Van Tran's Confirmation Presentation

8/2/2019 Van Tran's Confirmation Presentation

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A Risk-Based Financial Evaluation Method

for the Australian Minerals Industry

Van TranPhD Student



Presentation Overview• The Australian Mining Industry and its Challenges

•

Research Context: Mining as a (risky) business• Project Development Cycle

• Approaches to Project Evaluation

• Research Aims

• Research Question

• Research Approach

• Research Plan

• Work Achieved to Date

• Future Work

• Deliverables



The Australian Mining Industry

Capital intensive industry8.8% of Australian GDP

Employs 243,152 people

Annual revenue growth 10.1%

Net profit in 2011-2012 financial year: $69.4b

Export oriented industry (75.8% of industry

output)



Mining in Australia (Cont.)



Challenges for the Industry

Over the last 30 years

Average grade of Australian ore bodies halved

Waste removed to access the minerals more thandoubled

Significant increases in energy consumptionIn the last eight years

24% decline in productivity

70% rise in energy use

Australian miningCosts rise dramatically due to growing constraints

on energy, water and carbon have seen



Challenges for the Industry (Cont.)

Source: CRC ORE; based on ABARES, 2008



Corporate

Performance

Exploration

Performance

Development

Performance

Mining

Performance

Processing

Performance

Marketing

Performance

LocationUncertainty

MiningComplexity

Social &

Environmental

Uncertainty

Construction

UncertaintyMining

Uncertainty

Metallurgical

Uncertainty

Market &

Commodity

Pricing

Uncertainty

Financial &

Economic

Uncertainty

Geological

Uncertainty

Science &Technology

Uncertainty

Research Context: Mining as a (risky) busines

Investor

Uncertainty

Social &

Environmental

Uncertainty

Social &

Environmental

Uncertainty

Social &

Environmental

Uncertainty

Social &

Environmental

Uncertainty

Social &

Environmental

Uncertainty

Political

Uncertainty

Political

Uncertainty

InvestorUncertainty

Pervasive,

largely

uncontrollable

risks

Poorly defined

and somewhat

controllable

risks

Direct

Controllable

Risks

Global Financial &

Economic Risks “Risk Categories” Source: Evans, 2007



Mining Profits



Project Development Cycle

Source: McKenzie & Cusworth, 2007; Steffen et al, 2008



Mining Feasibility Study

Source: Nethery, 2003; Noort & Adams, 2006



Approaches to Project Evaluation

Recent Evaluation Approach

Geological+ Orebody

Model

Geotechnical

Model

MinableReserveModel

MineDesign

ProcessingModel

OPEX/CAPEXModel

FinancialModel

Traditional Evaluation Approach

Geological+ Orebody

Model

Geotechnical

Model

MinableReserveModel

(MultipleScenarios)

MineDesign

(MultipleScenarios)

ProcessingModel

(MultipleScenarios)

OPEX/CAPEXModel

(MultipleScenarios)

FinancialModel

Source: QG, 2011



Inherent Risks in the Evaluation Process

Uncertainty and risk have significant effects on projects

Often considered as the final stage of project evaluation

Typically not treated in an analytic fashion, but rather, subjectively and based

on sensitivity type analysis

Not fully accounted for in financial model and financial analysis

Geological+Orebody

Model

Geotechnical

Model

MinableReserveModel

MineDesign

ProcessingModel

OPEX/CAPEXModel

FinancialModel

Geological Risk Geotechnical Risk Mining Risk Processing Risk OPEX/CAPEX Risk Economic Risk



Orebody Uncertainty



Mining Geotechnical Risks

Source: NIOSH, 2012



Processing and Production Risks



Example of projects with cost overrun

Source: Noort & Adams, 2006



Research AimsConfirm that a risk-based evaluation system is

applicableStimulate further research by proposing an innovative

model which utilises novel ideas that have been usedand tested in other industries but are new in mining

Introduce an new framework in accounting for thecoupling effects of risks in feasibility study

Provide companies with better and more realisticfinancial projections of mining investments

Incorporate decision tools to help decision-makers inassessing value of mining investments



Research Question

Literature Review

Knowledge Gap 1: Lack of

explicit methodologies in

pricing risk in evaluating

mining projects

Knowledge Gap 2:Decision tools not

widely used in making

investment decisions

Research Question: Can we construct a

framework to price risk in an integrated

fashion across a mine site value chain in such

a way that it can be updated efficiently asmore information becomes available during

the life of the mine?



Research Question (Cont.)

Sub-question 1: How to value (put a dollar figure on) uncertainties and risks and their coupling

effects when evaluating a mining project?

Hypothesis 1: Utilise well-accepted risk quantification method in the minerals industry such as fault

tree analysis and incorporate with Value-at-Risk and Conditional Value-at-Risk concepts to

construct a Coupled Risk Model.

Sub-question 2: How do we value information in the face of uncertainty?

Hypothesis 2: Employ the “value of information” concept to put a financial value on the information

associated with each risk category.

Sub-question 3: Is this a better way of evaluating mining projects than the traditional method?

Hypothesis 3: Carry out a comparative analysis of various evaluation methodologies developed

using the proposed concepts.

h h



Research Approach

Run Decision Analysis

Are all aspects considered?

Evaluate Project

Coupled Risk model

Value information associated with eachrisk

Identify and value individual risks

Identify Constraint



Research Approach (Cont.) Risk categories considered: Mine design, CAPEX , Extraction cost,

Recovery and Mine Closure Contingency

Construct a preliminary coupled risk model for these categories using

Fault Tree Analysis

Construct a more advanced coupled risk model using CVaR method

Integrate coupled risk model into a financial model for evaluation using

Typical Project Evaluation

Static Advanced Project Evaluation

Dynamic Advanced Project Evaluation

Results obtained from each method are compared to see how well risks

are captured



Method 1: Typical Project Evaluation

Coupled risk is calculated using fault tree model

Project is evaluated based on this model

Result: One NPV value

FinancialModel

NPV

M th d 2 St ti Ad d P j t



Method 2: Static Advanced ProjectEvaluation

Coupled risk is calculated in GoldSim usingCVaR/VOI as inputs

Project evaluated in GoldSim using this risk model

Result: A range of NPV values

t t



et o : ynam c vance ro ectEvaluation

Utilise coupled risk result obtained in GoldSim

Project evaluated in QISK using this risk model

Result: Range of NPVs for each scenario



Research Plan



Work Achieved to Date

i. Six-month review-achievedii. Access to QISK-achieved

iii. Preliminary CVaR model-achieved

iv. Preliminary VOI model-achieved

v. Preliminary Coupled risk model-partially

achieved (10%)

vi. Data for analysis-partially achieved (5%)



Future Work

Collect data in and carry out analysis

Learn to use and build models in GoldSim

Build a Fault Tree model to quantify risk in

each category outlined

Refine the preliminary risk models

Refine and test the coupled risk model

Evaluate the project using the three outlinedevaluation approaches

D li bl



Deliverables

Confirmation

A risk model based on Conditional Value-at-Risk (CVaR) andvalue of information (VOI)

A coupled risk model which canAccount for the coupling effects of multiple risks

Integrate and communicate with financial parameters easilyBe updated easily should more information becomes available

Contribution to Knowledge:

New and innovative way of capturing risk early

Better understand of the coupling effect of risks in project evaluation

Better financial predictions with an objective and versatileframework

f



References Maybee, B. M. (2010). A Risk-based Evaluation Methodology for Underground Mine

Planning. School of Graduate Studies Sudbury, Laurentian University Ph. D: 172.

Convey, K. (2011). Gaining ground: The Mining division remains the nation’s most important

exporter, IBISWorld. Johnson, R. C. and M. R. McCarthy (2001). Essential elements and risks in bankable feasibility

studies for mining transactions. Salt Lake City, Utah, Parsons Behle & Latimer.

Thompson, H. (2011). Feasibility Consulting & Successful Study Completion. PhilippinesMineral Exploration Association. Manila GHD.

Edwards, N. (2011). Foreign ownership of Australian mining profits Canberra, The Australian

Greens. Nethery, B. (2003). The role of Feasibility Studies in mining ventures. Conference Board of Canada: Structuring More Effective Mining Ventures. Vancouver B.C., AMEC Mining andMetals

Noort, D. J. and C. Adams (2006). Effective Mining Project Management Systems.International Mine Management Conference Melbourne, Vic.

Mackenzie, W. and N. Cusworth (2006). The Use and Abuse of Feasibility Studies. Project

Evaluation Conference Melbourne, Vic. Topp, V., L. Soames, et al. (2008). Productivity in the Mining Industry: Measurement and

Interpretation. Canberra, Productivity Commission.



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