Time was of the essence for a senior miner with a remote operation. After developing over 60 scenario alternatives for extending operations, the most attractive option failed to meet the investment threshold, requiring at least a 35% increase in IRR. With 4 years of initial mine life remaining, the future of the operation was in question despite a significant investment to date, a capable workforce and known developable resources. Factors contributing to this challenge included:
- Significant doubt as to whether the development economics could be further improved; comparatively less attractive resource deposits and consistently increasing support costs seemed to confirm this.
- Lack of a mechanism to resolve the competing priorities of the various functional groups.
- Difficulty making comparisons between such a cripplingly large number of scenario alternatives.
Overcoming all doubt that the development economics could be improved significantly
Stroud was engaged in a value improvement exercise alongside the project team. Employing a Zero-Based approach to systematically define the theoretical best development scenario, this team increased the project’s IRR by 83% beyond the previous best case. This secured advancement to the next phase of development, increasing the certainty of the miner’s future in the region. In the process, the team:
- Achieved alignment to a clear, quantifiable definition of project value, allowing them to immediately reduce the number of scenario alternatives under consideration and resolve competing functional imperatives.
- Systematically challenged all decisions and assumptions within the project case to uncover hidden opportunity. Identified enough to almost quadruple the IRR of the previous best case, including in capital avoidance (81% points of additional IRR) and mine planning (89% points).
- Highlighted significant opportunities within the existing cost structure (137% points) that would otherwise be carried over into the future operation. These opportunities were actioned to the existing mine to generate additional cash-flow immediately.
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