MINING

COST
ESTIMATI
ON
 Developing an understanding in cost estimation is key
in ensuring the success of any mining project.

Introduc Correct cost estimations can avoid cost overruns that

tion lead to the failure of many projects.

Mining costs are normally categorized into;

General and administrative
Capital cost; Operating cost; cost (G&A)
 The capital cost in this case might refer to the
investment required for the mine and mill plant.

The operating costs would reflect drilling, blasting,

etc. costs incurred on a per ton basis.
Introduc
tion
The general and administrative cost might be a yearly
charge including the costs for Area supervision, mine
supervision, employee benefits, overtime premium,
mine and head office expenses, mine surveying,
pumping costs etc.
 There are so many other ways to categorize costs.

The bottom line is that when discussing, calculating or

Introduc presenting costs one must be very careful to define
what is meant and included (or not included).
tion
Having a realistic project execution plan (PEP) that
adequately captures costs associated with specific
circumstances of access, altitude, climate and SLTO are
crucial if costs are to reflect what has to be
constructed and operated.
 • Cost estimates fall into the following
categories and generally accepted
accuracy:

Introduction
Methods of cost estimation
• Costs from actual
operations
• Escalation of older costs
• O’Hara cost estimation
• Detailed cost calculations
• Current Equipment supplies
and labour cost
Costs of actual operation
• Sometimes it is possible to obtain actual costs from ‘similar’
operations.
• However great care must be exercised in using such costs
since accounting practices vary widely.
• These are called factored cost estimates.
 Factored cost estimates in which we
extrapolate or interpolate one
FACTORED (unknown) project from another
COST (known) project according to scale,
throughput or other dimension is
ESTIMATES perhaps the most basic way of getting
an estimate and are thus a good starting
point.
Six tenth rule
• Approximate costs can be obtained if the cost of a similar item of
different size or capacity is known.
• A rule of thumb developed over the years known as the rule of six-
tenths gives very satisfactory results when only an approximate cost
within plus or minus 20% is required.
Annualized cost per tonne
• Another rule-of-thumb method used is the annualized cost per tonne
rule uses the capital cost of a known operation calculated on a per-
tonne basis

• This factor is then directly applied to the new operation

under consideration.
For example, if a 20 Mt/a iron ore processing operation has a
capital cost of $800 M, the annualized capital cost is $40/t.
A new mine in the same area with approximately the same
configuration, but producing 25 Mt/a, might be expected to
cost $1000 M, using the above formula.
Using the six-tenths rule, the estimated cost would be $915 M.
Given the level of accuracy that both methodologies produce,
these are within the same range.
Unit capacity
• Capital cost estimates for unit operations are calculated once
the unit operation is sized usually for capacity on a tonnage
or contained-metal basis.
• Cost factors are also used as a means of estimation based on
some suitable parameter of the unit operation and are
expressed (usually) in straight-line logarithmic functions
between set limits.
Escalation of older costs
• Older costs can be used to arrive to current costs with the use of cost
indices.
• There are several sources of cost indices available, usually provided by
government agencies such as the Australian Bureau of Statistics (ABS).
• The limitation is we do not have cost indices specific to our country.
O’Hara cost estimator
• In 1980 O’Hara (1980) published what has become a classic paper ‘Quick
guides to the evaluation of orebodies’ which was then updated in 1992.
• The estimator relates cost to the output in tonnes.
• The assumptions behind the models are that they will hold accurate for
similar open pit mines to a typical open pit defined to produce 43,000 tpd
of ore and waste from a pit depth of about 400 to 120 to 150 m, with an
oval shaped periphery 670 m wide and 1430 m long.
• Pit benches are typically 12 m high, and overall pit slope (excluding roads)
is about 57◦ in pits with competent rock, and 44◦ in pits with oxidized ore
altered rock, with in-pit haulage road gradients averaging 9%.
 O’Hara cost estimator

In the case of a 5 day/week mining operation;

O’Hara cost estimator
• Personnel number
The number of mine personnel Nop required in open pit mines using
shovels and trucks for loading and hauling the ore may be estimated
from the following formulas:
O’Hara cost estimator
• The number personnel Nml required to operate mills treating T tons
of low-grade ore may be estimated from the following formulas:
O’Hara cost estimator
• The number of service personnel Nsv required for open pits mining
low grade ore may be estimated as a percentage of the total mine and
mill personnel.

• The number of administrative and technical personnel Nat required

for a mining and milling plant may be estimated as a percentage of
the total required for mining, milling, and services.
O’Hara cost estimator
• It should be noted that the formulas do not include the
personnel required for smelters, refineries, mine town site
services, concentrate transport, or offsite head offices, since
these services may not be required for many mine projects.
O’Hara cost estimator
Mine associated capital costs.
• Mine site clearing
For the pit, the required area Ap in acres is

The clearing costs depend upon the topography, the type of cover, and
the total area. They are expressed as;
O’Hara cost estimator
• If Ts is the tons of soil, and Tws is the tons of waste rock that must be
stripped to expose an amount of ore to sustain four to six months ore
production, then the estimated costs of waste stripping will be;
O’Hara cost estimator
• Mine equipment
O’Hara cost estimator
• Pit services
O’Hara cost estimator
• Costs for
surface plant
clearing,
excavation
and
foundations
O’Hara cost estimator
• Costs for the
concentrator
building and
crushing plant
O’Hara cost estimator
• Costs for the
grinding
section,
storage bins
and tailings
storage
O’Hara cost estimator
• Processing
section
costs
O’Hara cost estimator
• Costs of
plant
service
facilities
O’Hara cost estimator
• Project
overhead
versus direct
costs
O’Hara cost estimator
• Daily operating costs
O’Hara cost estimator
• Concentrator operating cost
O’Hara cost estimator

Surface services. The daily cost of each person in the surface maintenance
and general services departments is estimated to be $141 in wages and
fringe benefits, plus an average cost of $16 in supplies consumed.
If the number of maintenance and general services
personnel is Nsv, then the daily costs of maintenance and general services
departments is
O’Hara cost estimator
• Each staff person is estimated to cost on the average $185 in salary
per day, and to consume $37.60 in supplies and services per day.
• Total cost per day for administrative and technical staff salaries and
supplies = $222.60 Nat
Detailed cost calculations
• These detailed calculations follow the following basic steps;
Step 1. Given the annual production requirements for ore
and waste plus the operating schedule, determine the daily
production rate.
Step 2. Select a basic equipment fleet.
Step 3. Calculate the expected production rate for each type
of equipment. Calculate the number of machines required.
Determine the amount of support equipment needed.
Step 4. Determine the number of production employees
required. Determine the number of support employees.
Step 5. Calculate the owning and operating costs for the
equipment.
Step 6. Calculate the other costs.
Step 7. Calculate the overall cost per ton.
Current Equipment, supplies
and labour cost
• Current prices for mining equipment and supplies can easily be
obtained from the individual manufacturers or suppliers.
• Costs from contactors can also be used to define costs.
Social, community, closure and other
costs.

• Mining projects are increasingly social,

environmental and techno–economic in nature.

• Fundamentally, they need to be sustainable,

balancing all these aspects with good governance.
• To proceed to a working operation, the correct legal documents have
to be obtained –generally after submitting lengthy and expensive
baseline and other studies.
• Most licensing processes involve community debate and consultation
at national, regional and local levels. Costs for these activities have to
be allowed for initially, and often in terms of ongoing currency of such
documents.
• The cost associated are
• land purchase will be required to site plant, infrastructure, rights
of way, waste dumps, heap-leaching pads and other facilities
that may require extensive tracts of land
• Communities may have to be relocated, involving purchase of
existing landholding and areas to where people will be displaced
 Battery limits – caution

A cost estimate for an integrated mining and

milling operation cannot be made until battery
limits and baseline assumptions have been
defined.
Baseline information including
• the geological environment,
• mineral resources,
• topography,
• climate,
• availability of water supply, electric supply,
• site access,
• availability of suitable labour and many other
data are rarely available in the right format at
commencement of the study estimate.
Cost checklists
Activity:
Lets create a checklist of costs we should consider in analysis
of cash flows.