Wk 5 - Fundamentals of Mineral Economics

Question 1

What are the 4 key economic inputs for mining production

Answer 1

*land
*labour
*capital
*entrepreneurship

Question 2

What is an example of lower level entrepreneurship

Answer 2

When mining operators make decisions it flows through the whole operation.

Question 3

What is cost of inputs

Answer 3

the associated cost with each of the economic inputs

Question 4

What are the 3 different categories all cost inputs will have

Answer 4

different cost, profiles and time schedules

Question 5

What are the 3 parts of utility

Answer 5

*form
*place
*time

Question 6

What is the form of a utility

Answer 6

This follows the process of converting the ore within the ground to a form that is of benefit to society or has a purpose. With each increase of the process the utility of form will increase.

Question 7

What are the impacts of place

Answer 7

The mined ore in not normally in the location of which it can be converted and utilised in its final form

Question 8

What are the impacts of time

Answer 8

It needs to be produced in a way that meets the market demands. Governments put a tender out and there is a delay between the need (demand) and the supply from the mine to meet it.

Question 9

What is the relationship between inputs and outputs

Answer 9

What goes into the ‘black box’ must also come out

Question 10

What are the 3 key areas economic output comes from

Answer 10

*physical
*revenue
*costs

Question 11

What is an example of a big time lag or buffer on a mine

Answer 11

Stockpiles

Question 12

When is dry commissioning done

Answer 12

It is done on all equipment when the mine and the software are tested with no fluids are running through the plant

Question 13

When is wet commissioning done

Answer 13

when the plant is tested with ore and fluids running through the operation to check it works

Question 14

What is capital cost

Answer 14

cost which gives you the benefit that extends beyond the accounting period

Question 15

How are operating costs broken down

Answer 15

categories are broken down into categories and sub categories

Question 16

What are the economic inputs

Answer 16

land, labour, capital, entrepreneurship

Question 17

What are the cost of inputs

Answer 17

rent, wages, interest/dividends, reward

Question 18

What are the types of utility

Answer 18

form, place, time

Question 19

What is factors of production

Answer 19

the production response to incremental change of input

Question 20

What is law of diminishing return

Answer 20

Very applicable to mining but rarely used in mining operations. It uses the factors of production shown on a graph where output is the vertical axis and quantity of production is the horizontal. This shows that there is a point of optimal output in relation to the amount of employees. As labour increases the exponential curve will flatten out as it becomes saturated.

Question 21

What effects the factors of production and law of diminishing return graph

Answer 21

the 4 different economic inputs

Question 22

Why are the physicals focused on

Answer 22

*timing of revenue
*timing of costs
*unit operations
*operations and buffers

Question 23

What is stockpile theory

Answer 23

*explains the benefit of stockpiles
*cost to the operations
*stockpiles act as an insurance

Question 24

What are types of stockpile practices to benefit an operation

Answer 24

*feed blending
*product blending
*low grade stockpiles (commodity price fluctuation, interruption of ore supply to plant)
*low grade stockpiles (end of mine life ore supply)

Question 25

What are the types of physical schedules

Answer 25

*impact of stockpile and buffers/lag *construction schedule *commissioning schedules *equipment driven schedules (e.g. availability and utilisation) *rehabilitation schedules

Question 26

What characterises a revenue schedule

Answer 26

*driven by delivery to point of sale and determined by physical schedules and sales term *must identify cost offset included in calculating net revenue *incorporate contractual payment delays

Question 27

What are cost schedule considerations

Answer 27

*macroeconomic and microeconomic impact of costs considered (including reporting systems) *capital vs operating costs

Question 28

What are the types of capital cost

Answer 28

initial sustaining expansionary rehabilitation/closure

Question 29

What are mine capital costs examples

Answer 29

preliminary/establishment mine processing plant on-site infrastructure off-site infrastructure

Question 30

What is the contingency in capital cost

Answer 30

accuracy of estimate

Question 31

What are examples of working capital

Answer 31

initial stores first fill consumables cash-flow lag (ie work in progress)

Question 32

What is operating cost classified and estimated by

Answer 32

*geographical area *area of responsibility *unit operation *activity *cost type *cost detail

Question 33

What are the components to cost reporting

Answer 33

mining processing site administration (G&A) off-site royalties corporate (potential for overlap)

Question 34

What are the types of cost reporting codes

Answer 34

*cash operating cost *C1, C2 and C3 *AISC (All in sustaining cost)

Question 35

What is C1 cost

Answer 35

Net direct cast cost ie cash cost of production steps through the market

Question 36

What is C2 cost

Answer 36

Production cost ie Net direct cash cost plus depreciation, depletion and amortisation (inclusing deferred pit waste)

Question 37

What is C3 cost

Answer 37

Fully alocated cost ie Production cost plus indirect costs and net interest charges

Question 38

What are the categories of AISC

Answer 38

*adjusted operating cost *all in sustaining cost *all in cost

Question 39

What characterises adjust operating cost

Answer 39

costs related to the current operation e.g. production taxes, community costs, permitting costs

Question 40

What characterises all in sustaining cost

Answer 40

sustaining costs e.g. exploration and studies, capital exploration, capital expenditure

Question 41

What characterises all in cost

Answer 41

either not related to the current operation or re non-sustaining e.g. permitting costs, reclamation/remediation, capital expenditure

Question 42

What are the physical interface of revenue costs

Answer 42

*production rate *cut-off grade *underground mining blocks and schedules *open pit schedules *stockpiles and inventory

Question 43

What physical schedules do we need

Answer 43

Everything that drives a material cost or revenue component: *contract of open pit schedules *owner-operator schedules *underground schedules *processing plant schedules

Question 44

The optimal mine life must achieve a rate of production/throughput which __________

Answer 44

*realises economies of scale without creating excessive operating leverage and *optimises capital recovery under the prevailing tax regime

Question 45

What are the exisiting production constraints on a mine for short and long term

Answer 45

*underground and open pit *processing plant *product transport *infrastructure *social or legislative

Question 46

What are the 4 stages of the interactive process for optimising feasability

Answer 46

ore resources/reserves mine size and method production cost cut-off grade

Question 47

What is the start point for mine life iteration

Answer 47

Mine life optimisation is a complex iterative process, but an approximation is provided by Taylor’s Rule:

Question 48

What are real life methods for estimating cut off grade

Answer 48

*mineral resource COG vs ore reserves COG *Open Pit: Lerchs-Grossman Algorithm *4-Dimensional Pit Optimisation *Optimised Pit vs Final Pit *Underground: Open, Supported and Filled *Underground: Caving *Underground Coal: Longwall