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xstreta
coal

Xstrata Coal
Business Development Protocol

PROJECT COST ESTIMATING PROTOCOL

1. PURPOSE
The purpose of this protocol is to define the Xstrata Coal (XC) requirements for the development of
project capital cost estimates (cost estimates). This protocol provides direction on the process to be
followed when preparing and presenting cost estimates through different project phases.
These requirements have been established to provide a standardised structure for XC's cost estimates.

The purpose of this structure is to:

Standardise the format of cost estimates;
Standardise the format of basis of estimate reports;
Facilitate rapid project development;
Provide benchmarking data for project assurance;
Facilitate integration between the cost estimates and associated escalation models, quantitative risk
assessments, procurement sourcing estimates, control budgets and master schedules; and
Provide data for low cost country sourcing

2. SCOPE
This protocol applies to all Major projects through all phases of the XC Project Management System
(PMS).

3. PROTOCOL
3.1 Introduction
Cost estimating is the process of identifying all costs, including appropriate contingency and escalation
allowances that will be incurred in completing the project scope during Execution.
The level of detail required in the cost estimate will depend on:
The current phase;
Design maturity requirements;
Cost maturity requirements;
The complexity of the project; and
The inherent and contingent risks affecting the project.

The cost estimate must:

Accurately define the project costs in accordance with the requirements of this Protocol;
Ensure all the project scope and deliverables are costed;
Provide alignment between scope, cost, schedule and risk;
Ensure that there are sufficient contingency and escalation allowances consistent with the
uncertainty associated with the scope of works; and
Provide a financial basis that can be used to manage the delivery of a project.

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Xstrata Coal
Business Development Protocol

3.2 Cost Estimate Requirements

Cost estimates prepared by consultants, contractors and other third parties are to be presented in the
standard Project Cost Estimating Template format.
Each project team must have a dedicated resource responsible for and capable of consolidating the cost
estimates prepared by consultants, contractors and other third parties into a combined cost estimate to
meet the requirements of this Protocol.
XC has utilised AACE International Recommended Practice No. 47R-11 Cost Estimate Classification
System - As applied in the mining and mineral processing industries as the basis of this Protocol.
The level of detail in the cost estimate will be developed as the project lifecycle progresses. Within a
project phase, the maturity of cost estimates may vary across different WBS items.
The estimate class required for each phase is defined in Table 1, which is based on the Estimate
Classification Table in Appendix A. This has been aligned to AACE 47R-11.

Concept and
Phase Pre-Feasibility Pre-Feasibility Execution
Feasibility Execution
Options Appraisal) Readiness

Required Class Class 5 Class 4 Class 3 Refine Feasibility Performance

of Estimate estimate towards Measurement
Exceptions: Exceptions: Exceptions: Class 2 Baseline locked as
Class 4 - Mining Class 3 - Mining Class 2 - Mining per board
Equipment with Equipment with Equipment with approval
supply agreement in supply agreement in supply agreement in
place place place
Class 3 - Early Works Class 2 - Early Works
contracts contracts
Contingency Qualitative Quantitative Quantitative Quantitative Quantitative

Escalation XC Finance escalation Cost estimate Contracting strategy Apply escalation in accordance with
forecasts applied to prepared to Level 2 used to prepare more estimation methodology used in
cost estimate by year. WBS. accurate estimate Feasibility
Use typical project S- Cashflow based on Level 4 WBS used Based on published and agreed indices
curve to generate typical project S- and actual estimates and any contract terms.
cashflow curve or indicative of disciplines (labour,
schedule. steel, etc) from built Where contracts prescribe escalation
Use XC Finance method, use it (eg, some scope may be
up cost estimate (no
hyperinflation and Typical project fixed price with no escalation; some may
typicals).
CPI estimates percentage have a pre-agreed escalation formula)
weightings applied Detailed cashflow
by discipline (labour, driven from schedule. For remainder of scope not covered by
steel, etc). contract conditions, use Feasibility
Calculate escalation. method updated with latest cost
Calculate escalation. estimate
Back out CPI
Back out CPI
Table 1 -Cost Estimate Requirements

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