Mining and metals report: Opportunities to improve capital productivity
The productivity of invested capital is a key issue for CEOs across the global mining sector. This focus reflects the significance and challenge of achieving predictable return on investment when delivering complex multibillion dollar asset developments.
New data captured through a recent global study by Ernst & Young has revealed that overruns to the sanctioned budget and schedule commitments are the norm with our global megaproject sample group, showing an average budget overrun of a staggering 62 percent.
With projects of this scale, every overrun impacts:
• Total shareholder return
• Capital productivity
• Corporate performance
• Strategic outcomes
Overrun risks are driving an unprecedented level of scrutiny on the project, program and portfolio disciplines of cost and schedule control.
Based on their study results, EY has developed a root cause model to analyze the drivers of overruns and capital productivity impacts. Some of the findings are surprising.
• Related content: [INFOGRAPHIC] Mining CEOs: Who Makes What?
Overruns occur despite large investments by mining and metals companies to enhance up-front engineering practices and increase delivery maturity.
EY believe that there are overlooked opportunities to significantly enhance delivery control and have identified three critical enablers for preventing cost and schedule overruns that are often de-prioritized and underinvested:
• Flagging of emerging risks
Implementing governance, and reporting frameworks with lead indicators that reliably flag emerging risks while they can still be efficiently mitigated
• Adequate cost and time contingency
Allocating cost and time contingency across the projects’ life cycle to avoid risk-driven budget and schedule variances
• Scenario planning
Enhancing the value of contingency planning through enhanced delivery scenario planning
Complemented by a broad uplift in delivery-discipline maturity, these enablers have real potential to significantly improve capital productivity realization.
In this paper, EY will:
• Explore the surprising findings of their study
• Propose a root cause model
• Examine key considerations in applying these critical enabling techniques
Download the full report on the EY website: Opportunities to enhance capital productivity - mining and metals megaprojects
Lynas revenue jumps 21% as rare earth prices jump
Australian miner Lynas Rare Earths posted a 20.6% rise in revenue in the March quarter as selling prices for the key metals it mines hit record highs amid strong demand, particularly for neodymium and praseodymium (NdPr).
NdPr is used in magnets for electric vehicles and windfarms, in consumer goods like smartphones, and in military equipment such as jet engines and missile guidance systems.
The company said it plans to maintain production at 75% however, as it seeks to continue to meet covid-19 safety protocols and grapples with shipping difficulties. Shares in Lynas fell 6.1% after the results.
“They have faced a few logistics issues, and it would be good to know when they are going to start lifting their utilisation rates a bit,” said portfolio manager Andy Forster of Argo Investments in Sydney.
“Pricing has been pretty strong although it may have peeled back a bit recently. I still think the medium, long-term outlook is pretty good for their suite of products.”
Lynas post ed revenue of A$110mn ($85.37mn) for the three months to the end of March, up from A$91.2mn a year earlier as prices soared.
It said its full product range garnered average selling prices of A$35.5/kg during the March quarter, up from $23.7 in the first half of the financial year. “While the persistence of the covid crisis, especially in Europe, calls for careful forecasts for our business ahead, we see the rare earth market recovering very quickly,” said Lynas, the world’s largest rare earths producer outside China.
Freight demand has spiked during the pandemic, while the blockage of the Suez Canal in March delayed a shipment to April.
Lynas’ output of 4,463 tonnes of rare earth oxide (REO) during the quarter was marginally lower than 4,465 tonnes from a year earlier.