Wk 5 - Fundamentals of Mineral Economics Flashcards
What are the 4 key economic inputs for mining production
*land
*labour
*capital
*entrepreneurship
What is an example of lower level entrepreneurship
When mining operators make decisions it flows through the whole operation.
What is cost of inputs
the associated cost with each of the economic inputs
What are the 3 different categories all cost inputs will have
different cost, profiles and time schedules
What are the 3 parts of utility
*form
*place
*time
What is the form of a utility
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.
What are the impacts of place
The mined ore in not normally in the location of which it can be converted and utilised in its final form
What are the impacts of time
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.
What is the relationship between inputs and outputs
What goes into the ‘black box’ must also come out
What are the 3 key areas economic output comes from
*physical
*revenue
*costs
What is an example of a big time lag or buffer on a mine
Stockpiles
When is dry commissioning done
It is done on all equipment when the mine and the software are tested with no fluids are running through the plant
When is wet commissioning done
when the plant is tested with ore and fluids running through the operation to check it works
What is capital cost
cost which gives you the benefit that extends beyond the accounting period
How are operating costs broken down
categories are broken down into categories and sub categories
What are the economic inputs
land, labour, capital, entrepreneurship
What are the cost of inputs
rent, wages, interest/dividends, reward
What are the types of utility
form, place, time
What is factors of production
the production response to incremental change of input
What is law of diminishing return
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.
What effects the factors of production and law of diminishing return graph
the 4 different economic inputs
Why are the physicals focused on
*timing of revenue
*timing of costs
*unit operations
*operations and buffers
What is stockpile theory
*explains the benefit of stockpiles
*cost to the operations
*stockpiles act as an insurance
What are types of stockpile practices to benefit an operation
*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)
What are the types of physical schedules
*impact of stockpile and buffers/lag
*construction schedule
*commissioning schedules
*equipment driven schedules (e.g. availability and utilisation)
*rehabilitation schedules
What characterises a revenue schedule
*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
What are cost schedule considerations
*macroeconomic and microeconomic impact of costs considered (including reporting systems)
*capital vs operating costs
What are the types of capital cost
initial
sustaining
expansionary
rehabilitation/closure
What are mine capital costs examples
preliminary/establishment
mine
processing plant
on-site infrastructure
off-site infrastructure
What is the contingency in capital cost
accuracy of estimate
What are examples of working capital
initial stores
first fill consumables
cash-flow lag (ie work in progress)
What is operating cost classified and estimated by
*geographical area
*area of responsibility
*unit operation
*activity
*cost type
*cost detail
What are the components to cost reporting
mining
processing
site administration (G&A)
off-site
royalties
corporate (potential for overlap)
What are the types of cost reporting codes
*cash operating cost
*C1, C2 and C3
*AISC (All in sustaining cost)
What is C1 cost
Net direct cast cost
ie cash cost of production steps through the market
What is C2 cost
Production cost
ie Net direct cash cost plus depreciation, depletion and amortisation (inclusing deferred pit waste)
What is C3 cost
Fully alocated cost
ie Production cost plus indirect costs and net interest charges
What are the categories of AISC
*adjusted operating cost
*all in sustaining cost
*all in cost
What characterises adjust operating cost
costs related to the current operation
e.g. production taxes, community costs, permitting costs
What characterises all in sustaining cost
sustaining costs
e.g. exploration and studies, capital exploration, capital expenditure
What characterises all in cost
either not related to the current operation or re non-sustaining
e.g. permitting costs, reclamation/remediation, capital expenditure
What are the physical interface of revenue costs
*production rate
*cut-off grade
*underground mining blocks and schedules
*open pit schedules
*stockpiles and inventory
What physical schedules do we need
Everything that drives a material cost or revenue component:
*contract of open pit schedules
*owner-operator schedules
*underground schedules
*processing plant schedules
The optimal mine life must achieve a rate of production/throughput which __________
*realises economies of scale without creating excessive operating leverage and
*optimises capital recovery under the prevailing tax regime
What are the exisiting production constraints on a mine for short and long term
*underground and open pit
*processing plant
*product transport
*infrastructure
*social or legislative
What are the 4 stages of the interactive process for optimising feasability
ore resources/reserves
mine size and method
production cost
cut-off grade
What is the start point for mine life iteration
Mine life optimisation is a complex iterative
process, but an approximation is provided by
Taylor’s Rule:
What are real life methods for estimating cut off grade
*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
