How better financial modeling can improve your returns and unlock optimum value from a project.
Mining executives know the value of good financial modeling. It can help them better manage risks, plan for different market scenarios, meet project timelines and navigate various trade-offs to drive optimal decisions. Mining leaders recognize financial modeling is key to clearing regulatory hurdles and investor disclosure requirements. And they understand that good financial modeling often plays a pivotal role in structuring and securing financing and analyzing M&A transactions.
The issue? Most financial modeling in the sector is done rather haphazardly and too late in the process to influence major engineering decisions. Few models consider the full spectrum of Environmental, Social and Governance costs. Very often, they are not conducted in line with investment manager expectations, which can leave the impression that the modeler lacks key capabilities. In fact, some actions undermine credibility completely – we have for example seen in the industry financial models that get published without any consideration for corporate income and mining taxes.
Integrated insight
At Ausenco, we are driven to Find A Better Way that creates optimal shareholder value for our clients and their projects. And we believe that our integrated capabilities offer mining executives and investors a better way to approach and utilize financial modeling.
We start every study with a preliminary financial model for which all technical levers and decisions are made with astute awareness of how they impact the overall project economics. With this approach, all decisions regarding flowsheet, plant design and expansion opportunities and trade-offs are run through the financial model to see if they truly maximize shareholder value. Decisions are then made based on the best financial outcome, not necessarily the best standalone technical outcome.
Our work begins in the early stages of the project where we are able to use preliminary technical data from site and fill in the gaps using our industry experience and benchmarks. Our deep experience conducting engineering studies and building projects worldwide means that we have access to significant proprietary benchmark data in-house that we can leverage to devise custom solutions for the project at hand.
This ‘financial model first’ approach informs our study teams where to focus our efforts and how best to showcase the merits of the project, whether it is specific orebody characteristics, low-cost material haulage or processing efficiencies. By working closely with our technical teams at the outset, we continually run different scenarios through the financial model to see which outcome is the most appropriate for the project.
Our financial models offer clients a robust and systematic trade-off selection process where different mine plans and process plant flowsheets are tested. Those that enhance the economics of the project are advanced to the next stage, allowing our clients to see where the biggest return on investment opportunities are, right from the start of the project. It allows for different opportunities to be explored in a systematic way – from blending different ore types and effective stockpile management, through to optimal grade and throughput selection and, of course, optimizing CapEx and OpEx.
More reliable models
As an integrated engineering, procurement, construction management and operations service provider, we take a holistic approach to financial modeling, one that spans all stages of the asset lifecycle and includes a wide variety of financial factors such as climate impacts, social costs and community investments. Our engineers and operators are working on active sites worldwide, giving us up-to-date insights and data to ensure our models are accurate.
While our approach may be holistic, our teams are highly specialized. Our financial modeling teams, for example, have backgrounds in investment banking and capital markets and members of our teams have been on the receiving end of the financial models (and thus understand the important role it plays in corporate strategy, decision making and capital raising). Our extensive experience in this space allows us to work closely with clients to model out various complex and bespoke commercial and legal structures that are suitable for their project. Being on the ground in major markets around the world allows us to offer our clients unprecedented insight into local market conditions and trends. Our team members speak different languages and are all Microsoft Excel power users, which assists in the modeling exercise being time efficient and accurate. We can make the models as sophisticated or simplified as required for the task at hand.
Additionally, we understand the need for a well laid out model that is easy to navigate, audit and modify. Often, we are asked to incorporate complex debt financing, royalty, stream and off-take arrangements into the financial model so the client’s team, and their advisers, can assess how best to fund that particular project.
Delivering real results
The impact we make with our approach to financial modeling has been significant. For example, the models we have built have helped mine developers and owners understand the exact financial implications of various engineering design alternatives and maximize project Internal Rate of Return (IRR). We help our clients assess the costs and benefits of different technologies, design alternatives and execution strategies early enough to streamline subsequent procurement and development activities. For the vast majority of our studies, we now also cover the financial modeling scope, ensure it meets regulatory disclosure requirements and we stand behind that work with the required sign-offs.
We also understand our clients’ desire to be good stewards of mining projects and leave behind a lasting legacy for future generations. As such, our financial modeling takes into account all aspects of the project including waste handling, remediation and ultimate closure of the mine site.
Find A Better Way
At Ausenco, our focus is on helping our clients find better ways to achieve their objectives. Our financial modeling approach is central to that mission. It gives our people and our clients the encouragement to explore new opportunities, the data they need to understand the costs and benefits, and the confidence they need to execute their strategies.
We believe the key to project success lies in early, integrated and professional financial modeling. And we are dedicated to using our integrated capabilities to help our clients Find A Better Way – for their projects, their investors and their people.
To learn more about Ausenco’s financial modeling capabilities – or to discuss your own unique project – contact Zain Badami.