Environmental Impact Assessment - Mining and the Environment: From Ore to Metal - page 103

mine developers. 'If construction is i nanced by loans, interest costs begin to grow imme-
diately as soon as the i rst money is drawn from the lender and will continue through the
mine's development and well into the production phase until the loan is repaid. Even if
development funds come from the shareholders or joint venture partners, there is a need to
bring the investment to production, establish a cash l ow and commence dividends as rap-
idly as possible' (Marshall 2001). It is no coincidence that, particularly in developing coun-
tries, international companies who refuse to pay bribes experience more and longer delays in
securing project approvals than 'local' companies who follow local corrupt practices.
Is project delay really signii cant? A positive feasibility report, showing a clear and
reasonable expectation of a satisfactory return on the investment, is the basis on which
i nancing is usually obtained for the construction of the mine. Since mine construction is
so capital intensive, some sort of outside i nancing is usually required or desirable. Such
i nancing must not only cover most of the costs of building the mine, but provide the ini-
tial working capital to allow the mine to operate until cash l ow from the sale of miner-
als is established on a regular basis. The loan should also provide funds to cover initial
payments on the interest incurred on borrowings made during the construction period.
Financing often requires guarantees to the lenders that the project will be built by a cer-
tain date and will perform in accordance with certain specii ed standards consistent with
the feasibility study. Consequently, for a company constructing a mine, maintaining the
schedule becomes a critical factor (Marshall 2001).
A study by Jorgensen et al. (1996) indicates that the risk associated with 'project delays
is the primary concern of respondents in the areas of project approvals and environmental
assessments. Delay costs may involve out of pocket expenses if construction schedules can-
not be met. Much more signii cant, however, are costs associated with deferred or cancelled
production, foregone earnings, disruption to customers, lost market opportunities, and
interest on borrowed money.' The project may also be tied against long-term sales con-
tracts and penalties may apply if contractual sales commitments are not met ( Table 2.5 ).

Is project delay really signifi cant?

'Much more signifi cant, however,
are costs associated with
deferred or cancelled production,
foregone earnings, disruption
to customers, lost market
opportunities, and interest on
borrowed money.'

TABLE 2.5
The Costs of Delay

Loss for Owners and Investor

Interest
Special Damages
Lost Profi ts
Loss of Use
Increased Financing
Extended Maintenance and Operations Expenses
Extended Field Offi ce Overhead
1. Labour Costs
2. Equipment Costs
3. Material Costs
4. Bonding Costs
5. Subcontractor Costs
Unabsorbed Home Offi ce Overhead
Attorney's Fees
Loss for Host Country/Region
Forgone Income
Forgone Taxes, Royalties, and Dividends
Delayed Social Investments
The costs of delay can amount to up to US$ 110 million for a US$ 240 million project for delays between 6 and 18 months. This cost
does not account for the loss of economic benefi ts to the host country. Foregone income to project employees, contractors,
and suppliers could amount to more than US$ 100 million for one year of delay, not accounting for loss in royalties, taxes, and dividends