Mining in Chile would cost overruns by $ 4,500 million by 2019
Mishandling of existing regulation, inadequate planning and tracked during project execution are some of the causes for the losses.
The rising costs facing many mining projects is a real problem for the sector. In July, Caserones from Lumina Copper, finished its building at 147% increase in cost. And of those cases, there are many.
Losses or overruns of more than $ 4,500 million in the implementation of mining projects in Chile in the next five years are anticipated.
Based on an investment of $ 42,000 million US estimated in the sector during the period between 2014 and 2018 by the Capital Goods Corporation (CBC), and international statistics on the likelihood of cost overruns (70%) experienced by projects and the amount of such amounts (15% of investment), the consulting Valor Experto projects these huge losses for mining.
Christian Willatt, managing partner of the firm, explains that these higher costs are, firstly, to actual direct and indirect costs higher than planned, and on the other hand, schedule delays, which in turn increases the indirect costs and delays the implementation of the operations. “This means that the investment cost increases and project profitability is reduced and may even be less than the required minimum,” he says.
Some of the main causes are poor management of the relevant regulations and the parties involved, poor planning, unclear goals, unrealistic deadlines or schedule with little detail, inability to accurately track during implementation and low involvement business projects.
Globally, 65% of all mining mega projects-above $ 500 million-end either costs by over 25% of the budgeted, delays beyond the planning period, lower than expected competitiveness and operational problems continued after the start of the operation of mines.
“It’s a global problem, but in Chile may be exacerbated because we don’t have good project management practices,” says Willatt.-
The volatility of commodity prices and the rise in the prices of energy, water and labor generate uncertainty in the sector. However, in Valor Experto recommend mining to stand firm, because to cancel or postpone an investment project may increase production costs and expose companies to lose market share. Yes, it is vital to improve planning and improve the monitoring of projects using international standards that allow for early detection of deviations in cost and time, to take action and reduce the impact on investments.
About 70% of the projects is likely to experience cost overruns.
Source: El Mercurio
