cp&i - pwc · cp&i our approach to capital projects. school of mines 3 cp&i project...

Brazil

CP&ICapital Projects & Infrastructure

September 2010

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• High value

• High risk

• High profile

• High complexity

• Multi-year/long term

• Public and private investments

• Global strategic aligned / oriented

• Global contractors / subcontractorsinvolvement

• Complex contract managementenvironment

• Key issues / project for ExecutiveBoard members

From our experience of the management of large and complex capital projects it is

important that those involved in risk and project management take a holistic view in

delivering the business case, rather than a specialist view from each functions involved.

This approach seeks to integrate key components of project management process and

necessary inputs/outputs.

Key characteristics of capital projects are:

CP&IOur Approach to Capital Projects

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Project life cycle

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CP&I

Competences

Industries

Imp

os

tos

Identificar

Controlar

AvaliarIdentificar

Monitorar

Controlar

Avaliar

ProjectSuccess

Taxes

PricewaterhouseCoopers

Global PerspectiveWorldwide exploration budgets by region

Slide 5

19%

14%

7%6%

5% 5%4%

3% 3% 3%

31%

16%

13%

6% 5% 7%5%

5%3% 3% 4%

33%

0%

5%

10%

15%

20%

25%

30%

35%

2009 2008

Source: IBRAM

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MiningA global perspective

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MetalsA global perspective

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CP&I Brazil

Global structure

Capital Projects Global structure

Countries

Cities

153

749 16

PwC Global presence World Brazil

The idea is to consolidate substantial practical knowledge of best practices incorporated on

structuring organization design and processes and local experience in mega projects. The

Capital Projects multidisciplinary team skills range from Tax to Engineering.

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CP&I Brazil

Global structure -

Carter Pate – PwC Global CP&I Leader

Capital Projects Global structure

Countries

Cities

153

749 16

PwC Global presence World Brazil

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Mega capital projects require, case by case, a differentiated structure and approach of

management, including financing, governance, risks and tax planning, among others:

CP&I

A different approach - Individual Projects

Is there a good estimation of the overall budget and time schedule? Do we haveproper controls to identify and analyse deviations in scope, costs and quality?

Are we able to qualify, quantify and respond to project risks?

Is the project adequately considering local issues, such as: Compliance with local regulation

Tax incentives

Relationship with local communities, authorities and entities

Does the project have an adequate structure, considering: Independent governance

HR structure

IT platform

Internal policies and procedures (in particular, H&S and sustainability issues)

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CP&I

Understand and work along the entire project life cycle

Services & System Support

Stakeholders Management

Governance & Inspection

Program Management & Performance

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Project life cycle

Our involvement with Capital Projects considers the entire project life-cycle. We engage

oriented project engineering using, as part of our Project Planning and Assessment

approach, FEL and PMI methodologies together with other techniques.

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CP&I

Project phases –

Chinese Experience – Hongbin Cong

Different Perspectives

Additional Competences

Global Actions

Affordability modeling

Asset management

Project specification

Risk analysis

Option appraisal

Tax advice

Feasibility study

Business cases

Project selection

Financial structuring

Arranging debt

Arranging equity

Fund raising

Project Development Execution Operate CompletionProject Appraisal

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CP&I

Project phases

Project Appraisal

At this stage the project idea is conceived and tailored to achieve businesses and strategy

goals. A preliminary feasibility study is carried by the strategic team, evaluating basic data

about the alternatives such as CAPEX, risks and financing modelling.

When companies are considering new investments, executives are too optimistic about the

project risks. They seem to underestimate external factors and stakeholders.


Asset management


Risk analysis

Option appraisal

Tax advice

Feasibility study

Business cases

Project selection


Arranging debt

Arranging equity

Fund raising


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Project phases - Cases

Project Appraisal


Asset management


Risk analysis

Option appraisal

Tax advice

Feasibility study

Business cases

Project selection


Arranging debt

Arranging equity

Fund raising

Russian mining companyWe performed a valuation of one of the largest iron ore mining and processing operations in Russia at therequest of the client’s shareholders.

Advice on purchase of coal companyPwC advised a mining company in its bid to purchase a coal company. We provided advice on how to

structure and use a financial model to undertake an investment appraisal. We also reviewed the financialmodel and advised the company on changes to be made to the model.

ThyssenKrupp - CSAPwC advised on the Tax Model and search for tax local incentives resulting on large cost savings


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CP&I

Project phases

Brazilian Experience – José Mauro Braga


Asset management


Risk analysis

Option appraisal

Tax advice

Feasibility study

Business cases

Project selection


Arranging debt

Arranging equity

Fund raising


Helping Local Companies to Raise

Capital from International Investors to

Fund Their Projects

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Funding alternative

Project Appraisal Project Development Execution Operate CompletionProject Appraisal

PwC would like to present a funding alternative for mining projects in Brazil.

Mining Company and PwC would establish a partnership for the structuring of adedicated fund vehicle (“Fund”).

Mining Company would be the Anchor Investor of the Fund and would provide:

– Investment commitment to the Fund, that can be done through equity stake in assetsfrom its portfolio;

– Fully committed management team of experienced professionals.

PwC would be the Technical Advisor, providing fully support throughout the life of theFund.

Risk appetite & allocation

Bid strategy

Tax structuring

Sustainability issues

Contracting strategy

Project supply chainstrategy

Cost modelling

Procurement

Partnering

Program management

Partnership

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CP&I

Structure overview


Fund vehicle

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Structure overview


Management structure

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CP&I

Project phases


At development stage, a multidisciplinary team is engaged to develop a set of studies and

planning for the project. The project commence to concretize and a procurement strategy

considering the full tax benefits is crucial to improve project feasibility.

Sound project definition and effective decision making at the outset of a capital project are

critical to a successful outcome.


Bid strategy

Tax structuring




Cost modelling

Procurement

Partnering

Program management

Project Development

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CP&I


Project Development Execution Operate CompletionProject Appraisal Project Development

Project Development


Bid strategy

Tax structuring




Cost modelling

Procurement

Partnering

Program management

Queensland Rail (Coal Division)

Review of Coal Contracts

Full set of commercial contracts held between QR and the 19 mining companies operating 50major coal mines in Queensland and Northern New South Wales. All contracts were assessedfrom the perspective of true lifetime economic value and commercial risks to both parties.

Development of new Coal Contract Structure

Development of a new contract template for QR to use for both new contracts and potentialmigration of existing and rolling contracts.

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CP&I

Project phases


Project Development


Bid strategy

Tax structuring




Cost modelling

Procurement

Partnering

Program management

Votorantim Metais (Brazil and Peru)

Strategic Sourcing for several CAPEX categories,: reviewing:,strategy, organization, KPI’sand contracts

Facilitation of contracts negotiation

Best practices/ benchmarking

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Bid strategy

Tax structuring




Cost modelling

Procurement

Partnering

Program management

Anglo Coal Australia

PwC developed and implemented a new stage

gate process for all major new coal mine

development projects. A detailed set of new

guidelines was developed for every phase of

project development from concept through to

feasibility and post green light evaluation.

Project Development

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Bid strategy

Tax structuring


Procurement

Partnering

Program management

PEGASO - Program of Excellence in Operational H&S Management

– Define and implement processes

– Program monitoring and results communication periodically

– Define models and tools in order to quantify program benefits

Strategic Project in SHE Excellence

– Align all company’s projects with 6 SHE strategic initiatives;

– Promote SHE concepts and establish templates

– Define medication criteria, reports and data consolidation

– Monitor the SHE project progress through the PMO creation

Petr

ob

ras



Cost modelling

Project Development

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CP&I

Project phases

Project Appraisal Project Development Execution Operate CompletionProject Appraisal Execution

Project Execution

At execution stage, the highest number of resources are consumed. There is a lot of

interaction between contractors and work interference. Project failure are easily perceived

and typically are: schedule slippage, cost overrun and specification shortfalls. Failure to

identify and act on the early warning signs of a project in distress exacerbates the issues

and, very quickly, a project can become out of control.

Risk management

Budgeting & forecasting

Project Governance

Contract execution

Project management

Controls

Information & reporting

Claims management

Communicationsmanagement

Compliance

Earned value management

Document management

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CP&I



Project Execution

Risk management


Project Governance

Contract execution

Project management

Controls


Claims management


Compliance


Document management

ThyssenKrupp – CSA

Project Assessment of this new steel mill plant

– Project risk identification, actions plan recommendation and implementation monitoringconsidering the follow dimensions: executive, technical (non-engineering), organization,functional, resources, regulatory and project management;

– Executive reports elaboration to the company board

– Critical and relevant risks monitoring;

– Project implementation follow-up.

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Project Execution

Risk management


Project Governance

Contract execution

Rio Tinto (Australia)

Review of reports generated by PMO

In response to the introduction of a new

management team with a renewed focused on costmanagement of the PMO, we were engaged toreview Rio Tinto’s internal reporting function. The

project required engagement with key stakeholdersand 'customers' of the reports with recommendationson improving reporting processes and usefulness of

the content to drive effective PMO decision making.

Project management

Controls


Claims management


Compliance


Document management

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CP&I

Project phases


Project Completion

The completion stage requires a special attention to contracts closure and technical

performance. To achieve technical specifications stated in contracts, several tests and

analysis are held to allow products acceptance and certificates issuing. Leadership

management is required at most, in order to settle all contracts, change orders and claims.

Project benefit evaluation is carried out and lessons learnt are taken to the next project.

Mediation/Arbitration

Delay & disruptionanalysis

Expert witnesssupport

Review of physical &technical performance

Advise commercialclose-out


Compliance

Post implementationreview

“Lessons learned”

Operate Completion

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CP&I



Project Completion

Operate Completion

Mediation/Arbitration

Delay & disruptionanalysis

Expert witnesssupport

Review of physical &technical performance

Advise commercialclose-out


Compliance

Post implementationreview

“Lessons learned”

Anglo Coal Australia

Major Capital Projects – Continuous Improvement

Development and implementation of new processes for the capture, analysis, anddissemination of ‘lessons learned’ across future major capital projects:

1. collating and reviewing new knowledge from a recently commissioned mine

2. embedding the ‘lessons learned’ process across all its major capital projects

www.pwc.com/mining

Thank you!

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