Why step-by-step scale-up beats aggressive NPV-driven expansion. Learn how mining companies manage ore body uncertainty, metal price volatility, capital planning, and exploration to build sustainable long-term growth strategies.
Video transcription
NPV-Driven Growth vs Step-by-Step Scale-Up
One of the big mistakes or one of the big issues that a lot of mining companies make is they look at NPV as a driver, which is an important metric. And when you look at NPV, the bigger you go, the more attractive things become. But the larger you get, the more risk you have attached to that largeness.
So for me, step-by-step scale-up or growth is a more prudent way to go. Go in at a reasonable size and then have strategies of how you're going to grow that business from going in small.
Ore Body Uncertainty and Metal Price Volatility
The reason why I say that is two things that drive us that we don't have a lot of control of. The one is the ground - nature has provided the ore and the ore body will be what it is. You can't change that. If the grade is there, that's great, but if the grade is not there, you can't change that. So that's one very big uncertainty you have.
And the second other big uncertainty that has a massive impact on your business is the metal prices. Thinking about how you're going to navigate those two pieces is very important.
Flexibility in [Mine Planning](https://k-mine.com/mining-software/) and Capital Access
This is why flexibility and being able to move your plans and understand how you can move your plans is very important. Because you may have a very downturn environment for metals when you just need to do that pushback, and therefore you don't have access to the capital.
So you need to plan these things in front. You either have to do it through your balance sheet - that means you need to make sure that you got a revolver or some sort of debt structure where you can access capital easily when you get into that situation. Or if you can, when metal prices are really good, try and bring some of that work forward and try and do that work earlier so that you can actually offset those additional costs at times when the metal environment is in your favor.
Exploration as Mining's R&D
The last piece I talk about would be exploration. Exploration for me is like R&D is for pharmaceutical companies. The day you start mining is the day the ore body starts to decline. So you need to find a way to replace the reserves and the resources that you've taken out of the ground the year before. And that is also a capital-intensive program that can't be done on a budgetary basis - it's got to be done on a campaign basis.