presentation about Mining costs and prices of minerals Cairo University faculty of Engineering Mining Department 2015 WE TALK about : Costs of mining Prices of minerals Risk analysis Submitted for : Prof. Dr .Mohamed El Wageh By: Ahmed Mohamed Wassel Mohamed Abdel Nabi Essa Mahmoud Mustafa Khallaf

1. Mining Costs And Prices of MineralsMining Costs And Prices of Minerals
Submitted for :
Prof. Dr .Mohamed El Wageh
By:
Ahmed Mohamed Wassel
Mohamed Abdel Nabi Essa
Mahmoud Mustafa Khallaf

2. Table of contents
IntroductionIntroduction
Costs of miningCosts of mining
Prices of mineralsPrices of minerals
Risk analysisRisk analysis

3. What is Mining?
Mining is the extraction of valuable minerals.Mining is the extraction of valuable minerals.
Materials recovered by mining includeMaterials recovered by mining include
 Coal , copper, gold, silver, diamonds, iron, preciousCoal , copper, gold, silver, diamonds, iron, precious
metals, lead, limestone, nickel, and phosphate.metals, lead, limestone, nickel, and phosphate.

4. Mining Industry
Two sectorsTwo sectors
 Specialization in exploration for new resourcesSpecialization in exploration for new resources
 typically made up of individuals and small mineraltypically 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 sustainedtypically large and multi-national companies sustained
by mineral production from their mining operationsby mineral production from their mining operations

5. 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).

6. The capital cost :The capital cost :
in this case might refer to the investment requiredin 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 differentThe 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 withSome mines include maintenance costs together with
the operating costs.the operating costs.

7. The general and administrative cost:The general and administrative cost:
might be a yearly chargemight 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.

8. Capital and operating costs for the finalCapital 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 tablesManning tables
 Flow chart , equipment lists and specificationsFlow chart , equipment lists and specifications
 Manufacturer quotations .Manufacturer quotations .

9.  METHODS OF ESTIMATION :METHODS OF ESTIMATION :
1- Costs from actual similar1- Costs from actual similar
operationsoperations
Example:Example: Cost information (Canadian $) for the SimikameenCost information (Canadian $) for the Simikameen
Mine, Newmont Mining Company Mines LimitedMine, Newmont Mining Company Mines Limited [CMI,[CMI, 1986).1986).

12. Publications from years past often containPublications from years past often contain
valuable cost information.valuable cost information. Is there some simpleIs there some simple
technique for updating so that these costs could betechnique for updating so that these costs could be
applied for estimating even today? The answer is aapplied for estimating even today? The answer is a
qualified yesqualified yes. The procedure involves the. The procedure involves the
escalation of costs through the application ofescalation of costs through the application of
various published indexes. Table 2.29 is anvarious 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

13. TheThe Engineering News RecordEngineering News Record (ENR)(ENR)

15. Nelson Refinery Construction
Cost Index

16. chemical engineering plant construction cost index
( CE)

17. Marshall & Swift cost index

18. 3- The original O ’Hara cost estimator3- The original O ’Hara cost estimator
In 1980 O’Hara (1980) published what has become aIn 1980 O’Hara (1980) published what has become a
classic paper ‘Quick guides to the evaluation ofclassic paper ‘Quick guides to the evaluation of
orebodiesorebodies’.’.

19. 4- The updated O'Hara cost estimator4- The updated O'Hara cost estimator
prepared byprepared by O’Hara and SuboleskiO’Hara and Suboleski (1992). They(1992). They
• cover the costs associated with both open pit andcover 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 oreespecially in mountainous areas or where the ore
and/or waste rock varies greatly in competenceand/or waste rock varies greatly in competence

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

23. Cost-Revenue Relationships

25. Sources of cost data :Sources of cost data :
 Research by stockbrokersResearch by stockbrokers
 Information gathered during mine visitInformation gathered during mine visit
 Company – owned minesCompany – owned mines

26. Estimating Prices
1- Current mineral prices :1- Current mineral prices :
may be found in a number of differentmay be found in a number of different
publications:publications:

27. The point of saleThe point of sale also has a considerable effect on thealso 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 wouldthe designation 'F.O.B. mine means that the product would
be loaded into a transport vessel (for example, rail cars) butbe loaded into a transport vessel (for example, rail cars) but
the buyer must pay all transport charges from the mine tothe buyer must pay all transport charges from the mine to
the final destination.the final destination.
The abbreviationThe 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 throughMany mineral products are sold through long term contractslong term contracts
arranged between supplier and customer. The prices willarranged between supplier and customer. The prices will
reflect this shared risk taking. There will often be significantreflect this shared risk taking. There will often be significant
differences betweendifferences between the short term (spot)the short term (spot) and long termand long term
pricesprices..

28. 2- Historical price data:2- Historical price data:
Mineral prices as monitored over a time span of many yearsMineral prices as monitored over a time span of many years
exhibit a general upward trend. However, this is not aexhibit a general upward trend. However, this is not a
steady increase with time but rather is characterized bysteady 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 cyclicPrice trends, for metals in particular, are typically cyclic
((boom and slump timesboom 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 .

29. 1- Trend analysis :1- Trend analysis :
The basic idea in trend analysis is to try and replace theThe basic idea in trend analysis is to try and replace the
actual price-time history with a mathematical representationactual 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

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

36. 2-2- Econometric models :Econometric models :
The market model is the most basic type of micro economicThe market model is the most basic type of micro economic
structure and the one from which other commoditystructure 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.

37. Market models, which balance supply and demand to produceMarket models, which balance supply and demand to produce
an equilibrium price, are commonly used in the mineralan 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 ofThey are also used to simulate the possible effects of
stockpiles and/or supply restrictions over time.stockpiles and/or supply restrictions over time.

38. Laws
&
Regulations
Credit Risk
Interest Rate
&
Foreign Exchange
Operational
Environmental
Market
Risks
Risks Associate With Mining

39. 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

40. 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

41. Ability to attract and retain skilled and experienced
employees
 Shortage of skills could limit ability to meet
contractual requirements
Industrial accidents
Long 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. 43
Reference
Open Pit Mine Planning and
Design 3rd Edition (2013)

44. THANK YOUTHANK YOU