Risk, and planning to not plan

Summary:

Risk is ubiquitously present in establishing strategy for any asset in the mining industry. This is a function of imperfect knowledge of the deposit, numerous external factors, and the long timeframes involved. Capital investments are typically large and environmental impacts significant, therefore the potential consequences of unfavourable outcomes to the operating company, its shareholders, and impacted communities can be substantial. Incorporating the quantification of risk in the process used to establish mining strategy is far from trivial, yet it is becoming increasingly critical to the success of mining projects and operations, to the relationship between the mining industry and the broader society, and therefore to society itself being fundamentally dependant on the commodities the mining industry provides.

Effective and resilient strategy should be based on risk-informed decision making, or stated in another way, developing a strategy that does not consider risk is not very strategic.

Risk is often quantified in the financial model. This paper will demonstrate that such post-hoc approaches to quantifying risk are potentially incorrect at a fundamental level and may not appropriately quantify the intended risk. Furthermore, any post-hoc adjustments will potentially undermine all prior optimisation processes and analyses. As such post-hoc approaches, including those applied in the financial model, should not be used in isolation to support risk-based decision making.

Source:
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Citation:
Dr Edward Holloway MAusIMM(CP), Principal Consultant – Quantified Strategies and Adjunct Senior Fellow – Sustainable Minerals Institute, The University of Queensland; and Professor Neville Plint FAusIMM, Adjunct Professor – Sustainable Minerals Institute, The University of Queensland