Most energy and mining projects 20% over budget — study

Resource projects have been hit by cost overruns due to covid and inflation. (Stock image by Keleny.)

Miners and energy companies are facing average budget overruns of 15% to 20%, which puts nearly $1.5 billion of capital invested in energy transition-related projects at risk each year through 2030, research from Bain & Company shows.

The experts say that mining and energy companies need to rethink traditional capital delivery models, as a way to avoid costs and timeline blowouts.

Examples abound, with some of the most recent and noteworthy being Horizonte Minerals’ (LON, TSX: HZM) Araguaia nickel project in Brazil’s Amazon region. The company was put into administration last month after it failed to secure financing to finish building the $1-billion project. Costs had almost doubled from the previous estimate of $537 million.

Another case in point is Teck Resources’ (TSX: TECK.A, TECK.B) (NYSE: TECK) Quebrada Blanca copper project in Chile. The Canadian miner spent much of 2023 fighting off a hostile approach from Glencore (LON: GLEN), last said its Quebrada Blanca 2 project would cost between $8.6 billion and $8.8 billion, compared with an original $5.3 billion estimate.

Most energy and resources 20% over budget — study
Graph courtesy of Bain & Company.

As part of the actions suggested, the authors highlight the need to adopt a systematic portfolio thinking. “Leading companies are beginning to view their projects as part of an aggregated system rather than in isolation,” the report says. By doing so, they can capture synergies and build resilience across their entire portfolio.

Bain and Co. also call companies to realign operating models. This, the experts say, would ensure that critical decisions are made with a broader perspective, addressing the blind spots that often occur in siloed organizational structures.

The adoption of digital solutions, automation, and AI tools is proving to be a game-changer for capital projects. In their research, Bain and Co. Found that these technologies help eliminate waste and reduce friction, delivering immediate efficiencies and streamlining project management processes.

Tech efficiency

By thinking systematically across portfolios, realigning operating models, and embracing digital technology, mining and energy companies can mitigate risks and ensure more reliable project outcomes.

The experts believe the future of project management for the sector lies in integrated, technology-driven strategies that enhance efficiency and resilience, ensuring sustainable growth and success in an increasingly competitive landscape.