Mining costs and prices of minerals

Mining Costs And Mining Costs And Prices of MineralsPrices of Minerals

Submitted for : Prof. Dr .Mohamed El Wageh

By: Ahmed Mohamed Wassel Mohamed Abdel Nabi Essa Mahmoud Mustafa Khallaf

Table of contents

IntroductionIntroduction

Costs of miningCosts of mining

Prices of mineralsPrices of minerals

Risk analysisRisk analysis

What is Mining?

Mining is the extraction of valuable minerals. Mining is the extraction of valuable minerals.

Materials recovered by mining include Materials recovered by mining include Coal , copper, gold, silver, diamonds, iron, precious Coal , copper, gold, silver, diamonds, iron, precious

metals, lead, limestone, nickel, and phosphate. metals, lead, limestone, nickel, and phosphate.

Mining Industry

Two sectorsTwo sectors

Specialization in exploration for new resourcesSpecialization in exploration for new resources typically made up of individuals and small mineral typically made up of individuals and small mineral

resource companies dependent on public investmentresource companies dependent on public investment

Specialization in actual miningSpecialization in actual mining typically large and multi-national companies sustained typically large and multi-national companies sustained

by mineral production from their mining operations by mineral production from their mining operations

Estimating Costs

Types of costs : Types of costs :

Capital cost;Capital cost;

Operating cost;Operating cost;

General and administrative cost (G&A).General and administrative cost (G&A).

The capital cost :The capital cost :in this case might refer to the investment required in this case might refer to the investment required for the mine and mill plant.for the mine and mill plant.

The operating costs :The operating costs :The operating cost can be reported by the different The operating cost can be reported by the different

unit operations incurred on a per ton basis ;unit operations incurred on a per ton basis ;

Drilling , Blasting ,Loading ,Hauling,Drilling , Blasting ,Loading ,Hauling, dozing, grading, dozing, grading, road maintenance, dump maintenance, pumping, road maintenance, dump maintenance, pumping, etc. etc.

Some mines include maintenance costs together Some mines include maintenance costs together with the operating costs. with the operating costs.

The general and administrative cost:The general and administrative cost:

might be a yearly charge might be a yearly charge The G&A cost could include one or more of the following:The G&A cost could include one or more of the following:

Area supervision;Area supervision;Mine supervision;Mine supervision;Employee benefits;Employee benefits;Overtime premium;Overtime premium;Mine office expense;Mine office expense;Head office expense;Head office expense;Mine surveying;Mine surveying;Pumping;Pumping;Development drilling;Development drilling;Payroll taxes;Payroll taxes;State and local taxes;State and local taxes;Insurance;Insurance;Assaying;Assaying;Mine plant depreciation.Mine plant depreciation.

Capital and operating costs for the final Capital and operating costs for the final feasibility must be based on : feasibility must be based on :

Actual design and layout drawingsActual design and layout drawings Manning tables Manning tables Flow chart , equipment lists and specifications Flow chart , equipment lists and specifications Manufacturer quotations .Manufacturer quotations .

METHODS OF ESTIMATION : METHODS OF ESTIMATION : 1- Costs from actual similar 1- Costs from actual similar

operationsoperationsExample: Example: Cost information (Canadian $) for the Simikameen Cost information (Canadian $) for the Simikameen

Mine, Newmont Mining Company Mines Limited Mine, Newmont Mining Company Mines Limited [CMI,[CMI, 1986).1986).

Publications from years past often contain Publications from years past often contain valuable cost information. valuable cost information. Is there some simple Is there some simple technique for updating so that these costs could technique for updating so that these costs could be applied for estimating even today? The answer be applied for estimating even today? The answer is a qualified yesis a qualified yes. The procedure involves the . The procedure involves the escalation of costs through the application of escalation of costs through the application of various published indexes. Table 2.29 is an various published indexes. Table 2.29 is an example of the:example of the:Construction cost;Construction cost;Building cost;Building cost;Skilled labor;Skilled labor;Common labor;Common labor;Materials.Materials.

2- Escalation of older costs

The The Engineering News RecordEngineering News Record (ENR) (ENR)

Nelson Refinery Construction Cost Index

chemical engineering plant construction cost index ( CE)

Marshall & Swift cost index

3- The original O ’Hara cost estimator3- The original O ’Hara cost estimatorIn 1980 O’Hara (1980) published what has become a In 1980 O’Hara (1980) published what has become a classic paper ‘Quick guides to the evaluation of classic paper ‘Quick guides to the evaluation of orebodiesorebodies’. ’.

4- The updated O'Hara cost estimator4- The updated O'Hara cost estimator

prepared by prepared by O’Hara and Suboleski O’Hara and Suboleski (1992). They (1992). They

• cover the costs associated with both open pit and cover the costs associated with both open pit and

underground mining.underground mining.

• Pits may vary greatly in shape, size, and pit slope, Pits may vary greatly in shape, size, and pit slope,

especially in mountainous areas or where the ore especially in mountainous areas or where the ore

and/or waste rock varies greatly in competenceand/or waste rock varies greatly in competence

Daily tonnageDaily tonnageThe most important factor affecting costs is the size The most important factor affecting costs is the size of the mine,primary crusher, and Processing plant as of the mine,primary crusher, and Processing plant as expressed in terms of the tons of material handled expressed in terms of the tons of material handled per day of operation. per day of operation. To simplify the discussion the following terms will be To simplify the discussion the following terms will be introduced: introduced:

Cost-Revenue Relationships

Sources of cost data :Sources of cost data :

Research by stockbrokers Research by stockbrokers

Information gathered during mine visit Information gathered during mine visit

Company – owned mines Company – owned mines

Estimating Prices

1- Current mineral prices : 1- Current mineral prices : may be found in a number of different may be found in a number of different publications:publications:

The point of sale The point of sale also has a considerable effect on the also has a considerable effect on the price. Two abbreviations are often used in this regard: price. Two abbreviations are often used in this regard: The abbreviation 'The abbreviation 'F.O.BF.O.B.' stands for 'free-on-board'. Thus .' stands for 'free-on-board'. Thus the designation 'F.O.B. mine means that the product would the designation 'F.O.B. mine means that the product would be loaded into a transport vessel (for example, rail cars) be loaded into a transport vessel (for example, rail cars) but the buyer must pay all transport charges from the mine but the buyer must pay all transport charges from the mine to the final destination.to the final destination.The abbreviation The abbreviation ''C.I.FC.I.F.' means that cost, insurance and .' means that cost, insurance and freight are included in the price.freight are included in the price. Many mineral products are sold through Many mineral products are sold through long term long term contracts contracts arranged between supplier and customer. The arranged between supplier and customer. The prices will reflect this shared risk taking. There will often prices will reflect this shared risk taking. There will often be significant differences between be significant differences between the short term (spot) the short term (spot) and long term pricesand long term prices..

2- Historical price data: 2- Historical price data: Mineral prices as monitored over a time span of many years Mineral prices as monitored over a time span of many years exhibit a general upward trend. However, this is not a exhibit a general upward trend. However, this is not a steady increase with time but rather is characterized by steady increase with time but rather is characterized by cyclic fluctuations.cyclic fluctuations.Average rate of prices increase per year. Average rate of prices increase per year. Price trends, for metals in particular, are typically cyclic Price trends, for metals in particular, are typically cyclic ((boom and slump times boom and slump times ). The period and amplitude of the ). The period and amplitude of the cycles varies considerably. cycles varies considerably. Forecast future price = Base price + Trend . Forecast future price = Base price + Trend .

1- Trend analysis : 1- Trend analysis : The basic idea in trend analysis is to try and replace the The basic idea in trend analysis is to try and replace the

actual price-time history with a mathematical representation actual price-time history with a mathematical representation which can be used for projection into the future.which can be used for projection into the future.

Price forecasting :

The past and present is the key to the future

represents a straight line with intercept ao (x = 0) and slope a1. For this to apply the datashould plot as a straight line on rectangular graph paper.

2- 2- Econometric models :Econometric models :The market model is the most basic type of micro economic The market model is the most basic type of micro economic structure and the one from which other commodity structure and the one from which other commodity methodologies have developed. It includes factors such as:methodologies have developed. It includes factors such as:- Commodity demand, supply and prices- Commodity demand, supply and prices- Prices of substitute commodities- Prices of substitute commodities- Price lags- Price lags- Commodity inventories- Commodity inventories- Income or activity level- Income or activity level- Technical factors- Technical factors- Geological factors- Geological factors- Policy factors influencing the supply.- Policy factors influencing the supply.

Market models, which balance supply and demand to produce Market models, which balance supply and demand to produce an equilibrium price, are commonly used in the mineral an equilibrium price, are commonly used in the mineral business for:business for:

(a) historical explanation,(a) historical explanation,

(b) policy analysis decision making(b) policy analysis decision making

(c) prediction.(c) prediction.

They are also used to simulate the possible effects of They are also used to simulate the possible effects of stockpiles and/or supply restrictions over time.stockpiles and/or supply restrictions over time.

Laws &

Regulations

Credit Risk

Interest Rate&

Foreign Exchange

Operational

Environmental

Market

Risks

Risks Associate With Mining

Market Risk

Revenues are highly dependant on market prices

Prices are affected by: Growth and political conditions of consuming economies Currency exchange fluctuations Global supply and demand Availability and cost of substitute materials Speculative activities Production levels and costs of other mining countries

Operational Risks

Geological problems, including earthquakes and other natural disasters

Occurrence of unusual weather or operating conditions

Metallurgical and other processing problems

Mechanical equipment failure and facility performance problems

Lower than expected ore grades or recovery rates estimates are based upon engineering evaluations of

assay values derived from samplings of drill holes and other openings

Ability to attract and retain skilled and experienced employees

Shortage of skills could limit ability to meet contractual requirements

Industrial accidentsLong term sales contracts Loss of any contracts require company to sell at

prevailing market prices, which might expose it to lower metal prices compared to contract prices

Default or modification of the sales contracts could prohibit additional loans or require the immediate repayment of outstanding loans depending on covenants of credit facilities

Operational Risks

43

Reference

Open Pit Mine Planning and Design 3rd Edition (2013)

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