Most energy and mining projects 20% in the red: study

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

Companies need to rethink traditional capital delivery models to avoid cost and timeline blowouts, the Boston-based management consultant says. 

Examples abound, with one of the more recent and compelling being Horizonte Minerals’ (LSE, 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 US$1-billion Araguaia project. Costs had almost doubled from the previous estimate of US$537 million budget.

Another case in point is Teck Resources’ (TSX: TECK.A; TECK.B; NYSE: TECK) Quebrada Blanca copper project in Chile. The Canadian miner, which spent much of 2023 fighting off a hostile approach from Glencore (LSE: 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.

As part of the actions suggested, the authors highlight the need to adopt systematic portfolio thinking.

“Leading companies are beginning to view their projects as part of an aggregated system rather than in isolation,” Bain & Co. says. That way they can capture synergies and build resilience across their entire portfolio. 

Companies should also realign their operating models, the consultant said. This would ensure that critical decisions are made with a broader perspective, addressing the blind spots that often occur in siloed organizational structures.

Tech efficiency

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

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 said. 

Bain & Co. sees the sector’s future of project management in integrated, technology-driven strategies that enhance efficiency and resilience, ensuring sustainable growth and success in an increasingly competitive landscape.