Flooded Mines: The Critical Factor for Uranium
Sunday, April 1, 2007 at 1:26PM
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Most of the large EPC (Engineering, Procurement and Construction) companies have within their organisations departments known as Project Control. What’s this got to do with uranium you ask? Well it concerns us because two major projects have been flooded (Cigar Lake and Ranger Mine) and we need to know when they will be back on stream producing uranium as their affect on the supply side of the uranium equation will impact on our investment decisions regarding uranium stocks.

These departments are usually the homes of Estimators, Cost Controllers, Document Controllers and Planning Engineers. It is the Planning function that we visit today whether it is internal to the mining company or outside contractors brought in to bring the mines back on stream. The purpose of the Planning Engineer is to pull together all of the disciplines involved and compile a credible plan which in turn is set to a time frame known as the schedule. The Planner starts with the Engineers: Process, Civil, Structural, Mechanical, Electrical, Instrumentation, and Commissioning who generate a scope of work together with resources requirements such as labour and plant etc. In my experience these Engineers are fairly accurate in providing the basis for the plan. All well and good so far. The Planner then produces a plan, which for example, will take approximately 48 months to execute.

Enter the Project Manager, by nature a very optimistic person who has a brief to execute this project ASAP. The properly calculated schedule is of course ridiculously too long in his view and he proceeds to beat up the Engineers until the schedule is compressed in to a 36-month duration. The possibility of completing this project on time has now diminished.

The Project Manager now meets with various Divisional Managers and Business Heads who just do not accept that a small leak can take so long to rectify. They eventually reach a compromise of 30 months to complete the project.

Alas! news reaches them that the Chairman has given their word that it will be done in 24 months. You don’t believe me? Well if your organisation has a Project Control Department pay them a visit and ask them if this sort of thing goes on! Our bet is that you will be astonished with the anecdotal evidence that pours forth. Excellent Departments will keep good records of past performance on which to base future estimates and should be able to tell you what the average slippage is for all the projects that have been undertaken. Finally if you are still in doubt do a search of your area and note just how many Management Consultancies are offering a claims resolution service which primarily evolves around ‘Extensions of Time’ or EOT. Once you have proved the EOT the reimbursement costs follow on. It is a fast growing niche industry offering a service that few are capable of delivering. However that does not stop the fee driven larger accountancy groups and law partnerships adding this service to their menus. Some of these groups hire newly qualified MBA types who don’t command high salaries and body shop them to their clients for fees that are not in line with their ability. Some of them can say “Critical Path Analysis” but have never used it, so they are about as much use as a chocolate fireguard. We digressed.

The point is that we need to see in detail the documentation that substantiates any claims made by the higher management before we can be sure of the date that uranium production will re-commence. Such documents would include but not be limited to:

A well-written Mission Statement
A concise Method Statement
A detailed Schedule based on CPA and computerised utilising profession project management software not the colourful $50.00 version.
Resources applied to the schedule of labour, plant, equipment, money, etc.
Expenditure Profile that we can monitor, if you are not spending the money you are not making the progress.

A six-activity bar chart posing as a management summary just does not cut it.

Having been the victim of such practice I once had the audacity to point this out to a company director who said to me that he had been known to be economical with the truth!

This is not a knock at the companies involved as this practise transcends many projects and industries. If we were made aware of the cost and the time required for certain projects they would never get an approval. The Olympic games to be held in London, in our humble opinion, was based on summary level information with a projected cost of £2.5 billion. The cost is now in the order of £10 billion and rising faster than the price of uranium.

As sceptical as ever we remain to be convinced that the problem of water ingress can be solved swiftly and without the detailed documentation to analyse we cannot say with any certainty when the production of uranium will recommence at these facilities. We must therefore make our investment decisions accordingly and as the picture becomes clearer reassess our position in the uranium sector.
Article originally appeared on Uranium Stocks (http://www.uranium-stocks.net/).
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