“Do not estimate your cost or schedule by telephoning contractors and asking them for ballpark figures. The only kind of estimate that is worth anything is the one that is clearly defined on paper and bears the signature of the author. This type of time or cost estimate takes time to prepare. In general, the estimate will be worth what you pay for it.” J.S. Redpath (1980)
1. Introduction
Estimating for a mining company or engineering firm is the procedure whereby the cost of a proposed project is determined in advance. For a contractor competing against others, the estimate is normally the best price he can afford to bid. While some estimates may require scheduling, conceptual design, and development of procedures, a basic estimate simply includes take-off (quantity survey), pricing, extension, and summarization.
The quantity take-off can normally be done to good precision while the efficiency of labour (i.e. man-hours) is difficult to estimate accurately from one project to another. For this reason, it is commonly advised that labour-intensive estimates include an added contingency. The most difficult project to estimate in hard rock mining are usually those prepared for rehabilitation of existing mine workings or equipment, mainly due to the fact that the quantity of work required can be difficult or impossible to measure accurately in advance.
Estimates usually are divided into direct and indirect costs. Estimating direct costs is a fundamental exercise; however, estimating indirect costs requires a project schedule, since indirect costs are mainly time dependent. For this reason, estimators are frequently schedulers as well.
In North America, the estimator is normally expected to be adept at quantity take-off, pricing, and scheduling. For large projects, specialists may perform the scheduling separately. In this chapter, no actual cost tabulations will be found because rates and prices change with geography and can escalate rapidly in a short time frame. This chapter is devoted instead to relatively constant definitions, particulars of procedures, and tabulations of performances, etc.
2. Rules of Thumb
Cost of Estimating
• A detailed estimate for routine, repetitive work (i.e. a long drive on a mine level) may cost as little as 0.5% of the project cost. On the other hand, it may cost up to 5% to adequately estimate projects involving specialized work, such as underground construction and equipment installation. Various Sources
Cost of Feasibility Study
• The cost of a detailed feasibility study will be in a range from 0.5% to 1.5% of the total estimated project cost. Source: Frohling and Lewis
• The cost of a detailed or “bankable” feasibility study is typically in the range of 2% to 5% of the project, if the costs of additional (in-fill) drilling, assaying, metallurgical testing, geotechnical investigations, etc. are added to the direct and indirect costs of the study itself. Source: R. S. Frew
Budget Estimates
• An allowance (such as 15%) should be specifically determined and added to the contractor’s formal bid price for a mining project to account for contract clauses relating to unavoidable extra work, delays, ground conditions, over-break, grouting, de-watering, claims, and other unforeseen items. Source: Jack de la Vergne Engineering, Procurement, and Construction Management
• The Engineering, Procurement, and Construction Management (EPCM) cost will be approximately 17% for surface and underground construction and 5% for underground development. Source: Jack de la Vergne
Overbreak
• The amount of over-break to be estimated against rock for a concrete pour will average approximately one foot in every applicable direction, more at brows, lips, and in bad ground. Source: Jack de la Vergne
• On average, for each one cubic yard of concrete measured from the neat lines on drawings, there will be two cubic yards required underground, due to over-break and waste. Source: Jack de la Vergne
Haulage
• The economical tramming distance for a 5 cubic yard capacity LHD is 500 feet and will produce 500 tons per shift, for an 8-yard LHD, it is 800 feet and 800 tons per shift. Source: Sandy Watson
• Haulage costs for open pit are at least 40% of the total mining costs; therefore, proximity of the waste dumps to the rim of the pit is of great importance. Source: Frank Kaeschager
Miscellaneous
• The installed cost of a long conveyorway is approximately equal to the cost of driving the drift or decline in which it is to be placed. Source: Jack de la Vergne
• In a trackless mine operating around the clock, there should be 0.8 journeyman mechanic or electrician on the payroll for each major unit of mobile equipment in the underground fleet. Source: John Gilbert
• On average, for each cubic yard of concrete measured from the neat lines on drawings, approximately 110 Lbs. of reinforcing steel and 12 square feet of forms will be required. Source: Jack de la Vergne
• The overall advance rate of a trackless heading may be increased by 30% and the unit cost decreased by 15% when two headings become available. Source: Bruce Lang
• The cost to slash a trackless heading wider while it is being advanced is 80% of the cost of the heading itself, on a volumetric basis. Source: Bruce Lang
* Refer to Chapter 23 for Rules of Thumb pertaining to electrical estimating.
3. Key Definitions and Abbreviations
• Ball Park = horseback = seat-of-the-pants = back of the envelope = a snap estimate.
• Capex = capital expenditure.
• Direct Costs = costs that are unique to a particular item of work. Direct costs usually include hands-on labor, lead hands, permanent materials, materials consumed in the work and equipment specifically used for work performance.
• EPCM = engineering, procurement, construction, and project management.
• Indirect Costs = Indirect costs can be further divided into cost dependent items (such as insurance and overheads) and time dependent items (such as supervision, maintenance/service personnel, equipment rentals, and utility billings).
• Lump Sum Allowance = A cost entered for an item of small value that is not yet specified or defined and therefore cannot be properly estimated.
• Order of Magnitude = conceptual = range = the second order of estimate.
• Opex = operating expenditure.
• Pro Rata = the rational division of one cost for inclusion into other applicable groups.
• Salvage Value = the estimated amount that will be received for mining equipment at the end of its useful life when it may only be salvaged for useful parts and components. This is net of removal and selling or stocking expenses. The term “salvage value” is preferable to “scrap value” if the item is not to be scrapped outright.
• Residual Value = at any time, the estimated or actual, "net realizable value" (that is, proceeds less removal and selling costs) of an asset that has useful operating life remaining. It may be the estimated or quoted buy-out price for a piece of mining equipment at the end of a particular project.
• Take-off = quantity survey =measurement of quantities to be estimated.
• W/O = write-off on equipment as a lump sum or rate (i.e. 5% of cost per month on mobile fleet).
4. Procedure
The procedure outlined is applicable to a comprehensive estimate. The cost estimating procedure is shorter for less detailed or smaller estimates, as applicable.
1. Establish a clear scope of work and battery limits. Work with mine design/engineering team to establish scope (feasibility study or engineering estimate). Review Request for Proposal (RFP) document in detail (contractor’s bid).
2. Compile the work and divide it up into separate work packages or disciplines.
3. Schedule the sequence of the estimating work and assign the packages.
4. Perform the quantity take-off.
5. Obtain a comparable estimate for another similar project as a model.
6. Assemble applicable historical data on costs, rates, and performances.
7. List and obtain current prices for materials and utilities. Develop labor rates and payroll burdens specific to location and classification requirements of the project.
8. List and obtain values for equipment (w/o, rental rates and/or purchase prices).
9. Define subcontracts/special services and obtain budget estimates or firm quotes.
10. Complete estimate of direct costs.
11. Schedule the project being estimated.
12. Complete estimate of indirect costs based on the schedule
13. To the sum of indirect and direct costs, add applicable overheads, fees, insurances, etc.
14. Perform check for scope, arithmetic, logic, omissions, and redundancies.
15. Assess the risk and adjust contingencies applied to the costs and schedule.
16. Review and summarize the estimate.
5. Tools of the Trade
• Pocket calculator
• PC equipped with spreadsheet program (i.e. Excel@ or Lotus@)
• Off-the-shelf estimating programs
• Customized or in-house estimating programs
• Customized cost forms (manual or electronic)
• In-house database (including account codes, labour burdens, performance records)
• Published cost data (i.e. RS Means)
• Off-the-shelf scheduling programs (i.e. Microsoft Project@ or Primavera@)
6. Tricks of the Trade
• The most common serious error in estimates is omission of a significant item. This can be overcome with the evolution of separate “catch-all” lists that are archived into a permanent database. In some cases, it is practical to establish estimating forms with the lists printed. When there are no such lists developed, the best thing to do is to obtain an itemized estimate for a similar project. It should be remembered that no two projects are identical and so a disciplined line item review should always be undertaken to ensure that nothing important has been forgotten. Omission of items, the cost of which is not significant in the total cost, may be properly covered by a contingency, but in the real world its better not to forget any item that may subsequently be assigned a separate cost code.
• Another serious error is misinterpretation of the scope of the work. It is worthwhile to clear up any ambiguous statements in the scope at the outset. This can be partly accomplished by crossexamining the participants to ensure that each has the same understanding. In some cases, further discussions are required with (and feedback from) the originator of the scope (i.e. client or engineer).
• The third serious error is a faulty schedule for the work. A common error is to assume performances achieved singly when a project calls for the same items of work to be carried out simultaneously. If the schedule is in error, there is likely to be a significant error on the total cost estimate because most of the indirect costs are time dependent. Performances used should be supported with footnotes explaining how they were determined.
• Another cause of significant error is a miscalculation of time dependent indirect costs. One problem occurs when they are distributed pro rata on a cost basis when they should be distributed on a time or schedule basis. In either event, the estimating procedure (or program) should be set up so that the indirect cost distribution is automatically adjusted for changes made to direct costs or scheduled items.
• An error that many people make is to assume a straight 20% or 25% for the payroll burden on labor rates. It can vary from 10% to 80%. Simple calculations/information can avoid this pitfall.
• For projects of short duration, there is no problem with simplifying the time frames of indirect costs to line items (i.e. for a six-month project, a surveyor will be required for two months).
However, this procedure can lead to great inaccuracies on a major project. One remedy is to compile a spreadsheet (electronic or manual) the top portion of which shows a condensed bar chart of the schedule, scaled in appropriate time frames (weeks or months). On the bottom left are listed the indirect costs, including each item of supervision, labour, support equipment, utilities, and site services. Each indirect item can then be scheduled under the bar chart for the project with reasonable accuracy. Moreover, this procedure facilitates the checking process.
• Even with every precaution taken, a completed estimate may still be faulty. An independent, knowledgeable party should review every important estimate. The estimate should be organized in a concise manner to provide an easy-to-review package.
• Future estimates may rely on the completed estimate. It should be filed in such a manner as to facilitate withdrawal of any particular information. If a project is completed following the estimate and the actual costs are subsequently determined, the files should be updated with noted variations from the estimate.
7. Categories and Confidence Levels of Estimates
Estimates have been categorized many ways by many authorities. The number of categories varies from one authority to another, but most of them categorize estimates in an order sorted by the degree of accuracy (confidence level). The following categories and scales of accuracy are selected as appropriate for presentation in this book. The actual categorization for a particular mining project is best served with definitions that are derived for the specific project to be estimated.
Ball Park
Ball Park or “seat-of-the-pants” estimates are quick, informal approximations. They are useful when making snap judgments as to whether or not preliminary geological data holds promise to become a producing mine, for example. Ball Park estimates rely on knowledge-based intuition and simple rules of thumb. They may have accuracy in the order of ± 60 - 100%.
Order-of-Magnitude
Order-of-magnitude or “Range” estimates are the most elementary form of a formal estimate. They have accuracy in the order of ± 40 -50% and are typically obtained by factoring known gross costs and capacities of similar projects. For the estimator contemplating a more detailed estimate, it is often useful to first make a range estimate to give him an indication of the size and complexity of the task.
Preliminary
Preliminary or “pre-feasibility” estimates have accuracy in the order of ± 20 - 30% and are typically obtained by factoring known unit costs and estimated gross dimensions or quantities, once conceptual or preliminary engineering has been completed. They are typically applied to “Preliminary Feasibility” studies and are useful for (1) due diligence work, (2) to determine whether to proceed with a detailed feasibility study, and, later on, (3) as a “reality check” on subsequent detailed estimates and to pin-point high-cost areas that merit further attention.
Budget
Budget or “detailed” estimates have accuracy in the order of ± 10 - 15% and are obtained from quantities and specifications determined by formal design engineering based on a clearly defined scope. Budget estimates are applicable to formal feasibility studies and provide budget figures for cost accounting codes that will be employed on the project.
Firm
Firm estimates have accuracy in the order of ± 5 - 10% and are typically employed by a contractor competing for tendered work. Estimates to a similar accuracy are often performed after the project is underway. In this case, they may be referred to as “control” estimates or “value engineering” estimates.
8. Value Engineering
Value engineering is the review of plans and specifications with the goal of making advantageous substitutions or design changes. The aim is to reduce the projected capital or operating costs and/or shorten the schedule of the work. Value engineering is considered a duty of a project engineer or EPCM contractor; however, typically they consider only small parts of the design, rather than the design as a whole.
Contractors often employ value engineering in an effort to win a contract, which usually results in an alternate proposal. The contactor may bid only the alternate, but more often is required by the bid documents to provide two separate proposals. The danger for the contractor is that the owner may call for a second round of bidding or award to another contractor and negotiate a discount with him for the value engineering he has come by for free. For this reason, wise contractors try to avoid providing details of their alternate proposals at the time of bidding.
Value engineering should not stop once the work is underway; the owner, engineer, and contractor should always keep an eye out for potential cost savings. The savings can only be evaluated by more cost estimating. After the project is under way, value engineering may be employed to re-evaluate a whole project when a change in scope or significant delay has occurred and it has become obvious that cost accounting is not cost control. In such a case, an estimated cost reduction obtained by reducing the footage of the planned pre-production development for a new mine is not value engineering; it is lousy engineering.
9. Calculation of Interest Costs
Interest on capital should be included in a cost estimate except when capital costs are financed internally by the mining company that owns the property. A mining company that uses capital funds (internal financing) for new mine projects receives profit not interest. A mining contractor normally adds interest to the working capital he is required to provide whether it is borrowed or provided internally.
10. The “Six-Tenths Rule”
This rule is useful for obtaining a preliminary estimate when accuracy is not required. When the cost of a plant with a certain capacity is known (A), the following quick tool may be used to estimate similar plants of different capacity (B).
This exponential rule is satisfactory in general, not only for capacity, but size as well. More accurate values have been determined for some particular applications, as follows.
• Crushers (size) 0.65
• Conveyors (capacity) 0.85
• Compressors (capacity) 0.72
• Drifts (x-section area) 0.56
• Stoping (width of stope) 0.40
• Concentrator (capacity) 0.75
• Mine air heaters 0.58
• Pumps (capacity) 0.68
• Vent fans 0.66
• Electric motors (HP) 0.84
Example
Facts:
1. The installed cost of a 48-inch underground belt conveyor system will be $839/foot
2. Find the approximate cost of a 54-inch belt conveyor for the same capacity.
Solution:
Cost = $839/foot x (54/48) 0.6 = $900/foot
11. Jack’s Factors
When the cost of a base metal concentrator with a certain product is known, the cost of a mill of the same capacity but a different product can be determined by applying the following factors, pro rata.
Copper* 1.0 Ni/Cu 1.4 Cu/Pb/Zn 1.8
Bulk con 1.0 Pb/Zn 1.6
* Does not apply to Solvent Extraction and subsequent Electro-Winning (SX-EW) plants
12. Lang Factors
Another way to make an approximate estimate for a mine concentrator is to pick off the major items of equipment from the flow sheet, obtain budget prices, and multiply the sum of these by the applicable factor determined by H. Lang, as follows.
• Solid Process Plants 3.10
• Solid Fluid Process Plants 3.63
• Fluid process Plants 4.74
13. Calculation of EPCM Costs Engineering (E)
The engineering portion of EPCM includes the following costs.
• Conceptual (Basic) engineering
• Side studies of options (trade studies)
• Detailed engineering
• Approval of fabrication drawings
• Fabrication quality control
• As-built drawings
Procurement (P)
The procurement portion of EPCM includes the following costs.
• Preparing specifications
• Vendor lists
• Contract documents
• Purchase orders
• Shop inspections
• Transport arrangements
• Receiving
• Storage
• Approvals for payment
Construction Management (CM)
The construction management portion of EPCM includes the following costs.
• Budget preparation
• Cost accounting
• Value engineering
• Control estimates
• Acquisition of permits
• Evaluation of quotations and tenders
• Contract administration
• Field quality control
• Detailed scheduling
• Schedule Monitoring
• Measurement for payment
• Survey verification
• Inventory control
• Safety enforcement
• Approving false-work designs
• Approving lift sheets
• Settling claims and disputes
• Archiving project files
• Settling liens
• Approving release of hold-backs
EPCM Values
The following tabulation (Table 8-1) provides suggested values for the components of EPCM for a typical hard rock mining project that employs outside services. The costs of in-house representation to oversee the EPCM contracts are included. The percentages refer to the estimated capital expenditure (Capex) of the work, including contingencies.
Table 8-1 Engineering, Procurement, and Construction Management Values
14. Calculation of Productivity - Typical Values
Table 8-2 shows approximate productivity values (the values are estimated median values). An asterisk indicates those values that may have a particularly wide variation from the values shown.
Table 8-2 Calculation of Productivity – Typical Values
15. Calculation of Consumption - Typical Values
Table 8-3 shows typical consumption calculations. The values are approximate – estimated median values. An asterisk indicates those values that may have a particularly wide variation from the values shown.
Table 8-3 Calculation of Consumption1 – Typical Values
