Total Drilling Cost

AC BHMT's Value Proposition

Prepared for:

Indiana Society of Mining and Reclamation

19th Annual Technolocy Transfer Seminar Dec. 5th & 6th, 2005

What is "value"?

The AC BHMT "value proposition" is based on drill productivity, not "bit life". Drill productivity costs a mining company much more than "bit life". Let's take a few minutes to talk about and understand what YOUR value proposition is based on.

Then we will explain ours.

Total Drilling Cost

Total Drilling Cost is a value concept that places its' emphasis on the cost of drill productivity. Progressive customers understand and adopt the philosophy that the cost of productivity drives the economics of a mine. Total Drilling Cost captures and shows the cost of drill productivity.

The Total Cost of Drilling TDC includes everything it takes to run a drill:

$ $
$

Labor Power: fuel or electricity Drilling tools and supplies Maintenance labor & parts Supervision, administration Cost of equipment ownership (lease, purchase, or rental payments)

With all things considered, drill operating costs can exceed US$300 per operating hour.

Total Drilling Cost

Method 1 TDC =

(Bit Price / Meters Drilled)

+
(Drill Operating Cost per Hour / ROP)

Total Drilling Cost

Example #1:

Bit cost = US$5,000 Bit life, meters = 6,500 Penetration Rate = 52 meters/hour Rig Cost = US$200 per hour

Total Drilling Cost

Example #1:

TDC =
Bit Life + Productivity

($5,000 / 6,500m) + ($200 / 52 m/hr)

=
$0.77 / meter + $3.84 / meter

= $4.61/meter

Total Drilling Cost

Example #2:

Bit cost = US$5,000 Bit life, meters = 8,000 Penetration Rate = 40 meters/hour Rig Cost = US$200 per hour

TDC = (Bit Cost / Bit Life) + (Rig Cost / Pen Rate)

Total Drilling Cost

Example #2:

TDC =
($5,000 / 8,000 m.) + ($200 / 40 m/hr) = $.625 + $5.00 = $5.63 / meter

Total Drilling Cost

Example #2
TDC = ($0.63 / m.) + ($5.00 / m.) =

$5.63 / meter
$1.02 MORE!
for a bit that is less productive but has longer life?!
(52 vs. 40 m/hr., 8,000 vs. 6,500 m)

Where is the advantage really found?

Total Drilling Cost

TDC Method 2 TDC = (Bit Price / Meters Drilled) + Fixed Cost + (Variable Cost / Rate of Penetration)
Where:
Fixed Cost = Annual Overhead Cost / Annual Meter Budget Variable Cost = Labor + Fuel + Supervision + Repair Parts + Repair Maintenance + Repair Labor

TDC Method 2

Fixed Cost Calculation:

For example: $1.50/meter fixed cost
$1.50 / meter = $900,000 overhead cost for drill fleet / 600,000 annual budget meters

Ownership cost of the drill fleet (lease, rent, purchase

payments) Drill Maintence budget for fleet (PM parts, fluids, normal wear parts, etc.) Budgeted drilled meters.

TDC Method 2

Example A:

Bit cost = US$5,000 Bit life, meters = 6,500 Penetration Rate = 52 meters/hour Fixed Cost = $1.50 / meter Variable Cost = $95 / hour

TDC = ($5,000 / 6500) + $1.50 + ($95 / 52)

TDC =

$.77

$1.50 +

$1.83 = $4.10

TDC Method 2

Example B:

Bit cost = US$5,000 Bit life, meters = 8,000 Penetration Rate = 40 meters/hour Fixed Cost = $1.50 / meter Variable Cost = $95 / hour

TDC = ($5,000 / 8000) + $1.50 + ($95 / 40) TDC = $.63 + $1.50 + $2.38 = $4.51

$.41 / meter MORE for every meter drilled!

($246,000 per year based on 600,000 m drilled/yr)

Production Cost Only

What is the cost of producing a single blasthole?

Cost = Drill Cost per Hour x Time spent drilling, hrs

$$ = $150 per hour x 30 minutes

$$ = 150 x .5

$$ = $75 per hole drilled

$$ = $150 x .33

$$ = $150 per hour x 20 minutes

$$ = $50 per hole drilled

Productivity costs less!

Total Drilling Cost

With Total Drilling Cost calculated by any method, the productivity (ROP) and drill cost are the drivers of the calculation. Bit Price per Meter is a small part of theTDC.

Ex. 1, bit price/m, $.77 is 17% of $4.61/m. Ex. 2, bit price/m, $.63 is 11% of $5.63/m. Ex. A, bit price/m = 19%, FC + VC = 81% Ex B, bit price/m = 14%, FC + VC = 86%

Total Drilling Cost

% of TDC Cost Breakdown

100% 75%

45% 83% 89% 37%

53%

% Cost

50% 25%

33% 14%

17%
0%

11%

19%

Ex. 1
Bit Cost/M

Ex. 2

Ex. A

Ex. B
Variable Cost

Fixed Cost

Total Drilling Cost

The cost of productivity is the largest part of TDC

Spend less time drilling each hole.

Choose faster drilling bits.

Run bits to give high Penetration Rate and reasonable bit life. This will keep the TDC low.

Results
Western USA Copper Mining Company Total Drill Cost (TDC)
2.40

2.00

1.60

US Dollars

BHMT
1.20 Manuf #2 0.80 Manuf #3 0.40

01/01/2002 thru 12/31/2002

1/01/2003 thru 12/31/2003

01/01/2004 thru 12/31/2004

01/01/2005 thru 12/31/2005

11/15/2005

Results

Western USA Copper Mining Cost Savings:

2003 vs. 2002: $ -84,735 $1.89/ft 2004 vs. 2003: $ 837,561 $1.65/ft 2005 vs. 2004: $ 228,637 $1.58/ft Total savings year on year: $981,463

If no change in TDC:

Would have spent: $22,921,117 (at $1.86/ft, 2002) Actually spent: $21,254,869 Saved: $ 1,666,248

Results
Canadian Coal Miner
Total Drill Cost (TDC)
10.00

8.00

US Dollars

6.00

BHMT

4.00

2.00

0 01/01/2002 thru 12/31/2002 01/01/2003 thru 12/31/2003 01/01/2004 thru 12/31/2004 01/01/2005 thru 12/31/2005

11/15/2005

Results

Canadian Coal Miner Operating Cost Savings:

2003 vs. 2002: $1,235,237 $7.58/m 2004 vs. 2003: $ 520,781 $6.30/m 2005 vs. 2004: $ 120,268 $5.85/m Total savings year on year: $1,876,286

If no change in TDC:

Would have spent: $13,888,389 (at $9.91/meter, 2002) Actually spent: $10,101,431 Saved: $ 3,786,958

Thank You!

Questions??