Winning. Through Better Perspective.

Sharpening Mining Business Acumen

Sharpening mining business acumen

Managing Mining
Project

1 Winning. In challenging markets and beyond. © 2011 Deloitte Touche Tohmatsu India Pvt. Ltd.
Major Thermal Coal Importing countries

Indonesia Australia South Africa

2 Winning. In challenging markets and beyond. © 2011 Deloitte Touche Tohmatsu India Pvt. Ltd.
Managing Integration

© 2011 Deloitte Touche Tohmatsu India Pvt. Limited

Managing Integration

• The project integration management includes

processes that are required to ensure that all the
project's components are coordinated.

• This includes the project plan development

processes (scope, time, cost, quality, risk etc.),
project plan execution processes, and integrated
change control processes.

• Integration, in the context of managing a project, is

making choices about where to concentrate
resources and effort on any given day, anticipating
potential issues and dealing with these issues
before they become critical.

• The integration effort also involves making trade-offs among competing objectives and alternatives.

• The project management processes are usually presented as discrete components with well-defined
interfaces while, in practice, they overlap and interact in ways that cannot be completely detailed in any
guide.

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Managing Scope

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Managing Scope
The Project Scope Triangle
• Project scope delineates the parameters of what needs to
be accomplished to deliver a product and/or service with
the constraints of quality, time and costs.

• In drafting a project scope document, rigorous

prioritization and cost/benefit analyses are applied to
each functional requirement to identify project
components.

• However, because scope changes as projects are

implemented, scope change control is an essential
component of any successful project delivery.

• By managing actual changes when they occur, scope management ensures that changes are
integrated with other control processes and support the timely delivery of deliverables
identified in a project scope.

The size of the project dynamically changes when any one of the three dimensions of cost, quality and time is
changed. The Project scope is the set of constraints to contain this size.

6 © 2011 Deloitte Touche Tohmatsu India Pvt. Limited

Managing Time and
Schedule

© 2011 Deloitte Touche Tohmatsu India Pvt. Limited

Managing Time and Schedule

• Managing project time and schedule essentially involves estimating duration for each activity
based on the quantity of resources expected to be used on the activity.

• Once the updated schedule and budget have been calculated, they are compared with the
baseline schedule and budget and necessary control measures are undertaken.

• Schedule control includes four steps:

 Analyzing the schedule to determine which areas need corrective action.

 Deciding what specific corrective actions should be taken.
 Revising the plan to incorporate the chosen corrective actions.
 Recalculating the schedule to evaluate the efforts of the planned corrective actions.

• Typical tools for project scheduling include Work Breakdown Structure (WBS) and Gantt Chart as
explained in the subsequent slides.

8 © 2011 Deloitte Touche Tohmatsu India Pvt. Limited

Work Breakdown Structure
• Creating a schedule starts with breaking a process down logically into specific tasks, otherwise
known as the work breakdown structure (WBS). The WBS can best be visualized as a tree
structure, similar to an organizational chart.
• The Gantt chart (next slide) simply takes these tasks and organizes them on a time line.

9 © 2011 Deloitte Touche Tohmatsu India Pvt. Limited

Gantt Chart

• Gantt Chart is employed commonly for project scheduling activities.

• It focuses on breaking a process down into discrete tasks, defining a method for doing each task,
tracking the cost and time to do the task, and then refining the method until the optimum
cost/time ratio is achieved for each one.

10 © 2011 Deloitte Touche Tohmatsu India Pvt. Limited

Managing Costs

© 2011 Deloitte Touche Tohmatsu India Pvt. Limited

Managing Costs
• Costing is the processing of expenditures to calculate their cost to each project. A typical and an
ideal cost management profile is given as follows:

• As costs increase, performance gets

impaired. When cost reduction is
periodically initiated, it often results in a
temporary cull of capabilities, directly
impacting on future ability to deliver
performance.

• Where cost reductions are achieved,

performance often recovers temporarily,
only for focus on proactive cost
management to be lost, and for costs to
begin to rise again.

• Without specific cost management

action, this cycle can continue
indefinitely.

12 © 2011 Deloitte Touche Tohmatsu India Pvt. Limited

Managing Quality

© 2011 Deloitte Touche Tohmatsu India Pvt. Limited

Quality Management
• Quality Management is a policy and also a function that promotes excellence through the
application of established procedures, standards, and tools throughout the Project’s life cycle.
• A typical Quality Management Framework is as follows:

14 © 2011 Deloitte Touche Tohmatsu India Pvt. Limited

Quality Pyramid
• In order to inculcate quality as a way of life in every aspect of the project management, the
quality pyramid can guide Project Teams and Managers to continuous process improvement.

Quality
Policy

Quality Manual

Procedures

Procedures

Forms, Templates & Checklist

• Components of a quality pyramid

‒ Quality Policy states the overall intentions and direction of an organization with regard to quality
as formally expressed by leadership.
‒ Quality Manual is where the organizations quality vision and mission statement is documented.
‒ Procedures are the steps and guidelines defined by the quality organization.
‒ Forms Templates & Checklist are tools used for consistency across the organization.

15 © 2011 Deloitte Touche Tohmatsu India Pvt. Limited

Managing Human
Resources

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Project Management Aspects

• During the planning stage, ensure that time and resources are kept
aside for safety aspects. There should be no compromise on this front
• Contractors too should include a similar budget in their estimates
• Resource & time allocation to be made in customized software like
Microsoft Project or Primavera
• Dedicated team to be formed at head-office and local offices/mines for
allocation of human resources. Tracking must be done using
professional software
• Weekly reports of time spent by resources, under-utilization, over-
utilization must be generated and submitted to head office

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 Managing
Communications

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Communications policies – the need and the purpose

• Effective communication is a key for successful project execution and

harmonious running of the organization
• It is a very simple concept whose importance is acknowledged, but never fully
implemented in working
• Without effective communications in place, there is a chance of plans not being
followed, cost over-runs occurring
• In addition to the general theories of communication among employees, it is
essential to understand project communications
• Project communications is focused on the stakeholders in the project, is limited
in time and is focused on the end-product

19 © 2011 Deloitte Touche Tohmatsu India Pvt. Limited

Template for project communications
Archive records
•This is for future personnel
in the organization
File data using
standard filing
methods
•Project records must be
maintained according to
pre-defined specifications
20
Develop
Communication Plan
•Identifies internal and
external stakeholders
•Determine stakeholder
needs
•Identify communication
methods
Distribute Information
via the most effective
measures
•Makes information
available in a timely
manner
© 2011 Deloitte Touche Tohmatsu India Pvt. Limited
Managing Risks

© 2011 Deloitte Touche Tohmatsu India Pvt. Limited

Risk identification

• Mining operations are an economic activity with plenty of decision problems

involving risk and uncertainty
• Decision on allocation of capital in mining projects has always been complex –
the dynamic market and regulatory scenario have made it even more so
• The duration of mining capital projects also plays a major role
• The current drawbacks of risk identification are –
• The robustness to account for changing business risks is either missing or limited

• Many business cases are dated due to lengthy approval processes

• There is also a tendency to look at business cases through a very simplistic NPV perspective and
high/low/base-case scenarios

• Risk assessment is also treated as a qualitative assignment without focusing on quantification of the
key risk factors

22 © 2011 Deloitte Touche Tohmatsu India Pvt. Limited

Suggestion – A fresh probabilistic approach to risk planning

Key takeaways
Executives and project managers need not transform into financial risk
mathematicians; but need to change thinking from discrete and finite numbers (like
NPV) into uncertainties/likelihoods/expected returns

23 © 2011 Deloitte Touche Tohmatsu India Pvt. Limited

Managing Procurements
and Contracts

© 2011 Deloitte Touche Tohmatsu India Pvt. Limited

General Trends
• Procurement of goods and services form a major chunk of a mining company’s analysis
• Procurement strategy is influenced by market conditions,
• Project delivery method (by implication – service contracts) is influenced by
• project complexity,
• degree of scope clarity,
• owner and contractor capability,
• willingness to share risks and rewards etc
• This is summarized in the below figure

25 © 2011 Deloitte Touche Tohmatsu India Pvt. Limited

Issues faced

• High levels of disputes due to inappropriate risk allocation

• Project owners transfer ricks to contractors

• Contractors in turn pass it on to sub-contractors

• Thus, risk is passed on to parties who are not equipped to manage the level of risk and thus
jeopardize the project

• Selection of inappropriate contracting strategies

• Past experience is relied on to use X contracting strategy for Y type of project.

• No customization of project risks for specific projects

26 © 2011 Deloitte Touche Tohmatsu India Pvt. Limited

Selection of appropriate procurement strategy

• Develop sound understanding of project risks and opportunities

• The purpose of this assessment is to determine which party can best manage
the risks and realize potential opportunities. Options include
• Organization retains the risk

• Justifiably transferred to contractor

• Defined by a risk sharing agreement – the impact is shared

• Assess on a project by project basis the needs related to risk sharing and
contracting

27 © 2011 Deloitte Touche Tohmatsu India Pvt. Limited

 Workshop Case –
Strategies & Processes
for Selection of Mine
Developer & Operator
in India.
Strategic Context

1. Coal Block and Iron Ore Blocks are for Captive Mining – Coal and iron ore
to be consumed for the specified end use in their own plants.
2. Time frame for mine development and risks of delay in development
indicate likely synergies in MDO route for development and operations of
mines.
3. Mining being a highly regulated activity, development of captive mine will
have regulatory risks and raw materials security issues.
4. Coal and iron ore mining being highly specialized engineering activity, mine
development may necessitate organizational development.

29 Winning. In challenging markets and beyond. © 2011 Deloitte Touche Tohmatsu India Pvt. Ltd.
 Boundaries of the Strategic Decision

• The engagement will be to select a strategic partner for coal and iron ore
mining within the confines of legal permissibility, economic benefits, and
environmental and social responsibility.

Consistent with: Identify:

National Mineral Policy, 1993 Ownership structure

Mines and Minerals (Development & Capital requirements and sourcing
Regulation) Act, 1957 Technical and financial strengths
Mines Act, 1952 of prospects
Contract Labor Laws Evaluation criteria
Energy & Steel Policies Key risk factors for contract mining
Other statutes, including Risks and risk sharing mechanisms
environmental laws Contract terms and conditions

30 Winning. In challenging markets and beyond. © 2011 Deloitte Touche Tohmatsu India Pvt. Ltd.
Pertinent Questions for the Way Forward

• The financial strength of the • Market depth and the

Client and initial investment investor groups – their
required for geological investment motivation and
information procurement, ownership plans.
rehabilitation & resettlement
• The risk appetite of the
and other preparatory works.
MDOs – to bear political,
• The Organizational Capability regulatory, business, market
to handle new business unit. and investment risks .

31 Winning. In challenging markets and beyond. © 2011 Deloitte Touche Tohmatsu India Pvt. Ltd.
 Market Place – Contract mining companies in India

• Private participants in contract mining in India are fewer in number and smaller
in size. But there has been significant interest in contract mining by major
business houses.
• A large number of foreign participants are awaiting de-regulation. Indian
participants are keen in bidding through joint ventures and consortiums.

Indian Companies: International companies:

1. SCCL 1. Theiss
2. Essel Mining 2. Leighton Group
3. Sainik Mining 3. White Mining
4. Adani Group 4. Washington Group
5. Advanced Mining Technologies 5. Westfarmers
6. Bengal Emta
7. Essar Minerals
8. Reliance ADA Group

32 Winning. In challenging markets and beyond. © 2011 Deloitte Touche Tohmatsu India Pvt. Ltd.
Process of Selection of MDO

1. Assessment of requirement and capability

2. Assessment of environment and legal framework
3. Determination of indicative capital requirements
4. Expressions of Interest.
5. Request for Qualifications May be clubbed together.
6. Request for Proposals
7. Contracting and Partnership Agreements

33 Winning. In challenging markets and beyond. © 2011 Deloitte Touche Tohmatsu India Pvt. Ltd.
Issues sought to be addressed through the Processes

1. Mining and Technical issues

2. Regulatory and Legal issues
3. Accounting and Tax issues
4. Financial and Commercial Implementation issues
5. Electricity Regulatory issues
6. Environmental and Social issues
7. Contracting and Partnership Agreements

34 Winning. In challenging markets and beyond. © 2011 Deloitte Touche Tohmatsu India Pvt. Ltd.
Risks in Pre-mature Bidding Process

1. Risk of lack of interest from the prospective bidders – lower number of bids
may necessitate re-bidding.
2. Conditional bidding may lead to disputes and legal issues – conditions may
be reserve estimate, stripping ratio, coal/ore quality, geo-technical
parameters, etc.
3. The risk of error of judgement will have to be born in some measure by the
Client.
4. Contract negotiations may be difficult in absence of reliable data and
benchmarks.

35 Winning. In challenging markets and beyond. © 2011 Deloitte Touche Tohmatsu India Pvt. Ltd.
Prudent Approach to Bidding Process - Preparatory

Client’s Responsibility Deloitte’s Responsibility

• Borehole data analysis • Project requirements analysis

• Interim geological report • EOI pre-qualification
• Pre-feasibility report • Project Information Memorandum
• Topographical map • RFQ framework
• Cadastral maps • RFP framework
• Land use pattern • Contract design
• Hydrological study • Draft Contract Documentation
• Mine plan documentation
• EIA/EMP preparation

36 Winning. In challenging markets and beyond. © 2011 Deloitte Touche Tohmatsu India Pvt. Ltd.
Inputs to Contract Design

Risk Identification and Risk Price escalation mechanisms

Sharing

Contribution towards Accounting and Tax structures

Operational Expenses Contract Design and implications on contract
for MDO

Management, Supervision and Strategic Issues

Control Structures including valuations

Arbitration Mechanism

Winning. In challenging markets and beyond. © 2011 Deloitte Touche Tohmatsu India Pvt. Ltd.
Identification of Counterparty Risk

Post-contract Phase
• Owner – Mining lease revocation, financial losses and time delays
• Contractor – Investment losses, lower returns

Production Phase
• Owner – Financial losses due to operational failure of contractor
• Contractor – Financial losses due to payment default by the owner

Winning. In challenging markets and beyond. © 2011 Deloitte Touche Tohmatsu India Pvt. Ltd.
 Effective Contracts and Mine Performance

Improved mine performance and efficiency of coal production is achieved by:

• Reliable supply of coal to mine owner
• Financial security to mine contractor

The owner requires a reliable supply of coal

• Requirement to maintain time-lines during the commencement and commencement of
production date by providing for liquidated damages
• Requirement for mine operator to stay above the lower production limits by providing for
penalties in the event of short term and long term supply deficit
• Counter party equality and flexibility maintained through serve-or-provide basis

The contractor requires financial security during the project period

• Take or pay terms for the planned quantity of coal supply
• Irrevocable Letter of credit for guaranteeing against short term payment crises
• Requirement for owner to make timely payments during production by providing for option of
sale to CIL in case of default

Winning. In challenging markets and beyond. © 2011 Deloitte Touche Tohmatsu India Pvt. Ltd.
Contacts
Contacts

Dipesh Dipu
Director | Consulting | Mining
Main: +91 (0) 40 4031 2000
Direct: +91 (0) 98495 53404
Email : ddipu@deloitte.com

Deloitte Touche Tohmatsu India Pvt. Ltd.

1-8-384 & 385, 3rd Floor, Gowra Grand,
S.P. Road, Begumpet,
Hyderabad 500 003
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