making the difference

Owner's Team Challenges for the next mining investment cycleJulio Iturriaga

November 2018

Turner & Townsend

Who we are

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Turner & Townsend is an independent professional services company

specializing in program management, project management, cost and

commercial management and consulting across the real estate,

infrastructure and natural resources sectors.

With 108 offices in 45 countries, we draw on our extensive global and

industry experience to manage risk while maximizing value and

performance during the construction and operation of our clients’ assets.

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making the difference

Lessons from previous cycle

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Context: overruns and delays on previous cycle

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An exception: Cerro Verde in Perú

The US$4.5 billion expansion finished on Budget and on schedule

“You win and lose projects with front-endengineering and planning” Richard Adkersonsaid in Mining for Value

At the end of 2014:

140 large mining projects in the world

Investment of: US$334 billions

Project in general average 40% overrun

Megaproject average +60% above budget

Overrun

69%Delays

50%

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Examples – Copper in Chile

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Caserones:

Challenging physical and geological conditions

Cost estimate from US$ 2 billion (2010) to US$4.2 billion (2014)

By 2017 still had not metdesign capacity

Antucoya:

Project was suspended to control escalating costs

Commissioning and ramp up issues

Came online a year behind schedule

Pascua-Lama:

Initial Capex ~US$1 billion

Investment to date: US$5.5 billion

Has produced an ounceyet

Sierra Gorda:

Struggled with commissioning and overruns

Molybdenum low prices

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Key Lessons from previous cycle

Governance

Boards and executive committees require knowledge of project execution

Maintain capital discipline and risk management in the approval of projects (toll-gate processes)

Owner’s team

Strong owner team with proper project controls governance, systems

Avoid over-optimistic cost estimations (capex and opex) – challenge the project

Project

Plan thoroughly from the beginning for a solid budget and schedule (don’t move to aggressive mode to take advantage / avoid a given cycle)

Don’t rush design phases

Market

Be aware of intense rivalry for project development capabilities, equipment, supplies and inputs

Be aware of the requirements of your execution commercial model - EPCM vs EPC vs self performed, other

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Owner's Team Challenges for new mining investment cycle

Colombia Gold Symposium

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Improvement Delivery of Mining Investments

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Project Lifecycle

1

Project Objectives

Business Case

Functional Requirements

Risk Profile

Owner’s

Team

2

Project

Results

3

Mining/

Asset

Operation

Deliver

Results

Economic/ Environmental/ Social

Owner’s Team is “instrumental”

Custodian of Business Case and Project Requirements

Manage and Integrate Interfaces/ Stakeholders

Accountable for Project Results

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Tensions shaping the Owner’s Team

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Project

Owner’sOrg

Market

Owner´sTeam

SelectionStrategyBusiness NeedsRisk ProfilePortfolio/ Programme MgmtPMO

DeliveryProject resultsAchieving Objectives/Requirements

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Owner’s Organization and Project Definitions

Governance

Portfolio/ Programme management

Selection of components/ Risk management

Organization maturity for project development

Project type

Greenfield vs Brownfield

Underground vs Open Pit

SIB – Stay In Business

Site location/ conditions

Altitude/ Extreme weather

Communities

Complexity

Size

Interfaces

CIFTER

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Project

Owner’sOrg

Market

Owner´sTeam

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Owner's Team Challenges

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Owner’s Team Key Roles and Functions

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ProjectObjectives

Procurement/ Contract Services

ProjectManagement

Project Controls

Design/ Engineering

Construction/ Commissioning

Project Services Purchase/ Logistics Expediting Contract administration Dispute mgmt

Engineering Design Mgmt Eng Disciplines Document Control

Construction Manager/Area – Discipline Coordination Constructability Construction supervision Construction logistics Commissioning Handover

Project Control Manager/Project Service Manager/Commercial Manager RISK CONTROL Change Mgmt Cost Control Planning Estimating Reporting ASSURANCE Quality Processes and procedures

Project Director/ Project Manager/ (Macro) Area Manager (s) INTEGRATION Stakeholders Mgmt Requirements Mgmt Interface Mgmt

Project

Owner’sOrg

Market

Owner´sTeam

SupportGeosciences/

Operations

“License to operate” Legal/ Environmental/ Permitting Safety Communities Human Resources Labour Relations/ Site security

Mining Development/ Operations Geology Mining Metallurgical & Processing Geotechnical Operational Readiness

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EPC – Owner’s Capabilities for Success

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EPCM – Owner’s Capabilities for Success

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In Source

Managing Capabilities

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Self Deliver

Augmented

Managed Services – Certain Functions

Managed Services Function

Managed Services –Portfolio

Managing Inputs Managing the Outputs (Performance)

Build capability Buy Capability

Owner’s Performance Outsourced Performance Accountability Accountability

Out Source

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Market – Professionals

High demand on key project roles

Gender gap

Generations (Gen X vs Millenials)

Construction

Work force productivity

Skills shortage (workforce age profile UK 2017 Q4)

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Project

Owner’sOrg

Market

Owner´sTeam

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What’scoming next?

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Market heating up in South America

Commodity price cycles are a constant challenge for mining (since 2015):

■ Gold: 11%; Copper: 20%; Silver: -1%

There are several million dollar investments planned for the next 7 years in the region

■ 36 projects in the region announced on PFS, FS, social evaluation, under construction

Mega projects in the region (over US$1 billion):

■ Chile: 6 projects for a total of US$22.5 billion

■ Peru: 6 projects for a total of US$10,5 billion

■ Colombia: 1 Project

■ Argentina: 1 Project US$3 billion

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Forecast of mining investment2018-2024 - Chile

Forecast of mining investment2018-2022 - Peru

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Is your team prepared?

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Is your organization ready?

Have you reviewed and updated your governance to align with the different projects?

Is your risk profile adequate to your organization maturity for project development?

Do you have an owner’s team with the correct structure, roles and skills?

Is your project ready?

Do you have the proper capabilities in place?

Do you have the right tools and systems?

Do you know the magic number for your project’s owner team?

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■ Bullet

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Maybe not?

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References and sources

Five factors influencing the size of mine management teams

In response to current industry challenges, mining companies are looking at alternative delivery models to drive down costs and manage their risks.

http://www.turnerandtownsend.com/en/insights/five-factors-influencing-the-size-of-mine-management-teams/

Smartprojects: Risk and Innovation – International Conference

https://www.alessandri.legal/PC2018/

Mining for value (Cesco book)

https://www.spencerstuart.com/-/media/2018/october/miningforvalue_web.pdf

Inversión en la minería chilena - Cartera de proyectos 2018 -2027 (Cochilco)

Ministerio de Minería y Energía de Perú WWW.bnamericas.com

EPCM Guide 2015 - 2016

Building on a very successful and compelling webinar discussion on how the EPCM mining space is evolving, we are pleased to present the EPCM mining guide 2015-2016, which shares insight into, and best practice on how the EPCM contract is evolving. -2015-2016/

International construction market survey 2018

The 2018 international construction market survey brings together data and experience from 46 markets around the world, to provide an insight into the current state and direction of travel of the global construction industry. This year it also brings optimism.

http://www.turnerandtownsend.com/en/insights/international-construction-market-survey-2018/

Contracting in Latin America: a quick guide for foreign companies dealing with construction contracts

http://www.turnerandtownsend.com/en/insights/contracting-in-latin-america-quick-guide-for-foreign-companies-dealing-with-construction-contracts/

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Turner & Townsend LimitadaAv. Apoquindo 2827Oficina 202BLas CondesSantiago de Chile7550268

t: +(56) 2 32454100e: Julio.Iturriaga@turntown.comwww.turnerandtownsend.com

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