With favourable movements in most commodity prices against a backdrop of uncertainty from COVID-19, the minimum viable project model is appealing for small and large miners alike, according to Alan Langridge, Technology and Expert Solutions Regional Director, APAC at Worley.
“Large-scale complex ventures can take many years to develop, even longer to achieve payback and usually involve significant upfront capital expenditure,” he said.
“While these projects provide big capital returns, the patience needed to get to that point translates into higher risk, especially when orebodies are complex or difficult to assess from the surface. Some orebodies are big enough to warrant a project seeking to maximise net present value, but they often come with significant development challenges.”
This is why the industry needs an option between developing a mega project with all the associated risk and leaving the product in the ground, according to Langridge.
“There is growing recognition that a staged approach can facilitate earlier cash flow from operations, reduce risk and still achieve good financial returns based on a lower cost of entry,” he said. “A mine that is initially developed with the minimum viable features can be a big success, but it needs different thinking.”
By thinking small and minimising a starter project, companies can reduce initial costs, de-risk the project and still enable a pathway to build a bigger mine in the future, explains Langridge.
“Miners are no longer racing to get the highest overall return, or the absolute maximum net present value, or at least not right away,” he said. “They’re looking for an outcome that is acceptable from a corporate, social, financial and operational perspective, one that is sustainable and presents a lower development risk at the outset. This is particularly valid for orebodies that are large and deep because they often require high capital expenditure before the orebody is completely understood.”
Langridge says that when the amount of upfront capital costs on a project can be minimised, it is possible to get a mine up and running sooner and more economically. With less initial sunk capital, market fluctuations and uncertainties that exist in mining projects can also be better managed, he argues.
Establishing the minimum viable point for a project is an art form in itself, he says.
“We need to consider the limitations of each input; from energy supply to orebody knowledge, mining plans, off-take requirements, procurement and logistics through to construction, commissioning operations and closure,” he says.
“We also investigate alternative development approaches, such as shared infrastructure, different commercial strategies and partnering with other companies and operations. It’s worth considering every option to bring the investment down at the outset.”
Once the pieces of a minimum viable project fit together, the second driver is to determine the minimum size of the project while still being economically viable, he says.
“Finding the minimum viable capital cost is a two-fold approach,” explains Langridge. “We first establish the minimum from a technical perspective, and then the minimum from a financial perspective. As you go further down in scale, you naturally compromise economies of scale. Eventually you’ll reach a point where a project simply isn’t feasible. It’s a trade-off between how small things can be depending on project components.
“This becomes a model where small-scale operations pay for most of the costs that were initially delayed, although a margin is needed because there are upfront capital costs. There is a trade-off on how much is spent versus how much is owned, and how small the project can be while still being operable.”
Langridge says minimum viable projects afford the flexibility to get a mine up and running and to learn lessons from the first stage before committing to anything larger. However, when conditions warrant an increase in production, and the initial mine and plant have been designed well, then it is possible to scale it.
“Should market forecasts remain positive, then other parts of the project can expand in whatever manner makes sense,” Langridge says. “With the groundwork already in place, we can base this on actual market needs and financial and operational drivers, and not a set of assumed financial and operational drivers in the future.
“Getting proven technology into the base design allows our customers to identify where they want to carry heightened risk, or alternatively, to get the project entry point up and running and then evolve and innovate.”
It also delays some of the decisions around investment in technologies to a point where hopefully the price is 20% or 30% cheaper because of advancements in manufacturing, he says. “And, if what is implemented is a value enhancement, then it will create a return immediately because it’s on an operating site – it’s not just a theoretical evaluation,” he added.
Langridge says a smaller investment to get a minimum viable project started provides the flexibility to respond to the next movements in markets. “With this approach, we’re helping our customers realise solutions that facilitate cash flow sooner, minimise entry capital cost and allow a project to pay its own way,” he says. “It’s basically taking the mindset of a junior and select mid-tier mining company and applying this to a much larger project.
“Minimum viable projects are an easier investment decision at a time like this, and they’re proof that thinking small is a good way to get big projects right.”