What drives capital cost of projects?

There are a number of factors that contribute to the ultimate capital cost of a project. They include location and environmental considerations, local labour cost, complexity of the flowsheet, contracting strategy, etc. Many of these factors are fixed and/or difficult to manipulate. However one of the most significant drivers of capital cost is the design intent and approach, and these are areas we can influence greatly through innovative and frugal thinking.

At a high level, project costs are typically distributed in four roughly equal parts: process equipment, bulk materials, labour, and indirect costs. These will vary slightly based on project, location and flowsheet.

Labour and Indirect Costs are driven by construction, specifically setting equipment and installation of bulk materials such as steel, concrete, piping, electrical cable, and bulk earthworks. The result is that two thirds of project cost is driven by bulk materials and their construction.
The greatest opportunity to increase value and return on investment through project and capital expenditure optimization is during the concept development and early engineering design phases when we can influence the outcomes the most.

Focus on the process equipment that delivers the value and relentlessly reduce bulk materials that drive cost. With the process design confirmed, we focus on reducing bulk materials and labour costs by:

  • Leveraging natural contours to minimize overall earthworks volumes
  • Compacting the layout footprint to use less steel, concrete, piping and cable
  • Minimising the height of all structures
  • Questioning support infrastructure to ensure it is the minimum required for safe, reliable operation
  • Challenging the need for expensive enclosed process buildings and associated overhead cranage requirements
  • Fit-for-purpose design to match the resource.

Our design for the Constancia mine achieved significant reductions in bulk material intensity as compared to similar benchmarks.

Constancia Copper-Molybdenum Mine, Peru

Ausenco’s low capital cost design and build process helped add $800M to the feasibility study NPV of this US$1.75 billion CAPEX project. Our work achieved:

  • 50% smaller footprint than the original DFS layout
  • 35% reduction in concrete per MW of installed mill power compared to original design
  • 60% more installed power (64 vs 40 MW)
  • 57% higher capacity on hypogene ore than the DFS design
  • 7.7 million man hours LTI-free for Ausenco-managed scope, inclusive of contractors.

For more information, view our featured project overview. #AskAusencohow