Mining Revenues and Costs

Assoc/Prof Ali Karrech

School of Civil, Environmental, and mining Engineering

Outline
Introduction
Life of Mine (LOM) plan
Financial analysis
Estimating Revenues
Estimating costs

Slide 2

Introduction
Evaluation: Determining the numerical values and all the possible
factors that are important in establishing the worth of a project.
388

MINING ENGINEERING HANDBOOK

Fig. 6.0.1. Generalized iterative procedure for mine evaluation.

Iterative
of mine
evaluation
(source:
SME)
accordingprocedure
to the preferred
investment
criteria and
incorporated
into the corporate capital budgeting process. Chapter 6.5 discusses mining project investment analysis as it relates to estimating project economic viability.
The mine evaluation procedure used for investment analysis
is usually iterative in nature. The general procedure may be
represented by Fig. 6.0.1 (Gentry and ONeil, 1984). The tonnage and grade of the estimated ore reserve established from
the exploration program are important variables in determining
optimum mine size. Mine size, in turn, affects production costs,

investment decisions, various po

lated on the premise that the f
vate organization is to maximize
(stockholders). In this sense, the
current market value of the firm
tions, the wealth or value is con
market price of the firms com
It is important to note that
appropriate and inclusive goal f
tion. Indeed, there is a differenc
most situations. For example, th
firm to increase profits, but man
cause net shareholder worth to
total profits are not as importa
as are other indicators. Over the
of an organization will be a func
of the organization handles inv
for the results of these decision
of the firm in the marketplace.

! mine evaluation is the assessment of the relative economic viability of

the mining project or investment opportunity.
6.0.1.5 Mining as a Uniqu
Environment

Slide
3
Certainly the
investment
e
mining industry is unique when
encountered by most other ind

LOM planners burden

What can be mined profitably? (pit optimisation)
How to mine it? (mining method selection)
How to access it? (pit design)
How to dispose of worthless materials? (waste design)
How the mine evolves? (scheduling/staging)
What can be presented to the mill? (scheduling, cut-off grade, dilution)
What equipment to be used? (equipment selection)
How much equipment are needed? (productivity assessment)
What is the mining capital cost? (cost model)
What is the mining operating cost? (cost model)

Source: modified from T. Elkington , MINE4161o

Mining Studies

Source: cost estimation handbook, 2013

Mining Studies - Scoping

The potential of an orebody in terms of
size (tonnage/grade), mining and processing
conditions, infrastructure, risks etc.
Is more drilling needed before proceeding? Where
should it be?
Costs taken from prior experiences (within 30%)
Decide if further work is justified

Slide 6

Mining Studies Pre-feasibility

Additional details are developed
Costs are defined to higher accuracy (15-25%)
Used to consider mining, processing, sales options for
the deposit
Focuses on key issues

Slide 7

Mining Studies feasibility

A full technical study that seeks to optimise all aspects
of the operation from environmental through to mining
Used to assess the commercial and technical viability
of the preferred option(s)
Used to apply for finance
Identifies key issues, risks and management strategies
Greater analysis of costs (10-15%)

Slide 8

Mining Studies

Banquable Quality Feasibility

Details the engineering design, validating the feasibility
or providing amendments
Provides specifications and implementation plans for
Engineering, Procurement, Construction and
Management (EPCM) and initial operating plan and
systems
Estimates costs to 5%

Slide 9

Mining Studies

Source: (T. Elkington , MINE4161)

Mining
Studies

Chapters 1-4

Ore Deposits

Chapter 5

Grade/
Potential
Grade

Reserves/
Resources
Potential
Tonnage

Chapters 6-7, 8

Net Smelter
Return of
Concentrates

Optimum of
Annual Mine
Capacity

Chapters 9, 10

Operating
Costs

Investment
Costs

Chapter 11

Payback Period, Net Present Value ,

Internal Rate of Return

Mining
Studies

Chapters 1-4

Ore Deposits

Chapter 5

Grade/
Potential
Grade

Reserves/
Resources
Potential
Tonnage

Chapters 6-7, 8

Net Smelter
Return of
Concentrates

Optimum of
Annual Mine
Capacity

Chapters 9, 10

Operating
Costs

Investment
Costs

Chapter 11

Payback Period, Net Present Value ,

Internal Rate of Return

Outline
Introduction
Life of Mine (LOM) plan
Financial analysis
Estimating Revenues
Estimating costs

Slide 14

Project Value
Future worth
If a depositor puts 1$ in a savings account today at a bank paying 10%
of simple interest. In one year, he would have $1.1, that is
FW = PV (1+i)
FW = Future Worth,
PV=Present Value
i = interest rate
At the end of n years, the accumulated amount would be:
FW = PV (1+i)n
After 5 years, FW = 1(1+0.1)5 = $1.61
Slide 15

Project Value
Present Value
The previous procedure can be reversed. For example if you are to
receive $1.61 in 5 years, and the annual interest rate during this period
is 10% (or 0.10), then the present value of this amount is?

FW
PV =
(1+ i)n
Substituting for FW = $1.61, i=0.1 and n=5

PV =

1.61
= $1
5
(1+ 0.1)
Slide 16

Project Value
Present Value of a series of contributions
If you are to receive 1$ at the end of each year of 5 consecutive years
and the annual interest rate during this period is 10% (or 0.10), then
what is the present value in question?
One calculates the present value of each of these payments
$1.
= $0.909
1
(1+ 0.1)
$1.
Year 2 : PV2 =
= $0.826
2
(1+ 0.1)
$1.
Year 3 : PV3 =
= $0.751
3
(1+ 0.1)
$1.
Year 4 : PV4 =
= $0.683
4
(1+ 0.1)
$1.
Year 5 : PV5 =
= $0.621
5
(1+ 0.1)
Year 1: PV1 =

! The present value of these 5

years payments

PV = $3.79
! In general,
n

PV = C k (1+ i )

k=1

$ (1+ i)n 1 '

if C k = C k, PV = C &
n )
% i(1+ i) (
Slide 17

Economic Concepts
Payback period
The period of time required to regain the funds invested, or to reach
the break-even point.
Example: Assume $5 borrowed today to purchase a piece of
equipment and that an interest rate of 10% applies. It is intended to
repay the loan in equal yearly payments of $1.
PV(loan) = $5
" (1+ 0.1)n 1 %
PV(payments) = $1$
n '
# 0.1(1+ 0.1) &

The loan is repaid when the net present value is zero:

Net Pr esent Value (NPV) = PV(loan) + PV(payments) = 0
" (1+ 0.1)n 1 %
NPV = $5 + $1$
=0
n '
# 0.1(1+ 0.1) &

! n ~ 7.25 years

Slide 18

Project Value
Internal rate of return (IRR)
a discount rate that makes the net present value (NPV) of all cash flows
from a particular investment equal to zero:
n

(cash flow during the period k) (1+ irr )

k

(initial investment costs) = 0

k=1

Example: assume $5 are invested in a piece of equip. at t=0. After tax,

profits of $1 will be generated through its use for each of the next 10
years. Calculate the IRR.
Solution 1: it is the interest rate that makes the NPV zero

" (1+ irr)10 1 %

$1$
$5 = 0
10 '
# irr(1+ irr) &
which is irr ~ 0.15

In practice, a dichotomy approach can be

useful to approximate the solution
Slide 19

Project Value
Rate of return on an investment
Return on investment is a profit on an investment:
ROI =

Final value, including dividends and interest - Cost of Investment

Cost of Investment

Rate of return is a profit on an investment over a period of time (without

reinvestment):
ROR =

ROI
t

Example: Suppose A invested $1000 in an equipment in 2010 and sold

it for $1650 in 2015. Calculate the ROI and the ROR.
Solution 1: The return on investment is
ROI = (1650-1000)/1000 = 65%
and the ROR is
ROR = 65/5= 13% per year

Slide 20

Project Value
Cash flow
Net inflow (positive) and outflow (negative) of money, during a specific
period of time
Gross revenue
- Operating expense = Gross Profit (taxable income)
- Tax = Net Profit
- Capital Costs = Cash flow
Example (calculate the Cash flow)
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
Revenue

170

200

230

260

290

- Op costs

-40

-50

-60

-70

-80

-30

-40

-50

-60

-70

100

110

120

130

140

- Cap costs

-200

-100

- Tax costs
Cash flow

-200

-100

Slide 21

Project Value
Discounted Cash flow
Discount: generally means find the present value.
Example: We use the previous example to calculate the present value
of the cash flows as well as the net present value assuming a discount
rate of 15%.
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
Cash flow

-200

Discounted CF -200

-100

100

110

120

130

140

-100
------1.15

100
------1.152

110
------1.153

120
------1.154

130
------1.155

140
------1.156

NPV = DCF0 + DCF1 + DCF2 + DCF3 + DCF4 + DCF5 + DCF6

= 200 86.96 + 75.61+ 73.33+ 68.61+ 64.63+ 60.53
= $55.75
Slide 22

Project Value
Depreciation
Decrease in value of an asset, e.g.:

Investment ($)
Life (number of year)

It can be accounted for as follows:

Gross revenue
- Operating expense - Depreciation = Gross Profit (taxable income)
- Tax = Net Profit
- Capital Costs + Depreciation = Cash flow

Example: Consider a $100 investment in a 5 years lifetime project. The

salvage value of the investment is zero. The project dollar income and
capital expenses are estimated to be $(80,30) in year 1, $(84,32) in
year 2, $(88,34) in year 3, $(92,36) in year 4, and $(96,38) in year 5.
The effective income tax is 32%.
Calculate the cash flows and the Net Present Value (consider an interest
rate of 15%).
Slide 23

Project Value
Depreciation
Solution :
Year
0
1
2
Revenue
80
-Oper costs
-30
-Depre9a9on
-20
=taxable
30
-Tax @ 32 %
-9.6
=Net income
20.4
+ Deprecia9on
20
-Capital costs
-100
Cash ows
-100
40.4
Discouted CF
-100.00
35.13

3
4
5
Cumula0ve
84
88
92
96
440
-32
-34
-36
-38
-170
-20
-20
-20
-20
-100
32
34
36
38
170
-10.24 -10.88 -11.52 -12.16
-54.4
21.76
23.12
24.48
25.84
115.6
20
20
20
20
100
-100
41.76
43.12
44.48
45.84
115.6
31.58
28.35
25.43
22.79
43.28

Remark: Depletion, which is a tax consideration given the the owner of a

mineral deposit, can be considered the same way as Depreciation

Slide 24

Estimation of the potential

production rate
To estimate the Mine Life and production rate Taylor (1977)
proposed the following empirical formulae:
Life (years) = 0.2 4 Tonnage
Pr oduction (tonnes/day)=

Tonnage
Life OperatingDays

= 0.0143 Tonnage 0.75. For a mine operating 350 days/yr

Example: using Taylors model estimate the lifetime and daily

production of mine knowing that the 9.15 million tonnes are to
be removed. Assume the mine operates 350 days/year.
Solution:
Life (years) = 0.2 4 9e 6 = 11 years
Pr oduction (tonnes/day)= = 0.0143 (9.15e 6 )0.75 = 2349.73 tonnes/day

Estimation of the potential

production rate
does not work well for v. large (>200Mt) deposits, deep, ftat
orebodies, steeply dipping tabular orebodies etc.
For open pit mines, the production in mt/yr can be expressed
as
0.416 Tonnage 0.5874 . (based on 41 Gold-silver mines (Singer et al. 1998))
0.0236 Tonnage 0.74 . (based on 45 Copper mines (Singer and Long 2001))
0.123 Tonnage 0.649 . (based on 342 Other mines (Long 2009))

Taxation and royalties

Taxation regimes differ from a country (or state) to another and often
depend on commodities.
There are number of means by which governments gain direct benefits
from a project by:
Royalties.
Lease payments
for land and
mineral rights,
etc.

Source: Australias Future Tax System: Report to the Treasurer p. 47 (Henry Tax Review)

Influence of risk on NPV

Investors prefer relatively certain profits (a loaf is better than two in the bush)
The discount rate, i, used to discount NPV depends on the Weighted
average cost of capital (WACC) and the level of risk of a project.
It is calculated as a function of three components:
i1: WACC (2.5% ~ 5%) .
i2: associated to the risk of the project (3% ~ 16%). Depends on
the development level (scoping, pre-feasibility, feasibility etc.)
i3: associated with the country (geopolitics) (0% ~ 14%)
i = 5.5 ~ 25%

Influence of risk on NPV

i2 associated with the level of risk of a project

Influence of risk on
NPV
i3 associated with the
level of risk of a
country

http://pages.stern.nyu.edu/~adamodar/
New_Home_Page/datafile/ctryprem.html

Influence of risk on NPV

A company intends to invest in a Copper mine in Indonesia.
The estimated tonnage is 12Mt. Estimate the life time of the
mine and the discount rate, knowing that the WACC is 5%.
Pr oduction (tonnes/day) = 0.0236 Tonnage 0.74
Pr oduction (tonnes/day)=

Tonnage
Life OperatingDays

Tonnage
Tonnage 0.26
Life=
=
Pr oduction (tonnes/day) OperatingDays 0.0236 OperatingDays
= 8.39 years

i1 = 5%, i2 = 12% (assume a feasibility study), and i3 = 9%

for Indonesia ! i = 26%

Outline
Introduction
Life of Mine (LOM) plan
Financial analysis
Estimating Revenues
Estimating costs

Slide 32

Estimating Revenues
Current prices
Current prices can be found in several publications such as:
Metals Week
Mining Magazine
Metal Bulletins
Industrial Minerals

For many minerals, the ton is the unit of sale:

1 short ton (st) = 2000 lbs = 0.9072 metric tons
1 long ton (lt) = 2240 lbs = 1.01605 metric tons
1 metric tons = 2204.61 lbs = 1000 kilograms

Precious metals (gold, silver, platinum, palladium, rhodium), are

generally sold by troy ounce.
1 troz = 31.1035 grams
1 oz = 28.3495 grams (U.S. standard ounce)
1 carat = 0.2 grams
Slide 33

Estimating Revenues
Markets
Principal markets of metals:

London Metal Exchange (LME), UK: www.lme.com .

New York Mercantile Exchange (NYME), New York, USA: www.nyme.com .

KITCO Precious Metals: www.kitco.com

Slide 34

Estimating Revenues
Historical price data
Precious metals

Slide 35

Estimating Revenues
Historical price data
Base Metals

Slide 36

Estimating Revenues
Historical price data
Steel raw materials

Slide 37

Estimating Revenues
Trend Analysis
Idea: replace the actual price-time history with a mathematical
representation which can be used for extrapolation
A function of the form y = a 0 + a1x + a 2 x 2 +... + a m x m can be useful. For a

data of size N (N pairs of x and y), the maximum power of such polynomial
is m=N-1.

This is a good procedure for interpolation, but cannot be used for

extrapolation (the higher orders fluctuate a lot)
The simplest representation is

y = a 0 + a 1x

(1)

From the previous curves, it can be noticed that the behavior is non-linear.
The following trend could also be tested

y = a exp(bx)

(2)

Which can be transformed into an equation of the form (1) such that

y = a + a 1x

such that (.) = Ln(.)

Slide 38

Estimating Revenues
Trend Analysis
The least square approach shows that:
1
x
ln
y

i i n x i ln yi
#1
&
b
b=
a
=
exp
ln
y

x
%
i ('
i
2
1
$
2
n
n
xi n xi

The correlation factor can be calculated using:

Sxy
r=
SxxSyy
where
Sxx = n x 2i

xi

Syy = n ( ln y i )

ln yi

Sxy = n x i ln y i x i ln y i

The correlation coefficient is unitless and between +1 and -1. In general,

the closer the correlation coefficient is to +1 or -1 the better the
association between the two variables.

Slide 39

Estimating Revenues

1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966

18
19
20
21
22
23
24
25
26
27
28
29
30
31

Actual price
of per unit of
commodity
28.798
29.694
37.491
41.818
29.576
25.764
31.182
32.053
29.921
30.6
30.6
31.96
35.017
36.17

1967
1968
1969
1970
1971
1972
1973
1974
1975
1976

32
33
34
35
36
37
38
39
40
41

38.226
41.847
47.534
57.7
51.433
50.617
58.852
76.649
63.535
68.824

Year

Predict the price from 1977

to 1988 based
on data from 1955 to 1976

Slide 40

Estimating Revenues
1
x i ln y i

n
b=
2
1
2
x

x
i n i
#1
&
b
a = exp % ln y i x i (
$n
'
n

x ln y
i

1977

22

65.81

65.42185345

1978

23

65.5

68.13293824

1979

24

92.33

70.95637052

1980

25

101.42

73.89680596

1981

26

83.74

76.9590932

1982

27

72.91

80.14828177

1983

28

77.86

83.46963047

1984

29

66.76

86.92861602

1985

30

65.57

90.5309421

1986

31

66.1

94.28254875

1987

32

82.5

98.18962216

22

26.773

0.04046

Slide 41

Estimating Revenues
Calculate the correlation coefficient
Comment on the accuracy of the proposed method
Sxx = n x 2i

xi

Syy = n ( ln y i )

r=

ln yi

Sxy = n x i ln y i x i ln y i

Sxy
SxxSyy

Sxx

19481

Syy

45.35

Sxy

791.01

r(sxy/
sqrt(sxxsyy))

0.841

Slide 42

Estimating Revenues
The average price of a metallic commodity is around 1.5
its production cost.
Prices are imposed by the market rather than controlled
by mining companies
The prices are usually cyclic, in terms of discounted
dollars.

Slide 43

Mining
Studies

Chapters 1-4

Ore Deposits

Chapter 5

Grade/
Potential
Grade

Reserves/
Resources
Potential
Tonnage

Chapters 6-7, 8

Net Smelter
Return of
Concentrates

Optimum of
Annual Mine
Capacity

Chapters 9, 10

Operating
Costs

Investment
Costs

Chapter 11

Payback Period, Net Present Value ,

Internal Rate of Return

Estimating Revenues
Net Smelter Return
For base metals (eg. copper, lead, zinc), prices are not quoted for
concentrates. Prices are given for refined metals.
Net Smelter Return: the payment received by the company from the
smelter for their concentrates.
A mill produces a copper concentrate containing G % of metal. The
contained copper in one ton of concentrate is:
CM = G x 2000 / 100 (lbs of metal /ton of concetrate)
G: concentrate Grade (% metal)
2000: lbs/ton

The contained copper value is:

CV = G x 2000 x P / 100 ($/ton)
P: current market price ($/lb)

Slide 45

Estimating Revenues
Net Smelter Return
It is not possible for smelting and refining to recover 100% of the
contained metal. Some of it is lost in the slag.
To account for this, the smelter pays only for a portion of the metal
content in the concentrate.
The deductions may take one of the following forms:
Percentage deduction: the smelter pays only for a concentration C of the
contained metal
Unit deduction: the concentrate grade is reduced by a certain fixed amount
called unit reduction
A combination of the above.

Slide 46

Estimating Revenues
Net Smelter Return
Therefore, the effective concentrate grade is:
C
Ge =
(%)
(G u )
100
u: fixed unit deduction (%)
C: Credited percentage of the metal content (%)

The payable (accountable) metal content in one ton of concentrate is:

C (G u )
Me =
2000
(lbs/ton)
100 100
Smelters often pay only a certain proportion of the current market price.
The relation between the actual price to the market price is the price
factor, f.
The gross value of one ton of concentrates is:

GV = M e Pf

($/ton of concentrate)

Slide 47

Estimating Revenues
Net Smelter Return
The basic smelter return (BSR) can be obtained by taking into account
the charges incurred during treatment, refining, and selling:
BSR = M e ( Pf r ) T

($/ ton of concentrate)

r: refining and selling cost ($/ (lb of payable metal))

T: treatment charge ($/ton of concentrate)

The net smelter return (NSR) accounts for the presence of other metals
whether it is advantageous (resulting in a by-product credit Y) or
disadvantageous (resulting in a penalty charge X):
NSR = M e ( Pf r ) T X + Y

($/ ton of concentrate)

Pe=Pf-r is also known as the effective metal price.

The At Mine Revenue (AMR): net value of the concentrate to the mine
is expressed as:
($/ ton of concentrate)
AMR = NSR R
R :is the realisation cost (e.g. Freight, Insurance, sales items commission)
Slide 48

Estimating Revenues
Net Smelter Return
According to OHara (1980), Freight cost F in Canadian $ (1979) per
ton of concentrate can be expressed as:
($/ ton of concentrate)
F = 0.17Tm0.9 + 0.26R 0.7
m + 0.8D 0
Tm: miles per road (truck)
Rm: miles per railroad
D0: days of loading, ocean travel and unloading on a 15000-ton freighter

The percent payment (PP) is expressed as:

PP =

AMR
CV

CV: value of the metal contained in the concentrate

Slide 49

Estimating Revenues
Net Smelter Return
According to OHara (1980), Freight cost F in Canadian $ (1979) per
ton of concentrate can be expressed as:
($/ ton of concentrate)
F = 0.17Tm0.9 + 0.26R 0.7
m + 0.8D 0
Tm: miles per road (truck)
Rm: miles per railroad
D0: days of loading, ocean travel and unloading on a 15000-ton freighter

The percent payment (PP) is expressed as:

PP =

AMR
CV

CV: value of the metal contained in the concentrate

Slide 50

Estimating Revenues
Net Smelter Return

Gangue
Mineral

Metal

Slide 51

Estimating Revenues
Net Smelter Return

Gangue
Mineral

Metal

Slide 52

Estimating Revenues
Net Smelter Return
Example: Assume a concentrate that contains 30% of copper and 30
troz of silver per ton. It also contains 2% of lead all other elements are
below the allowable limits. Assume the prices are $1/lb for copper, $6/
troz for silver and $0.5/lb for lead.
Payments
Copper: C=98%, f=1.0, u=1%
Silver: C=95%, f=1.0, u=1.0 troz

Deductions
Copper: T= $75/ton, r=$0.1/lb
Silver: r = 0.35/troz of accountable silver

Assessments
1st unit (1% in this case) of lead is free, additional units charged at $10 per unit
(1% in this case) per ton of concentrate.

1- Calculate the Basic Smelter Return

2- Calculate the Percent Payment
Slide 53

Estimating Revenues
Net Smelter Return
Solution: For copper, the Basic Smelter Return is:
C Gu
BSR = M e ( Pf r ) T =
2000 (Pf r) T
100 100
98 30 1
=
2000 ($11 $0.1) 75 = $436.56 / ton of concentrate
100 100
The by-product credit for silver is

Y=

C
(G u) (Pf r)
100
95
=
(30 1) ($6 1 $0.35) = $155.66 / ton of concentrate
100

The penalty for the excess of lead is:

X = (units present units allowable) x charge per ton of concentrate =
= (2-1)$10. = $10 /ton of concentrate

Slide 54

Estimating Revenues
Net Smelter Return
Solution: the Net Smelter Return is:
NSR = $436.56 $10. +$155.66 = $582.22 / ton of concentrate
Assume that concentrates are shipped 500 miles by rail to the smelter
and that $1 (CAN, 1979) = $3.6 (AU, current). The transport cost is:

F = 3.6 x 0.26 x Rm0.7 = 0.936 (500)0.7= $72.53

The at-mine-revenue is:
AMR = NSR-R = 582.22 72.53 = $509.7

The contained Value in one tonne of concentrates is:

CV =

30
2
2000 $1 + 30

$6
+
2000 $0.5 = $800

100
100

silver
copper

lead

The percent payment is

PP = AMR/CV = 509.7/800= 63%
Slide 55

Outline
Introduction
Life of Mine (LOM) plan
Estimating Revenues
Estimating costs
Types of costs
Approach I (order 0 experience)
"Fleet requirement
"Mining cost

Approach II (empirical - statistics)

Slide 56

Estimating Costs
Types of costs
Cost categories may be:
Capital cost (Capex)
Operating cost (Opex)
General and administration cost (G&A).

The capital is the investment required to bring a project to a

commercially operable status.
The operating costs are used by an organization just to maintain its
existence. They would reflect labour, drilling, blasting, loading, hauling,
dozing, maintenance (some companies include maintenance in G&A),
etc.
The G&A expenses include all of the costs of operating the business
other than the costs of preparing the product for sale,
(e.g. managerial salaries, area supervision, mine/head office expense,
mine surveying, state/local taxes, insurance.)
Slide 57

Estimating Costs
Escalation of older costs
Is there a simple way to
update costs to make
estimation today?
This can be achieved by
escalating costs through the
application of various
published indexes
e.g. construction cost, building
cost, skilled labour, common
labour, materials.

Question: Assume that the cost

of the mine maintenance
building was $100000 in 1978,
estimate its cost in 2011.
Answer:
$100k x 5058/1664 = $303.96k
Slide 58

Outline
Introduction
Life of Mine (LOM) plan
Estimating Revenues
Estimating costs
Types of costs
Approach I (order 0 experience)
"Capital cost
"Mining cost

Approach II (empirical - statistics)

Slide 59

Mining cost
Mining cost ($/t) is made up of two basic components
Productivity (t/hr)
Hourly cost ($/hr)

Total mining
cost: 2.39 $/t
mined

Can break down in two dimensions

Cost centre

Loader
Trucks
Drill
Blast
Ancilliary
Admin
Dayworks

Cost type

Labour
Fuel
Maintenance

Capital cost:
0.31 $/t mined

Mine admin:
0.05 $/t mined

Operating cost:
2.08 $/t mined

Day works:
0.09 $/t mined

Drilling and
Blasting: 0.46
$/t mined

Mining fleet:
1.48 $/t mined

Drilling 0.13$/t
mined

Loading: 0.27
$/t mined

Blasting 0.33 $/
t mined

Haulage: 0.85
$/t mined

Ancillary: 0.36
$/t mined

60

Capital costs
Once equipment replacement and purchase has been determined, it is a
simple process to determine the capital costs of the equipment
Need to know all up cost!

Freight
Tyres
Insurance
Buckets/Ground Engaging Tools (GET)
Additional extras

Capital cost per unit (rules of thumb)

Drills = $47,000 x Weight (t)

Shovel = $21,000 x Weight (t)
Truck = $37,000 x Weight (t)
Water cart = $37,000 x Weight (t)
Wheel loader = $37,000 x Weight (t)
Track dozer = $28,000 x Weight (t)
Wheel dozer = $32,000 x Weight (t)
Grader = $51,000 x Weight (t)

61
Source: T. Elkington , MINE4161o

Mining cost estimate

62

Mining cost estimate (cont.)

63

Hourly costs of equipment (trucks/loaders/

drills)
Fuel
Fuel burn (L/hr) x Fuel cost ($/L)
Fuel burn rule of thumb (L/hr = Z x Diesel power in kW)
Where Z = 0.19 for loaders and drills, varies for trucks

Salary cost ($/year) / Hours worked (exc leave) x manning ratio

Salary cost includes direct pay, other benefits (social security), payroll tax,
accommodation, meals, training etc.
Manning ratio rule of thumb 2.8 per machine (including maintenance labour)

Maintenance (includes GET, tyres, parts, oil, accidental damage)

Rule of thumb $/hr = Y x Weight of equipment in t
Where Y = 2.12 for drills, 1.05 for loaders, 1.06 for trucks

Lease cost (spreads capital cost across equipment life)

Rule of thumb $/hr = K x Weight of equipment in t
Where K = 0.68 for loaders, 1.19 for trucks, 1.52 for drills
64
Source: T. Elkington , MINE4161o

Hourly costs of equipment

Fuel burn
Calculated in segments (as per time)
Fuel burn (L/hr)
Hourly fuel burn = 0.233 engine power [ 0.96 Engine loading +0.04 ]

Where EngineLoading
Uphill or level

Downhill/Idle = 0

Fuel burn
65
Source: T. Elkington , MINE4161o

Hourly costs of equipment (trucks/loaders/

drills)
Fuel burn
Calculated in segments (as per time)
Fuel burn (L/hr) = 0.233 x GrossEnginePower x
(EngineLoading*0.96+0.04)
Where EngineLoading
Uphill or level = UpRampTruckSpeed x TotalTruckWeight x
9.81 x (RampGrade+RollingResistance)/(3.6 x
GrossEnginePower x TransmissionEfficiency x
(1+RampGrade^2)^0.5)
Downhill/Idle = 0

66
Source: T. Elkington , MINE4161o

Other costs
Blasting
PF exp losive cost
Labour adjust. (1.3) consumable adjust. (1.1)
Rock density
Powder factor ~ 0.6 kg/m3 is common
Explosive costs ~ $1,000/t for Emulsion and $800/t for ANFO
cost($ / t) =

Ancillary
Rule of thumb 25% of combined loading and truck cost ($/t)

Management on-cost/contractor margin

Rule of thumb 20% of all total cost

Admin & dayworks

Rule of thumb 10% of total cost

67
Source: T. Elkington , MINE4161o

Some equipment data

68
Source: T. Elkington , MINE4161o

Outline
Introduction
Life of Mine (LOM) plan
Estimating Revenues
Estimating costs
Types of cost
Approach I (order 0 experience)
"Capital cost
"Mining cost

Approach II (empirical - statistics)

"Capex
"Opex
"GA
Slide 69

Estimating Costs
OHara (1980) cost estimator - CAPEX
Daily tonnage:
T = tons of ore milled/day
T0 = tons of ore mined/day
Tw = tons of waste mined/day
Tc = tons of passing the primary crasher/day
Tp = Tc+Tw =total material minded/day
Assume the mill operates three 8-hour shifts, 5 days/week. Many open pit mines 7 days/
week others operate 5 days/week. In the second case, T = 5 T0/7.

The combined mine/mill capital cost is

C = $400, 000T 0.6

Assume that $1 (CAN, 1979) = $3.6 (AUD, today)

C = $1, 440, 000T 0.6

Slide 70

Estimating Costs
OHara (1980) cost estimator - CAPEX
Personnel numbers
Number of personnel required in open pit (trucks and shovels)

!# 0.034Tp0.8 for hard rock

N op = "
0.8
$# 0.024Tp for competent soft rock
Number of personnel required to operate mills treating T tons of low grade ore:

! 5.9T 0.3 for cyanidation of precious metal ores

#
N ml = " 5.7T 0.3 for flotation of low-grade base metal ores
#
0.3
7.2T
for gravity concentration of iron ores
$
Number of service personnel: N sv = 25% of (N op + N ml )
Number of administrative and technical personnel: N at = 11% of (N op + N ml + N sv )

Slide 71

Estimating Costs
OHara (1980) cost estimator - CAPEX
Mine site clearing
For the pit, the required area in acre is:

A p = 0.0173Tp0.9

The clearing cost depends upon the topography, type of cover and area:

!$300A 0.9
p for flat land with no shrubs and no trees
##
Total clearing cost = "$1600A 0.9
p for 20% slopes with light tree growth
#
0.9
#$$2000A p for 30% slopes with heavy trees

Pre-production waste stripping

soil stripping costs= $3.2Ts0.8 for soil not more than 20 ft deep
0.6
waste stripping costs= $340Tws
for rock requiring blasting loading and haulage

where Ts: tons of soil and Tws: tons of waste

Slide 72

Estimating Costs
OHara (1980) cost estimator - CAPEX
Drilling: number of drills Nd should be
" 2 if tonnage 25000tpd
$
N d = #3 if 25000tpd < tonnage 60000tpd
$ 4 if tonnage > 60000tpd
%
The cost of drilling equipment can be estimated by $20000N d d1.8 , where d
is the hole diameter.

Shovels: the optimum size is estimated by S = 0.145 Tp0.5(dipper size yd3)

The number of shovels can be estimated by N S = 0.011 Tp0.8 / S
The cost of the fleet of shovel (and auxiliaries) will be $510000 N s S0.8

Trucks: the optimum truck size is matched to the size of the shovels
bucket size: truck size t (tons) = 9.0 S1.1
0.8
The number of trucks required: N t = 0.25 Tp / t

Haulage equipment costs: $20000 N t t 0.9

Slide 73

Estimating Costs
OHara (1980) cost estimator - CAPEX
Mill associated costs

cos t of concentrator building =$27,000T 0.6

cos t of gyratory crusher = $63 Tc0.9
cos t of primary crushing plant = $15,000 Tc0.7
cos t of fine crushing plant = $18,000 T 0.7
!$18, 700T 0.7for hard ore ground to 70% passing 200 mesh
#
cos t of grinding "$12, 700T 0.7for soft ore ground to 55% passing 200 mesh
#
0.7
$22,
500T
for hard ore ground to 85% passing 200 mesh
$

Slide 74

Estimating Costs
OHara (1980) cost estimator - OPEX
Pit operating costs

drilling cost per day = $1.9Tp0.7 ; blasting cost per day = $3.17Tp0.7
loading cost per day = $2.67Tp0.7 ; haulage cost per day = $18.07Tp0.7
general services cost per day = $6.65Tp0.7

Processing costs
gold ores : $40, 000 to 105,000 T 0.5
base metal ores: $13,700 to 20,000 T 0.6
uranium ores $150,000 to 200,000 T 0.5

Slide 75

Estimating Costs
OHara (1980) cost estimator - OPEX
Concentrator operating costs
crushing cost per day =$7.9T 0.6
fine crushing cost per day = $12.6 T 0.6
gr in ding cost per day = $4.9 T 0.8
!$65T 0.6 for cyanidation of glod/silver ores
#
0.6
#$54T for flotation of simple base metal ores
##
$34 to $41T 0.7 for complex base metal ores
processing cost per day "
#$65T 0.7 for Uranium ores by leaching
#
0.7
$45T
for nonfloatable nonsulfide ores responding
#
#$ to gravity separation
Tailings costs per day = $0.92 T 0.8
Assaying costs per day = $1.27 T 0.8
Supervision, maintenance and general costs per day = $40.80 T 0.8
Slide 76

Estimating Costs
OHara (1980) cost estimator (G&A)

Mine project overhead costs (D: direct costs)

engineering costs =$2.3D 0.8 ;
general site costs =$0.31D 0.9
project supervision costs =$1.8D 0.9 ;
administration costs = $1.5D 0.8

Slide 77