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First Quantum's Sentinel mine under construction.

When you ask Philip Pascall where most mining project costs go awry, the chairman and chief executive officer of Vancouver-based First Quantum Minerals Ltd. points squarely to people and their management.

For Mr. Pascall, the question is especially pertinent because it forms the central pillar of his company's $5.1-billion hostile bid for Toronto rival Inmet Mining Corp. and its coveted Cobre Panama project. It is also among the most pertinent challenges facing a mining industry grappling with severe cost escalation.

First Quantum, an Africa-focused copper miner, has offered $72 a share for Inmet, which owns copper and zinc mines in Turkey, Spain and Finland and which is building one of the world's largest new copper projects in Panama at a cost of $6.2-billion.

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First Quantum says its use of in-house expertise rather than external engineering contractors who do not necessarily understand the business goes a long way toward helping it build projects cheaper, bringing more value to shareholders. Because its bid is composed of cash and stock, the company must convince shareholders its paper will indeed hold future value.

"In our review of Cobre Panama, there appears to be about $2-billion to $2.5-billion of indirect costs that can be influenced, even if we had no impact on the direct costs of the project at all," Mr. Pascall said, declining to specify how much could be slashed from those costs.

"People are often puzzled as to why some projects could be done for a terrific amount less, and they always look for a technical explanation," Mr. Pascall said in a recent telephone interview from London. "But in fact, it's often because of the management arrangements that are in place, and, for example, the unfettered use of consultants and contractors."

Analysts agree that First Quantum has developed a reputation for its resident expertise and ability to complete projects at a lower cost, although they say the company will be challenged by the sheer size of Cobre Panama, with far higher costs than any other it has tackled to date.

"They have done well with the execution of projects to date," said George Topping, an analyst with Stifel Nicolaus in Toronto, pointing at First Quantum's successful efforts to improve projects. A redesign at the Ravensthorpe mine in Australia, for example, saw the company slash the staff by about one-third.

On the other hand, Inmet has already contracted out $4-billion of the work to be done on Cobre Panama, raising the question about how much can be done to cut costs there so late in the game.

"Their flexibility on that may be somewhat hampered, depending on how solid those contracts are," Mr. Topping said.

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Mr. Pascall and other company executives point to First Quantum's similarly-sized Sentinel copper project in Zambia, with costs of $2-billion, as proof it can build mines more cheaply.

At peak construction, Cobre Panama will host up to 9,000 workers, compared to about 2,000 at Sentinel. Supervisory staff in Panama will reach 400, including subcontractor managers, compared to 50 in Zambia, Mr. Pascall said.

Indirect costs at Cobre Panama will be about $1.7-billion, compared to $150-million at Sentinel, he said.

He could not say exactly how much First Quantum could shave from costs if it were to get its hands on Cobre Panama. To do that, he said, the company must first get a look at full and confidential data on the project.

"I think all we can say is that we would expect to be able to build Cobre Panama for significantly less than the current capital estimate of $6.2-billion," said First Quantum president Clive Newall.

Inmet declined comment, but its position will be stated clearly when it releases a circular this week in response to First Quantum's hostile bid that will likely challenge the bidders' ability to do a better job at Cobre Panama.

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