| Capital Optimisation for a global coal producer |
Context:
A global coal producer had a Greenfield coal project and a Brownfield expansion of a nearby coal mine completing the feasibility stage. The recent substantial drop in coal prices meant the $3.7b capital cost coming out of the feasibility phase was no longer acceptable. The client asked PIP to assist them to improve the NPV of the project using PIP’s ROCX methodology which they had seen results of in other divisions of the mining house. An understanding of throughput, product blending and investment drivers would be fundamental to the study.
The engagement followed our proven methodology and was undertaken in two phases.
Phase One – Idea Generation and Prioritisation
(completed in 2 weeks with 3 people from PIP plus client project team)
Phase One Results
- Identified 120 ideas with an initial value of $1.2 billion through multiple Idea Generation Sessions
- Prioritised all ideas using a value: ease matrix
- Set up documentation and tracking of all the ideas
- Assigned idea owners to all the identified ideas
- Assigned target decision dates in Phase Two for each category 1, 2 and 3 ideas
What we did:
- Determined what is in and out of bounds for review
- Developed value driver trees to identify the key assumptions driving a number of capital intensive areas such as heavy mobile equipment and accommodation
- Facilitated 10 Idea Generation Sessions “deep dives” with selected EPCM and client team members in the first 2 weeks
- Developed an OPEX value driver tree to assess the impact of CAPEX reduction ideas on OPEX to get a genuine NPV improvement
- Prioritised all the identified ideas using Value: Ease matrix, where all of the ideas were assigned into one of four categories and presented to the Decision Group at the end of week 2
The Decision Group agreed to proceed to Phase Two and that each category would be resourced and processed differently to ensure the team delivered the most value to the overall project:
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High Value/Easy Ideas: became the improvement team priority and
were well resourced
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High Value/Hard Ideas: raised with Decision Group and decisions made around which ones could proceed, be studied further, should be passed to other areas of the business or eliminated
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Low Value/Easy Ideas: smaller than $20m were selectively resourced during Phase Two for Decision Group review where cross mine or group-wide issues were involved. Other Ideas that did not need Decision Group approval (e.g. simple engineering changes) were to be assessed and decisions made by the Project Team with summary results presented to the Decision Group
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Low Value/Hard Ideas: have been documented and passed on to the client and EPCM team as they might become easier at a later stage in the project.
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Phase Two - Idea Evaluation and Selection
(completed in 5 weeks with 1.75 people from PIP plus client project team)
Phase Two Results
- Over $900M of increased value for the project
- Ideas worth over $700M were accepted and banked as capital estimate reductions by the Decision Group
- $125M of ideas were agreed subject to confirmation of the results of Risk Assessments and agreement with key stakeholders
- $200M of ideas were passed into the next stage of the project development process for detailed evaluation with an agreed target to capture at least 50% of the value.
What we did:
- Completed the engineering and economic evaluation of all high value ideas with idea Owners and EPCM resources
- Syndicated recommendations to key stakeholders not on the Decision Group where appropriate
- Presented recommendations to the Decision Group at 4 weekly meetings
- Documented and signed off every Idea Form in each category as a record of each idea
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