Cost Overrun Risk And How It Was Minimized During Construction Of The Mt. Gunnison Mine

Building a small underground coal mine is a risky endeavor, especially in the recent economic environment. ARCO's Mt. Gunnison No. 1 Mine, located in western Colorado, was designed and built as a small expandable speculation mine with initial production to be sold on the spot market, so it was very important to minimize capital exposure. This mine, operated by West Elk Coal Company, a subsidiary of Anaconda Minerals, was successfully built under budget at $35 million, and has been operating successfully since completion of construction in late 1982. The initial planning phase of a project is extremely important for testing the economic and technical feasibility of a proposal. The construction phase, by contrast, carries with it significant cost and quality risks which can relate to long-term economic and operating problems and therefore directly affect the viability of the project. This paper discusses several different aspects of the cost overrun risk involved in building an underground coal mine, and how attempts were made to minimize these risks during construction of the Mt. Gunnison Mine. Good people, construction planning, and execution are essential factors in assuring a quality, cost-effective project, with corresponding risk minimization during the construction phase and long term favorable implications for the operating phase.