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MineRevenueandCosts 1
September2014
NormanB.Keevil InstituteofMiningEngineering
Topics
Revenueestimationfor
Preciousmetals(orpureproducts)
Basemetals
Costestimates
Componentsofmineoperatingcosts
CashflowmodelsforMinesCMandGM
MINE396MineProjectEconomics 2
Notes:Refinerycontracts
The complexity of refinery contracts lies in the procedures established for weighing and assaying.
Security measures, delivery dates, disposition of refinery waste, and transportation of the gold are all
dealt with in a refinery contract.
MINE396MineProjectEconomics 3
Revenueequations
For a metal or pure product:
Revenue=oreproduction grade (1 dilution) recovery price f
For a concentrate:
Revenue=oreproduction NSRo
oreproduction tons,tonnes
grade masspercentage,gm/t,oz/t
dilution percentage
recovery percentage
price $/unitmass
f paymentfactor(9899.5%typical)
NSRo NetSmelterReturn$/unitmassofore
MINE396MineProjectEconomics 4
Refinerycontracts
Forpreciousmetals
~25kg ~13.4kg
Refinerycontractdictateswhatpercentageofthegoldpricethe
minewillreceive,typically9899.95%.
MINE396MineProjectEconomics 5
Smeltercontracts
Creditfor Creditsfor
inthecaseofcopper payablecopper preciousand
othermetals
Orebody Freightcosts,
<1%Cu insurance,etc
Anodecopper Cathode
Concentrate 9598%Cu copper
2530%Cu Treatment >99.9%Cu
charges(TC) Refinery
andpenalties charges(RC)
AtMineReturn NetSmelter
(AMR) Return(NSR)
MINE396MineProjectEconomics 6
Notes:Smeltercontracts
The payment received by the mine is often called the Net Smelter Return (NSR). The mine is usually
responsible for transportation, insurance, and agents costs (realization costs). These costs are
subtracted from the net smelter return to obtain the At Mine Return (AMR).
The NSR can range between 60% and 90% of the value of the metal shipped to the smelter depending
on thecurrent demand and supply conditions for the metal and concentrates.
MINE396MineProjectEconomics 7
NetSmelterReturn
NSRc CP C S TC X $/massofconcentrate
CP = Creditforprimarymetal
CS = Creditforsecondarymetals
Tc = Treatment(smelting) cost
X = Penaltyfordeleterious materials
CP andCS includetheamountofpayablemetalandtherefining
charges
MINE396MineProjectEconomics 8
HowdoyoucomputeNSR
Weneedtoknow
Metalbalance:Howmuchorewillproduce1unitmass
ofconcentrateofagivengradeofprimarymetal?
Howtocomputeconcentrationsofsecondarymetals
(byproducts)andimpurities(deleteriousmaterials)
Howtocomputecreditsforprimaryandsecondary
metals
Howtocomputepenaltiesforimpurities
MINE396MineProjectEconomics 9
Concentrationfactor
Howmanytonnesoforeareneededtoproduceonetonneof
concentrate?
mustcomeout
whatgoesin recovery% 1tonne
gradeG%
K tonnes
grade% Concentrate
diluted%
K 1 1 G
Ore
G
K
1
CopperatCM:G =27%, =0.3%, =90%, =0 K =100tonnes
MINE396MineProjectEconomics 10
Notes:Metalbalance
In general if X tonnes of ore yields Y tonnes of concentrate, then a metal balance gives
X 1 d Y G
X
K
Y
If grade, recovery and dilution are unknown, knowing the tonnes of concentrate produced
for a given amount of ore processed gives K.
MINE396MineProjectEconomics 11
Dilution
Wastemined
Dilution
Oremined+Wastemined
Isitonlyorethatisbeingblasted?
BlastatNewmontsAhafo mine,Ghana
MINE396MineProjectEconomics 12
Concentrationsofnonprimarymetals
The concentration of the principal metal (e.g., copper) is known. For
other metals in the concentrate (e.g., gold) it is assumed that
Dilution affects all metals equally
The relationship between the concentrations of metals in the ore
does not change during processing,
i.e.,allthemetalsrideonthesameflotationtrain
Then the concentration of the ith nonprincipal metal is
Gi K i i
where i is the grade of the ith metal and ri is its recovery
MINE396MineProjectEconomics 13
Underthemicroscope
~550microns
~450microns
free goldin
gold arsenopyrite
Copperconcentrate(Neves Corvo/Portugal)
Chalcopyriteandpyrite.
Source:http://www.unige.ch/sciences/terre/mineral/fontbote/teaching/lehne_oredressing/lehne_oredressing.html
MINE396MineProjectEconomics 14
NSRtheshortway
Sixeasysteps
MINE396MineProjectEconomics 15
Thecalculations 1
Assume PP = 90%
Prices last week:
Pcopper = $3.22/lb $7,100/t
Pgold = $1,388/oz $45/g
MINE396MineProjectEconomics 16
Thecalculations 2
27Mt
Tc 0.27Mt/year
100
MINE396MineProjectEconomics 17
ThecashflowmodelforMineCMlookslike
651.8M/yr
this
0 3 23
213.3M/yr 651.8M/yr
500M/yr
orthis
0 3 23
213.3M/yr
500M/yr
MINE396MineProjectEconomics 18
CostDefinitions
Capitalcosts
Costsofphysicalassetsusedinproductionandprocessing
Recoveredoverminelifeasdepreciation deductionsfromrevenuebeforetax
Operatingcosts
Costsofmaterialsandlabordirectlyassociatedwithproductionandprocessing
Usuallyexpressedasmoneyunits/mass
Recovered(hopefully)fromminerevenue
Indirectcosts
Costsofoperationthatbenefittwoormorepartsofanoperatione.g.,
maintenance,orderingparts,gradecontrol,electricpowerandheat
Generalandadministrative(G&A)costs(akaoverhead)
costswhichcannotbereasonablyrelatedtoproductionbutwhicharenecessary,
e.g.,managerssalary,securitypersonnel,recruitingandtraining
MINE396MineProjectEconomics 19
Notes:CostDefinitions
The distinction between indirect costs and G&A costs (also known as overhead)
is that there are ways to fairly allocate indirect costs to production from a
particular part of a mine operation whereas it is impossible to allocate G&A costs
to production from any part of a mine.
Sometimes indirect costs and overhead are bundled. Strictly speaking overhead is
a cost (usually a fixed cost) that is incurred whether production occurs or not, as
long as the mine remains open.
MINE396MineProjectEconomics 20
OperatingcostsofMineCM
Compute annual ore tonnage
540
To 27 Mt/year
20
(ThetotaltonnesminedperyearisT(1+SR)=81Mt)
From current feasibility study of similar mine in BC:
Processing cost: $4.00/t ore
Mining cost $1.30/t material
Need to mine waste to get ore
Mining cost = $1.30 (1 + SR) = $1.30 3 = $3.90/t ore
MINE396MineProjectEconomics 21
MineGM Revenue
Reserves 64.8Mtaveraging1.6g/tAu
Mining rate(waste+ore) 10.8Mt/year(30,000tpd)
Stripratio(waste/ore) 2.0
Dilution 5%
Minelife 18years
Recovery 70%
Assumegoldprice=$45/g
T 10.8
AnnualoretonnageTo 3.6Mt/year
1 SR 3
RevenueR 3.6 1.6 1 0.05 0.70 45 $172.4M/year
MINE396MineProjectEconomics 23
ThecashflowmodelforGMlookslike
172.4M/yr
0.5
0
2.0 2.5 20.5
58.7M/yr
100M/yr
200M/yr
250M/yr
MINE396MineProjectEconomics 24