b. Unit cost of mining
c. Cost of surface vs. underground mining
Motherhood Of All Statements
a. We mine to make money (a reminder)
b. The lower the cost of mining, the better chance that we will make money
c. We need to make sure that our costs are as low as possible
* Mine in the way that allows you to minimize your cost
Capital vs. Operating Costs
a. Capital costs, a “one time” expenditure
* Do development work
* Acquire equipment and plant, etc.
b. Operating costs, an on-going expenditure
* Pay for your manpower, supplies, etc.
* Sometimes called “cash cost”
Capital Costs
a. Large impact on initial cash flow
b. Important tax implications
* Not a one-time write-off - has to be depreciated at a prescribed rate (is this always bad)
* Most important at the beginning of mine life
c. Higher capital cost usually means:
* Higher production rates
* Lower operating costs
d. “Sunk Cost” later in life of the mine.
Operating Costs
a. Define efficiency / competitiveness of your mining operation
* You want it to be in the lowest quartile, or better
* Determine size of “working (or operating) capital”
b. Usually split into two:
* Direct cost - directly related to tons mined
Examples: drilling, blasting, loading, transport
* Indirect cost – does not depend on tons mined
Examples: engineering/mg’t, admin., facilities, etc.
Cost of Unit Operations
a. Each mining operation consist of unit operations:
* d&b, excavation, transport, processing….
b. Each unit operation has a site-specific cost, related to a unit of material mined
c. Cost of unit operations depends on:
* How efficiently you perform them
* Material properties and and other mine-specific factors
Unit Operations’ Costs: An Example
All costs in $/tonne, unless marked otherwise
Unit Cost Of Mining
a. Cost per unit of production
$/ton, $/tonne, $/BCY, $/BCM
b. Considers only the operating cost
c. The best measure of your
* Effectiveness
* Efficiency
* Competitiveness
Unit Cost of Mining: An Example
(after Crowson: Inside Mining. Cumulative gross cash cost of copper mines in 1993a)
MATERHOOD STATEMENT
Unit cost of surface mining is much lower than that of underground mining
Why The Difference?
a. Smaller equipment (excavation envelope)
* Lower productivity
b. More specialized equipment
* More expensive, more maintenance
c. High fixed costs
* Expensive development, services
d. Additional unit operations
* Roof control, ventilation, other….
e. Safety considerations
* Compare accident rates
f. Inflexible production schedules
* Difficult to change, expensive & time consuming development