Dec '14/Jan '15

Equal parts innovation and risk management

Terry McNulty has had a meteoric impact on the minerals processing industry

By Correy Baldwin

Terry McNulty’s 1998 paper Managing Innovation in the Minerals Industry was a seminal work, revealing that poor plant start-up performance, even in the application of innovative technology, is usually the result of mismanagement. McNulty, who began his career at Anaconda Copper in Montana and is now a mineral processing and metallurgical consultant, has been hailed as a guru. He has presented regular revisions to his paper, updating the score sheet, as it were, of successful and unsuccessful plant start-up case studies. His latest update was at the Conference of Metallurgists 2014 in Vancouver, B.C.

CIM: What were the findings of your original paper?

McNulty: I began my research in 1998 with the impression that innovation is inherently risky, and the more innovative, the riskier it was. But when I pored through the 41 case histories in our files, I found a number of examples of plants that started up very poorly, even though they used proven technologies and weren’t really innovative. By the time I began writing my findings, I had become convinced that innovation, per se, is not excessively risky if development and implementation are carried out responsibly.

CIM: How did it change the way companies managed innovation?

McNulty: The paper provided some guidance in managing risk: If you manage the risks properly, if you do everything right, your plant could achieve 100 per cent of design capacity in the first year. If you miss any key aspects, it’s going to slow things down. And in the extreme case, you could run out of funds at the end of the first year, making your investors unhappy and, worse, putting a black eye on the mining industry and discouraging investors from participating in future projects.

The first year is not going to be perfect. Delays are inevitable, so let’s just face it and try to minimize those delays so we can make the project as good as it can possibly be.

The paper seemed to bring people’s thinking around. There was a broad endorsement of the notion that you can express project success by gauging the level of preparedness and the quality of decision-making information. And people started using this way of measuring risk to prioritize new opportunities and applying those criteria to the ramp up of projects.

CIM: What is the industry’s attitude today?

McNulty: Our industry’s approach toward building something new has become much more sharply focused on minimizing risk, from technological risk to financial risk. We’ve gotten a lot better at what we’re doing. Companies today want to be the second to adopt innovative technology, not the first, but overall I think they are doing a better job of managing technical risk.

We’ve become a lot more realistic, and a lot more introspective and self-critical. An important part of this is Canadian National Instrument 43-101. It alone has changed the landscape an awful lot, because it has forced people to do their homework before seeking investment from the public. That has been a major factor in reducing the number of failures. If you’re going to do an NI 43-101, your senior management has to be really committed to doing it right, and that forces them to ask a lot of hard questions and to become more involved in what’s going on.

CIM: You presented an updated paper at COM 2014. What were you trying to get across?

McNulty: I was trying to emphasize that risk management has become an industry-wide gauge of how to evaluate opportunities and that there have been some real successes. We’ve been focusing for the last 15 years or so on how to keep a project from being a bad one. Let’s look at the other end of the spectrum, at the chances that a project is going to be really good, and how we can make it even better. We may be doing ourselves a disservice by expecting them to not be perfect. That has worked its way into how we project cash flows for new projects and how we do NI 43-101 studies. We have to be very realistic, and we have to do our homework, but we don’t want to be overly pessimistic.

CIM: Your original paper emphasized the importance of pilot testing and use of contract laboratories. How significant are contract labs today?

McNulty: If anything, the number of contract laboratories during the last 20 years has declined. The United States Bureau of Mines closed in 1996, and that’s where a lot of early process development work took place. That took away a technical strength that our industry had relied on for a long time. There was a time when all major mining companies had their own R&D organizations, but that all ended around 1980. They decided that they couldn’t afford that luxury, and nearly all of them eventually closed their labs, which was a real shame.

CIM: Does this mean we have lost a lot of capacity?

McNulty: Yes. In the mid-1990s there were maybe 1,500 to 2,000 professionals engaged in the U.S. in different technical organizations. That has diminished quite a bit. The total now is probably well under 1,000 globally.

CIM: And despite this we’ve become better at managing risk?

McNulty: Part of it is that we’re able to do things more efficiently now, with computing software like Metsim. We can manipulate information better now, and there’s better instrumentation available, for everything from running assays to measuring flow rates and doing material balances.

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