Professional Documents
Culture Documents
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
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,
Slide
3
Certainly the
investment
e
mining industry is unique when
encountered by most other ind
Mining Studies
Slide 6
Slide 7
Slide 8
Mining Studies
Slide 9
Mining Studies
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
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
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 =
PV = $3.79
! In general,
n
PV = C k (1+ i )
k=1
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) &
! 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
k=1
Project Value
Rate of return on an investment
Return on investment is a profit on an investment:
ROI =
ROI
t
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
Project Value
Depreciation
Decrease in value of an asset, e.g.:
Investment ($)
Life (number of year)
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
Slide 24
Tonnage
Life OperatingDays
Source: Australias Future Tax System: Report to the Treasurer p. 47 (Henry Tax Review)
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
Tonnage
Life OperatingDays
Tonnage
Tonnage 0.26
Life=
=
Pr oduction (tonnes/day) OperatingDays 0.0236 OperatingDays
= 8.39 years
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
Estimating Revenues
Markets
Principal markets of metals:
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.
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
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
xi
Syy = n ( ln y i )
ln yi
Sxy = n x i ln y i x i ln y i
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
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
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
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 (%)
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
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
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
AMR
CV
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
AMR
CV
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.
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
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:
30
2
2000 $1 + 30
$6
+
2000 $0.5 = $800
100
100
silver
copper
lead
Outline
Introduction
Life of Mine (LOM) plan
Estimating Revenues
Estimating costs
Types of costs
Approach I (order 0 experience)
"Fleet requirement
"Mining cost
Slide 56
Estimating Costs
Types of costs
Cost categories may be:
Capital cost (Capex)
Operating cost (Opex)
General and administration cost (G&A).
Estimating Costs
Escalation of older costs
Is there a simple way to
update costs to make
estimation today?
This can be achieved by
escalating costs through the
application of various
published indexes
e.g. construction cost, building
cost, skilled labour, common
labour, materials.
Outline
Introduction
Life of Mine (LOM) plan
Estimating Revenues
Estimating costs
Types of costs
Approach I (order 0 experience)
"Capital cost
"Mining cost
Slide 59
Mining cost
Mining cost ($/t) is made up of two basic components
Productivity (t/hr)
Hourly cost ($/hr)
Total mining
cost: 2.39 $/t
mined
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
61
Source: T. Elkington , MINE4161o
62
63
Where EngineLoading
Uphill or level
Downhill/Idle = 0
Fuel burn
65
Source: T. Elkington , MINE4161o
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)
67
Source: T. Elkington , MINE4161o
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
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.
Estimating Costs
OHara (1980) cost estimator - CAPEX
Personnel numbers
Number of personnel required in open pit (trucks and shovels)
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
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.
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
Slide 73
Estimating Costs
OHara (1980) cost estimator - CAPEX
Mill associated costs
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)
Slide 77