Sunday, 3 March 2013

Mine Construction - On Time & Under Budget

Recent failures to successfully deliver projects, by a number of miners from senior to junior, have centred on project management. Failures of control and management by managers, directors and owners on the ground.

Silvercrest will present at PDAC on how they feel they have done it right. 
It probably helps that they had a smaller project and could grip the detail.

The small contingent of stocks succeeding in this market are the growth producers who can deliver controlled, profitable growth moving good teams from one project to the next. Look for good levels of insider and management ownership to align interests.

Silvercrest's Summary........

Linked HERE

My emphasis

SilverCrest Santa Elena mine construction: How to be “On time and under 
N. Eric Fier, CPG, P.Eng, COO for SilverCrest Mines Inc., Vancouver, Canada 
We live in a mining world of out-of-control schedule slippage and cost overruns. 
Numerous recent examples litter the financial streets leaving potential investors 
wondering what is going on! 
In 2010, SilverCrest began construction of the Santa Elena Mine (open pit heap leach), 
located in Sonora, Mexico. The proposed cost and schedule were publicly disclosed at 
an estimated capital cost of US$20 million over a period of approximately 12 months. 
Commercial production (>90% of design) was announced in July of 2011 at a capital 
cost of approximately US$19 million. The mine was operational and SilverCrest 
declared that construction was completed “On Time and Under Budget.” 
Several factors contributed to being “On Time and Under Budget” including but not 
limited to: 
1. Continuous on site supervision by SilverCrest executive level with systematic 
planned reviews of schedule and budget. 
2. A rigorous cost control program was set up early on at Santa Elena to provide 
executive management with early warning “red flags” on slippage and cost 
overruns requiring immediate action. 
3. Executive level supervision at Santa Elena allowed for rapid and creative 
decision-making which could be implemented without significant delay. Decisions 
delays by executive management can cost millions in overruns. 
4. Choosing the right construction manager for the specific site proved to be 
invaluable for Santa Elena. 
5. “Accurate and practical” engineering upfront paid off; pay now or pay later. 
6. Under promise and over perform in the marketplace. Be conservatively optimistic 
on your disclosed schedule and budget; don’t over promote. 
7. Anticipate realistic changes in material costs over the construction period; the 
longer the period the higher the risk. 
8. Don’t underestimate the cost of location, access, topography and local logistics. 
9. Estimate local labour costs equal to North American labour costs for most places 
in the world. At Santa Elena it takes more people to construct and run the mine 
than the same production level in Canada. 
10. Don’t rely solely on schedules and costs from your PFS or FS independent 
consultants. Do your own “realistic” numbers found from experience and industry. 
Initial CAPEX discussions for Santa Elena was around $30 million plus plus. 
11. The higher the estimated CAPEX is, the higher the risk of overruns. 10% overrun 
on a billion dollar project is “visually” a lot worse than 10% on a $20 million 
12. Significant ownership as a shareholder managing construction for the company 
keeps you focused on achieving commitments “On time and Under Budget. 
Several other items can be included. The most significant factor in the success or failure 
of a mine construction project is having experienced executive management directly 
involved, providing quick and accurate decision-making

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