Understanding success and failure in innovative Australian resource processing projects

Abstract

This thesis in concerned with the understanding of success and failure of innovation in resource processing, a sector that is central to the Australian economy. Decline in ore grade, complexity of available ore resources, increases in labour and capital cost, and increased market demand have driven innovation and larger resource processing projects. The outcomes from innovation investment have been disappointing, and not well understood. This thesis aims to understand why so many large resource processing projects fail, and what factors have been critical in other projects that succeed. It proposes a new model for innovation investment, based on public domain data and an outsider view. Five criteria are used in this thesis to classify success and failure of large resource processing projects; that (1) the project and firm made a profit, in failure the project made a loss, (2) the production in the first 36 months of operation is 90% or more of nameplate capacity, while a failure is less than 70%, (3) return on investment is below 105 months, failure above 105 months, average for successful projects is found to be 53 months,. (4) failure sees project and or firm fail, with the plant selling for less than 20% of cost, success sees the project continue to produce at close to capacity, and if sold was value at close to investment, and (5) the successful process is reproduced; in the case of failure it is not. The thesis examines a sample of 67 resource processing projects in Australia initially valued at over $100 million each, over an 18 year interval between 1993 and 2010. The projects totalled$45.3 billion in value with 73% of classified as successful, while 15 projects failed. Four hypotheses are proposed and tested, each respectively relating to one of the following four factors; (1) Firm competence, (2) new process innovation, (3) government involvement in value adding, and (4) information asymmetry and strategic misrepresentation