The difference between success and failure is often how well we manage our risks. It is this assessment and balancing of the potential opportunities and threats that leads to a successful project, or a timely early exit.
While there are many varied risks we face as a project moves from exploration through to production, there are three key themes that often dictate the level of success of a project:
- The quality and extent of the reserve;
- The robustness of our permission to extract it;
- Sufficient funding to ensure we set the operation up for future success.
It is fundamental that we consider risks from all three of the above themes when valuing and running a project.
1) The quality and extent of a reserve: We never really know how good a resource might be until we dig it out of the ground. Geologists have to manage this uncertainty on a daily basis (especially when funding is being raised) and are regularly asked: “what’s the grade?” and “how much is there?”. Answers are only ever an educated guess based on interpretation of available data and past experience.
While a geologist might be able to find a resource, engineers are required to help turn it into a reserve, separating that which is deemed to be of value, and responsibly managing any waste left over. The use of novel technology may result in the best possible grade recovery, but that technology typically needs to be insured, something that is often very expensive to do, especially if it is deemed to be a prototype.
2) The robustness of our permission to extract it: This is inclusive of mining and water permits, through to the Social Licence to Operate. Many of the risks faced here are outside of the control of geoscientists or financiers, however increasingly it is risks that delay or destroy a project. Risks in this category are notoriously difficult to measure, especially for individuals who naturally defer to quantitative approaches to measurement.
3) Sufficient funding to ensure we set the operation up for future success: The risk of a project to a financier is often lowered by agreements to release funding in tranches or as certain milestones are reached. It is tempting to design these milestones so that they support the often short term goals of the explorer and greenfields financier rather than for the long term success of the operation.
In order to manage these risks, the full interconnected extended enterprise of a project needs to be assessed, inclusive of how risks may change through time. Just because a risk cannot be quantified does not mean that it should not be considered by those running or financing a project. Risks that are ignored in the early stages of a project are often the root cause of long term failure within the operation.