capital projects

PwC Mining Conference

More defined scope and quantified risk at FID

Front End Loading

2 Increased selectivity for capital projects

PwC Mining Conference

Three lines of defense within the delivery model

PwC Mining Conference

PwC Mining Conference

PwC Mining Conference

Organizational delivery capability

Integrate capital project planning and execution with corporate functions

Annual Planning & Budgeting Norms

Fully understand the internal capabilities before selecting any contracting

PwC Mining Conference

Contracting strategy discussion overview

Project Delivery Strategies

Risk allocation should consider:

Which party is best capable of mitigating risks?

Is the owner willing to transfer authority to

What controls are necessary to monitor risks

Construction Manager Agency

Contract Pricing Strategies

Consider both project delivery and contract pricing strategies

PwC Mining Conference

Our view of the drivers that impact a projects risk

Design maturity, cost v.

PwC Mining Conference

Evaluating strategy options

Define strategies & drivers

Define project requirements

Analyze inputs &

Identify gaps in strategy and