COST ESTIM

COST ESTIMAATI
TION
ON
HANDBOOK

Second
Sec ond Ed
Editition,
ion, Monog
Mono grap
raphh 27
27

The Australasian Institute of Mining and Metallurgy

Published by:
The Australasian Institute of Mining and Metallurgy
Ground Floor, 204 Lygon Street, Carlton Victoria 3053, Australia
 © The Australasian
Australasian Institute of
o f Mining and Metallurgy 2012

No part of this publication may be reproduced, stored in a retrieval system or transmied

in any form by any means without permission in writing from the publisher.

The Institute is not responsible as a body for the facts and opinions advanced in any of its
publications.

ISBN 978 1 921522

921522 79 6

Desktop published by:

Kristy Burt, Claire Lockyer, Kylie McShane and Olivia Tet
Tet Fong,
The Australasian
Australasian Institute of Mining and Metallurgy

Compiled on CD ROM by:

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PREFACE TO THE SECOND EDITION

Following the success of the rst edition, published in 1993, there has been continuing demand
within industry and universities for an updated reference for cost estimators working within
the mining and minerals sector. The preface to the rst edition, which is republished in this
volume, explains the genesis of this publication following the Sydney Branch MINCOST
conference held in 1990. While the rst edition remains a widely-used reference to cost
estimation, readers have called for a new edition that reects the changing nature of industry
operations, protocols
protocols and external inuences. When the rst edition went out of print in 2006,
a team was assembled to commence work on a revision of this popular monograph.
This second edition is the result of many years of planning, hard work and dedication
from a wide range of busy professionals with high-demand expertise in cost estimation. The
revision project has beneted from the input of various commiee members over the past
few years, FAusIMM(CP),
Flanagan including Neil Cusworth FAusIMM,
Roger Jackman Richard Greg
MAusIMM, Dewhirst
LaneFAusIMM(CP),
FAusIMM and Richard
Peter
McCarthy FAusIMM(CP). Earlier involvement from Rod Grant FAusIMM(CP) and Brian
Wesson FAusIMM was also benecial to the development of the scope and focus for this new
edition.
This publication is designed to help professionals from varied backgrounds to gain a
stronger understanding of the process of proposing and developing a mining project, selecting
the optimal alternatives, outlining the recommended approach and securing nance to take
the project forward.
This volume would not have been possible without the input from authors from all sectors of
industry who have lent their experience and time to this important project. It is representativ
representativee
of the dedication of The AusIMM, its members and industry professionals in general, that
even during a boom period such as we have seen over recent years, the professional standards

and commitment to knowledge sharing within industry has not waverwavered.

ed.
As current Chair of the Cost Estimation Handbook project commiee, rstly I wish to
acknowledge the work achieved
achieved by the previous Chairs of the commiee and secondly it has
been my pleasure to see the nalisation of this important project and I hope that members
and industry make the most of this important reference publication.
While the structure of this volume diers somewhat from the 1993 edition, the purpose
remains the same – to equip professionals with the knowledge, methodologies
methodologies and practical
advice necessary to undertake eective cost estimation within the minerals industry. I believe
that we have achieved this goal, in the face of a much-changed and ever-adapting competitive
industry.
The most signicant dierence between the 1993 edition and this edition is that in this
volume it is intended to show the user the process of preparing an estimation by providing
them with the tools and methodology to prepare cost estimations with data they source that
is accurate for each particular case. It was agreed that in the current climate of ever-changing
costs, this approach is preferable to providing numerous worked examples that may not be
applicable to the specic circumstances faced by the user.
I hope readers will agree that this second edition provides an invaluable resource to
industry professionals, nanciers and students interested in the practice of cost estimation.
I would like to thank the sta at AusIMM Services for their support of the commiee and
particularly Donna Edwards
Edwards and Kristy Burt for their work in coordinating submissions and
production of this revised monograph.

Richard Flanagan FAusIMM(CP)

Chair, Cost Estimation Handbook project commiee
PREFACE TO THE FIRST EDITION

From 5 to 7 June,1990 the Sydney Branch of The AusIMM held its annual conference entitled
Mining Industry Capital and Operating Cost Estimation or colloquially, ‘MINCOST 90’.
It was a highly successful conference and reference back to the original conference volume is
recommended for further reading on the subject maer covered in the Handbook. One of the
major outcomes of the conference was that whilst many varied estimating procedures were
being widely used no collective reference existed for the Australian mining industry. The
conference organising commiee decided that this perceived deciency should be rectied
and shortly after MINCOST 90 was put to bed the majority of the conference organising
commiee with some additional contributors formed an editorial commiee to coordinate
and produce this Handbook which inherited the nickname of the ‘MincostHandbook’. The
project was sponsored by the Sydney Branch of The AusIMM and largely funded out of the
proceeds of MINCOST 90.
The combined experience of the editorial commiee in producing such a publication
was practically nil which, in retrospect, may have been fortunate as, if they had known the
enormous workload that the venture entailed, they may well have not commenced with the
project. The contribution of each individual member of the commiee will be acknowledged
below but the group as a whole has worked for over three years to bring the publication
to press and through all the ups and downs they have remained cheerful and have given
unselshly of their time.
The planned organisation of the Handbook was for each editorial commiee member to
appoint a chapter coordinator for each chapter and for that coordinator to identify authors
most experienced in in ‘authoring’ that particular chapter
chapter topic. The rst
rst breakdown in this
this
organisation occurred
occurred when most of the editorial commiee ended up being coordinato
coordinators
rs as
well. To compound the problem, many of the coordinators, who are acknowledged experts in
their respective elds anyway, decided to write the complete chapter or signicant portions
of it themselves. The line of command was soon lost with editors being both coordinators and
authors. Nevertheless,
Nevertheless, credit is given to the 57 authors be they editors, coordinators or simply
authors as this book is a testimony to their skills and enthusiasm. We
We hope that the reader has
some sympathy for joint editors Michael Noakes and Teny Lanz who have aempted to keep
this organisational monster under control.
The objective is to provide readers with simple to follow instructions for calculating capital
and operating costs using graphical
g raphical or formulation methods. To ensure consistency between
chapters the authors were provided with guidelines to follow, for example in the case of
capital cost estimation it was required that they provide:
• raw data and/or criteria to perform the estimate
• the method of equipment selection type and unit size or unit operation
• the method of costing selected unit items or operations using either graphical methods
and/or formulae, and typical worked examples connning calculation procedure.
 Operating costs were to be developed in the classical manner with examples showing
where and how the costs were derived.
As the original deadline for copy from authors went by and many others to follow, it
became clear that the authors were completely ignoring the guidelines set and what was
actually being created, in many instances, was a complete guide to the authors’ eld of
expertise including data and concepts that had never been published before. In other words,
what was evolving was a ‘textbook’ of mining and metallurgical practices (including the
cost estimation elements) that described the mining industry in Australia
Australia as practiced today.
A brief glance through the Handbook shows the reader a surprising depth of technical
and practical information on the techniques that are used in the mining industry and this
book will undoubtedly live up to its “Handbook” title as it will become a reference manual
constantly used by engineers and other professionals in the eld. In addition it is most likely
that it will become a teaching tool for tertiary institutions covering the areas of resource
management, surface and underground mining of hard rock and coal, alluvial operations,
minerals processing and metallurgy, infrastructure, administration,
administration, marketing and revenue
generating procedures, environmental management considerations, and the fundamental
elements of economic analysis and nancial decision making methods.
Throughout the book the contributing authors are acknowledged with the chapters to which
they have contributed and a few details are provided on their background and contributiv
contributivee
expertise. In this preface the individuals of the Editorial Commiee arc recognised (in
alphabetical order) for the extensive eort and long hours they have input to the Handbook.
Ray Dudgeon was nominated to be the editor for the beneciation capital and operating cost
chapters. Helater inherited the alluvial dredging and tailings reclamation chapter (Chapter
5). It was then decided to split the beneciation capital chapter into three separate chapters
(Chapters 6, 7 and 8) so he ended up with the responsibility for ve chapters although he
did receive some help from Bob Seaborn on Chapter 6. He also became a co-author of the
beneciation operating cost chapter (Chapter 15). Ray obtained his BSc from Melbourne
University in 1954 followed by his MSc and Diploma of Imperial College (DIC) in 1968 from
the Royal School of Mines at London University. Between his Bachelors and Masters degrees
he worked on the beneciation of base metals and uranium in Canada and in steel, almninium
and mineral sands in Australia. After graduating with his MSc he joined the Minerals Division
of CSR in Sydney with whom he spent 19 years to 1988 on such projects as the Mount Gunson
Copper Mine and Paringa
Paringa,, Haveluck, Lebong Tandai and Granny Smith gold projects. From
1988 to 1991 he was with Pancontinental Mining Ltd until retiring to become a Consultant
with RaymetConsulting.Ray has served as a Sydney Branch AusiMM Commiee Member
and was one of the Organising Commiee for MINCOST 90. He is a Member of The AusIMM,
IMM. CIM and AIME (SME).
Chapters 3 and 13 have been Steve Gemell’s responsibility and, as other members of
the Editorial Commiee chose to do, he elected to write his own chapter on underground
hard rock mining operating costs. Steve is a professional mining engineer who, since1984,
has been Principal of GemeU Mining Engineers, a multi-disciplinary consultancy based
in Sydney, Perth and the United Kingdom. Since his rst employment as an underground
miner in 1971 he has worked in Australia, Africa and South East Asia and currently holds
Mine Managers’ Certicates of Competency for Western Australia, New South Wales and
South Africa. During his career in mining and exploration companies he has held the position
of miner, shift boss, pit supervisor, superintendent, mine manager, non-executive director,
managing director, and chairman of directors. Although his consulting rm undertakes a
wide range of consulting assignments associated with exploration and mining in hard rock,
soft rock. and alluvial environments, Steve’s work is predominantly involved in acquisition
assessment and mine evaluation, strategic (life-of-mine) planning, cost analysis, feasibility
studies and technical audits of metalliferous and industrial minerals operations. In addition
to his consulting role, he lectures in mine management and mining project valuation as a
Visiting Fellow of the University of New South Wales. He is a Member of the American
Institute of Mining, Metallurgical and Petroleum Engineers and a Fellow of the Australasian
Australasian
Institute of Mining and Metallurgy. He is currently the Vice-Chairman of the Sydney Branch
of The AusIMM
Commiees of thehaving been 90,
MINCOST a Commiee
Minopt and Member since 91
World Gold 1989 and was on the Organising
Conferences.
One of the problems with having consultants involved in projects such as this is that
periodically they get sent overseas unexpectedly and just such an event occurred with Paul
Westco being sent o to Indonesia in the middle of an important phase of the Handbook
preparation. Very
Very fortunately one of his partners in MineConsult Pty Ltd, Rick Hall, was able
to step in and take control of the underground soft rock and coal capital and operating costs
chapters (Chapters 4 and 14). To complicate maers further Paul and Rick undertook to both
coordinate and write the surface mining operating costs chapter (Chapter 12). Rick Hall is a
mining engineer with over 20 years’ experience including the positions of miner, shift boss,
grade control engineer, sales engineer, foreman and consultant. He has worked in Australia,
South Africa, the United Kingdom, Indonesia, Philippines and Thailand in both coal and
metalliferous mines. All aspects of evaluation, specication and design of small and large
operations have been covered. As mentioned he is currently a Director of the Sydney based
consulting rm MineConsult Pty Ltd which is a group of mining related personnel oering
advice to management on strategic planning, audits, equipment selection and performance,
feasibility studies and economic modelling.
During the preparation of the book a major task was the preliminary editing of the rough
drafts provided by the authors, many of whom it was discovered had very individualistic
styles of wrien English. Since Malcolm Hancock had originally graduated from Trinity
College, Cambridge, it was assumed by the Commiee that he might be able to speak the
language and therefore that he should perform this unenviable task which he did with
great patience and tact. He also undertook the collation of the Appendix which is an equally
thankless task. Malcolm is Principal of the geological and mining consulting group Malcolm
Hancock Associates Pty Ltd. As already mentioned he is a graduate of Trinity College,
Cambridge University, a Fellow of The AusIMM, a Fellow of the Geological Society, and a
Member of the IMM, the GSA and MICA. He has over 20years experience in technical and
general management within the mineral resource industry. His technical specialisation is
in mining geology, ore reserve estimation, project evaluation, feasibility studies and mine
development. His early experience was on the Zambian Copperbelt where he worked
initially in exploration and later as Chief Geologist of a large open pit and underground
copper mine. Since 1980 he has worked in Australia.
Australia. He has been chief geologist, manager -
evaluation and general manager - mining for Pancontinental Mining Limited where he was
responsible for the geological and mining evaluation, feasibility and development work on
such varied projects as Paddington (gold), Thalanga (base metals), Wodgina (tantalum),
Jabiluka (uranium), QMag (magnesia)
(magnesia) and Lady Lorea
Lorea (base metals).
Lile did Terry Lanz know when he undertook to convene MINCOST 90 that he was
leing himself in for several years of toil as the joint editor of the Handbook but he has
performed the function with his usual good grace and has managed to keep his co-editor
more or less in line with reality. He has worked as hard as anyone to bring this book to
publication. Terry
Terry has also coordinated and co-authored the administratio
administration
n operating costs
chapter (Chapter 17). Terry obtained his BSc (Mining Engineering) degree with honours from
f rom
Imperial College, University of London in 1954 and was awarded an Associateship of the
Royal School of Mines (ARSM) in the same year. He is a Fellow of The AusIMM and the
IMM and is a chartered engineer in the UK. He also holds a Mine Managers Certicate of
Competency
Competenc y for Tasmania.
Tasmania. His experience
experi ence was gained as a mining engineer on the Copperbelt
in Zambia, as operations manager and then general manager of the Mount Lyell Mining and
Railway Company in Tasmania, technical director of Consolidated Goldelds of Australia,

principal, Golder
Australia and Associates,
is currently ConsultingConsulting
an Independent Mining Engineers, managing
Mining Engineer. director,
Terry Samim
has long been
an active member of The AusIMM convening several symposia and conferences in addition
to MINCOST 90, a Sydney Branch Commiee member for a number of years and Chairman
of the Sydney Branch for three years (1979 - 1981).
Michael Noakes was the Chairman of the Sydney Branch in 1990 when MINCOST 90 was
held and could not really avoid being involved in either the conference or the production
of this Handbook. He has been the joint editor with Terry Lanz and has learned to never
again volunteer for anything but is nonetheless very proud and happy to have worked with
Terry and the Editorial Commiee on this project. Michael was responsible for authoring this
preface, Chapter 1 and a small section of Chapter 6 as well as performing a multitude of other
tasks during the preparation of the Handbook. He has been a practising minerals processing
engineer for nearly30 years and is now an Independent Consultant based in Sydney. He
graduated with honours from London University with a BSc in Minerals Technology in 1966
and the Royal School of Mines the same year with his ARSM and is currently completing his
Masters degree in Environmental Studies at the University of New South Wales. Following
graduation he emigrated to Australia to work there and in Papua New Guinea then moved
to the USA for several years before returning to Australia in 1979. As a Consultant he has
also worked in South America, Europe, Africa and South East Asia. For many years his work
experience has involved him in mining project evaluations from grass roots through feasibility
to plant construction and operations. Capital and operating cost estimations have been a
major component of his career experience to date. Michael is a Fellow of The AusIMM and
the IMM, a chartered engineer in the UK and a Member of AIME (SME) and has been active
on a number of Institute commiees over the years. One of the longer and more detailed
chapters in the book on infrastructure capital (Chapter 10) was actually one of the rst to
be completed which was largely due to Bob Seaborn’s eorts (in addition to the author Eric
Gamer). Not content with having nothing to do at this stage he went on to assist and co-
author Chapter 6, for which Ray Dudgeon was most grateful. Bob’s background and varied
experience in both mining and the heavy engineering industries well suited him in this area.
He has spent over ten years designing and installing crushing and grinding circuits. For the
past ten years he has been involved in developing microcomputer systems for engineering
applications, administration and marketing duties. He has also had responsibility for the
evaluation of grinding mill equipment and specications on existing installations and new
projects. He obtained a Certicate in Mechanical Engineering in Manchester in 1967 before
emigrating to Australia in 1969. He was on the Organising Commiee of MINCOST 90 and
has memberships in The AusIMM,
AusIMM, Quarry Institute and Coal Preparation Society.
Perhaps the greatest lesson that the Editorial Commiee has learned from the preparation
of this Handbook has been the enormous amount of detailed word processing, formaing
and graphic design required to prepare such a volume to a suitably professional standard.
With the utmost good fortune Daniela Leonte was discovered when she was working on
some of the printed materials for Sydney Branch’s ENVIROMINE Australia Conference in
1992. Daniela emigrated to Australia from Romania in 1991 with a Bachelor of Engineering in
Engineering Geology with honours from the University of Bucharest, two years’ experience
in base metals exploration for a government exploration enterprise (BANAT) and three years
as a research assistant in mathematical geology at the University of Bucharest. She is currently
enrolled full-time at the University of New South Wales (UNSW) completing her Mastersin
Environmental Science on Waste Management) with her speciality in the geostatistics of
pollution control. Not satised with onlystudying for a full-time Masters course, she works
part-time for the Masters of Business and Technology
Technology program (MBT) at UNSWon desk top

publishing and graphic

the same function design
which has and
had has
theformed her own company,
total responsibility The
for the Magic Pen,
formaing andto perform
graphic
presentation of the Handbook. It is doubtful that this project could have been completed
without Daniela’s incredible devotion to it plus many, many hours of work especially re-
formaing material after it had already been edited sometimes several times over.
over.
The 1993 Chairman of the Sydney Branch is Roy Swan who has had responsibility for
the surface mining capital and operating costs chapters (Chapters 2 and 12). Being one
of the few corporate employees on the Editorial Commiee he has been very generous
in providing secretarial assistance through Dorothy Shaw and he has strongly supported
the project through the Sydney Branch and The AusIMM administrative organisations.
Roy obtained his BSc in Mining Engineering from Rand University in South Africa and
commenced his surface mining career at Palabora Copper Mine in South Africa, progressing
to mine superintendent. Rio Tinto then transferred him to Rossing Uranium Mine in
Namibia where he was responsible for pit planning and predevelopment In Australia, as
Esso’s Chief Mining Engineer, he participated in the planning and development of Harbour
Lights Gold Mine and later became mine manager. As Normandy Poseidon’s manager of
mining he was responsible for the Bow River alluvial diamond operation and the Mount
Leyshon Gold Mine. Currently General Manager Operations and Technical Director of
Arimco Mining he is responsible for Gidgee Gold Mine, Mount MCClure Gold Mine and
the Selwyn Gold/Copper Mine. He is author of two technical papers presented at Open Pit
Mining Conferences.
Rick West has been editor, coordinator and section author of the general and pre-
production capital chapter (Chapter 11) which was a dicult chapter to come to grips
with due to its rather vague terms of reference. Nevertheless he has pulled together a very
useful contribution covering the diverse areas of preproduction management and projected
expenditures, project control and coordination and some strategies for project nancing
of resource projects which is especially relevant during the period of recession when the
Handbook was being wrien. Rick is an independent mining consultant who has more than
30 years’ experience in underground, open cut metalliferous and placer mining. Activities
have included production, mineral resource and ore reserve appraisal, mine planning and
production scheduling and project FMC tuning, feasibility studies, project valuations,
technical audits, project construction coordination and progress audits within Australia
and Indonesia and iron ore project technical presentations
presentations in Japan. Through his consulting
company Wesral
Wesral Mintec Pty Limited, he specialises in precious metals, base metals, uranium,
iron ore, mineral sands and non-metallics covering development from ore reserve estimation
through project planning, evaluation and feasibility to project coordination, commissioning
and technical audits both within Australia and overseas. He is a Visiting Lecturer at Brisbane
University and the University of New South Wales. Rick has held positions in The AusIMM
for over 18 years including being a councillor, 1985 Sydney Branch Chairman and convenor
of several symposia and conferences. Currently he is on the Joint Ore Reserves Commiee

(JORC).
 As discussed earlier Paul Westco has worked hand in hand with Rick Hall as the editor,
coordinator and author of Chapters 4,12 and 14 while tripping back and forth between
Australia and Indonesia. He is a Sydney-based mining engineer who is currently a Director
of MineConsult Pty Ltd with over 20 years’ experience in open pit mining. He has worked
on a large number of mining projects in Asia and Australia. This experience has covered
both feasibility studies and long- and short-term planning in operating mines including
Blackwater, Saraji and Leigh Creek in Australia and Mae Mohand Kaltim Prima Coal in
Asia. Paul has had exposure to a wide variety of mining systems including draglines, truck
and shovel and conveyors. He has run technical training programs on computerised mine
planning, scheduling, mine design and costing. He now specialises in optimisation of mining
operations, costing, economic modelling and long term and strategic planning.
Des White undertook the responsibility for the extractive processing capital (Chapter 9)
but due to the economic environment and other factors its scope was restricted to
hydrometallurgical/solvent extraction and electrowinning capital. He was also responsible
for one of the more complex chapters on revenue generation, marketing and sales of products
(Chapter 16) which was jointly developed with Peter Lewis who provided considerable
editorial input. The Editorial Commiee has struggled with the dicult question of whether
or not to include a chapter on revenue generation, which is a complex topic and the scoping
of such a topic needs to be carefully dened. On the one hand to inadequately cover the topic
may cause estimators to misjudge the potential protability of a given project. Conversely,
if inadequate reference is made to the revenue side of the equation then the Handbook may
be considered to be decient in its scope. Des has handled this debate with patience and
understanding which is a credit to his managerial skills.
Des is Principal of the rm White Resources and has been in practice as an earth resources
consultant since 1987. He undertakes assignments in management and in technology for the
mining, extractive and metal manufacturing industries and for government and statutory
corporations. Prior to 1987 he was with MIM Holdings Limited. From 1985 to 1987 he was
seconded to the Federal Governmnent, Department
Department of Defence as a consultant to the Oce of
Defence Production. He was general manager and a director, Copper Reneries Pty Ltd from
1979 to 1985. Earlier he was involved in various roles at Mount Isa including metallurgical
works manager following management and project roles in minerals processing and smelting
plants during the major expansion stages of this period in copper and silver-lead-zinc products
streams. He is a Fellow of The AusIMM,
AusIMM, IEAus
IEAus and IChernE (UK)( UK) and he obtained his BEng
(Metallurgical and Chemical Engineering) degree at the University of Adelaide, 1957.

A large level of eort by many people has gone into the preparation of this book and the end
result, we believe, is a volume that contains the most up-to-date information including costs
available at the time of going to press on mining practices in the Australian mineral resource
industry. It will truly be a ‘Handbook’ that will be used and referred to most frequently by
professionals and students of the industry. We commend The Cost Estimation Handbook for
the Australian Mining Industry to you with pride.

Michael J Noakes
Joint Editor
Chairman Sydney Branch – 1990
ACKNOWLEDGE
ACKNOWLEDGEMENT
MENTS
S

Project steering committee

Richard Flanagan FAusIMM(CP), Chair AusIMM Services:

Neil Cusworth FAusIMM Jenni Stie MAusIMM
MAusIMM
Richard Dewhirst FAusIMM(CP) Kristy Burt
Roger Jackman MAusIMM Donna Edwards
Greg Lane FAusIMM
Peter L McCarthy FAusIMM(CP)

Reviewers

Alexandra Blood Sandy McDonald

Ken Bocking John McIntyre
Je Clan Eddie McLean
Ed Clerk Peter Munro
Neil Cusworth Marshall Lee
Stephen Finer Mani Rajagopalan
Richard Flanagan Doug Rogers

Rod Grant Rod Sinclair

Trevor Jackson Mark Steemson
Je Jamieson Philip Stewart
Greg Lane David Williams
Philip Maxwell Boyd Willis
Peter L McCarthy
SPONSORS

Chapterr Sponsors
Chapte Sponsor s

Mineral Deposits

General
General Sponsors
Sponsor s

Supp or titing Financ i al Inst i t u t i on Supp or titing Sp ons or

CONTENTS

Ch a p t e r 1 Usin g t h e Ha n db o o k 1
Ch a p t e r 2 B a si s o f S t u d i e s 21
Ch a p t e r 3 Reve nu e Est im a t i o n 29
Ch a p t e r 4 Ca p i t a l Co st Est im a t i o n 41
Ch a p t e r 5 O p er a t in g Co st Est im a t i o n 57
Ch a p t er 6 B u sin e s s c o st s 83
Ch a p t er 7 Sur f a c e Minin g 91
Ch a p t er 8 Un d er gr o un d Ha r d Ro c k Minin g 13 5
Ch a p t er 9 Un d er gr o un d Co a l a n d S o f t Ro c k Minin g 16 5
Ch a p t er 10 Min er a l S a n d s Minin g a n d Pr o c e s sin g 193
Ch a p te r 11 B en e f i c ia t i o n – Co mminu t i o n 213
Ch a p te r 12 B en e f i c ia t i o n – Co n c en t r a t i o n 2 63
Ch a p te r 13 B en e f i c ia t i o n – Ma t er ia l s Ha n dlin g 29 5
Ch a p t e r 14 Le a c hin g a n d Ca lc inin g 32 9
Ch a p t e r 15 S o l ve
ve n t Ex tr
tr a c titi o n,
n, Io n Ex
Exc ha
ha ng
ng e a nd
nd Ca r bo
bo n-
n-in-Pulp/Ca rb
rb on
on-in-Le a c h 3 53
Ch a p t e r 16 El e c t r o l y t i c Pr o c e s s e s 371
Ch a p t e r 17 In f r a st r uc t ur e 39 9
Ch a p t er 18 Wa st e Ha n dlin g a n d St o ra g e 43 9
Ch a p t er 19 Re h a bili t a t i o n a n d Cl o sur e 4 53
Ch a p t er 2 0 Co mm o di t y Ma r ket in g 471
Abbrev
Abb revia
iatition
onss 523
Aut ho
horr Index 527

Publications of The Australasian Institute of Mining and Metallurgy

 MONOGRAPH SERIES

1. * Detrital Heavy Minerals in Natural Accumulates G Baker 1962

2. * Research in Chemical and Extraction Metallurgy Ed: J T Woodcock, 1967

A E Jenkins and
G M Willis
3. * Broken Hill Mines — 1968 Ed: M Kadmanovich and 1968
J T Woodcock
4. * Economic Geology of New Zealand Ed: G J Williams 1974
5. * Economic Geology of Australia and Papua New Guinea — 1 Metals Ed: C L Knight 1975
6. * Economic Geology of Australia and Papua New Guinea — 2 Coal Ed: D M Traves and D King 1975

7. * Economic Geology of Australia and Papua New Guinea — 3 Petroleum Ed: R B Leslie, 1976
H J Evans and
C L Knight
8. * Economic Geology of Australia and Papua New Guinea — 4 Industrial Minerals and Ed: C L Knight 1976
Rocks
9. Field Geologists’ Manual
* First Edition Ed: D A Berkman and W Ryall 1976
* Second Edition 1982
* Third Edition Ed: D A Berkman 1989
Fourth Edition Ed: D A Berkman 2001
Fifth Edition Ed: H Rutter 2011
10. * Mining and Metallurgical Practices in Australasia (the Sir Maurice Mawby Memorial Ed: J T Woodcock 1980
Volume)
11. * Victoria’s Brown Coal — A Huge Fortune
Fortune in Chancery (the Sir Willis Connolly Ed: J T Woodcock 1984
Memorial Volume)
12. Australasian Coal Mining Practice
* First Edition Ed: C H Martin 1986
* Second Edition Ed: C H Martin and 1993
A J Hargraves
Third Edition Ed: R J Kininmonth and E Y Baaf 2009
13 . * Mineral Deposits of New Zealand Ed: Dr D Kear 1989
14. * Geology of the Mineral Deposits of Australia and Papua New Guinea Ed: F E Hughes 1990
15. * The Rocks Speak H King 1989
16. * Hidden Gold — The Central Norseman Story J D Campbell 1990
17 . * Geological Aspects of the Discovery of Some Important Mineral Deposits in K R Glasson and 1990
Australia J H Rattigan
1 8. * Down Under — Mineral Heritage in Australasia Sir Arvi Parbo 1992
19. Australasian Mining and Metallurgy (the
(the Sir Maurice Mawby Memorial Volume) Ed: J T Woodcock and 1993
K Hamilton
20. * Cost Estimation Handbook for the Australian Mining Industry Ed: M Noakes and 1993
T Lanz
21 . * History of Coal Mining in Australia (the Con Martin Memorial Volume) Ed: A J Hargraves, 1993
R J Kininmonth,
C H Martin and
S M C Saywell

Copies of all publications currently in print may be obtained from:

The AusIMM, Melbourne, Australia / Telephone +61 (3) 9658 6100 / Email: [email protected]

Key: * Out of print

22. Geology of Australian and Papua New Guinean Mineral Deposits Ed: D Berkman and 1998
 D Mackenzie
23. Mineral Resource and Ore Reserve Estimation — The AusIMM Guide to Good Ed: A C Edwards 2001
Practice
24. Australian Mineral Economics Ed: P Maxwell and P Guj 2006
25. Geology and Exploration of New Zealand Mineral Deposits Ed: A B Christie and 2006
R L Brathwaite
26. Mine Managers’ Handbook Ed: J Dunlop 2012
27. Cost Estimation Handbook, Second Edition 2012

Copies of all publications currently in print may be obtained from:

The AusIMM, Melbourne, Australia / Telephone +61 (3) 9658 6100 / Email: [email protected]

Key: * Out of print

CHAPTER 1
Usi
sing
ng the
th e Handbo
Handbook
ok
 CHAPTER CONTENTS

Introduction to the second edition 4

Whoo should
Wh sho uld use
us e the
th e han dbo ok? 5
Important changes since the first edition 6

Nature of estimation studies 6

Language and terminology of estimation 10
Factored c ost estimates 10
Th e si x-t ent h s r ul e 10
Annualis
Annu alis ed cost
c ost p er tonne
to nne 11
Uni t c a p ac i t y 11
To t a l inst a lle d c o st 11
S o cia l, c o mmuni t y, c l o sure a nd ot h er c o st s 12
B a t t er y limi t s – c au t i o n 13
Cost indices 13
Limits
Limits of accuracy 13
Cost estimation and t he JORC Code 14
Chapters in a feasibility
feasibility stud y 14
Bankability
Bankability o f studies 15
Time value of money 15
Process selection criteria 15
Workin
Wor kingg capit
ca pit al 16
Revenue
Revenue generatio n and mar keting 16
Central estimates 16
Operating cost estimates 17
Costs of a study 17
References and further reading 18

CONTRIBUTORS

Richard F Dewhirst FFAusIMM(

AusIMM(CP),
CP), Group Manager, Feasibility Studies
St udies (Mining and Metals),
Metal s), Sinclair Knight Merz
Mer z

Using
Using the Handbook
Handboo k
INTRODUCTION TO THE SECOND EDITION

While
in 1993the– need
had to revise this
become handbook
glaringly – firstits
obvious, published
general referred
revenue to the handbook,
calculations very they found theThis
enlightening. section on
author
format, level of detail and breadth of coverage has has also heard from several bankers that they used
proved to be of enduring value. The original work it as a reference when doing at least initial checks on
focused on the Australian mining industry, but it has prospective investments.
become clear that its market has been much wider than Then, as now, cost estimation is an everyday
that over the years, and the authors have tried to keep part of a practising mining professional’s life. Our
that in mind in this update. communication and computing power have grown
Thanks to the efforts of venerable institutions such exponentially in the intervening period, but the
as our own Australasian Institute of Mining and fundamentals still remain. The ubiquitous nature of the
Metallurgy (The AusIMM
AusIMM – The Minerals Institute), the internet and data access have prompted many changes
mining industry has become more professional over in the intervening period. Generally these changes
the intervening years. It has also become more cross- have been positive, in that out of necessity we are more
disciplinary in nature. It is hard enough to keep up-to- cost conscious than before.
date in our own specialist fields, or commodities, let Most of us have had to live with the cyclical nature
alone understand what is happening across the wider
industry. Nonetheless, if there is a common language of the industry,
boom and bust and have
cycles. ridden
This the roller-coaster
in itself has meant thatof
that everyone speaks, it is that of economics, as this there are gaps in the demographics of the mining
is at the heart of decision-making at every stage of a workforce as people move away from the industry
mine’s life from its discovery to closure. Thus, while during downturns, and new graduates have not been
this volume will provide some technical basics, this attracted in the numbers that are required to keep
is not its greatest aim. Rather, its mission is to help pace with growth. Inevitably this creates a lag, and
technical specialists from different backgrounds better once commodity markets rise again, there are labour
appreciate the dimensions across the broad spectrum
s pectrum of shortages. At the time of writing, many of the most
justifying the potential for developing
developing a mining project, experienced leaders of the industry who opened up
selecting the best alternative from many, detailing the areas of the Pilbara, or helped develop iconic projects
favoured case and securing finance to take that project such as Olympic Dam, have retired or are about to
forward. do so. We all benefitted from those stalwarts of the
This author came across the first edition around 1996 industry who had facts and figures at their fingertips.
when on a consultancy assignment to Angola, and was As they are often no longer down the corridor in the
greatly impressed with the value it provided for that job office, trying to capture a body of knowledge such as
in making some rapid checks on the status of a project. this handbook attempts to do helps practitioners keep
That same edition has served many professionals now some degree of continuity in the industry.
for some 20 years. While it was in need of updating, its This second edition has had to deal with many changes
basic format and intent remain the same – to provide in the almost two decades since the first edition was first
mining industry professionals including engineers, mooted. New technologies and processing routes have
technologists, scientists, researchers, academics, been introduced, and the overall scale of operations and
students and other personnel from associated unit size and capacity of
o f equipment have had to increase
disciplines with tools to enable them to perform cost to be able to derive economic value in the face of falling
estimations, ranging from the total cost of developing grades and ever more-remote locations. Overall these
a complete new mine to investigating the feasibility of changes have brought step-changes in cost structures.
changing a single piece of plant equipment. Labour practices and organisation structures have
Its value has been demonstrated time and time again altered significantly in the intervening years to increase
in that this author’s copy was regularly ‘borrowed’. productivity and create more meaningful careers, and
Even as recently as 2011, when a team on a copper workforce expectations and management styles have
project (who had not seen the handbook before) shifted to match. Our standards have become higher,

4 Cost Estimation Handbook

CHAPTER 1 – USING THE HANDBOOK

and thankfully the focus of attention on health, safety, understand the likely size of resource that must be
environment and community (HSEC) have made for a defined to support the project. The manager can
safer, better, healthier and overall more sensitive and make some rough estimates of the likely costs of
sustainable industry. mine, plant and infrastructure – perhaps at different
The Editorial Committee commends this volume to production rates – that may guide him or her in
 you, and trusts that it will be just as valuable a reference decision-making to plan the location and spacing of
as was its predecessor. We hope too that you will feel drilling.
free to comment and provide additional examples and • A lead process engineer planning a test work
good practices that can be used in subsequent updates, program can quickly get a sense of the costs of
to ensure that it retains its relevance as long as possible. new equipment needed to improve recoveries and
In revising the first edition, some inconsistencies and determine what levels of improvement will be
perhaps less-than-clear explanations were uncovered. required to justify new investment.
We hope to have addressed most of these, but if some • Students may gain a better understanding of the
have slipped through the cracks, we welcome your costs of different mining or processing methods
reporting back to enhance the value of this new edition. to increase their understanding of the value and
applicability of those alternatives, and lend context
WHO SHOULD
SHOULD USE THE HANDBOOK? to their studies.
It is not the intent of this handbook to turn mining • A proposal manager can make some rapid
professionals and study managers into either calculations of a project’s likely capital costs, and
professional estimators or legal counsel. However, then use ‘rule-of-thumb’ estimates to determine
these professionals should at least be provided with an appropriate number of hours to carry out
some additional knowledge so that they are aware engineering to achieve the necessary level of
of the issues that need to be addressed. In this way, accuracy of cost estimates. This could then be
discipline engineers and study managers can seek the used as a ‘sanity check’ against derived bottom-up
necessary professional assistance where matters are estimates.
more complex than they can deal with using their own • A study team can give due recognition to non-
experience. technical costs such as those associated with
One of the main purposes of the handbook is to help addressing community and social issues, and
the study manager and members of the study team ask planning for sustainable operations, including their
the right questions and plan their work so as to provide ultimate closure.
information in the correct format, and at the level of • Even for professional estimators and financial
accuracy in calculation and supporting drawings to analysts, the handbook may serve as a good general
allow professional estimators to do their job. review, as they cannot be expected to be familiar
In this sense, as well as the critical nature of the actual with every mining-related discipline or commodity.
numbers involved, capital and operating cost estimates This author has found the handbook particularly
are communication documents within the study team. valuable in running quick ‘what-if’ cases – sometimes
These estimates demonstrate that the scope of work known in the trade as ‘optioneering’. This term is a good
has been captured, that suitable methodologies have description of achieving a balance between looking at a
been applied and that the underlying assumptions are number of different business cases without necessarily
realistic and generally accepted. having to go into too much engineering detail.
The chapters in this volume are intended to provide This chapter is written by way of an introduction to
guidance on how capital and operating cost estimates the new handbook to provide an overview and context
are derived and give some pointers on what topics need for the detail provided in the individual chapters that
to be covered. It is not meant to be all-encompassing, describe different parts of the mining industry value
and every study and project is different depending on chain. The reader’s attention is particularly drawn to
the scope, commodity and stage of the study. As in the early Chapters such as Chapter 2 (Basis of Studies),
the past, this volume will form a basis for continuous Chapter 4 (Capital Cost Estimation) and Chapter 5
improvement as new lessons are learned and we can (Operating Cost Estimation) which go into detail as to
add them to the general body of knowledge.
kno wledge. the purpose of different levels of study, and the levels
The first edition presented examples of the needs of of definition associated with each class of estimate.
potential users of a cost estimate so that readers would A variety of methodologies, rules of thumb, and best
understand the levels of detail needed when preparing practices are described which should prove useful to a
the cost estimate. The second edition also illustrates range of practitioners.
required levels of detail using examples, which might There is no substitute for detailed industry
include the following: knowledge, practical experience and of course good
• An exploration or geological manager planning design and estimating. The mining industry has been
and budgeting an exploration program needs to badly affected by economic cycles such that a map of

Cost Estimation Handbook 5

CHAPTER 1 – USING THE HANDBOOK

the age distribution of both operating and engineering and operating cost structures, and in making realistic
companies shows a gap in the generation aged (in 2012) future price forecasts.
in their late 30s to early 50s. The mentoring and learning Moreover, there has been increasing evidence of great
that those of mining professionals now past that upper uncertainty in the world following the Global Financial
bracket received
received in their early careers is harder to come Crisis (GFC) of 2008, the Eurozone Crisis of 2011 - 2012
by, and was often knowledge not formally written and the Fiscal Cliff (2012-13). Mining is not insulated
down. This handbook may help bridge both the from such global impacts, and even so-called super-
knowledge gap and the generations. cycles reach a natural limit. It is interesting to speculate
what sort of future we are now entering, and whether
IMPORTANT CHANGES SINCE THE FIRST EDITION the Editor of the Third Edition will read these words
Over the past few years, we have seen major changes with amusement and say ‘how wrong they were back
and massive growth in our industry. Fifteen years on at then …’
publication of this new edition, a $150 M project of the Emerging mining regions such as Mongolia present
late 1990s has now probably grown to at least four or great challenges in dealing with the extremes of
five times that. Reasons include escalation (especially temperature. A resurgence of interest in the great gold,
in labour rates), more risk aversion, tighter legislation, silver and copper wealth of Latin America, and the
higher standards of engineering and environmental greater political stability in countries such as Colombia
management, increased degrees of instrumentation and Peru, have opened up mines in remote and high-
and control, more complexity and sophistication altitude locations. The rich, and formerly highly
(perhaps to deal with lower grades) and the need to productive, African mining regions of the Democratic
acknowledge community issues such as social licence Republic of Congo (DRC) and West Africa – once
to operate (SLTO) and sustainability. In a matter beset with brutal civil wars – are hopefully
ho pefully becoming
as seemingly simple as construction and site camp sufficiently stable once again to encourage international
accommodation, what was once an acceptable standard companies back. All these factors bring with them new
– the ubiquitous ‘donga’, and shared ablution blocks – challenges when it comes to estimating capital and
has now morphed into a comfortable en suite modular operating costs.
room with at least some trappings of home. Camps
NATURE OF ESTIMATION STUDIES
have to provide
and catering if high
theystandards
s tandards in recreational
are to attract facilities
and retain their Although study management is covered in greater
workforce, especially where fly-out, fly-out, (FIFO) detail in a subsequent chapter (Chapter 2 – Basis of
or drive-in, drive-out (DIDO) rosters are in place. All Studies), it is important to provide a context here for
these changes affect both capital and operating costs of the discussion that follows on different study phases,
projects and operations. and the ranges of estimate accuracy that might be
Quite rightly, improved safety, environmental expected in each.
and sustainability considerations have gone into In this regard, studies can be seen as part of the project
designs. While these may have imposed additional development spectrum shown in Figure 1.1. They
upfront capital costs, the benefits associated with occur at the early stages as a part of project evaluation
these improvements usually have a net positive – where the greatest influence in shaping the project
effect on operating costs over the life-of-mine. These can be exerted before designs are frozen, and the much
greater financial commitment is made to move into
improvements may also simply make it possible
implementation.
to attract labour, meet regulations and obtain the
necessary SLTO. In researching this field, it became apparent that there
is a great deal of inconsistency in the terminology used
Billion-dollar projects are the rule rather than the and in the inferred purpose, meaning, content, level of
exception. Increasingly, such numbers reflect the lengths
detail and validity of different study and project stages.
needed to develop new mines in remote locations, and
Table 1.1 attempts to rationalise the confusion that
to address the challenges of infrastructure – be they
has previously arisen in the industry relating to basic
power and water supply, or the logistics of bringing in
terminology. For consistency, it uses terms that have
supplies or taking out product.
been generally adopted in this handbook, and which
Fortunately, for the most part, commodity prices have widespread currency.
have risen to allow projects to absorb such rises.
Table 1.1 is an overview relating to Capital Costs; for
Spurred by seemingly insatiable demand from China more details, the reader is referred to Table 4.5.
for iron ore and copper, and the relative scarcity of new
Comments are made in Table 1.1 on typical estimating
world-class deposits, these conditions have created
methodologies. It also includes the levels of accuracy that
a supply–demand imbalance such that investment may be expected, and the likely range of contingency
continues to flow into the industry. However, mining that needs to be applied to such estimates. The reader is
has historically enjoyed booms and suffered busts, and also directed to the notes that appear at the end of this
these have to be accounted for in understanding capital Chapter under References and further reading.

6 Cost Estimation Handbook

CHAPTER 1 – USING THE HANDBOOK

 FIG 1.1 - Study
Stu dy ma nag
nageme
ement
nt spec
sp ectrtr um.

TABLE 1.1
Generic study classification guide.

Terminology used in Scoping study – Prefeasibility study –

Prefeasibility Feasibility study –
this handbook Phase 1 Phase 2 Phase 3
Fr o nt end lo a din g FEL 1 FEL 2 FEL 3
Differen t titles that may Co n c e p t u a l Co n c e p t Pr elimina r y f ea sibili t y Fina l f easibilit y
be used to describe this
Opportunity Order of magnitude Basic engineering
level of study
assessment (OOM)
Ident i f ic at i o n p has e S ele c t i o n p has e De f ini t io n p ha se

Sc r e enin g S c o p in g a ‘Bankable’ feasibility

Sc o pin g (s e e f o ot n ot e) Def ini t i ve f e asibili t y
Ca p a c i t y f a c t o r Eq uip m ent f ac t o r Fo rc e d det a il
Prelimin
i minary
ary ev
eval
alua
uatio
tionn Interm
Intermed
edia
iate
te eco
econom
nomic
ic
study
Est im at e t y p e (A ACE) Cla s s 5 Cla s s 4 Cl a s s 3
Expected accuracy ±35% to ±100% ±3 0% t o ±35% ±20% t o ±25% ±10% t o ±15%
range of capital cost Typic ally ±50%
Expected estimate 3 0% t o 75% 20% t o 35% 15% t o 25% 10% t o 15%
contingency range
Level of definition (% of Minimal, generally 1 - 2% Basic general 10 - 15% Preliminary 15 - 25% Detaile d
complete engineering based on other layouts take-offs drawings and take-of
take-of fs
(see Table 4.5) operat ions, or in-house
‘database’
Typical estimating Capacity factored Equipment facto red
Equipment Semi-detailed unit costs, More detailed unit costs
methodologies (but Parametric models, or parametric model s. and more d eterministic and MTOs
referr Table
refe Table 4.5 for det ail judg eme
ement
nt or anal
a nal og
ogyy Some ‘first pr inciples’ estimating methods Budget prices and
by line item) estimating related to Preliminary MTOs vendor
ven dor quot
q uot es
Stochastic estimating
early scope definition
methods, includi
including
ng (Some) budget pricing Higher degree of
cost-capacity curves, deterministic estimating
and various factors methods
Line items, and forced
detail where definition is
lacking
Notes: a. Although the ter m ‘scoping study’ can sometime s be used synonymo usly wit h a study at a level befor e FEL1, throughout the rest of this
handbook, it is used to indicate a study generally before that of a prefeasibility study (PFS). FEL = front end loading (Independent Project Analysis
Institu te (IPAI)).
(IPAI)). MTO
MTO = materia l take-of f.

Cost Estimation Handbook 7

CHAPTER 1 – USING THE HANDBOOK

So having established that there remain some incon- the major mining houses, and those often adopted by
sistencies between terminology used in describing ‘junior miners’, and there are also variations according
different classes of estimates, and that the subject to the type of project (greenfield versus brownfield),
area is broad, practitioners need to be cognisant of complexity, commodity, location, size of project, and
these differences and seek to develop some internal many other factors.
consistency such as shown in Table 1.1. This has been Table 1.1 replaces two tables in the previous edition of
found to be generally acceptable within the mining
found to be generally acceptable within the mining the handbook – Table 1.1 Study accuracy (Reynolds,
industry with individual variations depending on 1990) and Table 1.2 ‘Estimati
‘Estimation’
on’ accuracy (Frew,
company policy and practice. The ranges of accuracy 1990). In the
t he new Edition, Table 1.1 is somewhat
and contingency quoted in Table 1.1 do vary among more conservative with regard to not over-stating
companies, especially when comparing those used by the accuracy of estimate that can realistically be

ratiTABLE
Plant component ratio 1.2 (aft
o method (after
er Mular, 197
1978).
8).

Not es Capi t al c ost est imat e i tem Mul t ipl y ing f ac t or (r ange) Capi t al c ost $ M
Min Ma x Fac t o r us e d
a. Tot al
al dire c t c os
ost o f ma j o r e qu
quipm ent , r o a ds, p ow
ower lin e, m a j o r building s, t o w ns
nship, air st
st ririp et c. 10 0 0
‘Factored elements’, such as:
b. Pipin g 7% 25% 15% 15 0
c. Ele c t r ic a l 12% 25% 15% 15 0
d. Inst r umen t at i o n a n d c o nt r o l 3% 10% 5% 50
e. Sp a re s 1% 5% 2% 20
f. First-f ill 1% 3% 1% 10
Infrastructure
g. A rc hi t e c t ura l a n d au x ilia r y buildin g s; mino r in f r ast r uc t ue 7% 15% 9% 90
Tot a l dir ec t c o st f o r t h e p la nt 1470
Indirect costs
h. O w n er s’ c o st s 5% 15% 7% 103
i. Fr ei ght a n d t a xes 3% 10% 4% 59
j. EPCM 5% 30% 18% 265
k. Co n st r uc t io n c a mp, t emp o ra r y f acili t ie s, c at e r ing, etc 4% 10% 6% 88
Total indirect cost
c ost for t he plant 515
l. Co nt in gen cy (o n dir ec t a nd indir e c t) 15% 4 0% 30% 595
Total installed capit al cost for t he plant 2580

a. As derived by methodologies described in this handbook.

handbook.
b. Only for ‘small’
‘small’ pipes and piperacks; larger pipes will norm ally be separ ately estimate d under
under direct equipment costs.
c. Electrical cabling; racking;
racking; connections; small motors,
motors, large and variable voltage variable frequency (VVVF) motors generally par t of equipment.
equipment.
d. Instrumentation and control for minor aspects, not major capital expenditure (Capex)
(Capex) such as a supervisory c ontrol and data acquisition (SCADA)
(SCADA)
system.
e. Dependent on project and strategic decisions on spares holding.
holding.
f. Of ten calc
c alc ulate d. Includ es reage
re agents
nts a nd mill balls. Somet
S omet imes par
p ar t of work
wo rk ing ca pit al.
g. Minor buildings only; major buildings are normally separa tely estimated.
h. May be very small for junior
unior company, and signif icant cost for major players.
i. Country and location dependent.
j. Dep ende nt on for
f orm
m of co ntr act, comp
c omplexi
lexi ty of
o f pro jec t and lo ca
catio
tio n.
k. Appropriate to the location and size
size of workfo rce.
l. Usually derived on individual line
line items of direct cost depending on degree of definitio n. Variable depending upon study phase.

8 Cost Estimation Handbook

CHAPTER 1 – USING THE HANDBOOK

achieved. For example, an accuracy range of ±10 per levels of the estimate. In reality, there may be overlaps
cent to ±15 per cent is now quoted, rather than a ±5 per between
betw een these bands, but they are a good guide to typic
typical
al
cent level of accuracy previously referred to at final estimate accuracies. The degree of project definition for
feasibility study level. Currently, it is highly unlikely different levels of study can be seen by reference to the
that suppliers would provide price quotations to such ranges shown in Tables 1.1 and 4.5.
a level for all but the most standard of equipment, and Only at total project definition (ie when the job is done)
for a very limited period of validity. can the estimate be considered to be ‘fully accurate’
 Similarly, it would be unusual to see 30 per cent of with zero variation range. Looking at this in terms of
the engineering completed at prefeasibility study as the time needed to conduct such different study levels,
was previously stated. The trend today is much more both the elapsed time
time and number of hours that go into
to ensure that the focus on this phase of study – which different levels increase with moving down the study
in some quarters has the appropriate title of ‘selection spectrum so as to achieve the required level of project
phase’ – is that of making a selection of the best option definition. Project progress generally follows the shape
among several possibilities, and then conducting of an S-curve, and it is to be expected that the hours
sufficient engineering on that ‘go-forward business expended on any given study as it progresses through
case’ to mitigate risks and focus on a realistic execution different phases increase to reflect the additional effort
strategy and schedule so as to be reasonably sure of all round that goes into achieving improved accuracy
having taken account of all relevant costs. Doing too levels. More is said about this later in the section
much engineering can be as bad as not doing enough headed ‘Costs of a Study’ in this Chapter.
because it wastes time and money, which in turn It goes without saying that independent of any
erodes project net present value (NPV) by expending considerations regarding accuracy, one is looking also
unnecessary time and effort on detailing options which to reduce and/or mitigate risks as the project progresses
will be discarded.
through study phases.
However, as Frew (1990) indicated, ‘The accuracy of Furthermore, one of the worst things that can happen
any estimate will be directly proportional to the quality during the course of a study – certainly in the eyes of
and quantity of data available and to the time and effort the owner and financier – is that there are significant
put into its preparation’. Thus, the more meaningful increases in costs between phases. Although as
work put into the estimate, the more that estimate can described in Chapter 2 each study phase has somewhat
be relied on as being a sound reflection of the likely different objectives, nonetheless, we are looking at
outcome of project costs. There is no real
r eal substitute for basically the same project. So, if what might have
achieving a level of project definition through study looked like a potentially positive business case during
and engineering detail in order to obtain a certain the Prefeasibility study (what should it be, when we have
accuracy of estimate. selected the best case?) becomes marginal at Feasibility
This concept is illustrated in Figure 1.2, where the stage (what will it be when we consider all the relevant
coloured bands generically demonstrate the range of factors?), and an uneconomic white elephant when the
variation in estimate accuracy between studies falling project is built and finally commissioned – when we
into the same class, and similarly the way in which as the come to extract the value, and find it has disappeared –
degree of project definition increases so do the accuracy Houston, we have a problem!

FIG 1.2 - Degr ee of engin

e ngineer
eer ing defini
de fini tition
on relat
re lat ed to t he level
lev el of ac cur
curacy
acy of
o f an est imat e.

Cost Estimation Handbook 9

CHAPTER 1 – USING THE HANDBOOK

This can be as a result of many causes, including often cause confusion if not controversy are explained
unrealistically optimistic capital and operating cost further in the detailed chapters that follow.
estimates at the early stages; by missing out cost
elements; underestimating execution realities; not FACTORED COST ESTIMATES
having done enough drilling or test work; applying
‘Factored cost estimates’ in which we extrapolate
unproven technology, or having done no or insufficient
or interpolate one (unknown) project from another
pilot scale continuous process testing; building in
(known) project according to scale, throughput or other
unrealistic price, recovery, or grade projections; or for
 dimension, are perhaps the most basic way of getting
a whole host of other reasons that sadly happen all too
an estimate, and are thus a good starting point. A few
often. These are the elements that have to be examined
examples of such methodologies are presented here.
during the study itself. It is no good having carefully
calculated the costs of a process stage with great They should be viewed as rules-of-thumb, first-pass
precision if that part of the flow sheet is unsuited to the or sanity checks, and as such mining professionals have
range of material characteristics it is being asked to treat. to know when not to use them as much as when to do
It is thus important that all assumptions, exceptions, so. It is fair to say that in all these methodologies, the
battery limits, and ultimately project scopes are kept two projects or installations being considered must be
constant, or are meticulously recorded when they do similar; if not, the ‘special adjustments’ one to the other
change for whatever reason. Otherwise, the goalposts will overwhelm the comparison.
inevitably keep moving!
The six-tenths rule
LANGUAGE AND
A ND TERMINOL
TER MINOLOGY
OGY OF ESTIMATION
ESTIMATION For the moment assume that an initial (±35 per cent)
Any volume such as this communicates across different estimate is being prepared for a scoping study of a
disciplines. As the first edition did for several years, it prospective mining operation. Estimators may initially
is valuable in breaking down barriers and allowing determine the magnitude of the project cost using what
mining industry professionals to talk a similar language is commonly referred to as the six-tenths rule described
– that of economics. by Mular (1978):
Such it is with estimating. We may feel that we have 0.6
rather a lot of unknowns to deal with, and hopefully Unknown Cost (Plant Capacity 1) Capacity 1
this volume may help demystify the subject somewhat,
courtesy of the many learned and experienced minds
Known
Known Cost of
of Plant with Capac
Capacity
c
ity 2 = Capacity 2
m
This simple rule states that the capital cost is estimated
that have contributed to bringing this together.
by substituting the capacity of the operation being
The level of accuracy required for a cost estimate is a studied into this formula together with the capacity
topic on which there is much debate. The first task in the
and the known capital cost of a similar operation but
preparation of a cost estimate is the determination of
different throughput. The emphasis is on similarity, so
what level of accuracy is required. What this handbook
as not to stretch the friendship too far.
does is guide the reader through the steps necessary
to prepare an estimate to a given or selected level of As a realistic working example, this author recently
accuracy. It outlines the method of developing the cost worked on a copper project. Approximate capital
estimate, shows how the equipment design criteria costs were needed for a pyrite-burning sulfuric acid
are chosen and the equipment sized, and provides plant that generate acid for a large-scale heap-leach
guidelines for the costing of the selected plant using operation where the costs of importing acid would
prices current at the time
t ime of publication. be prohibitive. The logistics of delivering what might
There is no substitute for the skills and experience be up to 4000 t/d to a remote location at 2500 m above
of professional estimators, particularly when it comes sea level (asl) along poor roads would pose severe
to compiling the necessarily more accurate estimates logistical and environmental challenges to say the
that underpin definitive feasibility studies and beyond. least. From another study done two years earlier for
However, correctly used, this volume can get the ball that same company, this author had a capital cost for a
rolling to help bridge the gap between those who much larger (8800 t/d) installation.
provide quantities and take-offs to estimators and the Applying the six-tenths rule, conceptual – or perhaps
process of cost estimating itself. even order-of-magnitude – we derived cost estimates
Having a realistic project execution plan (PEP) that for plants of different sizes to a level of accuracy that
adequately captures costs associated with specific allowed decisions to be made about the economics of
circumstances of access, altitude, climate and SLTO are building a captive acid plant. The accuracy achieved
crucial if costs are to reflect what has to be constructed
constr ucted also allowed different configurations and capacities
and operated. to be compared. In turn, the economics of having
Specific definitions, such as those for contingency, sufficient acid available to increase leach recoveries
allowances, growth, escalation and other terms that could be modelled.

10 Cost Estimation Handbook

CHAPTER 1 – USING THE HANDBOOK

Annualised
Annuali sed cost
c ost per tonne
t onne mill or flotation line, the factor should be 1.0. For an
extension or expansion to a module, where common
Another rule-of-thumb method used –the annualised
infrastructure and/or services are shared, factors
cost-per-tonne rule – uses the capital cost of a known
around 0.6 to 0.7 are acceptable. For expanding a power
operation calculated on a per-tonne basis as below:
line where there is already a large investment in the
civils, first principles judgement is best applied.
Annualised cost per tonne = total capital cost
capacity in tonnes/annum
Unit capacit
capacityy
 This factor is then directly applied to the new operation Capital cost estimates for unit operations are calculated
under consideration. For example, if a 20 Mt/a iron ore once the unit operation is sized – usually for capacity
processing operation has a capital cost of $800 M, the on a tonnage or contained-metal basis. In the chapters
annualised capital cost is $40/t. A new mine in the same in this handbook, the authors have tried to present
area with approximately the same configuration, but methods of costing this operation as a mathematical
producing 25 Mt/a, might be expected to cost $1000 M, formula, graphical representation or table.
using the above formula. Using the six-tenths rule, the Cost factors are also used as a means of estimation
estimated cost would be $915 M. Given the level of based on some suitable parameter
parameter of the unit operation
accuracy that both methodologies produce, these are and are expressed (usually) in straight-line logarithmic
within the same range. functions between set limits (eg Mular, 1978):
As with the six-tenths rule, this estimation method
cannot be extended indefinitely, but if the input data Cost = aXb
are carefully selected, and the operations are broadly
similar, the rule can produce indicative estimates where:
that are within the required accuracy levels. Where it X selected parameter (eg motor power, equipment
breaks down is when significant step-changes in unit dimension, etc)
process capacity occur, such as the need for a new a capital cost constant
primary crusher or mill line. Also, it will diverge from b scaling constant
the results obtained through using the six-tenths rule
Constants a and b are derived from historical raw
when getting too far from the base production capacity,
as this is a linear relationship, while the six-tenths rule equipment
Some tablesdata collected
of the constants by have
the estimator over time.
been published for
uses an exponential factor.
countries such as Canada, South Africa and the USA
These differences are apparent in Figure 1.3, which (Mular and Parkinson, 1972; Ruhmer, 1987; Clement
uses the different methodologies based on using et al, 1977). Howeve
However, r, it is necessary to take particular
exponential factors (0.6 and 0.7) or linear annualised care in extending this too far back: there have been step-
cost to derive capital cost estimates from a known base. changes that have recently changed the rules because
No one method is right, but inherently more or less of fundamental changes in market supply and demand
conservative estimates may be generated as a result of factors.
the straight mathematics of the process.
To take this one step further, there is evidence that Total installed
inst alled c ost
where there are effectively no economies of scale, other In many of the examples shown in this handbook,
than perhaps in design, such as a second identical the capital cost estimates derived are the direct costs

FIG 1.3 - Compar

Comp ariso
iso n bet we
ween
en fact
fa ctor
ored
ed estim
es timat
ating
ing met ho
hods.
ds.

Cost Estimation Handbook 11

CHAPTER 1 – USING THE HANDBOOK

related to particular pieces of equipment, or unit levels of study, these would be derived from first
processes. However, what is normally of interest is the principles based on proposed manning and salary and
total installed cost (TIC), which reflects the fact that fee levels. To all of these, a contingency figure must
there are still significant costs necessary for project then be applied to reflect the level of uncertainty in
completion – collectively referred to as Indirect Costs. such estimating. The example in the first edition used
These are the costs to design, ship to site, pay taxes and blanket values for these indirect cost factors. Today, it
duties, install and commission the plant, train people, is more likely that individual EPCM and contingency
house and transport the construction workforce, and factors would apply to different parts of the equipment
a whole host of necessary costs required to provide cost derivation according to the work breakdown
a working project. At study phases, there is still structure (WBS) to reflect different levels of accuracy in
uncertainty associated with cost estimation that has to their derivation. This is especially true of contingency,
be allowed for, and this is dealt with by contingency which varies by commodity within the estimate.
and allowances. Subsequent chapters cover these in
Using this estimation technique, factors for installation
more detail. and for EPCM and contingency mainly come from the
In the first edition, the authors used an example estimator’s experience or by comparison with other
based on the Mular (1978) methodology of the factored similar operations for which cost breakdown data
estimate method (sometimes referred to as the ‘plant
are available. However, the selected factors are very
component cost ratio method’), demonstrating how
dependent on the particular project, and great care has
the procedure operates. Although the methodology is
to be taken in applying them; this should be done in
correct, the way that example was presented is perhaps
consultation with a specialist estimator.
not as clear as it could have been, and it has been
updated (Table 1.2). However, there are many different An important point is estimating the size of indirect
corporate standards, and it is important to ensure that and contingency costs as a percentage of project cost.
the presentation, but more importantly, the calculation In the example above, at $1110 M they represent an
method, are both in the correct format. No doubt many additional ‘multiplier’ of almost 76 per cent on direct
people will hold a view on the multiplying factors costs ($1470 M). Clearly as the direct costs increase,
proposed, based on their own
o wn experiences. The authors this multiplying effect from indirect costs has a large
stress that this is intended only as a guide. Suitable bearing on the total project cost. While this is usually
a very controversial area of debate between client and
health warnings
The example apply, to
is intended andbeall
at afigures are
Scoping rounded!
study level. its engineering provider (especially in relation to the
Factors for the installation of piping, electrics and percentage of EPCM charges), the reality borne out by
instrumentation are shown applied to the direct many hundreds of projects is that these are ‘real’ costs
capital cost of equipment to derive those costs. that are genuinely incurred in project development.
Generally, factors are shown as ranges, and a typical These real costs are ignored at our peril.
small piping and piperack percentage might be 15 per As former US Defence Secretary Donald Rumsfeldt
cent. This would be quite normal at early estimate noted:
stages, where individual small pipes and the detail of There are known knowns; there are things we know
electric distribution and instrumentation would not be we know.
calculated from first principles, but would be ‘factors’
We also know there are known unknowns; that isi s to
of total equipment cost.
say we know there are some things we do not know.
Spares and first fill also need to be calculated. Spares
But there are also unknown unknowns – the ones we
are usually derived as a percentage of equipment cost,
don’t know we don’t know.
while first fill would be a calculation based on, say, mill
As previously noted, the importance of tying any
ball, reagent tank and diesel storage capacity.
capacity. estimating methodology to a realistic project execution
The example went on to also use factors for process
approach needs to be reinforced. Without this,
and auxiliary buildings, plant services and site work.
installation and indirect costs are likely to be grossly
Again, factors were used. Today, given the often
understated, or in the extreme, invalid.
significant infrastructure costs, and the specifics of site
civil works, it is more likely that separate costs for these Social, community, closure and other costs
would need to be calculated. Therefore, in the example,
Mining projects are increasingly social, environmental
these are only intended to represent small buildings.
and techno–economic in nature. Fundamentally, they
Finally, percentages have to be applied to the summed need to be sustainable, balancing all these aspects with
cost above to derive engineering, procurement and good governance. To proceed to a working operation,
construction management (EPCM1) costs. At higher the correct legal documents have to be obtained –
generally after submitting lengthy and expensive
1. ‘Term generally used to descr ibe the engineer
‘Term engineer who independent ly cont racts
to offer such services (including study management services) on behalf of baseline and other studies. Most licensing processes
the owner. involve community debate and consultation at national,

12 Cost Estimation Handbook

CHAPTER 1 – USING THE HANDBOOK

regional and local levels. Costs for these activities have such that these variations flow through to all estimates
to be allowed for initially, and often in terms of ongoing that are based on these assumptions.
currency of such documents.
In many areas, land purchase will be required to
COST INDICES
site plant, infrastructure, rights of way, waste dumps, Cost estimation methods are generally based on
heap-leaching pads and other facilities that may require accumulations of historical cost data available to or
extensive tracts of land. Communities may have to be collected by the estimator. Cost data presented in the
relocated, involving purchase of existing landholding first edition of the handbook published in 1993 is still
and areas to where people will be displaced. Water relevant if cost indices are used to update information.
However, the implied simplicity of doing this must
 rights may have to be purchased, and/or alternative
sources for affected communities provided. Heritage be treated with some caution because of the changes
and special archaeological or environmentally in costs in our industry over the past two decades. At
sensitive sites have to be catered for by a combination their most simple, costs can be updated using the ratio:
of exclusion zones, avoiding the sites altogether, and Cost now = (cost then) × (cost index now)
possibly even relocating them. All these aspects carry (cost index then)
cost and schedule implications.
There are several sources of cost indices available,
As well as all the legal documents, mines need to
usually provided by government agencies such as the
have an SLTO if they are to operate in harmony with
Australian Bureau of Statistics (ABS). Some of these
affected communities. While this may be a combination
indices are specific to the mining industry such as the
of written and unwritten contracts, it has to be earned
Price Index of Materials Used in Coal Mining, Australia
and maintained on the basis of good performance
(ADS Catalogue No 6415.0).
and community trust. This means allowing costs for
appropriate initiatives. It is important to deal with specific indices rather than
a measure of more general inflation such as Consumer
All mining projects have a finite life related to the Price Index (CPI). That means that the focus should be
reserve tonnage, and at the end of its economic life, a on commodities such as structural steel, platework,
mine will close. At the time of the original volume, the concrete, earthworks, copper (because it is a significant
s ignificant
debate around closure costs was usually restricted to component of electric installations), industry labour
matters such as whether to allow for five or ten per cent
of the cost of equipment and steelwork to be recouped rates and energy prices.
at salvage value. Nowadays, debate is most definitely LIMITS OF ACCURACY
around allowing sufficient capital – albeit at some time
In the introductory comments of the first edition, the
in the future – to cover rehabilitation costs, deal with authors suggested that ‘An estimate produced using the
acid generating streams (potentially indefinitely) and handbook properly generates a preliminary estimate
cover issues such as the payment of redundancy and for a prefeasibility study level of accuracy (±25 - 30 per
social costs to workforce and affected communities. cent)’. On reflection, and as a function of the many
Generally, such costs are derived from first principles changes that this introductory chapter has alluded
taking into account the physical steps needed to address to, this would only be true in the case of very simple
the specific project issues on cessation of operations. projects in relatively benign environments. It might
be argued that in its true sense where a prefeasibility
Battery limits – caution study (PFS) is there to ‘select a single go-forward case
A cost estimate for an integrated mining and milling from among several alternatives’, this handbook will
operation cannot be made until battery limits and be valuable in helping generate costs related to those
baseline assumptions have been defined. Baseline various options to allow for selection. However, it is
information including the geological environment, not recommended that it be used in isolation as the sole
mineral resources, topography, climate, availability of decision-making mechanism without a good deal more
water supply, electric supply, site access, availability design and engineering work being done. There is no
of suitable labour and many other data are rarely escaping the shape of Figure 1.2, which shows that a
available in the right format at commencement of certain amount of engineering is needed to achieve a
the study estimate. Thus assumptions must be made required level of estimate accuracy.
and explicitly stated and documented. Too often The approaches cited in the chapters on operating
estimates and studies overlook the statement of costs produce individual unit operations’ estimates
baseline assumptions and the consequent accuracy to a reasonable degree of accuracy. However, as with
of the study is overstated. It is recommended that all such methodologies, care must be taken to avoid
the first step in any estimate is the statement of the a tendency to become ‘precisely wrong’. It may be
baseline assumptions, which
which has the secondary benefit
benefit possible to calculate wage rates down to the nearest
of scoping the battery limits of the study. Any changes dollar, but if the organisational structure proposed
can then be logically and methodically documented is unworkable, overall costs can be highly incorrect.

Cost Estimation Handbook 13

CHAPTER 1 – USING THE HANDBOOK

In this regard, there is no substitute for experience and 3. Risk

bouncing ideas off experienced colleagues. It is also 4. Health, Safety and Security
important to state baseline assumptions so that when 5. Environment
the main driver (such as the number of positions in the 6. Geology and Mineral Resource
organisation) changes, costs can be updated.
7. Mining and Ore Reserves
8. Mineral Processing
COST ESTIMATION AND THE JORC CODE
9. Waste and Water Managem
Management ent
An important need is to have a somewhat standardised
10. Infrastructure and
and Services
and at least consistent system of cost estimation when
applying the ‘modifying factors’ across disciplines in 11. Human Resources, Industrial and Employee
 Relations
the Joint Ore Reserves Committee (JORC) Code. JORC
relates to the reporting of ore reserves. This process is 12. Te
Technology
chnology and Information Systems
shown in Figure 1.4 – the common language of such 13. Project Execution
modifying factors is that of cost. 14. Operations
The JORC Code is one of the most
mos t important concepts 15. External and Community Relations
Relations (inc Stakeholder
Stakeholder
in ensuring that The AusIMM and other member Management and SLTO)
bodies exercise control and consistency across the 16. Capital Costs
industry, and protect investors. The way in which 17. Operating Costs
dear old Pierpoint’s2 Blue Sky Mining company might 18. Marketing
want to see cost minimised and revenue maximised, 19. Ownership and Legal Aspects (including tax,
irrespective of reality or viability of a mining property, royalties, permits, approvals, government regula-
might be regulated by this handbook. tions)
20. Commercial
CHAPTERS IN A FEASIBILITY STUDY
21. Financial Analysis
While study chapters may go by different names from 22. Funding
those used in this handbook, the intent is the same –
23. Status of Studies
to generate a number of self-standing but consistent
24. Work Plan – Future (including Operational
chapters that taken together underpin and describe the
feasibility of the project to proceed, and in particular, Readiness Engineering (ORE))
25. Bibliography and References
the relevant costs and schedule. These chapters are often
split across owners, engineers and other specialists so 26. Appendices
a consistent language and methodology is crucial in Depending upon the project, other specific headings
developing the study. Chapters might include: may be used such as:
1. Summary and Recommendations • country and regional settings (including Sovereign
2. Development Approach and Business Case(s) Risk)
• energy and climate strategy.
2. ‘Pierpoint’ was the pseudonym of a 1990s
1990s columnist whose Friday back page Chapter headings, and the weightings and level of
of the Financial Review often made reference to the darker side of the minerals
detail given to each within the study report, change
industr y. Blue Sky Mining
ng was a euphemism for the mor e cavalier members o f
the industry for whom a JORC Code and a consistent approach to estimating according to what is important in each project. Many
would have bee n anat hema. Pier poin t (pos sibl
siblyy a dif fer ent per sona tha n large mines are giant civil construction jobs to develop
before) now writes for The Australian . access and ship product out. Sometimes the process

FIG 1.4 - Modif

Mo dif yin
yingg fac to
tors
rs conve
c onverr tin
tingg mineral
miner al reso
re sourc
urces
es into
int o ore res
r eser
er ves (sour
(s ource:
ce: JORC Code).
Cod e).

14 Cost Estimation Handbook

CHAPTER 1 – USING THE HANDBOOK

plant may be of lesser importance in terms of capital, • able to be used as a control base line
but the selection of the correct process route(s) still • able to be audited, reviewed, and signed-off by the
makes or breaks project economics. lender’s independent engineers
BANKABILITY
BANK ABILITY OF STUDIES
STUDIES • capable of having risks assessed and allocated
• capable of forming a project establishment document
The FEL 3, or definitive feasibility study, often used
under Loan Agreements entered into.
to be referred to as a bankable feasibility study. This
conferred a degree of certainty that may not always It is the character of the investment, the sponsor
have existed, and led to endless debate as to what and the lender who decides whether the project can
constituted ‘bankability’. It was encouraging that the be ‘banked’ or not, and in that sense, no engineer can
contract to deliver a Bankable Study. Nonetheless,
 finance and banking fraternity used the first edition of
handbook for many years, and in the absence of any every major Engineer and Consultant has to be able
improved offering from their own community, the to produce a study to a Bankable Quality (using criteria

handbook became the prime reference for the level of such asseek
able to thosedebt
above) if the investor is to reasonably be
funding.
detail that went into a study at different levels.
The general consensus nowadays is that engineers
TIME VALUE OF MONEY
and project sponsors should avoid using the term
‘Bankable’, as its meaning varies depending on This is a concept by which the discount rate to be
when and by whom it is used. If referring only to applied (essentially the risk-adjusted cost of project
the technical completeness and level of detail in the finance) means that the NPV or net present cost (NPC)
engineer’s report, this is usually not broad enough to of future cash flows is discounted to a smaller portion
satisfy a bank’s requirements, and the project sponsor of its calculated value when brought back to present-
would need to analyse overall project viability and day terms. For a project discount rate of eight per cent,
profitability, including the market analysis. A bank a cost or revenue in Year
Year 5 is approximately two-thirds
may be sufficiently satisfied to lend 60 per cent of future of its stated value when brought back to present-day
development costs, whereas the sponsors are seeking terms, while at a rate of 15 per cent that discounted
80 per cent. Despite the accuracy of the engineering, the value is only 50 per cent of its present value.
sponsors have not got what they wanted. y
1
NPVr =
So, whilst it is fair to say that:
A bankable document outlines the technical risks `1 + rj
where:
inherent in a mining project, delineates methods of
eliminating those risks, and quantifies the potential r cost of capital (the discount rate)
economic returns that can be attained at various y year in question
commodity prices. It is noteworthy that while briefly mentioning the
… the bank itself will ultimately define what is time-value of money, this discussion has studiously
required in a document that it will utilise to justify avoided getting into any debate on the treatment of
financing a mining project, so that realistically, one taxation (including tax breaks) and matters relating to
could say that there is no such thing as a bankable foreign exchange, hedging and other complex financial
document (Guarana, 1997). topics, which require specialist treatment and advice.
Bankability is concerned with: Financial modelling within studies is again a
… the capacity of an owner to obtain debt or funds specialised subject, worthy of its own volumes.
to construct a project with none, or limited, recourse However sophisticated the tools and complex the
of the fund providers to assets other than the project analytical methodology, at its heart it is absolutely
or resource. necessary to understand the drivers of cost and
Cusworth (2012) notes that: revenue. The authors hope this handbook will play its
A Feasibility study is bankable only when debt part in helping set up such models correctly.
providers lend investment funds, not because a
study has achieved a claimed quality
PROCESS SELECTION
SELECTION CRITERIA
CRITERI A
And goes on to discuss a number of conditions which Before commencing with the cost estimate it is
should be met for meeting ‘bankable quality’, including necessary to size or determine the capacity of the
the study itself being: overall (or unit) operation by developing a conceptual
flow sheet and calculating the mass or materials
• generally optimised
balance. For a treatment
treatmen t plant, this is usually referred
r eferred
• unlikely to vary to as the metallurgical balance. All the known data
• able to stand- alone such as throughput tonnage, ore grades, concentrate
• capable of being tracked to validated and grades, metallurgical recoveries and many other
fundamental bases of calculation design criteria are incorporated into the balance.

Cost Estimation Handbook 15

CHAPTER 1 – USING THE HANDBOOK

The consequent process flows of solids, water, slurry, The intent of this handbook is to provide a guide to
fuels and air and heat and energy balances are those who evaluate projects. While its focus is to help
calculated. This exercise calls for a high level of skill those who need to estimate costs, these are rarely
and experience in balance preparation, normally by done in isolation without also generating revenue
a process engineer. If there are errors in the balance, projections for the operation being studied. To this
equipment will be wrongly sized and the entire cost end, quantum and the timing of project cash flows are
estimate is of questionable value. important. As is seen in the worked examples, smelter
Both the capital and operating cost chapters describe charges and the realisation costs associated with
methods for choosing the process parameters and the marketing and delivery of product are very real
procedures for sizing and then calculating the cost of costs and can be significant on a cost-per-tonne basis.
the chosen operation or piece of equipment. Usually a Large-scale copper heap-leach projects are relatively
worked example is provided to lead the reader through common, and the project has to account for the long
the procedure. In this sense, the following are the key lead time – perhaps up to a year – before that copper
parameters to be derived:
• process design criteria can be recovered.
sometimes Charges
overlooked and timing such as these are
or underestimated.
• material and heat balances Market realisation costs are often handled in different
• equipment list ways in cash flow projections, depending on the
structure or corporate philosophy of the company.
• electric load list
Normally a mine is locked into a contractual agreement
• material take-offs (MTO) with a customer such as a custom smelter, refiner or
• process flow diagram (PFD) end-user. However, a vertically integrated company
• piping and instrumentation diagram (P&ID) with its own smelter may unduly weight the smelter
• electrical single line diagrams (SLD). charges against either the mine or smelter to suit its
own circumstances. The estimator needs to understand
WORKING CAPITAL
CAPITAL how these contractual agreements operate.
The first edition drew the readers’ attention to the In Chapter 17 – Infrastructure Capital, the realisation
need to adequately account for working capital in costs cover the sum of all transport insurance,
economic modelling. As before, examples are provided superintendence, assaying and marketing costs.
to highlight: However, marketing costs associated with identifying
• cycle time for operations such as heap-leaching, a market for the mine product vary enormously
where a ‘lock up’ of 300 days of leached copper is depending on the skill of the company in identifying
not uncommon and analysing market trends, and other considerations.
• days inventory in stockpiles and elsewhere In this context, the financing of a new mining project
(Chapter 12 – Beneficiation – Concentration) is often
• major and minor spares and maintenance
dependent on the product.
requirements (labour and consumables such as mill
and crusher liners) Finally, it should be noted that the effect of not meeting
• negative effect of contaminants in concentrate product specifications, or introducing deleterious
which, at extremes, can create significant penalties product impurities such as arsenic, may have a drastic
or even rejection of a shipment negative effect in terms of incurring penalty charges –
• ramp-up full capacity or may even lead to the rejection of a shipment – while
credit for gold and silver can be a project saviour. Also,
• reagents, commodities (such as mill balls) and raw
all calculations must correctly relate to dry tonnes
materials (diesel and oil)
where this is relevant. Shipping water around the globe
• shipping time of concentrate, and obtaining credit
costs money, and usually doesn’t add any value!
for the values.
These are important factors in economic modelling, CENTRALL ES
CENTRA ESTIMATE
TIMATES
S
where the time value of money is crucial. For the most part, this handbook has dealt with the
development of central estimates – neither over-
REVENUE GENERATIO
GENERATION
N AND
A ND MARKETING
MA RKETING conservative nor overly lean estimates. However, it is
The editors of the first edition referred to the debate perhaps useful to comment on the value of referring
about whether they should include a chapter on to a range of values, rather than single point estimates,
revenue generation given the complexity of the subject. and being explicit as to areas where estimates may be
Past users of the handbook will be eternally grateful of lesser of greater accuracy. Using relatively common
that they did, as this has for many been a very useful deterministic and probabilistic software such as @RISK
reference for understanding that for a variety of allows cost distributions rather than point estimates to
commodity dependent reasons, what you see in the be used, and then for a large number of simulations to
straight calculated percentage or grade in a concentrate be run to determine how robust the project justification
is not always what you get as revenue. is likely to be.

16 Cost Estimation Handbook

CHAPTER 1 – USING THE HANDBOOK

The importance of weighting one or more areas of • drilling and exploration

the estimate more heavily than others in determining • test work (laboratory and pilot plant)
the validity of the overall estimate may also be a way
• field investigations (including geotechnical, hydro-
in which good judgement is just as important as the
logy, and hydrogeology)
mechanics of estimating.
• early definition or purchase of long lead time (LLT)
OPERATING COST ESTIMATES items
Most of the discussion so far has been concerned • environmental permits and approvals
with the estimation of fixed or variable with capacity • government agreements
capital costs. Chapter 5 goes into great detail into the • management fees and royalties
methodologies relevant to the estimating of Operating
• owners’ team (plus ‘corporate’)
Costs, and then in each of the operating cost chapters
 (Chapter 8 – Underground Hard Rock Mining to • site camp
Chapter 18 – Waste Storage and Handling) the authors • SLTO
have provided typical fixed, variable and semi-variable • withholding tax.
operating costs that are likely in any mineral resource As these can be so highly variable, this author’s
project, and have given examples of the levels of costs answer is to exclude these from the metrics expressed
that might be expected. below as percentages of the Capital Cost of a Project,
The derivation of operating costs is an area fraught and to separately calculate them dependent upon
with complexity, and usually requires knowledge of knowledge of what is required to carry out such work
the specifics and complexities of the operation such to the required standard.
as location, wage rates, operating norms and specific With this exclusion, we can focus on the likely total
organisational structures. There is no substitute for cost of the study as a percentage of TIC, and the range
this understanding – getting operating cost estimates of values to be expected is shown in Table 1.3. This is
wrong can have a major impact on the profitability taken from Cusworth (2008).
of an operation. Nonetheless, the examples given in
this handbook provide guidelines that allow at least In practice, the likely total cost of carrying out a study
an initial pass of such costs to be developed from first very much depends on factors such as the following
principles. The examples give useful checklists for the ‘C’s’:
many items and areas that need to be covered. • Client – most major miners have processes that are
very rigorous, with comprehensive study standards
COSTS OF A STUD
STUDY
Y that have to be followed. Junior minors are much
more flexible, especially at early stages of study.
A common question is, ‘What would a study cost and
Larger companies have extensive peer review and
how long would it take?’ The answer is, of course ‘it
gating processes for approvals, which all add to
depends’, and depend it does on a huge number of
cost. Joint ventures need even higher proportions
considerations. because almost everything is duplicated in the
Firstly we have to define just what costs do we mean? review and approvals processes.
Are these the costs of engaging an engineering (EPCM) • Commodity – to a certain extent this is due to
study manager alone, or does it mean the ‘full’ study the proportion of complex engineering (process,
costs, including:
material handling) and ‘bulk’ earthworks and civil
• access to site engineering infrastructure. Iron ore projects are
• community programs such as providing services, or typically in the latter category.
resettlement • Country – the location of the project, the owner(s),
• contingency and where the engineering is to be done.
TABLE 1.3
Expected range of study costs.

Cost of carr ying out a study expressed as a percentage of the total capit al cost of the project
projec t (TIC)
Complexity and/or size of the project
St udy St age Lo w M o d er a t e Hi gh
Sc o p in g 0.1 - 0.2 0.2 - 0.5 0.5 - 1
Pr ef easibili t y 0.2 - 0.5 0.5 - 0.75 0.75 - 1.5
Fea sibili t y 1-2 1.5 - 2.5 2.5 - 3.5
Tot a l % o f c a p i t a l over st ud y st a ge s 1.3 - 2.7 2.2 - 3.75 3.75 - 6

Cost Estimation Handbook

17

CHAPTER 1 – USING THE HANDBOOK

• Characteristic – is the project brownfield or Conference Proceedings published by The AusIMM in

greenfield, and what is the status of infrastructure? 2007, 2009, 2012 and onwards. Various papers in these
• Conditions – the status of market supply and volumes are valuable sources of reference, such as:
demand conditions, as this greatly affects the cost Mackenzie, W and Cusworth, N, 2007. The use and abuse
and availability of services. of feasibility studies, in Proceedings Project Evaluation
Conference, pp 65-76 (The Australasia
Australasian
n Institute of Mining
• Company – or owner, and the size and skills of the and Metallurgy: Melbourne).
owners’ team.
• Complexity – the inherent technical complexity of Since the first edition, it is fair to say that the body of
the project – mining and process – especially if it is knowledge and an increased interest in the subject
new or unproven technology. Remember too that a matter relating to cost estimation has caused the
significant proportion of costs for management and sources of reference and written publications in the
project controls are schedule-related, so the longer field to expand exponentially. No attempt is made here
 time frame studies rack up more costs simply down to catalogue all the available sources, but the reader
to their longevity. may find the following to be of value:
Often, there is an unrealistic expectation that studies AACE International Recommended Practice No 18R-97,
can be done faster and cheaper than turns out to be the 2000. Cost estimate classification system as applied
in engineering, procurement and construction for the
case, and that phases can be concertinaed or skipped out process industries (AACE Inc, 2000).
to get to market quicker. The reality is that this is rarely
De la Vergne, J, 2003. Hard Rock Miners Handbook Rules-of-
the case, and the industry is littered with examples of Thumb, third edition
edition (McIntosh
(McIntosh Engineering:
Engineering: Tempe
Tempe AZ).
project failures that could have been avoided with more
Evans, D, 2008. Analysing the risk of bankable feasibility
and/or better study. As Chapter 2 notes, ‘studies form studies in today’s mining supercycle, Engineering and
the fundamental basis for the progressive decision to Mining Journal, September.
invest in developing potential projects’. It is hoped that Guarana, B J, 1997, Technical flaws in bankable documents,
this handbook will help in making better informed paper presented to Assaying and Reporting Standards
decisions, and ultimately reducing the incidence of Conference, Singapore (Behre Dolbear:
Dolbear: New York).
York).
those failures. International Project Studies, International Mining, December
2007, pp 41-46 and January 2008, p 66.
REFERENCES AND FURTHER READING JORC, 2004. Australasian Code for Reporting of Exploration
The general references previously used in the first Results, Mineral Resources and Ore Reserves (The JORC
edition still remain valid, despite their vintage in some Code) [online]. Available from: <http://www.jorc.org>
cases. These include the following: (The Joint Ore Reserves Committee of The Australasian
Institute of Mining and Metallurgy, Australian Institute of
Clement, G K Jr, Miller, R L, Avery, L and Seibert, P A, 1977. Geoscientists and Minerals Council of Australia).
Capital and Operating Cost Estimating System Handbook
for Mining and Beneficiation of Metallic and Non-Metallic Specifically, bodies such as Independent Project
Minerals Except Fossil Fuels in the United States and Canada
Analysis (IPA) maintain huge project databases to
(USBM, STRAAM Engineers Inc: Irvine, CA).
allow the analysis of factors relating to the success
Frew, R S, 1990. Estimating the cost of a feasibility study for a
or otherwise of projects in meeting estimated capital
mining project, in Proceedings Mining Industry Capital and
costs and schedules. They provide courses and
Operating Cost Estimation Conference – Mincost 90, pp 25-
28 (The Australasian Institute of Mining and Metallurgy: education, and consult to many companies to establish
Melbourne). benchmarking and best practice, including measures
Mular, A L, 1978. The estimation of preliminary capital costs, and metrics (www.ipainstitute.com) There generate
in Mineral Processing Plant Design (Society of Mining many publications, including:
Engineers of the AIME Inc: New York). Merrow, E, 2011. Industrial mega projects: Concepts,
Mular, A L and Parkinson, E A, 1972. Mineral Processing strategies, and practices for success (IPA : USA).
Equipment Costs and Preliminary Capital Cost Estimations , O’Brien, J, 2009. Perfor
Performance
mance of capital projects in
in Australian
Australian
special volume 13 (Canadian Institute of Mining and processing industries, presented to IPA Asia-Pacific
Metallurgy: Montreal). Conference, June.
Reynolds, E, 1990. What does it mean? in Proceedings Mining
In relation to useful source documents in the areas
Industry Capital and Operating Cost Estimation Conference –
of community, social, sustainability and closure, a
Mincost 90, pp 3-8 (The Australasian Institute of Mining
and Metallurgy: Melbourne). number of Australian Government publications by
the Department of Industry, Tourism and Resources
Ruhmer, W T, 1987. Handbook on the Estimation of Metallurgical
Process Costs, special
special publicatio
publication
n no 9 (Council
(Council for Mineral
Mineral (DITR) or the Department of Resources, Energy and
Technology: Randburg). Tourism (DRET) have been published including:
Department of Energy, Resources and Tourism (DRET),
In addition, we refer the reader to the various 2011. A guide to leading practice sustainable development
proceedings associated with the Project Evaluation in mining, July.

18 Cost Estimation Handbook

CHAPTER 1 – USING THE HANDBOOK

Department of Energy, Resources and Tourism (DRET), to process industries, which cover manufacturing
2011. Social responsibility
responsibility in the mining and metals sector and production of chemicals and petrochemicals,
in developing countries, July. and hydrocarbon processing. However, it notes that
Department of Industry, Tourism and Resources (DITR), it may apply to ‘portions of other industries … such
2006. Mine closure and completion, October. as … metallurgical’, and that it ‘does not specifically
A further useful reference for closure costs is: address estimates for the exploration, production, or
transportation of mining … although it may apply
Community Engagement and Development, DITR (October
2006). to some of the intermediate processing steps in these
systems’.
Kaiser, C F, Murphy, D P and Dewhirst, R F, 2006. Plant
design for closure, in Proceedings MetPlant 2006, pp 160- In the AACE Classification, Class 5 refers to what
174 (The Australasian Institute of Mining and Metallurgy: it calls an order-of-magnitude estimate, but is quite
Melbourne). broad in its remit, and crosses
cros ses the boundaries of both
conceptual and order of magnitude (what the AusIMM
AusIMM
Finally, all major mining companies have standards
has called Scoping) studies. Class 4 similarly spans
for use in their feasibility studies relating to the level of prefeasibility and feasibility stages, and Class 3 crosses
detail that needs to go into their capital and operating
feasibility and ‘detailed engineering’, which is more
cost estimates. In addition, independent advisors such
in the province of project execution. Finally, Classes 2
as Enthalpy produce procedures and standards that are
and 1 cover control and check estimates, respectively,
well worth referring to, such as:
taking the estimate into the higher levels of project
Cusworth, N, 2007. Minimum Standards and Basis of Cost definition between
between 30 - 70 per cent and 50 - 100 per cent
Estimates, Quality and Definitions of Phases (Enthalpy:
in these two levels.
Brisbane).
Cusworth, N. 2008. Minimum Standard – Cost Estimating – The above reference comments on other classification
Studies – PCS_CES_1111 (Enthalpy: Brisbane). practices, including:
Cusworth, N, 2012. Definition of the Quality of a Bankable • AACE Pre-1972
Feasibility Study – Proforma 4275A (Enthalpy: Brisbane). • American Society of Professional Estimators (ASPE)
Finally, some further notes on some inconsistencies in • ANSI Standard Z94.0
estimating practices, and sources of reference that were • Association of Cost Engineers (UK) (ACostE)
uncovered during the course of this research. • Norwegian Project Management Association (NFP).
There was found to be many variations in the The topic of ‘Bankability’ generated a good deal of
naming and categorisation of studies. For example, the controversy as it has always done, and I am grateful
Association for the Advancement of Cost Engineering to private communications with Peter McCarthy (taken
(AACE International) in its cost estimate classification from ‘Course Notes on Feasibility Study Types’) on
system of 1998 (Recommended Practice No 18R-97) uses this subject, and with the definition provided by the
five estimate classes. This specific addendum relates inimitable Neil Cusworth (2012).

Cost Estimation Handbook 19

 CHAPTER 2
Basiss of Studies
Basi

CHAPTER CONTENTS

Scoping study 24
Prefeasibility
lity study 24
Feasibility study 25
Bankable quality feasibility study 25
Definitive estimates 26
 B a si s 26
Obj e c t i ves 26
Appro
Ap pro ach 26

CONTRIBUTORS

Neil Cuswort
Cuswort h FAusIMM, Executive Director, Enthalpy

Basis of Studies

Studies form the fundamental basis for the progressive • the likelihood that the investment will meet the
decision to invest in developing potential projects. company’s sustainability criteria
Although the capital, operating and business cost • the likelihood that the potential project will meet
estimates form a major part of
o f the economic evaluation the company’s strategic development policy
to
andjustify the next the
development, phase of exploration,
estimates are not theinvestigation
sole purpose
•
general features of the opportunity
• the range of potential cases to be studied in the next
for producing a study. phase
The objectives of each phase of a study differ and are • key business drivers for the opportunity
driven by the process objectives shown in Figure 2.1.
• potential fatal flaws that may prevent the successful
As has been noted in Chapter 1 (Table 1.1, a generic execution and operation of the project
study classification guide), various names are used for • major risks in executing and operating the project
the different study phases. Therefore, for clarity, the
• the order of magnitude of the costs of the oppor-
names used in subsequent discussion are shown in
tunity (both capital and operating)
Figure 2.1.
• technical issues requiring further investigation
Scoping studies are required in the exploration and
• cost of, and time for, further development work
development stages to justify continued investment.
needed to complete a prefeasibility study
As shown by Figure 2.1, a scoping study is usually
followed by one or more prefeasibility studies that • the work plan covering the resources, personnel
reflect the increasing level of technical and economic and services required to undertake further work on

knowledge gained during earlier stages. These the opportunity.

studies then culminate in a final feasibility study that PREFEASIBILITY STUD
STUDY
Y
demonstrates the technical and economic feasibility of
The primary reasons for carrying out prefeasibility
the project with sufficient certainty to allow a decision
studies are that they:
to develop the mine.
• Form a basis for making substantial commitments to
The objectives of the cost estimates differ for each
a major exploration program following a successful
study shown on Figure 2.1, as described below.
preliminary program. For example, where reserves
SCOPING STUD
STUDY
Y cannot be proven by surface drilling or where large
metallurgical samples are required, a shaft or decline
The scoping study report should establish: may be developed at an early state of the project.
• the potential of the new or expanded business For a world-class project, the cost of a prefeasibility
opportunity study alone can exceed $100 M.

FIG 2.1 - Progre

Pro gress
ss of stu
s tudies.
dies.

24 Cost Estimation Handbook

CHAPTER 2 – BASIS OF STUDIES

• Develop various alternatives

alternatives and options of project 3. enable raising finance
finance for the project from banks,
size, configuration, technology, layout and locations. equity funds or other sources.
This allows the most viable and best risk-to-reward The feasibility study should:
profile to be selected as the recommended business • demonstrate the technical and economic viability
case going forward to the feasibility study phase. of the business opportunity based on the proposed
• Attract a buyer or a joint venture partner to the project as presented in the feasibility study
project, or to form the basis for a major underwriting • report whether the recommended business case
to raise the required risk capital. A prefeasibility will meet the company’s sustainability criteria and
study may also be prepared in full or in part by strategic development policy
potential purchasers as part of their due diligence.
• develop only one configuration and investment case
• Justify proceeding to a final feasibility
feasibility study. and make a clear recommendation for the project
The prefeasibility study report should establish, execution phase
describe and where relevant, recommend: • define the scope, quality, cost and time of the
• likely technical and economic viability of the various proposed project
opportunities that have been studied
 • demonstrate whether the project scope has been
• whether the alternatives considered and the fully optimised to ensure the most efficient and
recommended case will meet the company’s productive use of the capital invested, Mineral
sustainability criteria Resource and human resources applied to the project
• whether the recommended case will meet the • quantitatively
quantitativel y assess the risk profile of the proposed
company’s strategic development policy project
• a ranking of the options available and the option to • ensure no residual or future issues could significantly
be studied in the feasibility study affect the assessment set out in the feasibility study
• the preferred optimum mining, process, location, • plan the project execution phase of the proposed
size, layout and project configuration case for the project and establish a management plan for the
feasibility study operations phase
• the optimum capacity case to form the basis for the • provide baselines for the management, control,
feasibility study monitoring and reporting of the proposed execution
• the features of the recommended project business of the project
case •
define the basis of equity and/or debt provisions for
• the costs and time to develop the project following the project, where appropriate
completion of the feasibility study • deliver a feasibility study report in accordance with
• whether there are fatal flaws in the project these standards
configuration • define the project commitment process between the
• the risk profile of the recommended project end of the feasibility study and project approval
configuration related to the key business drivers • provide the work plan, resources, costs and
• a work plan for the feasibility study including schedule for any early works to be undertaken prior
the requirements for further geological, mining, to project approval.
metallurgical, environmental and marketing work
BANKABLE
BANK ABLE QUALITY FEASIBIL
FEASIBILITY
ITY STUD
STUDY
Y
• the resources, services, costs and time required to
complete the feasibility study work (as part of the A feasibility study of bankable quality should have the
work plan). following features:
• control baseline – can be used as a control baseline
FEASIBILITY STUDY for management of the project
The final feasibility study should be based on the • general optimisation – achieved a final stage where
most viable and best reward-for-risk alternative for technical and commercial elements have generally
the project as determined by the prefeasibility study. been optimised
The feasibility study aims to remove all significant • independent engineer sign-off – can be audited,
uncertainties and present relevant information with reviewed and signed off by the lender’s independent
backup material in a concise and accessible way. The engineers
final feasibility study has three objectives: • loan basis – capable of forming a project
1. demonstrate within a reasonable confidence thatthat establishment document under loan agreements
the project can be constructed and operated in a entered into by debt providers
technically sound and economically viable manner • risk allocation – sufficient to allow the project equity
2. provide a basis for project delivery
delivery including
including the and debt providers to assess and allocate the risk of
detailed design and construction implementing and operating the project

Cost Estimation Handbook 25

CHAPTER 2 – BASIS OF STUDIES

• stand-alone status – able to fully describe the project • provide a more accurate set of cost and schedule
in regards to resource, progress technology, scope, baselines to manage the future work
quality, costs and time • allow the project to reset the control budget and
• trackable basis – all aspects of the study report can control schedule to the definitive estimate, if
be tracked back to validated
validated and fundamental bases
bases approved by the owners’ corporate management
of calculation • provide the owners’ corporate management with
• low likelihood of variation – not likely to be varied auditable advice so they can make authoritative
materially after the project has been committed. public and private statements to shareholders,
The owners, consultants or engineer preparing a stakeholders and lenders that the project is on (or
feasibility study can make it of ‘bankable’ quality, but off) budget and schedule
whether debt providers will lend investment funds • provide the owners’ corporate management with
depends on the quality of the investment case and sufficiently secure, validated information so they
ultimately on the quality of the orebody. No amount can commit to (take or pay) supply agreements and
of effort in creating a report will substitute for a quality to product sales agreements
orebody and a thorough study. •
provide the owners’ corporate management
 information to reset the cash flow requirements of
DEFINITIVE ESTIMATES the project and its start-up phase
A further stage of the cost estimating process, which • allow the owners’ corporate management sufficient
is not shown on Figure 2.1, is the optional definitive information to renegotiate any lending arrangements,
estimate. This is completed after project approval account for revisions to cost, supplementary or
and during a project’s execution phase. The basis of reserve funds, cash flows and schedule, if necessary.
definitive estimates and the related definitive schedules
are described below. Approach
Appr oach
Basis The recommended approach to creating any definitive
estimate is as follows:
Owners and implementation contractors traditionally
use definitive estimates and the related definitive • A definitive estimate should be an integrated
schedules as a project management control device estimate of the capital; operating costs; and the
during the implementation phase of the project. On the time to complete construction, commissioning and
other hand, corporate and financial management have ramp-up of the project.
different views as to the use and needs for definitive • A definitive estimate must present a developed and
estimate. documented scope of work (the project) intended
This section presents not only the process and to be delivered. In particular, the scope of work
procedures typically followed during the preparation description should be able to track any discrete
of definitive estimates and schedules, but also the item or system through its quality and performance
issues from a management perspective. The quality definition by the procurement method, and hence
and the basis of definitive estimates are presented in to the capital cost and construction schedule
more detail in Chapter 4 – Capital Cost Estimation. items. As a result, a definitive estimate (for costs
and schedule) should be prepared at a detailed
Objectives individual work item level. The estimate should be
The objectives of preparing a definitive estimate are to: presented at equipment or work package level and
• revalidate (or not) the cost estimate and schedules be able to be summarised
summarised to subarea,
subarea, system or area
used for the project investment decisions levels as needed.
• ensure management and stakeholders are fully • Any project scope changes, adopted after the point
informed with the best advice on the forecast project of approval of the investment decision, should be
outcomes documented in the definitive estimate report.
• allow management to direct the project to adjust the • The quality and performance parameters of the
scope, approach, quality and timing of the project project should be presented along with a description
to bring the forecast outcomes (ie the definitive of any changes approved or adopted since the date
estimate and schedule) back to the original of the investment decision.
investment decision baselines • The documents used to derive the definitive
• allow management to cancel the project at a point estimate and schedule must be fully referenced in
when the costs of cancellation are still less than the the definitive estimate report and must note the
costs of completion document source and revision code basis.
• allow management to release or reduce reserve, • A copy of each document used at the revision status
supplementary or corporate contingency funds, stated must be separately available and held securely
originally set aside at the investment decision and separately from other project documents.

26 Cost Estimation Handbook

CHAPTER 2 – BASIS OF STUDIES

• A definitive estimate and schedule must be • The use of design or growth allowances within
capable of being independently audited by non- definitive estimates should not be needed, and
project personnel without the need for explanation hence should be excluded unless areas of design
or clarification provided by the personnel who have not yet commenced. Similarly, ill-defined,
prepared the definitive estimate. generalised or large provisional or prime cost (PC)
• For each work item in the cost estimates and sums must not be used if a definitive estimate is to
schedules, there must be a trackable path to the be considered valid.
valid.
source data used in the estimate and the schedule. • The definitive estimate of capital cost should contain
• The basis of estimate and schedule should be appropriate and well-developed contingency
presented with a commentary on any differences provisions; again this is only appropriate for a P50
between them and the basis of estimate used for outcome.
the estimates approved at the investment decision
• The definitive estimate must present an accuracy
point.
analysis of capital and operating costs and of the
• The definitive estimate and schedule should report schedule. The targeted accuracy should be ±5 to
on and reconcile
decision estimatesany
anddifferences to the investment
provide commentary on the ten per cent.
• The definitive estimate and schedule should involve
 differences.
project-based personnel, but should be led and
• In particular, the transfers of costs from capital
completed by specialist experts assigned to the task
to operation costs or vice versa must be clearly
short-term.
described.
• Definitive estimates and schedules are required to • The project manager should approve the definitive
be as accurate as possible and reflect the most likely
likely capital cost estimate and schedule. The operations
outcomes. Typically, a probability factor of P50 manager should approve the definitive operating
applied to Monte Carlo simulation results is used cost estimate and the commissioning and ramp-up
to determine the final contingency. A higher level schedule.
of uncertainty, for example P80, assumes a reserve • The project director should approve the definitive
80 per cent of the simulated risk. estimate and schedule for use.

Cost Estimation Handbook 27

 CHAPTER 3
Revenue Est
Estiima
matt io
ionn

Sponsoredd by:
Sponsore by:

SPONSOR PROFIL
PROFILEE

Enthalpy works globally with the owners of complex capital sharing of knowled ge with our industr
industr y. We would lik
likee to thank
intensive projects to protect and add value to their investment. Enthalpy’s
Enthalpy’s Neil Cusworth, FAusIMM,
FAusIMM, for his cont ribution to bot h
We ass
assist
studies ist ow
and owner
ner s stoforpla
project n, co
cont
quality,ntrol,
onrol,time,
review
rev iewbudget
on andd man
an manage
age th
delivery.their
eir
We the 1993 publication and the writing and/or reviewing of the
foll ow
owing
ing chap
c hapter
ter s in 2012:
do this through our three integrated serv ice off erings:
 Basis of Studies (Chapter 2)
1. project management services and support support for owners’
• Capital Cost Estimation (Chapter 4)
teams
• Operating Cost Estimation (Chapter 5)
2. independent reviews of studies,
studies, investment
investment proposals and
project execution
execution per formance • Business Cost Estimation (Chapter 6)
3. management consulting to supporsuppor t informed analyt ical Enthalpy was forme d in 1988.
1988. We have
have off ices in Australia and
decision-making. Chile,
Chile, and representati on in Canada.
Canada. We have
have worked globally
Our services are backed by Enthalpy’s rigorous proprietary on project s in most mining
mining commodities, oil and gas, power and
Capital Investment and Project Controls System s. resource infrastructure.
Enthalpy strongly supports the achievement of the AusIMM If you’d like
ke to learn more
mor e about
abou t Enthalpy please visit our web sit e
Cost Estimation Handbook Project Committe e and this valuable at w ww.enthalpy.com.
ww.enthalpy.com.au. au.

CHAPTER CONTENTS

Mineral production, markets and prices 32

Net revenue
revenue calculatio ns 35
Realisation costs 36
Tr an sp or t c o st s 36
In sura nc e c o st s 37
Sup e r int en denc e c o st s 37
Assay
As saying
ing cos
c osts
ts 37
Ma r ket in g c o st s 37
 Ass ayin
ayingg and
an d samplin
sa mplingg 37
Concentrate sales – general considerations 38
Fe e d mi x 38
In te gr at io n w i t h c o nc ent r at e pr o duc er s 38
Pay m en t t er m s 38
Reliabili t y of supp ly 38
Sm e l t e r c o n t r a c t s 38
References 40

CONTRIBUTORS

First edition
editio n text by: P J Lewis

Revised and updated text

tex t by:
by:

Philip Maxwell FAusIMM, Emeritus Professor in Mineral Economics, Western Australian School of Mines, Curtin
University

Revenue Estimation

Accurate and realistic estimation of a mine’s revenue

stream is a key component in assessing its profitability.
This forms part of the project evaluation for any new
or expansion project. It is also necessary to appreciate
the nature of the relevant mineral markets and the
associated marketing processes. Operating successfully
requires appreciation of important concepts at the
interface between the science of mineral processing and
the business of mineral economics. Important elements
on the mineral processing side include issues of process
plant recovery and product quality, while product prices,
commercial sales terms and the transport costs of getting
product to the market (into the hands of the buyer)
reflect the key economic issues. The authors have built FIG 3.1 - New ly mine d minerals
miner als in 200
2 0099 as a prop
p rop or tition
on of
of
on the foundations of chapter 16 of the first edition of productio n in 1960.
1960.
this handbook (Lewis et al, 1993)
1993) to develop this chapter
chapter expansion rate of lead production reflects movement
on revenue estimation. away from its use in applications in paint and as an
In building the foundation for its revenue and additive to petroleum products, while tin’s similar low
marketing focus, this chapter begins with a discussion expansion was due to substitution because of cartel
on the level and growth of mineral production (and activity1.
consumption) over the past 50 years. It discusses The entries on the right hand side of Figure 3.1
mineral prices, the value of production and the nature reflect comparatively shorter periods. The numbers
of mineral markets. This sets the stage, in later chapters next to alumina through hard coal represent the year
of this handbook, for specialist authors to review against which present-day production is compared.
revenue estimation of selected minerals produced in The increases in use of lithium and tantalum seem
Australia. comparable to those of nickel and iron ore over the
longer period.
MINER
MINER AL PRODUCTION, MARKETS
MARK ETS AND PRICES It is also instructive to reflect on the nature of mineral
Among more than 100 minerals analysed by major markets. Mineral supply is complicated because
organisations such as the United States Geological minerals have to be discovered. Also, they are non-
Survey (USGS), about 50 are metals, 50 are non- renewable, although some can be recycled. Some are
metallic minerals and about six (including oil, natural produced as joint products and some as individual
gas and coal) are energy minerals. As many mineral products. Where there is joint production a mineral
economists like to remind us, the world has produced may be a main product, co-product or by-product2.
more of each of these minerals in the past century than Mineral demand is made more complex because it is
in all previously recorded economic history. Indeed, derived from the demand for final goods. Upswings and
since 1960, the production of new mined (and refined) downswings in the business cycle bring exaggerated
minerals has increased on average by several hundred movements in mineral use.
per cent. Table 3.1 and Figure 3.1 highlight this point. There are wide variations in the size of mineral
Bauxite production in 2009 was more than seven times markets. The total size of mineral-based gross domestic
its level in 1960. Magnesium, nickel, iron ore (though product (GDP) in the world in 2009 was more than
at reduced grades) and titanium mineral production US$3 trillion (around five per cent of world GDP). The
all exceeded four times their 1960 amounts. Copper,
phosphate rock, zinc and antimony were each being 1. A useful reference is Hillman (201
(2010).
0).
2. A main product is so impor tant to the economic viability of a mine that its pric e
mined at more than three times their levels of 50 years
alone determines the mine’s output. A by-product is so unimportant that its
earlier. Expanded production of gold, tungsten, tin, price has no influence on mine output. Minerals are co-products when each of
lead and manganese was less dramatic. The lower their prices affects t he output of a mine.
mine.

32 Cost Estimation Handbook

CHAPTER 3 – REVENUE ESTIMATION

TABLE 3.1
mine productio n of selected minerals and metals 1960 to 2009a.
New mine
Miner al Pr o duc t i on in 19 60 Pr o duc t i on in 2009 2009 pro duc t i on
1960 production
product ion
Aluminaa (Mt) (1968)
Alumin 17.2 81.6 4.744
4.7
B au x i t e (M t) 27.6 201 7.28
Antim
An timony
ony (kt)
(k t) 53.3 187 3.511
3.5
Co a l (ha r d) (M t) (198 0) 3795 69 69 1.8 4
Co pp er (M t) 3.9 4 15.8 4.01
Go ld (t) 119 0 235 0 1.97
Ir o n o r e (M t) 522 230 0 4.41
Le ad (M t) 2.39 3.9 0 1.63
Li t hium (t) (198 4) 73 0 0 23 0 0 0 3.15
Ma gne sium (k t) 93 570 6.13
Ma n ga ne s e (M t) 6.12 9.6 0 1.57
 Nic kel (k t) 320 143 0 4.47
Ph o sp ha t e r o c k (M t) 41.8 158 3.78
Sil ver (k t) 7.3 21.4 2.93
Ta nt a lum (t) (19 69) 3 88 1160 2.9 9
Tin (M t) 183 3 07 1.6 8
Ti t a nium (M t) 2.1 9.6 4.5 8
Tun gst en (k t) 31.2 58 1.8 6
Ura nium ox ide (k t) (1970 - 20 07) 18.9 43.03 2.28
Zinc (M t) 3.09 11.1 3.59

a. Commencement dates for some minerals later than 1960 are noted by a number at the end of the entry in the first column (eg Lithium (t) (1984)).
Sources: USGS (various years), Raw Materials Group (2010) database. See also World Bureau of Metal Statistics (various years).

energy minerals are the most valuable in monetary adjusted for the effects of inflation) over an extended
terms, with oil dominant3, followed by coal, natural period. Rising real prices reflect growing scarcity,
gas and uranium. The most valuable metals in terms while falling real prices indicate greater abundance.
of world production are iron, copper, aluminium, gold Although mineral prices are volatile, Barnett and
and nickel, followed by zinc, lead, tin and the platinum Morse (1963) and Sulliva
Sullivan,
n, Sznopek and Wagner (1998)
group minerals. Annual world production of iron ore argued that real prices of most major minerals (in terms
and copper has recently each exceeded US$100 billion. of real US$) followed a downward trend between 1850
Larger mineral sectors, especially those where there and the late 1990s. Since 2000, real
r eal mineral prices have
are many producing mines, tend to be more competitive generally risen, certainly in terms of US dollars.
and this keeps prices lower. By contrast, greater market When examining trends in real (deflated) metals and
power (monopoly power) typically restricts output, mineral prices, care is needed when choosing a deflator.
drives up mineral prices and increases profits. High The Consumer Price Index (CPI) is not as good as a
mineral prices stimulate greater exploration and this wholesale price index.
eventually brings new mineral production. Adoption of
Additionally, metal prices were not always terminal
new technology on both the demand and supply sides
market prices (London Metal Exchange (LME) or
of mineral markets also places downward pressure on
equivalent). Nickel, gold, aluminium, zinc, uranium
prices.
and tin prices have had periods of manipulation (like
One test of the functioning of mineral markets over tin by the International Tin Council), of being fixed
time is the behaviour of real mineral prices (ie prices (like gold at US$35.00/troy oz from 1934 to 1971) or of
3. Oil has account ed for as much as 75 75 per cent of the value of world mineral being sold at a producer price (aluminium, nickel and
production in times of high oil prices. zinc to some extent).

Cost Estimation Handbook 33

CHAPTER 3 – REVENUE ESTIMATION

It is also misleading to consider trends in real prices The dramatic emergence of the Chinese economy
in A$ because of the exchange rate effect. The A$ after 2000, as well as the stronger economic growth
(previously £A)
£A) has ranged from around parity 50 years and development performance of India, have been the
ago down to US$0.50 and back to parity, with real A$ key to the rise in real mineral prices in the past decade.
metal prices moving accordingly. The A$ price is, of World mineral supply struggled to keep pace as China
course, important to local producers. in particular made major expenditures on construction
When exchange rates vary widely between currencies, and other infrastructure. With one-fifth of the world’s
as they have between the US and Australian dollars population experiencing such a profound economic
since the Australian
Australian dollar was floated on 12 December development experience, authors such as Heap (2005)
1983, these trends are not necessarily so apparent. This stimulated a healthy debate about a ‘supercycle’.
seems to be the situation when the real price of minerals Associated with this, Heap (2005) saw ‘trend rises in
is plotted in terms of Australian dollars. Table
Table 3.2 shows
sho ws real commodity prices, reversing the trend decline’
estimates of real Australian prices (using 2008 as the of the preceding three decades. There had also been
base year), CPI as a deflator4. They
year), using the Australian CPI supercycles associated with the emergence of the US
compare mineral prices in 1960, 2000 and 2009. The economy at the end of the 19th century, and with post-
real prices of major minerals such as iron ore, bauxite, World War II reconstruction in Europe and Japan. Even
copper, lead and zinc (and coal) did fall in terms of real the GFC and its aftermath since 2008 have apparently
Australian dollars between 1960 and 2000. This trend failed to dampen the phase of stronger mineral prices
was reversed for iron ore, coal and copper after 2000, and growing output.
It is important to complete this introductory
although the downward movement continued for
bauxite, lead and zinc. The real price of gold increased
increased discussion with a few comments on the status of
over the entire period, although this was a reflection in mineral markets. Some are very large and others
part of a controlled low price for gold in 1960. quite small. Where there are significant numbers of
producers or available substitutes for specific minerals,
4. Following the findings of the Boskin Commission in the United
United States, there or both, markets tend to be more competitive. Where
has been a lively recent debate about the most suitable way to deflate prices.
For two discussions of that debate see Svedberg and Tilton (2006) and major mineral deposits are located in specific nations
Cuddington (2010). and owned by a few companies, markets are usually
TABLE 3.2
Estimated 2008 real pr ices ($A) of selected minerals in Australia for 1960, 2000 and 2009.

Mineral 1960 real pr ic e 20 0 0 r e a l p r i c e P2000/P1960 2009 pr i c e P2008/P1960

B au x i t e 93.72 5 4.45 0.5 8 30.87 0.33
Antim
An timony
ony 7357 3394 0.46 5590 0.76
Co pp e r 789 0 4275 0.5 4 5591 0.71
Go ld (o z) 373 65 8 1.76 10 47 2.81
Ir on o re 89 3 8.6 0.43 80 0.9 0
Lea d 28 0 4 2265 0.81 1677 0.60
Li t hium 17 3 8 0 10 53 6 0.61 6 416 0.37
Ma ng a ne se 1013 1372 1.35 1412 1.39
Nic kel 17 3 8 0 20 379 1.17 16 474 0.95
Ph o sp hat e r o c k 72.72 6 0.11 0.83 55.13 0.76

Sil ver (oz) 9.7 11.8 1.2 2 14.74 1.52

Ta nt alum (kg) 177 239 1.35 127 0.72
Tin 23 8 8 4 19 23 4 0.81 14 973 0.63
Tung st en 33 160 19 50 0 0.59 31 50 0 0.95
Ur a nium ox id e (lb) 74.8 10.71 0.14 61.75 0.83
Z in c 16 470 273 4 0.17 1895 0.12

Source: USGS (various years).

Note: The global financial crisis of 2008 - 09 saw substantial f luctuation in prices, with prices generally sett ling higher
higher than bef ore due to sustained
Chinese demand.

34 Cost Estimation Handbook

CHAPTER 3 – REVENUE ESTIMATION

less competitive; that is, producers have more market by value (tungsten, magnesium, antimony, lithium
power to influence prices. Some indicative estimates and tantalum) all had ten or fewer producers. Each
of the value of sales (in US$) of key minerals in 2009 member of this final group has markets where there is
appear in Table 3.3. considerable market power.
This discussion illustrates that mineral markets vary
TABLE 3.3 3. 3
in size, structure and degree of competition within
Value an d nat ure of
o f market
ma rket s for
fo r selec
sel ecte
tedd miner als in 2009.
2 009.
them. When evaluating a project, a project analyst must
Mineral Value % Market Market Traded appreciate the nature of the mineral market relating to
of sales share of power in that project.
(US$ bill) ten largest terminal
producing markets NET REVENUE
REV ENUE CALCULATIONS
CALCULATIONS
companies
The net revenue received by a typical mine is the
Coal (hard) 484 24 Low No payment made by the buyer less the realisation costs,
Iron ore 184 45 Medium No which include freight, insurance, marketing and other
selling costs. Following Vogel and Grey (1990), a
Copper 88 56 Low Yes common way of expressing this is:
Aluminium
um 81 56 Medium Yes
Go l d 77 43 Low Yes AMV = NSR – RLZ

Nickel 24 69 Medium Yes where:

 Zinc 21 44 Low Yes AMV is at-mine value, the actual value of the product
after all deductions are made
Silver 9.8 38 Low Yes
NSR is net smelter return, which is the payment
Phosphate rock 8.7 50 Low No
received by the mine after the smelter, refiner
Lead 6.5 32 Low Yes or buyer has deducted all their charges
Tin 4.6 N/A Low Yes RLZ is total realisation costs
Tungsten 2.7 ≈100 High No In some cases the mined material is not smelted and
is simply used as a direct input to the production of
Magnesium 1.5 ≈100 High No
another material or energy source (eg iron ore used
Manga nes e 1.3 50 Medium No
in
or steelmaking,
steelmaking).or In
coalother
used cases,
for electricity
miningproduction
company
Antimony
Ant imony 1.0 ≈100 High No
managers sell their ore directly to a concentrator,
Lit hium 0.2 100a High No
smelter or refinery5.
Tant alum 0.2 100a High No The calculation in Tables 3.4 and 3.5, based on an
example by McIsaac (2010), illustrates the nature of the
a. Fewer than ten producing mines.
calculations that project analysts make in estimating
N/A = not applicable. revenue flows6. This example refers to a small- to
Sources: USGS (various years), Raw Materials Group (2010) database. mid-sized sized copper mining company that sells its
concentrate to a smelter owned by another company.
The market shares (concentration ratios) of leading The smelter produces copper and gold metal from the
producers also appear in Table 3.3. When minerals concentrates delivered to it.
are traded in terminal markets such as the LME, the A mine’s profitability depends on the values of
New York Mercantile Exchange, the Shanghai Metals metal grades (and impurities), process plant recovery,
Market and the London Bullion Market, it indicates average mineral prices, commercial sales terms
that their markets are more competitive. In industries and transport costs. There were around 40 mines in
such as lithium, tantalum and diamonds, accurate Australia in 2009 that produced copper. In about half
information about prices is often difficult to obtain of these mines, it was either the main product or a
because producers sell on the condition that contract co-product and analysts would have undertaken a
prices remain confidential.
revenue calculation similar to this in their feasibility
From the 17 minerals listed in Table 3.3, only in three assessments.
cases (coal, lead and silver) did the market share of
the ten largest producers fall under 40 per cent. In five 5. For example, several Kambalda nickel mines sell their ore to the BHP Billiton
other cases (gold, zinc, iron ore, phosphate rock and concentrator in Kambalda. BHP Billiton
Billiton then either processes the concentrate
at its nearby Kalgoorlie nickel smelter and its Kwinana nickel refinery, or sells
manganese), it stood between 40 and 50 per cent. the concentrate to nickel refineries outside of Australia.
The ten largest nickel producers accounted for 69 per 6. Anot her useful reference which outlines the calc ulation of a mine’s net smelte r
cent of the market, and five of the smaller minerals returns in a systemat ic way is Wellmer, Dalheimer and Wagner (2008).

Cost Estimation Handbook 35

CHAPTER 3 – REVENUE ESTIMATION

Metallurgical
Metallurg TABLE
ical balance of copp 3.4gold in copper concentra te
er and Estimation of value of metalsTABLE 3. 5 concentrate sold to smelter.
3.5
in copper
sold to a hypothetic al refinery.
Copper Gold
Tonnes Copp er Gold (g/t)
Tonnes of c oncent rate 24 488 t
(%) (t) (ounces)
Met al in c oncent rate 5143 t 16 459 oz
Mill feed
Met al per tonne of c oncentrate 0.21 t 0.67 oz
Amount
Am ount 275 000
463 lb 20.90 g
Gr a d e s 2.20% 2.55
Met al deduction 0.011 t 2.5 g
Co nt ain e d m et al 6 050 22 5 4 6
Payable metals 0.199 t 18.40 g
Copper concentrate
439 lb 0.592 oz
To nne s o f c on
onc en
ent ra
ra te 24 48 8
Long-r un met al price (say) 6500 $/t 1300 $/oz
Mill r e c over y 85% 73%
Value of metal 1294 $/t conc 769 $/t
$/t conc
Tonnes of ore per tonne 11.23 Deductions and charges
of concentrate
Gr a d e s 21% 20.9 0 Treat
reatment
ment charge
char ge (TC) 100 $/t conc
Met a l c o nt ain e d 5143 16 459 Penalties (A s, Sb, Bi, Hg) 0 $/t conc
Pr ice par ticipat ion 0 $/t conc
 As Lewis et al (1993) noted:
Refining charges (RC)
(RC) 45 $/t c onc 20 $/oz
… the payment (NSR) received from a buyer varies
considerably in terms of the gross value of the valuable 12 $/t conc
constituent and often can be surprisingly low. For Subtotal
Subtotal deductions 145 $/t conc
example, the NSR for base metal concentrates can
Transpor t 50 $/t c onc
vary from 95 per cent to as little as 40 per cent of the
gross value of metal contained in the concentrates, Insuranc e 10 $/t c onc
depending on the metal involved and the grade of Loading and representat ion 10 $/t c onc
the concentrate.
Total realisation costs 70 $/t conc
In per
88.8 the cent
example
of thebelow, the NSR
gross value is $1149/$1294 or
of metal. Value
Value after deductions and refining 1149 $t
$t/co
/conc
nc 757 $t
$t/co
/conc
nc
After realisation costs are taken into account, Tonnes of ore p er tonne conc 11.23 11.23
the percentages for AMV can be considerably less, Value per tonne of ore 102.27
102.27 $/t ore 67.45 $/t ore
particularly for mines in remote locations. We now
discuss realisation costs and general matters related to Grade of ore 2.32% 2.55 g/t
smelter terms and the sale of products. This is followed NSR factor 44.08 $/% 26.45 $/g
by short sections, arranged alphabetically, on how to
calculate the net smelter returns for various mineral as gold, silver and base metals such as copper attractive
products listed in Tables 3.1, 3.2 and 3.3. to export7.
Because transport costs from the mine gate to the
REALISATION COSTS final destination may be a large part of the total costs of
Total realisation costs are the sum of all transport, bulky, less-processed mineral products,
products, it is important
insurance, superintendence, assaying and marketing to clarify whether the buyer or seller is liable for these
costs. costs. The International Chamber of Commerce (ICC)
Transport costs (www.iccaustralia.com.au) specifies a set of standard
international sales terms (so-called ‘Incoterms’), which
Transport costs include all freight costs associated with companies use widely in conducting international
the delivery of the product to the buyer, whether by trade transactions. There are currently 11 Incoterms.
road, rail, sea or air. They are commonly the main part Three of these – ex-works (EXW), free on board (FOB)
of total realisation costs. Over the past two centuries and cost insurance freight (CIF) – are widely used by
bulk transport costs have fallen dramatically. As a mining companies8.
result, it has become possible to trade minerals such
as coal and iron ore, with low value-to-weight ratios, 7. For an excellent
excellent historica l discus
discus sion of bulk shipping cost s see Lundgren
Lundgren
very profitably. This contrasts with the situation
s ituation at the (1996).
8. Definit ions of the other eight term s are readily available from the ICC
ICC web site,
time of the Australian gold rushes in 19th century when and there are a number of useful diagrams freely available on the Internet that
higher transport costs made only precious metals such illustrate the meaning of all of these terms.

36 Cost Estimation Handbook

CHAPTER 3 – REVENUE ESTIMATION

EXW prices
insurance specify
beyond that all gate
the seller’s costsmust
for transport
be met byand
the of
thethe vesselbehalf.
mine’s or on Superintendence
delivery at the buyer’s works but
is optional, on
buyer. it helps ensure that these procedures, on which final
FOB requires the seller to deliver goods on board payment is made, are performed accurately. A number
a vessel designated by the buyer. For example, the of companies provide specialist superintendence
delivery of a shipment of 300 000 tonnes of iron services around the world. The cost-per-tonne of
ore might be designated as ‘FOB Port Hedland’. A product is usually small, typically US$0.50 per tonne
company such as Fortescue Metals will have fulfilled of concentrate.
its obligations when the iron ore, railed from its Pilbara Assaying
Ass aying cost
c ostss
mines in Western Australia, is loaded on the buyer’s
nominated carrier. Assaying costs are associated with the contractual
analysis of the sampled product, and are normally
CIF signifies that a seller has delivered the goods minor. Typical sampling and assaying procedures are
when they pass the ship’s rail in the port of shipment. discussed in the next section.
The buyer is then responsible for the transport of the
goods, although the seller has to pay the freight and Marketing costs
marine insurances at minimum levels. Marketing costs are associated with identifying,
Base metal concentrates are often sold on a CIF basis. securing and retaining the best customers for the full
The mine is responsible for all costs up to the berthing product output. For some mine products, which are
of the ocean-going vessel at the quay of the buyer’s port. sold into complex and competitive markets, marketing
The buyer is responsible for all subsequent costs. One costs can be substantial and the mining company may
example of such a contract is for Western Areas NL to set up its own marketing team. Marketing costs also
 truck nickel concentrate from its mines at Forrestania in include the arrangement of optimal transport and all
Western Australia (WA) to the port of Esperance, WA. associated documentation, particularly for sea freight.
It is then shipped to Xingang Port in China, where the For other minerals like gold, marketing costs may be
Jinchuan Group takes delivery
delivery (see Western
Western Areas NL, minimal.
2010, pp 2 and 4). Specialist international marketing and trading
Transport costs may include: companies provide complete marketing services as
• documentation costs agents on behalf of the mining company. The use of
• loading, unloading and transference costs these companies depends on the mining company’s
assessment of the market locations, the marketing
•
port and harbour dues situation and its own marketing capabilities. The fee or
• road, rail, air or sea freight costs commission for use of a marketing agent is negotiated.
• special container costs The fee will depend on factors such as the nature of
• storage costs at the rail head or
o r the mine’s port the market, technical complexity, volume and value of
• superintendence costs associated with rail and ship the product and the term of the agency. As a guideline,
loading. however, an agent’s marketing fee is in the range of
Transport costs are specific to each mine and its 1.0 to 2.0 per cent of the NSR.
market. Although they have fallen historically in real
ASSAYING
ASSAYING AND SAMPLING
terms, these costs may vary considerably because
of the worldwide balance of supply and demand The sale of all mineral products and the subsequent
for freight space. This reflects the inelastic nature of calculation of NSR is based on the weighing, sampling
shipping supply and the variability in demand for bulk and assaying of each shipment either on discharge of
commodities. It is often advisable to engage consultants the vessel or as it is received at the buyer’s works. The
who specialise in the estimation of total transport costs. procedures used to determine the final assays on which
NSR calculations are based vary with the mineral
Insurance costs product. However, the standard procedure for base
Insurance costs are based on the estimated NSR that metal concentrates is as outlined below.
will be received for each shipment. For base metal The smelter contract normally specifies the tonnage
concentrates, all-risks insurance typically costs 0.06 per increments (or lots) into which each shipment will
cent to 0.12 per cent of the insured value, depending be subdivided for weighing, sampling, moisture
on the amount insured and the age of the vessel. The determination and assaying. The sample from each lot
insured value is customarily 110 per cent of NSR. is carefully divided, normally into four. One subsample
is analysed by the buyer and another by the seller or
Superintendence costs their respective nominated representatives.
Superintendence costs are associated with witnessing, Once the analyses are available they are exchanged
weighing and sampling the product either on discharge simultaneously. If any of the analyses do not agree

Cost Estimation Handbook 37

CHAPTER 3 – REVENUE ESTIMATION

within predetermined limits (called ‘splitting limits’) TABLE 3.6

3. 6
a third subsample is sent to an umpire for analysis. Typical cash f low for smelter payments.
Usually, several umpires are used in rotation, the
list being agreed between buyer and seller. Once the Event Dat e
umpire’s analysis becomes available, the final settlement Ship
Ship loads
loads and departs.
departs. Bill-of
ll-of-loa
-loadi
ding
ng date (B/
(B/L)
L) date.
date. 20 March
assay is determined, usually by averaging the results
of the umpire’s assay and whichever of the buyer’s or Ar ri ves main
m ain por
p or t of sm elt er. 4 April
Ap ril
seller’s assays is closest to that of the umpire’s. Provisional payment (90 per cent of provisional 6 April
value is
i s paid
pa id on a rr iva
ivall at the
t he sm elt er, ba se
sedd on
CONCENTRATE SALES – GENERAL prices in week prior to B/L date).
CONSIDERATIONS Quotational period two months af ter month of June
It is tempting to believe that the market will be prepared arri val (QP2
(QP2 MAMA) at smelter.
to accept whichever concentrate grade optimises plant Final payment (final value based on the average 15 July
Jul y
recovery. After all, smelters may have the appropriate price over the QP, less provisiona l payment).
technology to process such a grade and other mines may
be selling
selling a similar or even a less-acceptable
less-acceptable grade. This
is unfortunately not always the case. To understand the Payment terms
factors that make a concentrate attractive to a buyer Other than the clauses dealing with treatment charges
and, therefore, command a higher purchase price, it is and other deductions, clauses that affect the NSR and
useful to look at the following factors from the smelter’s cash flow are those that define the payment terms.
viewpoint. These are the quotational period, valuation (price
basis), currency conversion and payment or settle-
Feed mix ment clauses. Payment terms are negotiable, varying
Custom smelters seek the blend of concentrate feed according to market conditions. A typical cash flow is
stocks that optimises their plant efficiency, profitability shown in Table 3.6.
and the environmental constraints under which they
operate. The shipping and delivery program must be
Reliability of supply
planned to ensure that a consistent feedstock can be Historically the supply of and demand for concentrates
blended from the range of contracted supplies. Each have been volatile. Smelters need to be sure that they
shipment, therefore, determines the desirability of have a consistent supply of concentrates that maximises
subsequent purchases. A particularly dirty concentrate their output at minimum cost. Consequently, smelters
shipment will subsequently require a large volume prefer customers whose supply is less likely to be
of very clean concentrates to dilute the undesirable interrupted by natural (eg weather), socio-political (eg
elements in the dirty concentrate. Therefore, further strikes, wars) or economic (eg closure due to high costs
purchases of dirty concentrates are precluded until the and poor prices) factors. Usually smelters reduce the
first quantity is consumed. supply risk by buying from a range of suppliers. In
addition, smelters enter into long-term contracts with
Integration
Integration with
wi th concentrate producers reliable suppliers to further stabilise the quantity and
Where mines and a smelter are owned in part or full quality of concentrates that are delivered in any year.
by the same organisation, preference is usually given Concentrates supplied under long-term contracts may
to concentrates from the mines associated with the be supplemented with one-off or ‘spot’ purchases at
smelter. The quality and quantity of the concentrate any time.
produced by the integrated mines will thus affect
what concentrates are acceptable for the balance of
Smelter
Smelter contracts
contract s
the smelter feed. Partly integrated or non-integrated Table 3.7 shows the most common clauses that are
smelters that rely on concentrate purchases from the included in smelter contracts. Although those listed

international market are referred to as custom smelters. apply specifically to the sale of base metal concentrates,
TABLE 3.7
Smelter contract clauses.

S e c t i o n o r c l au s e I n f o r m a t i o n g i v en
Pr e f a c e Na m e s a n d a ddr e s s e s o f c o n t r ac t in g p a r titi e s. A gr e e m e n t t h a t b o t h p a r titi e s w ill a bi d e by t er ms
ms
and conditions of contract.
D e f in
ini titi on
on s A pp
pp ro
ro pr
pr ia
ia t e c on
onve r si
si o n r at
at es
es. Pr e c is
is e l y d ef in
in e s a ny p a ra
ra me
met er
er s u s e d r e p ea
ea t ed
edl y in c on
on t ra
rac t.t.
Dura
Duratio
tionn and peri
period
od Spec
pecific
ific da
dates
tes be
betwee
tweenn wh
which
ich con
contra
tract
ct wi
willll ap
apply
ply.. Usu
sual
ally
ly de
defin
fines
es whe
whethe
therr con
contra
tract
ct ap
appl
plies
ies to
mine’s production or shipments.

38 Cost Estimation Handbook

CHAPTER 3 – REVENUE ESTIMATION

TABLE 3.7 CONT ...

S e c t i o n o r c l a us e In f o r m a t i o n g i v e n
Quant i t y Minim um a n d m a xi
ximum m o n t hl y o r a nnu a l t o nn a g e s. A l t e r n a t i v el y, s t a t e d a s t o t a l min e
production over perio d, in which
which case seller normally agrees to advise buyer of it s future
production on quar terly, half-yearly or annual bases.
Mate
Materi
rial
al or qu
qual
ality
ity Typ
ypic
ical
al an
anal
alys
yses
es of co
conc
ncen
entr
trat
atee, wit
withh ran
range
gess for
for mo
more
re imp
mporta
ortant
nt as
assa
says
ys.. Maxi
Maximu
mum
m and
and minimu
mum
m
assays acceptable to smelter and, if the se tolerances are exceeded, whether this will involve
rejection of the delivery or renegotiat ion of terms.
D e li v e r y M et ho
ho ds
ds o f t ra
ra n s p o r titin g, p ac k in g a n d w he
he r e d e li ve
ve r ie
ie s w ill b e m a d e. W h o w ilill p ay f re
re i ght,
insurance and loading/unloading charges.
Sh i p m e n t Ra t e o f s hip m e n t a n d s i z e o f v e s s e l. Ca n a l s o c ov
ov er r a t e o f l o a din g/unl o a din g, a s s o ci
ci a t e d
overtime payment s, demurrage and despatc h money, ships’ ships’ agents, shipping documents, method
of stowage and port dues and charges.
Valua ti on Unit de
deduc
duc ti on o r per
p erce
cent
nt ag
agee meta
me ta l pa id f or. Met al p ri ce th at w ill app
a pply
ly (eg
( eg LME, Pena
Pe nang,
ng, US).
Price deduction or ref ini ining
ng charge. Payments for cre dit elements.
Quota
Quotatio
tiona
nall per
period
iod Spec
pecific
ific per
period
iod du
duri
ring
ng wh
which
ich de
dellive
iverie
riess wi
willl be pri
priced
ced (o
(often
ften com
combi
bined
ned with ‘va
valu
luati
ation
on’’ cla
claus
use)
e)..
Usually
Usual ly quoted as the average pric e in a specific mont h after t he month in which the product is
delivered.
Treatment charge or Treatment charge. Refining charge (can also be in separate clause). Other charges, eg for
deductions sampling.
 Pen
enal
altities
es or imp
mpuurit
ritie
iess Tol
oler
eran
ance
ce le
leve
vels
ls an
andd pa
paym
ymen
ents
ts fo
forr pena
penalty
lty el
elem
emen
ents
ts..
Es c a l a t i o n B a si s a n d m et h o d o f e s c a l a t i o n. Ch a r g e s t o w hic h e sc a la t i o n w ill a p p l y.
Paymen
Paymentt or se
settleme
ttlement
nt Timing
Timing,, cond
condition
itions,
s, docu
documenta
mentation
tion,, curr
currenc
encyy and me
methods
thods for prov
provisi
isional
onal and fina
finall pa
paymen
yments
ts by
buyer to seller.
Weighin
Wei ghing,
g, sam
s amplin
plin g an d Wh o will
Who w ill wei
w eigh
gh and
a nd sa
sampl
mpl e shipm
sh ipmenents
ts fo r as say an
andd moi
m oist
sture
ure det
deter
er mina ti on (no
( norm
rm all y this
t his is
moisture determination done at buyer’s works and expense, but seller is given right to be represented) and who will pay
forr this
fo t his wo
work.
rk. Siz
Sizee of sa
samp
mpling
ling lo
lots.
ts.
Assay
As say s Spli t tin g of sa
Split samp
mple
less fo r as say by buy
b uyer
er a nd s ell
eller,
er, exch
e xch an
ange
ge o f as say
says,
s, as say sp
split
lit tin g limits
limi ts,,
conditions for using umpire
umpire assays and basis for agreement of final assays.
Currency, conversion or Basis for conversion of currency. Can also include section stating how char ges will change if
exchange rate exchange rates vary outside specif ied limits.
limits.
In s ur a n c e Ty p e, va lu e a n d p e r io
io d o f in sur a n c e c ov
ove r, w ho
ho p ay s f o r in s ur a n c e,
e, a n d w ho
ho i s t he
he b e n e f ic
ic i a r y.
y.
Fo rc
rc e m aj
aj eu
eur e Co nd
ndi titi on
on s un de
de r w hi
hi ch
ch t he
he c on
on trtr ac
ac t c an
an b e su sp
sp en
en de
de d by e itit he
he r p ar
ar t y,
y, a nd
nd p ro
ro ce
ce du
dur e t o b e
adopted if t his clause is invoked.
invoked. Period
Period o f continuous suspension af ter which cont ract may be
cancelled.
Lo ss
ss of
of ve
ve ss
ss el
el Co nd
ndi titi on
on s a nd
nd lili ab
abili titi es
es go
go ve
ve rn
rnin g t ot
ot al
al or
or pa
pa r titi al
al lo
lo ss
ss of
of a ship me
men t (o ftf t en
en in
in co
co rp
rp or
or at
at ed
ed in
in fo
fo rc
rc e
majeure clause).
Tit le a nd r isk Pr e c i s e m o m en t w h e n c o n c en t r a t e b e c o m e s p r o p er ty
t y o f b u y e r.
Ta riri f fs
fs, t a xe
xe s o r du titi es
es W ho
ho p ay
ay s a ny
ny t a xe
xe s,
s, du titi es
es o r t ar
ar ifif f s.
s.
Li c e n c e s Li c en c e s n e c e s s a r y f o r c o n t r ac t s t o b e ef f e c t i ve.
Fair operation, revision, Circumstances not covered elsewhere in the contrac t that will allow
Circumstances allow either part y to renegotiate
renegotiation or cancellation contract so t hat it remains fair to both part ies; and procedure to be adopted i f this clause is
invoked.
Ar bit ra
ratiti on Basis
Ba sis fo
forr set
se t tli
tling
ng a ny disp
di sput
utes
es or dif
d if fe
fere
renc
nc es.
Appli
Ap plica
ca ble la
laww Countrtr y unde
Coun un derr who
w ho se l aw t he c on
ontrtr ac
actt will
w ill be
b e go ver ne
nedd and
a nd c on
onst
stru
ru ed.
Not ic e s Pr o c e d u r e a n d r u l e s g o v e r n i n g s u b m i s s i o n o f f o r m a l n o t i c e s c o n c e r n i n g t e r m s o f c o n t r a c t .
Succ
uccess
essors
ors and ass
assig
igns
ns Whethe
Whetherr contr
contrac
actt can
can be pa
passe
ssedd on to su
succes
ccessor
sorss and
and ass
assig
ignee
neess.
Te r mi
min a t io
io n Th e c ir c um
um s t an
an c es
es un d e r w hi
hi c h t he
he s e ll e r o r b u ye
ye r w ilill b e e n t itit le
le d t o t e r mi
min a t e t he
he c on
on t ra
ra c t.t.

Cost Estimation Handbook 39

CHAPTER 3 – REVENUE ESTIMATION

many of the clauses are used in contracts covering the McIsaac, 2010. Net smelter return,
return , 6 p. Available
Available from: <http://
sale of any mineral product. Some contracts include all www.minedesignwiki.org/index.php/Net_smelter_
return>. [Accessed: 3 December 2010].
the clauses listed in Table 3.7, plus a few others peculiar
to the circumstances of either the smelter or the mine; Raw Materials Group, 2010. Raw materials database,
Stockholm.
others contain only the important clauses.
Sullivan, D, Sznopek, J and Wagner, L, 1998. 20th century US
mineral prices decline in constant dollars, United States
REFERENCES Geological Survey, 9 p.
Barnett, H J and Morse, C, 1963. Scarcity and Growth (Johns Svedberg, P and Tilton, J, 2006. The real real price of
Hopkins for Resources for the Future: Baltimore).
Baltimore). non-renewable resources: Copper 1870 - 2000, World
Cuddington, J T, 2010. Long-term trends in the real prices Development, 34(3):501-519.
of primary commodities: Inflation bias and the Prebisch- United States Geological Survey (USGS), various years.
Singer hypothesis, Resources Policy, 35:72-76. Mineral Information web page. Available from: <http://
Heap, A, 2005. Riding the super cycle, metals and mining, minerals.usgs.gov/minera
minerals.u sgs.gov/minerals/pubs/mcs/>
ls/pubs/mcs/>..
Global Equity Research, Citigroup, 31 January. Vogel, A and Grey, C A, 1990. Lead and zinc smelting charges,
charg es,
Hillman, J, 2010. The International Tin Cartel (Routledge: in Proceedings Mining Industry Capital and Operating
London). Cost Estimation Conference (The Australasian Institute of
Lewis, P J et al, 1993. Revenue calculations and marketing, Mining and Metallurgy: Melbourne).
Chapter 16 in Cost Estimation Handbook for the Australian Wellmer, F-W, Dalheimer, M and Wagner, M, 2008. Economic
Mining Industry (eds: M Noakes and T Lanz) (The Evaluations in Exploration, second edition (Springer:
Australasian Institute of Mining and Metallurgy: Berlin).
Melbourne).
Western Areas NL, 2010. Annual report 2010, Perth.
Lundgren, N-G, 1996. Bulk trade and maritime transport
costs: the evolution of global markets, Resources Policy, World Bureau of Metal Statistics, various years. World metal
22(1/2):5-32. statistics, Ware, Hertfordshire.
40 Cost Estimation Handbook

CHAPTER 4
Capi
apitt al Cost Est
Estiimat
matio
ionn
 Sponsored by:

SPONSOR PROFIL
PROFILEE

Metals X Limited is a diversified resource group with a collaboration and cooperation to develop Wingellina towards
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CHAPTER CONTENTS

Definitions 44
Est ima t ing m et h o do l o g y 44
Qua li t y o f d eli ver a bl es 44
O t he r def ini t i o ns 44
Basis of estimate 45
Pr o j e c t s c o p e 45
Workk bre akdo wn str
Wor s tr uct ure 45
Or g a nis at io na l b r ea kdo w n st r uc t ure 45
Pr oj e c t exec u t i o n p lan 45
Sc he dule 46
Developing and presenting the cost estimate 46
Re so ur c es an d or g anis at io n 46
E s t im a t e 47
 C o n t in g e n c y 48
Es c a l a t i o n 48
Quality definitions 48
Levels of definition 48

CONTRIBUTORS

Neil Cusworth FAusIMM, Executive Director, Enthalpy

Capitall Cost Estima

Capita Estimatition
on

This chapter sets out the basis of the content, extent Estimating methodology
of definition required and accuracy of estimates
The definitions outlined in Table 4.1 are used to describe
of capital costs for investments in mineral projects
the methodology applied to cost estimation.
during each phase of the study. This chapter also sets
out the quality of definitive estimates, which may
Quality of deliverables
need to be prepared during the project execution
phase. The definitions outlined in Table 4.2 are used to
Studies include scoping, prefeasibility and describe the degree of completene
completeness
ss of engineering and
other documents that provide data and quantities for
feasibility phases of mining projects as defined in
the basis of estimates.
Chapter 2 – Basis of Studies.
The specifics of the individual or group of deliverables
The quality of capital cost estimates should be
used to define specification, drawing and design
based on achieving
ach ieving define
definedd quality
qual ity levels
l evels for:
f or:
completeness needs to be evaluated on a case-by-case
• defining the scope of the project basis.
• defining the resources needed to carry out the
project Other definiti
definiti ons
• defining the engineering and project deliverables Other terms commonly used in cost estimation are
required to support the capital cost estimate defined in Table 4.3. Some of these terms can be
• defining the cost rates and provisions to be misunderstood; these are explained below.
included in the capital cost estimate A contingency allowance addresses known risks that
• estimating costs that can be validated by are considered likely although initially ill-defined. It
supporting
detail and isdocumentation
structured so that
that contains
it can besufficient
used for might include, for example, an extra budget of time or
cost to cover possible weather delays. With reference
cost management purposes during the delivery of to Chapter 1 – Using the Handbook, it includes
the project (ie costs are demonstrable) Rumsfeld’s ‘known unknowns’. The term ‘management
• identifying risks and related contingency plans or reserve’ is often used to cover the unknown unknowns
allowances, including uncertainties that require and, if used, the two types of allowance should be
greater definition in future phases of study kept separate. Neither should be used to cover scope
• ensuring that the cash flow needed for the project changes, which require approval of a revised budget.
can be forecast and then monitored during the An escalation allowance covers cost increases due to
project execution phase. general inflation or to increases in specific costs, such
Certain projects will require a definitive estimate as labour, fuel or materials, over the term of the project.
to be prepared during the project execution phase. A detailed analysis of expected changes in costs in each
Chapter 2 – Basis of Studies sets out the basis and the area is usually required. Individual contracts usually
approach to these types of estimates. This chapter include escalation clauses that reflect major sources of
sets out the minimum quality and accuracy required change that are beyond the control of the contractor.
for capital cost estimates prepared during: The term ‘allowance for growth’ is sometimes used
• scoping studies interchangeably with ‘contingency allowance’, but
• prefeasibility studies should be reserved for increases in cost resulting from
increases in physical quantities that may occur after
• feasibility studies
estimates have been prepared. For example, experience
• the project execution phase. may suggest that the length of pipework required will
be five per cent more than the length taken off plans
DEFINITIONS because of the
the practicalities of installation.
Following are the defined terms and their description While direct and indirect costs are adequately defined
for the estimating methodology. below, the term ‘indirect costs’ includes temporary

44 Cost Estimation Handbook

CHA PTER 4 – CA PIT

PITAL
AL COST ESTIMATION

TABLE 4.1
4 .1
Definitions of estimation methodologies.
Meth
thod
odool ogy
ogy Def in
ini titi on
on of Description
methodology
Wor k on devel
Work d evelop
opmen
mentt of delive
de liverab
rable
le has
ha s not be
begun,
gun, or is
i s only co
conc
ncept
eptual
ual in n at
ature
ure so
s o a plug
1 No ne
number is used.
Costs based on judgement of general benchmarks but no quantit ies can be measured
2 A s se s s e d
specif ically and hence are not yet available.
available.
Proportioned from previous cost data and benchmarks.
3 Fac t o r is e d Some general quantit ies can be measured for rating against benchmarks, sizing the growth
allowances, contingency and escalation.
Supplier, vendor or contrac t developed cost est imate not necessa rily a binding
Supplier, binding or detailed offer
4 Bu dg et p r ic e d
or tender.
Using deliverables
deliverables inputs, can accurately der ive sizes or features on a detailed and tr ackable
5 Calc ula t e d
basis and to take-off
take-off quantit ies.
All quan
q uantititities
es can
c an be
b e from
fr om take-o
t ake-off f.
6 D et a il e d Equipment
Equipment and material supply co sts quoted.
Labour cost rates and producti vity eit her fully calculated or suppor
suppor ted by budget or bids.
Knowle dge of quantitie s level of completeness based on engineering deliverables approved for
construction status.
7 Fina l
Equipment
Equipment and mater ial on order o r firm quot es available.
available.
Contracts awar ded or evaluated tenders are available.
available.
 facilities; construction support; and engineering, The project scope statement included in the basis of
procurement and construction management (EPCM). estimate must present the work breakdown structure
However, it is often used as a catch-all including (WBS) at least down to and including Level 3 so that it
EPCM plus owners’ costs and commissioning. The includes areas, subareas and systems. The WBS ensures

meaning of indirect costs in an estimate should always that the

each capitalofand
element the operating cost estimates
project’s scope address
of work and the
be made clear.
operations basis and plan.
Owners’ costs are defined in Table 4.3 and further
defined in Table 4.5. They vary significantly according Work breakdo
br eakdown
wn struc
st ructur
turee
to the management approach taken by the owners, The capital cost estimate must be based on the project’s
which in turn may depend on the size and experience WBS, which should follow a structure similar to:
of that company.
• Level 1 – prime areas
• Level 2 – subarea of the project
BASIS OF ESTIMATE
ESTIMATE
• Level 3 – systems or work packages
The basis of estimate for the capital costs of a project
• Level 4 – assets such as equipment or elements of
must be capable of being reviewed as part of the
construction
normal quality assurance and peer review processes.
• Level 5 – commodity or trade-discipline components
components
The basis of estimate should be included to explain the
of costs
estimating process and qualificatio
qualifications.
ns.
• Level 6 – type of cost (eg supply, freight, install).
Project scope Organisational
Organisational breakdown structure
The basis of estimate should
s hould include a brief description The organisational breakdown structure (OBS)
of the scope of the potential project and reference the presents the operating costs for operating departments
scoping, prefeasibility or feasibility study statement of and general administration or process structure. The
the scope of the potential project. OBS may be aligned with the owners’ costs section of
Any exclusions from the project scope must be clearly the project WBS.
stated in the basis of estimate. This includes work
that will be performed by other parties, but which is Project execution plan
needed so the potential project can be executed and/or The basis of estimate should present an extract of
operated. the project execution plan (PEP), which presents the

Cost Estimation Handbook 45

CHA PTER 4 – CA PIT

PITAL
AL COST ESTIMATION

TABLE 4.2
Definitions of quality of deliverables.
Qual
alii ty
ty Def in
ini titi on
on of Description
quality level
1 Assu
Assume
medd B asi
asiss, cr
crititer
eria
ia,, la
layo
yout
utss an
andd si
size
zess ba
base
sedd on no
nonn-de
demo
mons
nstr
trab
able
le exp
xper
erie
ienc
ncee and
and pr
prof
ofes
esssio
iona
nall jud
udge
geme
ment
nt..
Workk on deliv
Wor d elivera
erable
ble has
h as begun.
b egun.
2 St ar ted Development is t ypically limited to sketches, rough outlines or similar levels
levels of earl y completion, and may
be suf ficient to indicate, but not define, the scope.
Primary features sho wn. Basis derived fr om valid data; that is, prelimi
preliminary
nary sur vey data.
3 O u t lin e d
Dimensions are specified.
Engineers’ concept drawings or similar
similar outlines based on assesse d data and measured dimensions.
4 A pp r ox im at e
Both primar y and secondary feat ures are shown. Some multidisciplinary
multidisciplinary check ing has been completed.
Workk on the
Wor t he deliv
d elivera
erable
bless is ad vanc ed. Inter
In ter im cros
cr oss-fun
s-funct
ction
ional
al revi
r eviews
ews have
h ave usuall
us uallyy been
be en condu
c onduct
cted.
ed.

Development may be near completio n except for final reviews and approvals.
5 Prelimina r y Documents are suf ficient to define scop e and major sizes and locati ons, so that material take-off
take-off s
(MTOs)
(MTOs) can be b e prepared.
Better qualit y than ‘approximate’ but not yet defined or ‘complete’.
Complete documents are near ing status of approved for is sue. Documents are at a defined level or
quality wit h the technical and economic value
value of effort best case identi fied and are based on survey
6 Opt imise d
data, geotechnical data and select ed equipment (but not certif ied equipment data). Multidiscipli
Multidisciplinary
nary
checking is complete.
The physical dimensions and perfor mance features of all items or areas can be set, such
such that design
 quantit ies can be measured for final estimating purposes. Documents are suf ficient for issue for tender,
7 Fina l
or approved for const ructi on with holds in place. All checking is complete and final, only awaiting
certified data on some equipment.
Engineering has been reviewed, approved and completed. Document s are suff icient to define scope
8 Co mp let e and quantit ies to allow trackable MTOs
MTOs to be prepared, based on the stat us of released or for award of
const ructi on. Holds have been released. Cert
Cert ifie d data are now included.
ncluded.

proposed approach to execute the project and bring the cost–time relationship and the point of transition from
operations to readiness stage. capital to operations.
In summary, this requires each level of the project’s As the capital cost estimate depends on time, it is
WBS to be assigned to either the owners’ project and essential that the project schedule be aligned to the
operations groups, to the engineer or implementation same project WBS as used for the cost estimate.
contractor and to suppliers and construction contractors
or other third-party organisations. In this way, the cost DEVELOPING AND PRESENTING THE COST
estimate basis of each work package can be defined.
ESTIMATE
The contracting plan, which will be included in the
This section outlines the factors needed in a cost
basis of estimate, should list the scope of each work
estimate, and methods to present them.
package to identify:
• costs of the work being delivered through internal Resources
Resources and organisation
company costs, or external contracts or purchase The cost estimates must be based on a documented
orders presentation of the resources and organisation
• tasks to be performed proposed to deliver the scope of work. Typically a
• work or outcomes. PEP presents the organisation and staffing plan (the
Each estimate item will be assigned to a work package, resources) needed to execute the project and bring the
purchase order, contract or services agreement. operation into production.
It is essential that this information be developed and
Schedule presented in the basis of estimate for the capital costs
The project schedule is a necessary part of the basis of the project. The information then directly translates
of estimate. Most projects are highly sensitive to the to the cost estimate for the project. Hence, it is critical

46 Cost Estimation Handbook

CHA PTER 4 – CA PIT

PITAL
AL COST ESTIMATION

TABLE 4.3
4 .3
Other def initions used in cost estimation.
Def ini t i on Desc r ipt i on
Allowa
All owa nc
ncee for
fo r grow
gro w th Am ount s to c over t he ex pe
Amount pect
cted
ed dif
di f fer
ferenc
enc es bet
b etwee
weenn measur
me asureme
ement
ntss and
an d final
f inal desi
d esign
gn qua nt
ntitities.
ies. B ase d on
experience or corporate records.
Allowa
All owa nc
ncee for
fo r waste
was te Amount
Am ount s added
add ed to
t o cover
co ver t he quant
qu ant itities
ies n ee
eede
dedd for
fo r cutt
cu tt ing to
t o size
siz e or los
l osses
ses incur
in cur red in const
co nst ru
ruct
ction.
ion.
B a s e lin e Def in
in e d qu an t um us e d f o r a key p e r fo
fo r ma
ma nc e in dic at
at o r (K PI).
Budge
Budgett pri
price
ce Quotedd pri
Quote price
ce by a su
supp
pplilier
er or ve
vendo
ndorr tha
thatt is bas
based
ed on de
defin
fined
ed tec
techn
hnica
icall req
requi
uirem
remen
ents
ts but lilimi
mited
ted to
commercial and pro ject definitions. Not necessar ily a commercially binding
binding offer.
Cap ex Ca pi t al c o st e st im at e (c ap i t a l ex p en di t ur e s).
Cl a s s Qua li t y o f est ima t e r anke d in l evels ac c o r din g t o p ha se s (Ta bl e 4.4).
Contingency Amount
Am ount a llow ed for
f or ‘kno
‘k nown
wn unk no
nown
wns’
s’ that
th at will
w ill be spe
s pent
nt during
dur ing the
t he proj
p roj ec
ect.t.
allowance
Direc
Directt cost
costss Sup
upply
ply and cons
construc
tructio
tionn cos
costs
ts in
incl
clud
udin
ingg cont
contra
racto
ctorr mar
margi
gins
ns and fre
freig
ight
ht but ex
excl
clud
udin
ingg pro
projec
jectt in
indi
direc
rectt and
owners’ costs.
EIS/EI A Env ir o nm ent a l imp ac t st u d y o r as s e s smen t.
Escalation allowan
allowance
ce Amount to cover
cover increasi
increasing
ng inflationary
inflationary costs over
over the schedu
schedule
le of the project.
project.
Fac
acto
torr Multltiipl
plie
ierr ap
appl
plie
iedd to a ba
base
se cr
crititer
erio
ionn or pr
prov
ovis
isio
ionn, su
such
ch th
that
at th
thee to
tota
tall co
cost
st ca
cann be es
estitima
mate
tedd; fo
forr exa
xam
mpl
plee,
known m echanical equipment supply cost times a multiplier gives the all-up all-up installed cost of the equipment.
Indi
Indirec
rectt cost
cost Cos
ostt that
that is no
nott a fix
fixed
ed as
asse
sett of
of the
the pro
proje
ject
ct or
or that
that is a tem
tempor
porary
ary as
asse
sett rem
remov
oved
ed afte
afterr the
the proj
projec
ectt is
is comp
comple
lete
ted.
d.
Labour
Labour prod
productivi
uctivity
ty Difference
Difference betwee
betweenn the budg
budgeted
eted hou
hours
rs and
and the real hou
hours
rs spent
spent on
on a work
work task
task or activi
activity.
ty.
P90
90,, P10 Pro
roba
babbilitityy of 90 pe
perr cen
centt or te
tenn per
per ce
cent
nt th
that
at th
thee es
estitima
mate
te wi
willl not
not exce
ceed
ed th
thee sta
state
tedd val
value
ue..
 Proved
Proved and Probab
Probable
le Reserve
Reserve class
classificatio
ifications
ns as per the JO
JORC
RC Cod
Code.
e.
MTO Mat er
er ia
ia l t ak
ake-o fff f, wh
whic h is a m ea
ea su
sure of
of q ua
ua nt
nt itit ie
ie s f ro
ro m dr aw
aw in
in gs
gs, sk
sketc he
he s o r o ut
ut pu
pu t o f a c om
ompu te
ter-a id
id ed
ed
(CAD) system. Neat quantit ya.
design (CAD)
Op ex Op er a t in g c o st e st im at e (op er at in g ex p ens e s).
Owner
Ownerss’ cos
costt Cos
ostt dire
rectl
ctlyy ma
mana
nage
gedd an
andd no
norma
rmallly de
delliv
iver
ered
ed by the cl
clie
ient
nt of a pr
proj
ojec
ectt.
QS Qua nt i t y sur vey; MTO i s t he re sul t.
Quotes
Quotes (firm
(firm/b
/budge
udget)
t) Defined
Defined offers
offers with set
set prices
prices for
for supply
supply that can
can be accept
accepted.
ed.
Price
ricess (fir
(firm)
m) Defined
Defin ed pri
prices
ces se
sett from mu
multi
ltiple
ple quo
quotes
tes from mu
multi
ltiple
ple su
suppl
ppliers
i ers; thes
thesee are not a com
commer
mercia
ciallllyy bi
bind
ndin
ingg offer
offer,,
but the price is accurate.
Single
Single check price
price Telep
elephone
hone or
or short-f
short-form
orm price from a vendor
vendor,, suppl
supplier
ier or
or contractor
contractor to validate
i date an in-house
n -house detailed
l ed estima
estimate.
te.
Sp ec
ec ifif ic
ic Ver si
sio n develo pe
pe d uniq ue
uel y f or
or t he
he p ro
ro je
je ct
ct, n ot
ot a ge
gen er
er al
ali se
se d o r g en
ener ic
ic ve
ver si
sio n.
n.
Tak
ake-
e-off
off ske
sketch
tch Eng
ngin
ineer
eer’s
’s or des
desig
igne
ner’r’ss ske
sketch
tch or di
diag
agram
ram tha
thatt is
is used
used to gen
gener
erate
ate an MT
MTO
O.
Tend
ender
er pri
price
ce Firm
Firm defi
defined
ned offe
offerr ab
able
le to be acce
accepte
ptedd for the su
supp
pply
ly of equ
equip
ipmen
mentt and mat
materi
erials
als for con
constru
structio
ctionn work
works.
s.
Uni t p r ic e Co st p er st an da r d q ua nt i t y of m e asure.

a. Neat quantity is the as-measured amounts for the drawings or models, with no allowances fo r cutting, waste or order lengt hs or sizes, nor for grow th,
design or contingency-al
contingency-allowances.
lowances.

to define the project staff and other support personnel • costs by systems
needed, as well as the time that they will be engaged • individual equipment numbers or elements of
on the project. construction work
• indirect costs clearly identified by subareas and
Estimate work packages
The cost estimate for a project should include: • owners’ costs clearly identified by subareas,
• costs by summary, area or departments functions and positions
• costs by subareas • each cost element for:

Cost Estimation Handbook 47

CHA PTER 4 – CA PIT

PITAL
AL COST ESTIMATION

• common distributable consumable cost • state that the recommended contingency is less than
• construction equipment the minimum standard
• currency of each component of the estimate item • demonstrate that the recommended contingency is
• direct construction cost applicable adequate, and why.
• freight cost to site of the material or equipment Escalation
• growth allowances Detailed escalation calculations should be presented
• indirect costs of labour in the appendices to the study report. The basis
• installation or construction cost components of the calculations must clearly state the factors,
• quantity and unit of measure published basis or data used. The escalation will be
• supply cost of the material or equipment a recommended value, and will be either included in
• WBS code and estimate item number unique the capital cost estimate, or in the financial evaluation
description model, depending on the owners’ policy. Escalation
• work package number for supply and/or calculations for feasibility study class estimates should
installation be prepared by the estimator, with current experience
of actual escalation.
• trade type (eg civil, mechanical)
•

indirect costs
indirect cost or separately identifiable,
project indirect cost contractors QUALITY DEFINITIONS
• contingency and other provisions separately Table 4.4 presents quality definitions used in this
identified chapter for capital cost estimates. The definitions
generally align with the American Association of Cost
• method of calculation fully described for each
element Engineers Guidelines.
• sources of cost data fully described
LEVELS OF DEFINITION
• estimate split by currency for exchange rate
purposes Levels of definition required for each class of estimate
(as defined in Table 4.4) are set out in Table 4.5. In this
• construction cash flow forecast
table, the purpose and phase of development are shown
• benchmark comparisons.
comparisons.
 along with Class as given by the American Association
Association
Contingency of Cost Engineers (AACE).
All contingency calculations must be presented in Although Table 4.5 defines the classes of estimates,
detail in the estimate or study report. If the contingency the classes should not be considered absolute levels.
calculation recommends a level of contingency lower It is not necessary that the classes comply with all
than the minimum standard amounts set out in categories of cost estimates to achieve a certain accuracy
Section A4.1 of Table
Table 4.5 then the study report should: in estimates for each phase.

TABLE 4.4
Classes of estimate.
Purpose – scoping study
Class 5 Methodology – generally estimated none to assessed
Deliverables – generally estimated assumed to outlined
Purpose – prefeasibility study
Methodolo gy – generally estimated budget price d to calculated
Class 4
Deliverables – generally estimated approximate to pr elim
eliminary
inary
Some calculated co sts based on MTOs,
MTOs, preliminary
preliminary budgets and some factor ised limited
limited assess ed costs
Purpose – feasibility study
Class 3 Methodolo gy – generally estimated to detailed
Deliverables – generally estimated defined to complete
Purpose – definitive
Class 2 Methodolo gy – generally estimated to final
Deliverables – generally estimated to complete
Cla
lass
ss 1 ‘As
As--bu
buiiltlt’’ cos
costt es
estitima
mate
tess us
used
ed to pr
prep
epar
aree as
asse
sett re
reggis
iste
ters
rs on the es
estitima
mate
te an
andd com
compl
pleetio
tionn cos
costt of an
anyy pr
proj
ojec
ectt

48 Cost Estimation Handbook

5
0
TABLE 4.5 CONT ...

Sc op
oping st ud
udy – Phas e 1 Pr ef
ef ea
easibili ty
ty st ud
udy – Phas e 2 Feasibili ty
ty st ud
udy – Phase 3 and Project execution
execut ion – Phase 4
C
o
investment
inves tment decision qualit y and definitive estimate
s
t
E
s
ti
m
a
Clas s 5 Cl ass 4 Clas s 3 Cl ass 2
ti
o
n
H

A1.8
A1.8 Mine equipm
e quipm ent Nonee or as se
Non sesse
sse d Budget
Bud get pri
p rice
ce d Calculat
Calc ulat ed or
o r detaile
det aile d Final – q uot ed sp ec
ecifif ica lly
a
n
d
b

A1.9
A1.9 Mine ser
se r vic es Ass es
esse
sedd Budget
Bud get pri
p rice
cedd – sketc h design
de signed
ed Calculat
Calc ulated
ed or
o r detaile
det aile d – full o ut
utlines
lines Final
o
o
k

A1.10
A1.10 Mine env iro
ironmen
nmenta
tall Assume
As sume d Preliminar
Prelimin ar y Def ine
inedd – gen era
erally
lly optimi
o ptimi sed Complete
Comp lete
compliance
A1.1
A1.111 Ore Re ser ve class
cl assifif ica tition
on Not req
r equire
uiredd Prob abl
ablee Payback
Payb ack × 1.5 Pr ove
oved;
d; balan
ba lance
ce Payback × 1.5 Proved; balance C
H
Probable Probable A
P
T

A2 – Plant and infr

in frastr
astructur
ucturee costs
cost s
E
R
4

A.2.1 Equipm
Equipment
ent quot
q uot es Nonee or fact
Non f act or
orise
ise d Budget
Bud get pr ice d – single
singl e chec
ch eckk pric
pr icee Detaile
Det aile d – multip
mul tiple
le f irm o r budget
bud getar
ar y Final on prices – firm majo r
–
C
quotes equipment
A
P
IT

A.2.2 Civ
Civil/st
il/stru
ruct
ctural
ural Asses
As ses se
sedd – sketc hed only Budget
Bud get pr ic
iced
ed – t ake-of f sketch
sketc h Calc ulated
Calculat ed or
o r detaile
det aile d – MTO and Final – tender or contr act prices
A
L

multiple quotes for supply costs, major contract packages

C
O
S
benchmarked hours to install T
E
S
A2.3 Mec hani
hanica
cal/pipin
l/pipingg Asses
As ses se
sedd – calcul
ca lculat
atee as % of
o f key Budget priced – mix of MTOs and Calculated or detailed – MTO and Final – tender or contr act prices
T
IM

equipment or benchmarked costs unit supply and construct factors multiple quotes – benchmar ked to A
T

similar plus hours to install data

IO
N

A.2.4 Elec tr ic
ical/ins
al/instrtr umen
uments
ts Ass es
esse
sedd – calcul
ca lculate
ate as $ per
p er kW Calculat
Calc ulated
ed for
f or high
hi gh vol ta
tage
ge drive
dr ive s Calculated – MTO and hours with Final – estimates or tender price s
and medium voltage / low voltag e benchmarked or budget quotes for
over 100-kw
100-kw dri ves. Factorised – installation and construction quotes
$ per kW per drive for LV
LV and less
than 100 kW
A2.5 Infor
Inf ormat
mat ion sy ste
stems/c
ms/cont
ont rol Calc
alcul
ulate
ate as % of tot
total
al dir
direct
ect cos
costs
ts Calc
Calcul
ulate
ate as % of tota
totall di
direc
rectt costs
costs Calc
alcul
ulate
atedd – mix
mix of
of calcu
calcula
lated
ted and Detailed tender or contract prices
systems multiple quotes
A2.6 Lab
Labour
our ra tes Not req
r equire
uiredd Facto ririse
sedd or benc
b enchma
hmarke
rkedd of f best
be st Budget priced by contractor s or Detailed or final – tenders or
current information equivalent, and benchmarked contracts prices
A2.7 Lab
Labour
our pr odu
oduct
ctiv
ivitit y Include
Inclu dedd in gen era
erall fac to
toririsat
sat io
ionn Asses
As ses se
sedd Calculat
Calc ulated
ed Detaile
Det aile d – tende
te nders
rs or
o r cont
co ntrac
rac ts
prices
A2.8 Cons
Constrtr uct ion eq
equipme
uipment
nt Not req
r equire
uiredd Facto ririse
sedd – $/h on lab
l abour
our rate
r ate s Calculat
Calc ulat ed – $/h on
o n lab our rate
r ate s – Detailed or final on quotes – firm
quoted or calculated for large cranes
and special equipment costs
5
2
TABLE 4.5 CONT ...

Sc op
oping st ud
udy – Phas e 1 Pr ef
ef ea
easibili ty
ty st ud
udy – Phas e 2 Feasibili ty
ty st ud
udy – Phase 3 and Project execut ion – Phase 4
C
o
investment
inves tment decision qualit y and definitive estimate
s
Clas s 5 Cl ass 4 Clas s 3 Cl ass 2
t
E
s
ti
m
a
ti
o
B. Basis of deliverables
deliverables and general project data needed
nee ded to be available
n
H
a
n
B1 – General proj ect
d
B1.1 Baseline repo rt s – climate, Assume
As sume d Preliminar
Prelimin ar y Def ine
inedd or c omp
omplete
lete Complete
Comp lete
b
o
o
soils, geotechnical, hydrology,
k

wind,
win d, wave etc
et c
B1.2 Environment
Environmen t and comm
community
unity Started
Started – gen
genera
erall asses
assessme
sment
nt Prel
reliimi
minary
nary – focus
focusin
ingg on cons
constrai
traints
nts Defined – specific constraints, Complete – management plans
reports and issues issues and commitments declared defined and detailed C
H
A
B1.3 Pr o j e c t s c op e de sc r ipt io n St a r t e d A pp r ox ima te t o p r elimina r y D e f in e d Co mp let e
P
T
E
R
B1.4 Integrated project execution St a r t e d A ppr ox im at e D e f in e d – s p e c i f i c Co mp let e – sp ec i f ic 4

plan
–
C
A

B1.5 Contracting strate gy – Assume

As sume d Out line
linedd Def ine
inedd and
an d genera
gen era lly optimi
op timise
sedd Def ine
inedd and det
detaile
aile d
P
IT
A
implementation L
C
O
B1.6 Projec t mast
master
er sche dule – Ou tltlin ed
ed t o Level 2 Prelimina ry
ry (b ar
ar c ha
ha rtrt) t o Level 3 an d Defined and re sourced to Level 4 Act ual t o dat e, detaile
det aile d and
an d S
T
implementation critical path verified. Preliminary and the critic al path fully detailed
detailed resourced to go E
S
resource analysis to activ ity Level 4. Resourced
Resourced at
T
IM

Level 3 or lower A
T
IO

B1.7 Projec t mast

master
er sche dule – Assume
As sume d to Level
Leve l 2 Out lined to Level
Leve l 3 and
an d cr ititica
ica l path
pa th Defined to Level 4 and the crit ical Complete – resources and critica l
N

commissioning and ramp-up ver if ie

iedd path fully detailed to activ ity Level 4 path detailed
B1.8 Work br
brea
eakkdo
down
wn st
stru
ructu
cture
re Outltliine
Ou nedd to Leve
vell 2 Leve
vell 3 an
andd pr
prel
eliimina
nary
ry to Lev
evel
el 4 Define
Definedd to Leve
vell 4 lis
istt of de
delliv
iver
erab
able
less/ Defined to Levels 5 and 6
units of propert y, equipment
equipment items
and tagged material items
B1.9 Pr
Pr o j e c t c o de o f ac c o un t s No n e Pr elimina r y Def ined not to a c o st rep or t at Level 4 D e f in e d
B1.10 Esc a la t i o n st r at e g y No n e Pr elimina r y Def ine d a n d det aile d t o s o urc e Defined
currency for individual items
B1.11 Fo rei gn exc h an g e st r at e g y No n e Pr elimina r y D ef in e d mul t ip le c ur renc y qu ot e s Defined
may not be defined
B1.12 Con
Contiting
ngen
ency
cy me
meth
thod
odol
olog
ogyy Asse
Assess
ssed
ed ov
over
eral
alll, or by ar
area
eass Approoxi
Appr xima
mate
te or ca
callcu
cula
late
tedd by ar
area
ea or Detailed calculation and risk Complete – calculation on the
trade. Maybe based on risk analysis analysis. Detailed evaluations and committ ed and the to go cost s
presentat ions of design,
design, growth and checked with risk analysis
contingency allowances

TABLE 4.5 CONT ...

Sc op
oping st ud
udy – Phas e 1 Pr ef
ef ea
easibili ty
ty st ud
udy – Phas e 2 Feasibili ty
ty st ud
udy – Phase 3 and Project execut ion – Phase 4
investment
inves tment decision qualit y and definitive estimate
Clas s 5 Cl ass 4 Clas s 3 Cl ass 2
B1.13 Ac c ur ac y A s se s s e d by ju dg em ent Evalua t e d by a re a a n d sub ar e as D et ail e d a na l ysis – Mo n te Car lo. Detailed analysis – Monte Carlo
Benchmarked with prior practices by
subarea methodology
B1.1
1.144 Basis of estimate
est imate and O u t lin e Pr elimina r y Co mpl et e Co mp let e
methodology statement
B2 – Engineering deliverables
B2.1 Bl
Bl o c k f l o w dia gra m s St ar t e d t o o pt imis e d Pr elimin ar y t o c o mp let e Co mpl et e Co mp let e
B2.2 Pr
P r o c e s s f l o w dia gra m s A s sum e d – b asic o u t lin e St a r t e d t o p r elimina r y Prelimina r y t o c o mp let e Co mp let e
C
B2.33 Piping
B2. Piping and instrumentat ion S o m e sket c h o nl y S t ar
ar te
te d. May be
be ma r k-
k-up s of p r o c es
es s Preliminary to c omplete stat us. Only
Preliminary Complete
H
A

diagrams fflo
loww diagram
diagr am have
hav e star
st ar te
tedd but
bu t must
mus t small bore piping remains to be
P
T

have main process lines and contro l defined

R
E
4
valves
val ves def
d efine
inedd –
C
A
B2.4 Hea t a nd ma t er ia l b a lanc e s St a r t e d Pr elimina r y Co mpl et e Fina l P
IT
A
B2.5 De sign c r i t er ia O u t lin e Pr elimina r y Co mpl et e Fina l L
C
O
B2.6 Ov
Ov e r a l l s i t e p l a n Ou t lin e sket c h St a r t e d t o p r elimina r y Prelimina r y t o c o mp let e Fina l S
T
E
B2.7 Pl ot p la ns No n e St a r t e d t o p r elimina r y Prelimina r y t o c o mp let e Fina l
S
T
IM

B2.8 Process/mechanical St ar t e d/p relimina r y St a r t e d t o p r elimina r y Prelimina r y t o c o mp let e Fina l A

T
IO
equipment list N

B2.9 El
El ec t r ic al e q uipm en t list No n e St a r t e d t o p r elimina r y Prelimina r y t o c o mp let e Fina l
B2.10 Sp e c i f ic at io n s a nd dat a she et s No n e Started Prelimina r y t o c o mp let e Fina l
C
o
Preliminary
Preliminary – possibly for s ome Preliminary
Preliminary – for major mechanica ls
major mechanical
s
t
E
s
ti
m

B2.11 by
General
facilityarrange,ent
or are a drawings No n e St a r t e d a nd s om e ini t ia l p r elimina r y Prelimina r y t o c o mp let e Fina l
a
facility
ti
o
n
H

B2.12 Mechanical/piping discipline No n e St ar ted Pr elimina r y t o c o mp let e – sma ll b o re Complete

a
n
d
b
o
o
k
drawings piping may only be ‘start ed’
B2.13 Civil/structural discipline No n e St ar ted Prelimina r y t o c o mp let e Co mp let e
drawings
5
3
5
4
TABLE 4.5 CONT ...

Sc op
oping st ud
udy – Phas e 1 Pr ef
ef ea
easibili ty
ty st ud
udy – Phas e 2 Feasibili ty
ty st ud
udy – Phase 3 and Project execut ion – Phase 4
C
o
investment
inves tment decision qualit y and definitive estimate
s
t
E
s
Clas s 5 Cl ass 4 Clas s 3 Cl ass 2
ti
m
a
ti

B2.14 El ec t r ic al sin gle lin e dia gr am s No n e S t a r t e d t o o pt imis e d Pr elimin a r y t o c o mp let e – l o w Complete

o
n
H
vol tage
volta ge cablin
c ablingg and
an d trays
tr ays may o nly
a
n
d
be ‘started’
b
o
o
k

B2.15 El ec t r ic al disc iplin e dr aw in gs No n e St ar ted St a r t e d t o opt imis e d – lo w vo l t a g e Preliminary/complete

cabling and trays may only be
‘started’
C
B2.116 Instr umentation and co ntrol
B2. No n e No ne St a r t e d t o opt imis e d – lo w vo l t a g e Preliminary/complete H
A
discipline
discipline drawings cabling and trays may only be
P
T
E
‘started’ R
4

B2.17 Process/system capacity No n e Pr elimina r y Co mpl et e Co mp let e

–
C

simulations
A
P
IT
A
B2.18 Communications and data No n e S t at e d t o o pt imis e d Prelimina r y t o c o mp let e Co mp let e L
C
capture systems O
S
T
B2.19 Sp a r e p a r t s list ing s No n e St ar ted Opt imis e d or pr elimin ar y Co mp let e E
S
T

B2.20 Env ir onm en t a l ma na ge men t A s sum e d Pr elimina r y D e f in e d Co mp let e

IM
A
T

B2.21 Cash f lo w Not r e q uir e d Prelimina r y – a nnua l Det a ile d Up da t e d m on t hl y

IO
N

B2.22 In f o r ma t io n sy st ems No n e St a r t e d t o p r elimina r y Prelimina r y t o c o mp let e Co mp let e

B2.23
B2.23 Informat ion systems plan, as No n e St ar ted Prelimina r y t o c o mp let e Co mp let e
per PEP
B3 – Owners’ deliverables
B3.11 Project execution phase and
B3. Assume
As sume d Outlin
Ou tlinee or prelimin
p reliminar
ar y execut
exec ution
ion pla
plann Def ine
inedd – proje
pr oject
ct execu
exe cutition
on phas
p hasee Complet
Comp letee – PEP and def
d ef ine
inedd
procedures operations plans
B3.2 Op
O p era t io na l r ea dine s s p la n A s sum e d O u t lin e d Pr elimina r y – in c lude d in p r o j ec t Defined
execution phase
B3.3 Per mi t s a nd app r ova ls A s sum e d Id ent i f ie d a n d c o mm en c e d Es sen t ia ll y c o mp let e w i t h a pp r ova l Complete
document and management plans
issued
B3.4 Baseline environm
environmenta
enta l De sk t o p r ev i ew B as elin e s c o mm en c e d Co mp let e (k n o w n b a si s) Co mp let e
conditions

TABLE 4.5 CONT ...

Scop
Scopiing st
stud
udyy – Pha
hase
se 1 Pre
refe
feas
asib
ibiility stu
tudy
dy – Pha
hase
se 2 Fea
easi
sibi
bilility
ty st
stud
udyy – Pha
hase
se 3 an
andd in
inve
vest
stm
men
entt Project execution
execut ion – Phase 4
decision quality and definitive estimate

Cl as s 5 Cl as s 4 Cl ass 3 Cl as s 2

B3.55 Health, safety, environment

B3. D e c l a r e d p o li c y D e c lar e d p o licy an d b a si s De c la r e d p o licy a n d ex p a n de d t o sui t Complete
and community standards and circumstances
policies
B3.6 Communicat ions and Not re quir e d St a r t e d/pr elimin ar y Pr elimina r y/c o mp let e Co mpl et e – on g o ing st at us r ev i ew
stakeholder liaison
B3.7 Hu
Huma n r e s our c e s st ra t e g y Not re quir e d Prelimina r y D e f in e d Co mpl et e – on g o ing st at us r ev i ew
B3.8 Fina nc in g p lan a nd st ra t e g y Not re quir e d Not r e q uire d Def in e d – c o n di t i o ns pr e c e den t id ent i f ie d Co mpl et e
C
H
A

B3.9 Ma r ket in g p la n an d st ra t e g y Not re quir e d Br o a d m a r ket a s se s s e d a n d Def in e d pla n a n d o f f t a ke ne g ot iat e d Co mpl et e

P
T

particular market identified

E
R
4
–
B3.10 Pur c hasin g p la n a nd st ra t e g y Not re quir e d Not r e q uire d D e f in e d p l a n Co mpl et e C
A
P
B3.11 Ec o no mic m o delling A s sum e d – r u dim en t a r y Optimised – cash flow model Defined – cash flow model wit h all cash flow s Complete – regular update and IT
A
annual cash flows integrated with production scenarios (including financing and ta xation), plus multiple
(including review L
C
scenari o analysis and simulation
simulation
O
S
T
E
S
Note: Class
Class 1 does not app ear in Table
Table 4.5 because this class represents the actual f inal costs af ter the project has been completed. T
IM
A
T
IO
N

C
o
s
t
E
s
ti
m
a
ti
o
n
H
a
n
d
b
o
o
k

5
5
 CHA PTER 4 – CA PIT
PITAL
AL COST ESTIMATION

Similarly, a particular class of estimate for capital The lowest class of the quality of an estimate achieved
costs may be met, but for demonstrable reasons the for any area of an estimate should decide the overall
operating cost estimates may achieve a different class class achieved for the overall project estimate. Should
of estimate. one or more individual cost items not achieve the
As represented above, classes of estimates for stated accuracy levels, but other items exceed the stated
capital costs span a range of likely accuracies for each accuracy level, then the overall class in that area may be
methodology. achieved for the whole project estimate.
It is noteworthy that the accuracy should typically be The methodology used and the quality of deliverables
+35 to +50 per cent for the scoping phase, novel technology or will determine the class of estimate, and hence the
underground projects for which there are no benchmarks. A accuracy achieved by the end of a phase.
similar relationship exists for accuracy of the operating
cost estimate.

56 Cost Estimation Handbook

CHAPTER 5
Opera
Op eratt ing Co st Est
stiimat
matio
ionn
CHAPTER CONTENTS

Introduction 61
Data requirements 61
Estimate quality and accuracy 62
Resource requirements 63
Estimation rules-of-
rules-of-thumb
thumb 63
Si x-t en t hs r ule 63
Adjust men
mentt for
fo r co st inf lat io
ionn 66
Adjust men
mentt for
fo r count
co untry
ry lo
loca
catition
on 66
Auditin
Audi tingg and
an d peer
pe er rev iew 66
Operating codes of accounts 67
Use of benchmark cost data 68
Estimating contract costs 69
Mobile and fixed plant operat ing costs 70
D epr e cia t io n 70
Fina nc e 71
In sura nc e 71
El e c t r i c i t y 72
Jo b f ac t o r s 72
Fue l an d lubr ic a nt s 73
Ma int ena nc e supp li e s 73
Ma int ena nc e la b o ur 73
Op er at in g supp lie s 74
Op er at in g la b o ur 74
Ma j o r over haul s 75
General and administration
administration co sts 75
Che c k li st s f or gen er al an d a dminist r at io n c o st s 75
Fac t o r s a f f e c t in g gen er al an d a dminist r at io n c o st s 76
Co st e st im at i o n f o r c o nc ept u al a n d p r ef e asibili t y st u die s 77
Co st e st im at i o n f o r a f ea sibili t y st ud y 77
O t he r administ r at i o n c o st s 79
Che c k li st f o r in f ra st r uc t ure an d u t ili t ie s 79
Labour costs 79
Environmental and remediation costs 80
Contingency allowance 80
Sensitivity analysis 80
Fixed and variable costs 81
Star t-u
t-ups
ps – the learning curve 81
References 82

CONTRIBUTORS

First edition tex t by:

by: T Lanz and W Seabrook [Administrati
[Administration
on costs]
cost s]

Revised and updated

update d by:

ter L McCart hy FAusIMM, Director, AMC Consultants Pty Ltd

Peter
Pe
Operating Cost Estimation

This chapter discusses quality of estimation data • an engineering function may be reported separately
required for different types of studies and the need for rather than distributed across user departments
peer review. Resource requirements and checklists are • a technical services function may be reported
presented for different types of operating costs. separately, rather than distributed across
departments
INTRODUCTION • health, safety and environment may be reported
The cash costs of activities specific to mining and together
processing operations must be estimated from • separate categories may be reported for supply,
schedules of activities that have been broken down finance, security and civils, depending on their
into appropriate intervals, such as months, quarters relative importance to the operation.
and years. Some of these cash outgoings may then
Each operating cost reporting category is then further
be reallocated from direct operating costs into other
subdivided into categories chosen to relate to the type
categories (eg capital development or exploration),
of mining and processing operation. The categories
depending on the accounting treatment. Other non-
should align with the structure of the financial model
cash costs, such as depreciation and accounting
for a feasibility study. It should be possible to carry
accruals for advance stripping or stockpiling, may be them forward into operational cost reporting.
introduced into the reported operating costs.
For comparative and ranking purposes, a useful high- An alternative but complementary system is to divide
level classification
classification for reporting operating costs from a the major categories into:
mining operation is the Brook Hunt cost methodology. • contract services, which again may be subdivided
This method uses a standardised set of cost components into operating and maintenance services
(C1 - C3) to determine the operating costs per unit of • maintenance labour
production (ounce, tonne etc): • materials, which may be further divided into
• C1 cash cost – the costs for mining, processing and operating materials (consumables) and maintenance
administration, including accounting movements materials
for stockpiles and product-in-circuit. It does not • operating labour
include capital costs for exploration, mine capital • utility services such as electric power, compressed
development or capital works on the processing air and water.
plant. It includes net proceeds from by-product
Contrary to the Brook Hunt approach, by-product
credits. It does not include the cost of royalties.
credits should be shown in studies and budgets as
• C2 production cost – C1 costs plus depreciation revenue items, not as negative costs or cost credits.
and amortisation. This brings in the capital cost of
Some mining companies find that the allocation
production.
of some subdivisions to each of the unit operations
• C3 total cost – C2 plus interest, other indirect costs is either too arbitrary or of insufficient importance
and royalties. to warrant calculation. This is particularly so for the
Direct (C1) mine site costs may be categorised in utilities of power and compressed air. Consequently,
many ways. The usual categories are: some costing analyses include these items as major cost
• environment centres.
• general and administration
DATA REQUIREMENTS
• health and safety
In order to estimate operating costs, the estimator
• mining (including mine geology)
must have access to schedules of all physical activities
• processing (including tailings management). planned for the estimating period. Types of operation
Variations to these categories occur because: and associated schedules might include:
• mine geology may be reported separately • ancillary equipment such as pumps and ventilating
• waste and tailings management may be reported fans – operating hours and power or fuel
separately consumption

Cost Estimation Handbook 61

 CHAPTER 5 – OPER ATING COST ESTIMATION
ESTIMATION

• drilling, blasting, loading, haulage and ancillary It is also essential to have some appreciation of the
equipment – equipment schedules, including influence of in-system storage on plant utilisation,
operating hours efficiency and performance for each type of operation.
• each work category – personnel schedules, The effects of storage on different types of operation
specifying on-site and off-site personnel under include:
the proposed roster, including management and • open pit operations – run-of-mine (ROM) stockpiles
technical support decouple the mine from the plant and ensure
• open pit – ore and waste movement by bench and maximum crusher feed, without truck queuing or
location, together with rock properties (rip or blast, delays from the pit (rain, etc), but will add the cost
with powder factor), dewatering requirements,
slope support activities, etc of rehandling at least some ore
• underground operations – storage of ROM ore
• processing plant – schedule of materials to be in orepasses influences crusher capacity (and
processed including physical properties and levels underground output)
of contaminants, tailings disposal measures, tailings • underground and open pit – crushed ore storage
storage facility construction during operations and ahead of the plant ensures that ore is always available
available
reclaim for fill for maximum plant efficiency and capacity.
• underground mine – production schedules While such system storage optimises the processing
delineating ore tonnages from stoping by stope type, capacity, it adds to working capital requirements in
ore tonnages from development, waste tonnages terms of ‘work-in-progress’ accounting.
from development, lateral development metres and
vertical/inclined
vertical/inclined development metres. Fundamental inputs to all of the cost estimates are the
unit costs of power, supplies and labour, which may
Cost estimates are prepared as schedules using
include:
activity-based costs that relate to the specific situation.
For example, consumption of wear parts will depend • delivery to site, per tonne of supplies

on the rock hardness

consumption will dependand onabrasiveness,
job factorswhile fuel
including • diesel fuel
• electric power on-site
engine size, load, equipment condition and road
• gas
conditions.
• messing and camp costs
For a processing plant, the same flow sheet used for
the capital cost estimate is needed for determining • on-costs such as workers compensation insurance,
operating costs. A list of all units or areas of
o f processing fuel tax and superannuation
is prepared from this flow sheet. The process criteria • personnel in all categories, per hour or per annum
are based on results of metallurgical test work, • travel (eg flights)
supplemented by experience with similar operations • water.
and the environment in which the plant operates.
The processing plant cost estimate must take into ESTIMATE QUALITY AND ACCURACY
account the site conditions and the operating schedule, Operating cost estimates may need to have sufficient
expressed (at a minimum) as:
quality and accuracy to support:
• crushing plant operation hours and days
• scoping studies
• crushing plant availabil
availability
ity • prefeasibility studies
• overall annual throughput
• feasibility studies
• treatment plant operation hours and days
• life-of-mine or multi-year plans
• treatment plant availability
• annual operating budgets.
• crushing plant daily throughput
The definitions shown in Table 5.1 describe the
• treatment plant daily throughput.
methodologies applied to cost estimation.
However, ore availability and its effect on process
plant utilisation must be considered. Crushing plants A suggested basis and definition of operating cost
are often operated on day shift only but the treatment estimates in given in Table 5.2. In this table, purpose
plant is usually operated continuously for at least five and phase of development are shown along with Class
days per week but more often seven days per week. It is as given by the American Association of Cost Engineers
important that mining, crushing and milling operations (AACE).
are properly integrated. Other authorities give accuracy ranges of ±20 - 25
A materials balance is developed during the design per cent for prefeasibility studies. The use of such
stage. Information required includes solids, liquid and ranges is of limited value, as a related confidence
pulp flows, and reagent and water requirements. For level is rarely quoted (prefeasibility study accuracy is
some operations a heat balance is also required. probably at 60 - 75 per cent confidence). Indeed, the

62 Cost Estimation Handbook

 CHAPTER 5 – OPER ATING COST ESTIMATION
ESTIMATION

TABLE 5.1
5 .1
Methodologies for cost estimation.

Meth
thod
odool ogy
ogy Def in
ini titi on
on of Description
methodology
1 No n e Wo r k o n develo p men t o f deli ver able has n ot b e gun, o r i s o nly c on c ept ua l in n at ure, s o a p lug
number is used.
2 A s s e s se d Co st s b a se d o n jud gem en t o f gen er al b enc hma r ks b u t n o qua n t i t ie s c a n b e me asur e d
specif ically so are not yet available.
available.

3 Fac t o r i se d Pr o p o r titio ne d f r o m p r ev i ou s c o st da t a an d b enc hm a r ks. S o m e g en era l q ua nt i t ie s c a n b e

measured for rating against benchmarks.
4 B ud ge
get pr
pr ic
ic ed
ed Suppli er
er, ve
ven do
do r o r c on
ont ra
rac t d ev
evel op
op ed
ed co
co st
st es
est im
ima te
te no
not ne
ne ce
ces sa
sa riril y a bi
bin di
din g o r det ai
aile d o fff f er
or tender.
5 Ca lc ulat e d Usin g deli ve
ver able s inp u t s,
s, c an
an ac c ura t ely der iv
ive si ze s o r f e at ur
ure s o n a det ai
aile d a nd t ra
rac ka
ka bl e
basis and calculate quantities.
6 Det a ile d A ll q ua nt i t ie s c a n b e c a lc ulat e d. Eq uip men t a n d m at er ia l suppl y c o st s qu ot e d. La b o ur c o st r at e s
and producti vity eit her fully calculated or supported by budget or bids. bids.
7 Fina l En gine er ing deli ver able s a ppr ove d f o r c o n st r uc t io n st a t u s. Eq uip m ent a n d m at er ia l o n or d er o r
fir m quote
qu ote s available.
availa ble. Cont
Co ntrac
rac ts awar
a wardededd or evaluat
eva luat ed tend t endererss are
ar e available.
availa ble.

compliance of any study with these levels is difficult ESTIMATION

ESTIMATION RULES-OF-THUMB
or impossible to demonstrate. Does the accuracy range
Operating cost estimates for early studies are usually
refer
cost? to
A each item,
±10 per or to
cent the overall
study requirescapital
aroundor operating
twice the derived from rules-of-thumb, comparison with similar
projects and some estimation from first principles. This
engineering effort of a ±15 per cent study. If the aim approach can be surprisingly accurate when compared
is simply to demonstrate feasibility for an investment with subsequent estimates, but should be used with
decision, then the greater detail may not be required. caution. For example, there is a risk that a significant
factor concerning the proposed operation may be
RESOURCE REQU
R EQUIREMENTS
IREMENTS misunderstood or ignored, causing errors in one or
Members of the cost estimation team must cover all the more of the estimate components. Examples of some
disciplines, either directly or in their ability to manage rules-of-thumb are presented in this section.
the specialist disciplines. This requirement effectively
Six-tenths
Six-tenths r ule
says that it is necessary to have a combination of
experience and expertise. As outlined in Chapter 1 – Using the Handbook, this
rule approximates the split between fixed and variable
A core study team will generally comprise mining,
costs. To use the ‘six-tenths rule’, a capital or operating
geological, mechanical and processing professionals cost for a similar operation of known capacity must be
who will undertake most of the design and scheduling available.. In such cases:
available
work. Specialists and consultants will vary with the
project. The range is large, but basic requirements are: (capacity) 1 0.6
• environmental
(Cost) 1
(Cost) 2
= = (capacity) 2
G
• geotechnical
As an example of a factored capital cost, a 30 000-t/d
• mineralogical
concentrator costs $60 M. The cost of a similar 40 000-t/d
• hydrological plant is:
• product market and price 0.6
40 000
• detailed civil, electrical and mechanical design (Cost) = 60 # 10
1
6
# 8 30 000
B = $71.3 M

• concentrate product transport The six-tenths rule can be applied to annual operating
• materials handling, stockpiling, reclaiming and ship costs, from which unit costs can be derived. For
loading (for bulk products) example, operating cost for a 30 000-t/d concentrator is
• human resources specialists. $20/t, which is 30 000 × 360 × $20 = $216 M per annum. A
Experienced cost estimators familiar with cost similar 40 000-t/d plant would have an operating cost of:

estimation procedures and software should assemble (Cost) = 216 # 10

6
# 8 40 000 0.6 = $256.7 M/a or $17.82/t
B
the estimates using input from the study team. 1 30 000

Cost Estimation Handbook 63

 CHAPTER 5 – OPER ATING COST ESTIMATION
ESTIMATION

TABLE 5.2
Basis of operating cost estimates.

Scoping study – Prefeasibility study –

Prefeasibility Feasibility study Execution – Phase 4
Phase 1 Phase 2 – Phase 3 and and definitive estimate
investment
investment deci sion
Cl ass 5 Cl ass 4 Cl as s 3 Cl as s 2
A. Operating
Operatin g cost est imate methodolo
metho dolo gy
Typical accuracy
ac curacy range Based on known Based on known Based on known ±5% or better for

based on Paccuracy
(excluding
(excluding
10
to P90 levels
relat ed
related operations ±15 to +20%
or for new operations or ope
operati
or forratinew
onsoperations
±10 to +15%
+15%
or operations ±5 to ±10%or
or for new operations known operations,
±5% to ±10% for new
to commercial supply novel technology novel technology novel technology operations or novel
pricing issues) +25 to +30% ±15 to +20% ±10 to ±15% technology
Con
ontiting
ngen
ency
cy on ope
opera
ratiting
ng Nott no
No norma
rmallly ap
appl
plie
iedd Can ap
appl
plyy up to 10% None unless special None
if defined for specific circumstances and only
reason, not normally if defined
applied
A1 – Basis of estimate and
A1 a nd O u t lin e Pr elimin ar y Co mp let e Fina l
methodology statement
A2 – Sta
S taff f ing
A2.1 Sta f f levels
leve ls Facto ririse
sedd Facto ririse
sedd Detaile
Det aile d – est imat e Final – k no
nown/a
wn/act
ctual
ualss
A2.2 Cost rat
r ates
es Facto ririse
sedd Calculat
Calc ulat ed Detaile
Det aile d – know
kn ownn basis
ba sis Final – k no
nown/a
wn/act
ctual
ualss
A3 – Consumab
Cons umables
les Facto ririse
sedd Facto ririse
sedd Calculat
Calc ulat ed – est
e stimat
imat e Detaile
Det aile d – est imat
imated
ed
A4 – Mainten
Main tenanc
anc e Facto ririse
sedd Facto ririse
sedd Calculat
Calc ulat ed – est
e stimat
imat e Detaile
Det aile d – est imat
imated
ed
A5 – Spar es Facto ririse
sedd Facto ririse
sedd Calculat
Calc ulat ed – est
e stimat
imat e Detaile
Det aile d – est imat
imated
ed
B. Basis of deliverables
deliverables and general
g eneral data needed to be
b e available
B1 – Labour
Lab our
B1.1 Lab
abou
ourr co
cost
st ra
rate
tess Acce
Access
ssed
ed off exi
xist
stiing Cal
alcu
culalate
tedd – by Detailed – calculations Final – calculations and
categories on based on negotiations updated to actuals
preliminary
prelimi nary b asis from of new contract basis
existing
existing c ontracts
B1.2 Lab
abou
ourr bu
burd
rden
en ra
rate
tess Acces
Accesse
sedd off ex
exis
istiting
ng Cal
alcu
culalate
tedd – by Detailed – calculations Final – calculations and
categories on based on negotiations updated to actuals
preliminary
prelimi nary b asis from of new contract basis
existing
existing c ontracts
B1.3 La b o ur h o ur s Fac t o r is e d Calc ula t e d Det aile d c a lc ula t io n s Fina l – c a lc ulat i on s
and updated to
actuals agreed, good
clarification
B1.4 Labour over
overhead
headss Acc es
esse
sedd of f existin
exi stin g Calc ulat ed – by
Calculat Detailed – calculations Final – calculations and
and management categories on based on negotiations updated to actuals
costs preliminary
preliminary ba sis from of new contract basis
existing
existing c ontracts
B2 – Utilities and consumables
co nsumables
B2.1 Power cos
costs
ts – fue
fuell Factorised – dat a bank, Budget priced or Detai
Detailed
led cal
calcu
cula
latio
tions
ns Final – cal
Final calcu
cula
latio
tions
ns and
and generating costs benchmarks calculated updated to actuals
B2.2 Wa t er c o st s Fac t o r is e d – da t a b a nk, Budget priced or Detai
Detailed
led cal
calcu
cula
latio
tions
ns Final – cal
Final calcu
cula
latio
tions
ns and
benchmarks calculated updated to actuals
B2.3 Fuel co
costs
sts – mobile Factorised – dat a bank, Budg
Budget
et priced – quote
quotess Detail
Detailed
ed – quote
quotess – firm Final
Final – quote
quotess – firm
equipment benchmarks and updated to actuals

64 Cost Estimation Handbook

 CHAPTER 5 – OPER ATING COST ESTIMATION
ESTIMATION

TABLE 5.2 CONT ...

Scoping study – Prefeasibility study –

Prefeasibility Feasibility study Execution – Phase 4
Phase 1 Phase 2 – Phase 3 and and definitive estimate
investmentt dec ision
investmen
Clas s 5 Clas s 4 Clas s 3 Cl as s 2
B2.4 Co nsuma ble s Fac t o r is
ise d – da t a ba nk, Budg
Budget
et priced – quote
quotess Detaililed
Deta ed – quote
quotess – firm
firm Final
Final – quote
quotess – firm
firm
benchmarks and updated to actuals
B2.5
B2.5 Dri
Drillll and bla
blast
st costs Factori
actorised
sed – data ban
bank,
k, Budget priced or Detai
Detailed
led cal
calcu
cula
latio
tions
ns Final
Final – cal
calcu
culat
lation
ionss and
benchmarks calculated updated to actuals
B2.6 Supplies and Factorised – dat a bank, Budg
Budget
et priced – quote
quotess Detaililed
Deta ed – quote
quotess – fifirm
rm Fi
Final
nal – quote
quotess – firm
firm
reagents benchmarks and updated to actuals
B3 – Plan t m aint en anc e Ac c e s s e d o r fac t o r i se d Ca l c u l a t e d D et a il e d c a lc ulat i on s Fina l – c alc ula t i o ns an d
updated to actuals
B3.1 Maintenance Acc es
esse
sedd or fact
f act or
orise
ise d Calculat
Calc ulat ed Detaile
Det aile d calcul
ca lculat
ation
ion s Final – ca
calcul
lculat
atio
ions
ns an d
materials updated to actuals
B3.2 Pl
P l a n t h o ur s Fac t o r i se d Ca lc ulat e d D et a il e d c a lc ulat i on s Fina l – c alc ula t i o ns an d
updated to actuals
B4 – Transpor
Transpor t and Calculate as factored % Ca lc ulat e d D et a il e d c a lc ulat i on s Fina l – c alc ula t i o ns an d
logistics of total estimate quotes – firm
B5 – Other operating costs
B5.1 Busines s system
systemss Calculate as factored % Ap
Appr
proxim
oximate/
ate/ Preliminary – detailed Defined – detailed
– eg c or
oree and
an d of total estimate preliminary calculations review review and updated to
support systems, actuals
e-commerce,
business
management,, of fice
management
B 5.2 Tr ainin g Ca lc ulat e as f ac t o re d % Ap
Appr
proxim
oximate/
ate/ Preliminary – detailed Defined – detailed
of total estimate preliminary calculations review review and updated to
actuals
B5.3 Ramp-ups including Calculate as factored % Ap
Appr
proxim
oximate/
ate/ Preliminary – detailed Defined – detailed
any loss of of total estimate preliminary calculations review review and updated to
production from actuals
existing mine and
plant
B 5.4 In sura nc e s Ca lc ulat e as f ac t o re d % Ap
Appr
proxim
oximate/b
ate/b udg et Preliminary – writ ten
Preliminary Defined – based on
of total estimate quotes quotes fr om broker, not actual policy cost
insurance policy
B 5.5 Esc ala t i o n Ca lc ulat e as f ac t o re d % Ap
Appr
proxim
oximate/
ate/ Preliminary – detailed Defined – detailed
of total estimate preliminary calculations calculations. Based on review and updated to
individual commodities actuals
B5..6 For
B5 orei
eiggn exch
chan
ange
ge Ide
dent
ntify
ify an
anyy ma
majo
jorr Identify equipment Identify equipment Defined – calculations
equipment components and commodit ies to be and commodit ies to be of actuals or basis
expose d to foreign import ed, basis, values import ed, basis, values
exchange and likely currency. and likely currency.
Quantif y to Level
Level 3 Provide forecasts of
changes. Quantify to
Level 3

The exponent 0.6 is an average and depends on the economic conditions, geographic location and
type of plant. Some estimators prefer to use a ‘seven- regional productivity are responsible for substantial

tenths’ rule. Such factors as type of site, prevailing variation.

Cost Estimation Handbook 65

 CHAPTER 5 – OPER ATING COST ESTIMATION
ESTIMATION

It is also possible to apply the method to components even at this level because of differences in labour costs,
of operating cost. The relevant exponents are set out in labour productivity, technological skills and culture.
Table 5.3 (Mular, 1982). Operating costs are affected by maintenance levels,
plant utilisation philosophy and operating skills. At a
TABLE 5.3
5 .3 higher estimation level, such as the mining or processing
Exponents for calculating operating cost. cost-per-tonne, there may be little in common among
dissimilar countries. Allowance must also be made for
Est imate r equired Capac i t y Ex p onent
differences in the costs of supplies, including those
Op en pi t min e la b o ur c o st t/d (min e d) 0.5 arising from transport and import duties.
Op en pi t min e supp li e s t/d (min e d) 0.5 To adjust for country location, a two-stage

Un de rgro un d min e la b o ur t/d (min e d) 0.7 computation is from

estimate of cost used.
theStage 1 adjusts
original theto original
price-year a target
Un de rgro un d min e suppli es t/d (min e d) 0.9 price-year, using an appropriate inflation index such
Tre at m en t pla n t la b o ur t/d (t r ea t e d) 0.5 as the CPI or an industry-specific index if available.
Stage 2 converts the price-year adjusted cost-estimate
Tre at m en t pla n t supp lie s t/d (t r ea t e d) 0.7
from the original currency to a target currency, using
Ope
penn pi
pitt (mine + mill) ele
lect
ctri
ricc po
powe
werr t/d (tr
trea
eate
tedd) 0.5 published exchange rates.
Underground (shaft mine + mill) t/d (t r ea t e d) 0.7 The International Monetary Fund (IMF) World
electric power Economic Outlook Database ‘Gross Domestic Product
(GDP) Deflator Index’ data set (International Monetary
Note that for operating costs the rule is applied to Fund, n/d) provides CPI values used in Stage 1 of the
the annual total cost, not to the unit cost-per-tonne. calculation. This data set contains CPI values for 181
If applied to unit costs it makes smaller operations countries (currencies) from 1980 onwards. It is updated
cheaper! (The procedure can be applied directly to in April and October each year.
unit costs, however, if new exponents are calculated
As an example, a loader operation calculation in
by subtracting 1 from the exponents listed above.)
The method should generally be used for directly Australia in 2010 is based on C$100/h (dry) in Canada
in 2005. The Canadian CPI was 106.967 in 2005 and
comparable operations or activities.
was forecast as 116.462 in 2010. The new cost is
Adjustment for
fo r cost
co st inflat
inf lation
ion 116.462/106.967 = C$108.867. At the exchange rate
C$1.00 = A$1.14 the cost is A$124.19/h.
When older costs are factored for use in an estimate
they must be adjusted to account for cost inflation over The weakness of this approach is apparent, as some
time. Some costs such as fuel may have decreased since costs may have moved widely from the CPI. Therefore,
the benchmark cost was reported. it is better to benchmark the cost from comparable
Many databases of cost indices are available free of operations or build up the estimate from first principles.
charge from the internet. Others must be purchased
as a subscription service. Some are updated monthly, AUDITING AND PEER
PEER REVIEW
while others may lag by up to two years. Some useful As well as a project manager, every cost estimation
references include: team should include a designated peer reviewer, who
• Australian Bureau of Statistics series 6345.0 – Labour has appropriate skills and will be available during
Price Index, Australia with annual data from June the planned program. The peer reviewer should be
1998 involved in preparing the project plan and schedule
because he or she must eventually sign off on the cost
• Australian Bureau of Statistics Consumer Price
estimate. Therefore, the peer reviewer must ensure that
Index (CPI)
adequate skills and time have been provided for.
• Marshall and Swift equipment cost index (USA),
published in Chemical Engineering magazine. It is the responsibility of the peer reviewer to ensure
that the cost estimate is technically sound based on
o n the
As an example, a cost inflation calculation is based
available data, and that written and graphic material is
on total operating labour cost for a mine, which was
$16.8 M in August 1997 when the Mining Earnings easy to understand. The peer reviewer ensures the cost
index was 1202.4. The total labour cost for an identical estimate complies with relevant codes, guidelines and
mine in February 2009, when the index was 2019.6, is statutes. Typically, peer review might comprise two to
$16.8 M × 2019.6/1202.4 = $28.2 M. five per cent of the total estimation workload.
The overriding principle of peer review is that no one
Adjustment for
fo r count r y locati
loc ation
on should be required to check his or her own work. In a
‘Simple’ costs such as the ‘dry’ cost per hour (before complex study, team members may make non-critical
fuel and labour) for operating a front end loader can mistakes without any adverse reflection on them. It is
be adjusted for country location using the historical the responsibility of the peer reviewer to identify and
exchange rate. However, great caution must be applied correct these mistakes.

66 Cost Estimation Handbook

 CHAPTER 5 OPER ATING COST ESTIMATION
ESTIMATION

The peer reviewer should examine critical aspects Typically, in a mine, between 70 and 90 per cent of
and sensitivities of the estimate and make independent the costs are represented by ten to 20 per cent of the
checks of logic and arithmetic. Where possible, the peer number of cost items.
reviewer should use benchmark data from different The cost centres must provide the data necessary for
sources. While some checks should be made by the accounting purposes and calculating statutory taxation.
peer reviewer, it is sufficient that others are made by Much of the statistical data that the business provides
the estimator. to government also rely on cost-centre data.
Alternative methods of estimation provide useful
To allow the estimate to be presented in a logical
cross-checks. Spreadsheets should be checked for
format, a cost-code structure should be developed. This
logical errors. For large spreadsheets, some of the
is also used as a checklist to ensure that major items
response to changes in key parameter values must be
tested. Example values might double the fuel price, have not been forgotten. A simple cost code should
zero the discount rate, zero the equipment ownership have at least two major subdivisions that will allow the
cost, halve the density, plot out the pit design and scale project to be broken down into physical areas and types
off dimensions to check overall slope angles and cut- of work within those areas. An example of the first
back widths. In addition, some entirely separate or subdivision breakdown for a typical mining project is:
manual calculations may be needed. Code Area
1XX Site development
OPERATING CODES OF ACCOUNTS
2XX Mining (includes geology)
Operating codes of accounts are developed based on the
selection of cost centres. The scope and number of cost 3XX Processing (or milling)
centres used during estimating will vary according to 4XX Tailings and reclaim
the data available, the term of the estimate, the accuracy 5XX Utilities
sought or obtainable and the detail that the recipients of 6XX Ancillary facilities
the estimate require. The needs of financial modellers
may drive the structure and content of operating cost 7XX Indirects (general and administration)

data, particularly into classifications required for tax Within 3XX, a further breakdown could be:
purposes. Operating codes must provide for the needs 31X Crushing and stockpiling
of operations management.
32X Grinding
Typically, annual budgeting requires the most
33X Flotation
detailed estimates with the greatest number of cost
centres and itemised accounts. Estimates used in mine 34X Thickening and filtration
design or cost comparisons may only require some of 35X Concentrate handling
the cost centres and less detail, as many of the common 38X Reagents
elements can be eliminated. Longer-term planning
39X General
where data, particularly geological data, are scarce uses
summary cost centres based on historical and statistical
s tatistical The cost code within each area must be adapted to suit
data. A costing system used as a database contains the the activities. An example of the sequential
s equential breakdown
most detailed division of costs. within Area 200 (Mining) for a large open pit is:
For the collection and estimation of costs, cost centres 1. capital cost codes will be 200, where:
should be defined by location, function, activity, • first digit (2) designated mine capital
similarity and variability. This is sometimes referred • second digit (1 - 6) designated equipment type
to as the organisational breakdown structure (OBS).
The structure order flows from on-site to off-site 2. operating cost codes will be 0200, where:
and corporate, then to mining, process, services and • first digit (0) designated operating cost
maintenance; it then opens out to labour and materials • second digit (2) designated mine
services, etc. It is usually not useful to combine into the
• third digit (0 - 9) designated equipment or event
one cost centre production and support activities that
type
are not in the same location. Labour and other costs can
vary substantially between locations. For instance, the • fourth digit (1 - 4) designated operating, mainte-
cost of operating a planning department in a capital nance, parts or labour
city is different from operating the same department 3. third digit designations:
on-site. • (021) 1 blasthole drilling
Cost centres should be examined to determine • (022) 2 blasting
whether there are any purposes for which they should
• (023) 3 loading
be aggregated. Many small items can be aggregated.
In any collection or estimation of costs it is useful to • (024) 4 hauling
assemble and group them in Pareto tables and graphs. • (025) 5 auxiliaries

Cost Estimation Handbook 67

CHAPTER 5 – OPER ATING COST ESTIMATION

ESTIMATION
 • (026) 6 staff salaries 50
45
• (027) 7 engineering ) 40
M
• (028) 8 vacation, sickness and absentee leave $
( 35
t
4. fourth digit designations: s 30
o
C 25
• (0231) 1 operating labour (distributed) l
a
t 20
o
• (0232) 2 operating consumables (fuel, tyres, T 15
ground engaging tools and drill string) 10
5
• (0233) 3 maintenance labour (distributed) -
• (0234) 4 maintenance parts (oil, filters, repairs - 100 200 300 400 500

• and component exchange) Total Work (Mt.km)

(0235) 5 contracts. FIG 5.2 - Tot
Total
al haulag
hau lagee cost
co st versu
ve rsu s tot al wor
w orkk done
do ne (20 04 da ta),
plott ed for various sites (shown by diamond symbols).
USE OF BENCHMA
BENCHMARK
RK COST DAT
DATA
50
Benchmarking of existing operations can provide
45
reliable cost estimates, provided the benchmarking ) 40
$
process is approached systematically and the definitions M 35
(
of the inclusions and exclusions for each cost element t
s 30
o
are declared. A cost driver tree is valuable
valuable.. C 25
l
t 20
a
Haulage, as an example, highlights some issues that o 15
T
need to be considered when benchmarking operating 10
costs. Figure 5.1 shows typical Level 4, 5 and 6 driver 5
trees where total cost is split first into three high-level -

functions of general and administration (G&A), mill - 1000 2000 3000 4000 5000 6000

and mining costs. Then each cost is further drilled Total Capacity (t)

down into the underlying functional

5.1). costs (although FIG 5.3 - Tot
Total
al haulag
ha ulagee co st ver sus t ru
ruck
only mining is shown in Figure plott ed for various sites (shown byckdiamond
c apaci
capa city
tysymbols).
(200 4 dat a),
Even when detailed cost driver trees cannot be
prepared, high-level benchmarking may provide a data set and imply a fixed cost component around
useful check on the overall operating cost estimate. $5 M/a if no work is done.
For example, Figure 5.2 shows the relationship of total The relationship in Figure 5.3 shows that a significant
haulage cost to total work done. The cost includes a amount of the total cost will be incurred just because
lease component, which has been calculated on similar the capacity is on-site. There are costs of capital and
terms for each site. This treatment accounts for the ownership, employing operators and maintenance
capital that has been used to purchase the capacity. It personnel and running the engine for at least some
ensures that equipment operation is compared, and not time. Selection of the right equipment for the job is the
the management’s ability to raise finance. Figure 5.3 best way of controlling the cost at the operation. This
shows total cost versus available capacity on-site, has, of course, to be balanced against the requirement
defined as the sum of the tray capacity of the trucks of ensuring the process is not interrupted if equipment
on-site. Note that Figures 5.2 and 5.3 are from the same is not available.

Level 4 Level 5 Level 6

G&A Cost Eng. & Super. Labour
($ / t Ore) ($ / t Rock) ($)

Cost to Ore Mill Cost Drill Energy

($/t Ore) ($ / t Ore) Strip Ratio ($ / t Rock) ($)
(t Ore / t Rock)
Total Haul
Mining Cost Blast Cost Supplies
($ / t Ore) ($ / t Rock) ($) ($)
Mining Cost
($ / t Rock) Load Contracts
($ / t Rock) Mean Haul ($)
(EFH km)
Haul Capital
($ / t Rock) ($)
Haul
Ancillary ($ / t.km Rock)
†
EFH = Effective flat haul ($ / t Rock) Total Work
(t.km)

FIG 5.1 - Level 4, 5 and

a nd 6 dr ive
iverr tree
tr eess for
fo r an examp
ex ample
le of
o f mining cost.
c ost.

68 Cost Estimation Handbook

CHAPTER 5 – OPER ATING COST ESTIMATION

ESTIMATION
 The next issue, once the equipment is on-site, is what blasting, weather, meal breaks, refuelling, prestart
work it performs. Figure 5.4 shows Levels 7 and 8 checks and meetings; these can be offset by
on the driver tree, capturing the two most important stockpiles, etc. These delays are then broken down
elements of productivity. First, once on-site how many into scheduled and unscheduled.
hours does the machine work for? Second, what does it • Equipment delay – prevented from doing useful
do during those hours? work because the equipment is not available
Effectiveness is a measure of how well an operation to be operated because of maintenance; these
uses the available capacity. In the case of haulage it delays are again broken down into scheduled and
represents the work performed in tonne–kilometres, unscheduled.
divided by the site haulage capacity, which is the sum Errors in cost estimation can arise from misinterpre-
of the capacity of all the trucks on-site. For a truck this ting benchmarked availability and utilisation data.
equates to the average number of effective flat-haul Sites that have a high cost for the work they perform
kilometres by a truck in a year. This is a strong metric generally get a low number of hours from the
because it includes the three main drivers of overall equipment they operate. The only true measure in this
output, maintenance (through availability), capital area is how many of the 8760 hours available in the
utilisation and operational efficiency. year the machine operated.
To drill down on utilisation and availability, a Figure 5.5 shows a breakdown of how the 8760 hours
standard time model must be applied so sites are in a year were used at a range of sites in different
comparable. One approach is to break the 8760 h/a into operating environments and with different fleet ages.
the following classifications:
• Operating – performing useful work. ESTIMATING
ESTIMATING CONTRACT
CONTR ACT COSTS
• Standby – not required. A contractor might be used for individual tasks such
• Process delay – prevented from doing useful work as maintenance, truck haulage, production drilling and
because of mining process interference, including surface crushing, or the entire mine development or
Level 7 Level 8

Utilisation
(%)
Time per Truck
(hrs)
Total Work Time Availability
(hrs) (%)
Number of Trucks
Total Work (#)
(t.km)

Effectiveness Mean Truck Size

(t.km / t (t)
Capacity) Work Rate
(t.km/hr)
Total Capacity
(t) Haul Rate
(km/hr)

FIG 5.4 - Level 7 a nd 8 drive

dr iverr tree
tr ee for
f or an
a n example
exam ple o f mining cost.
c ost.
8,000

7,000
6,000
5,000

4,000
3,000
2,000

1,000
-

Production Ti me Standby
Proc
Proces
ess
s Unsc
sch
hed
edu
uled Dow
Down
ntime
ime Pr
Proc
oces
ess
s Sch
Sched
edu
uled Dow
Downtime
ime
Equipme
Equipmen
nt Un
Unsch
schedu
eduled
led Down
Downtim
time
e Equ
Equipm
ipmen
entt Sch
Schedu
edule
led
d Dow
Downt
ntime
ime
FIG 5.5 - Average
Avera ge tru
t ruck
ck annual
a nnual h our
ourly
ly us age.

Cost Estimation Handbook 69

CHAPTER 5 – OPER ATING COST ESTIMATION

ESTIMATION
production program. Contracting is often appropriate • included contingency amounts are reasonable in
where a small additional increment of capacity is view of the potential risks
required for one or two years. It also makes sense where • the contractor has not biased the estimate for
specialist skills, such as cablebolting, are required for commercial competitive reasons in regards to future
a limited time, or where the necessary expertise is not business opportunities.
opportunities.
available near the mine and there is insufficient time
to train a workforce. The use of a contractor may also MOBILE AND FIXED PLANT OPERATING COSTS
assist a junior mining company to demonstrate to Operating costs can be estimated from:
investors and lenders that it is capable of operating the
• detailed cost records and performance of similar
project.
equipment
Contract costs can be estimated from:
• first principles • cost records for the new item from another operation
• manufacturer’s cost and performance estimates
• recent similar contracts in the same area
• a database of costs from a range of operations.
• ‘indicative prices’ provided by contractors
To support ongoing decision-making, good record
• firm bids from a competitive process keeping and cost allocation are required over the life of
• an awarded contract. each unit. The mine accounting system must be able to
Firm bids or an awarded contract should be used for track each piece of major equipment, and not report a
a final feasibility study. These must be confirmed or combined cost for all drills, trucks, etc. Records should
updated late in the study process so that the validity include engine hours and, for rock-drilling equipment,
periods extend through to the contract award date. percussion or hydraulic pump hours, as well as outputs
It is also useful to build up a ‘shadow bid’ from first such as tonnes loaded, tonne–kilometres hauled or
principles early in the study, providing the estimating metres drilled.
team has the time and expertise to do so. An estimate
Caution must be used when comparing costs from
built up from first principles provides a firm basis for
different operations, where different operating
comparison with later contractor quotes, so that the
conditions may apply, and the basis of reported costs
principal understands what drives the costs and is in a may not be well understood. Estimators should be
much stronger negotiating position.
particularly wary of manufacturer’s estimates, as they
Contractors are a source of current cost data for usually assume ideal conditions and even then may
contract mining, but the quality of data is variable. be optimistic. This is an area where consultants can
A contractor’s estimating team is usually very busy, so be very helpful, as a good consultant should
s hould have an
an external request for an ‘indicative quote’ or ‘budget extensive cost and performance database.
price’ may not receive full attention. Contractors’
The approach to estimating costs for surface and
indicative prices should be used with caution.
underground mine mobile plant is the same. In all
Validation of contractors’ claims of costs need careful
cases the operating costs can be subdivided into:
review – ownership costs should relate to the actual
cost of the piece of equipment to the contractor, rather • electricity (or compressed air)
than the ‘list price’ from the supplier, as contractors • fuel (usually diesel) and lubricants
commonly receive substantial discounts on purchase • maintenance labour
prices. • maintenance supplies
Factored contract rates may be useful provided their • operating labour
full context
‘break is understood.
out’ individual unitItrates,
is notasusually possible
the contract to
must • operating supplies
be viewed in its entirety. In using contractor rates, the • ownership costs (depreciation, finance and
estimator should check that: insurance).
• provision is made for day works and other situations
s ituations Supervision costs are usually not allocated across
where time is lost for reasons beyond the control of individual items of plant. Equipment operating costs
the contractor can be estimated per expected operating hour, shift, day,
week, month or year, depending on the purpose of the
• clear distinction is made between those services
estimate. A cost per operating hour is the most useful, as
provided by the contractor and those provided by
it can readily be converted to other time measures.
the principal
• the effect of a rise-and-fall formula is used to escalate Depreciation
estimated costs Depreciation is a reflection of the loss of capital
• the contractor has put an appropriate effort into investment value per operating period. Consider a
preparing the estimate truck that has an initial cost of $1.0 M and a salvage
• the rates are in line with similar rates current in the value of $0.2 M after an estimated four-year service
industry life. The depreciation is thus $0.8 M over four years or

70 Cost Estimation Handbook

CHAPTER 5 – OPER ATING COST ESTIMATION

ESTIMATION
 $0.2 M per annum. If the truck operates for 5000 hours all or part of the purchase price is borrowed, or the
per annum then the depreciation cost is $40 per hour. part is purchased outright. In the latter case, there is
Depreciation should not be used in an analysis where an opportunity cost because that money could have
capital costs are shown separately, as this would lead been invested elsewhere. For the truck in the previous
to double counting. However, there is often a need example the average investment is:
to include depreciation, such as when comparing
a contract rate with the owners’ operation. The ($1.0 M + $0.2 M)/2 = $0.6 M
depreciation amount allowed for taxation reporting may
be different from the expected physical depreciation If a company has a cost of capital (or cost of borrowing)
period (useful life) for the item. The taxation allowance of ten per cent per year then the yearly interest expense
is not relevant for most cost comparison and estimation is 0.1 × $0.6 M or $60 000 for each of the four years.
purposes, although a tax depreciation schedule is Besides outright purchase, other forms of equipment
required in the project financial model. finance are available:
All equipment has a service life, after which it becomes • An operating lease is similar to rental, is usually
uneconomical and should be replaced. For some items, for short-term requirements and can be cancelled
the service life may be equal to or exceed the mine without penalty. It is relatively expensive because
life. Typically, major fixed items such as headframes, the lessor assumes the risk of re-leasing and
winders (hoists), crushers and ball mills are designed technological obsolescence, but is fully deductible
to last the life of the mine. In practice, they may last as an operating expense. It does not affect the
40 to 50 years and outlast several mines. Some pumps lessee’s balance sheet.
might last only five years.
• A finance lease is a contract where payments are
Most portable and mobile equipment has a finite made over much of the useful life of the asset.
service life. Typically, new mobile equipment will During this time the lease cannot be cancelled,
operate at low maintenance costs for approximately although it may be paid out if the item is disposed
10 000 hours or two years, after which the cost increases of or destroyed. The cost includes capital (less
steadily. If the machine use is lower than around salvage) cost, interest, a risk premium and the
5000 h/a, this ‘honeymoon period’ may be extended. commercial cost of providing the service. Typically
This cycle may be repeated following one or two major
majo r 60 to 70 per cent of the purchase price is financed,
rebuilds, although the subsequent maintenance costs with the balance payable as a residual. The item
are rarely as low as for a new machine. Major equipment appears on the lessee’s balance sheet.
items, typically shovels, draglines and crushers or • Wet hire provides the equipment at an all-
mills, if properly maintained, will commonly have inclusive hourly rate that is fully tax-deductible. It
economic operating lives well in excess of ten years usually includes fuel and tyres, although the hirer
and will have scheduled component or wear part may provide fuel at a remote site. Hire includes
rebuilds or replacements at various points; the primary equipment insurance and an operator, with the
consideration in replacement decisions is commonly provider accepting responsibility for downtime due
frame and housing condition rather than the state of to equipment or operator problems.
replaceable components. • Dry hire provides the equipment without fuel or
The salvage value for mobile equipment will depend operators. Payment arrangements for consumables
on the age of the unit, its condition and the operating vary.
hours since
s ince a major rebuild. A rebuilt 10 000-hour
underground mobile item could be worth 60 - 70 per Insurance
cent of new cost. The rebuild itself might cost 20 - The cost of the premium for insuring a piece of
30 per cent of the original purchase price. An older unit equipment may vary widely depending on the risk
will generally be saleable for about 20 per cent of new of damage or loss. For a key equipment item (such as
cost, if it is operable, although ‘long-life’ equipment a mill), insurance covers loss of revenue (or business
(draglines, shovels, crushers and mills), if well
interruption insurance) if the unit is unavailable. A
maintained, will retain value much longer. Machinery
contractor will usually identify this cost, whereas
merchants are generally willing to provide an estimate
a mining company might not. If no insurance is
of value for a used item, and for common items may
carried then the owners have effectively self-insured
not require an inspection. The cost of removing the old
item from the mine, particularly if it is a shaft mine, and arguably should still recognise insurance as an
may negate the salvage value. operating cost because, over time, losses will have to
be made good.
Finance In the absence of better information, an insurance
Ownership costs may include an interest expense cost from two per cent per annum (for low-risk surface
or a lease cost. The interest expense arises because equipment) to five per cent per annum (for at-risk
owning an asset ties up capital. This is true whether underground equipment) could be assumed. Thus

Cost Estimation Handbook 71

CHAPTER 5 – OPER ATING COST ESTIMATION

ESTIMATION

a low-risk surface truck costing $1 M and operating where:

5000 h/a might have an insurance cost of $20 000/a or DV diversity factor, typically 0.6 - 0.9
$4/hour. Insurance rates vary with market conditions.
Job factors
Electricity
Various ‘job factors’ may be used to relate site-specific
Electricity may be purchased from a third-party conditions to standard conditions, allowing cost
supplier (either from a grid or a purpose-built power estimates to be adjusted for:
station) or generated on-site by the owners.
• equipment utilisation – operating hours and work
The tariff for supply of electricity from the local rosters
utility usually consists of a consumption charge and
• maintenance philosophy and proximity to spare
a demand charge. The consumption component is the
electric energy used in the billing period. It is measured parts
in kilowatt-hours (kWh) with a usual billing period of • management policy and quality of supervision
one month. This charge is identical to most residential • material characteristics – density, swell, abrasiveness
consumers, although the unit cost is significantly lower. and hardness, etc
The demand component is the maximum power • work conditions – road, weather and operator skill
demand for the billing period. This can be measured as • other relevant site considerations.
kilovolt–amperes (kVA) or kilowatts (kW), depending
Job factors are classified into three broad groups:
on the supply authority.
good, average and poor. Examples of each are listed
It should be noted that the maximum demand is below.
calculated over a short period (usually 30 minutes),
Good conditions:
but this maximum figure applies for the complete
billing period. Therefore, there is usually potential for • material is relatively loose and free flowing
reducing electricity cost by managing this maximum • equipment operates with considerable idling or low
demand (eg soft start or spinning reserve for large power
consumers such as mills and draglines). If demand is • long lives for wear items can be expected due to
measured as kVA, there is also potential for reducing lower abrasiveness
demand by improving the power factor. • low digging power is required and material heaps
From the perspective of the utilities, demand charges well into the bucket
are payments for the increased capital costs of gene- • tyres wear out rather than fail from cuts and
ration and transmission equipment. This equipment abrasions
has to be rated to deliver the maximum demand of the
• spare parts are readily available
cyclical loads of most mining machines.
• workforce is skilled.
Equipment suppliers are usually the best source of
power requirements for their equipment. However, Average conditions:
rules-of-thumb are available; examples are shovel and • material requires blasting to maintain productivity
dragline energy needs per cubic metre per hour of • power is required to penetrate the bank and the
0.6 kW and 1.5 kW, respectively. material heaps reasonably well
Any detailed work requires the input of a specialist. • engine has periods of full power, but still some idle
Power factor, voltage supply and diversity factor (DV) periods
all contribute to the final consumption and therefore
cost. An estimate of DV can usually be made, reflecting • wear rates are
be quickly moderate; spare parts not on-site can
couriered
couriered
the spread of large electric equipment at a mine site.
• workforce has average skills.
The larger the fleet, the lower the mine site demand
charge, because each individual load cycle overlaps. Poor conditions:
For example, a fleet of five excavators of the same
s ame type • higher powder factors are required for blasting and
would have a DV of 0.6, but if the excavators carry often the material is bulky, irregular in shape and
dissimilar loads, the estimate for DV would require generates poor fill factors
more detailed calculation. • engine is often at full power
Electrical energy cost ($/h) = average • tyres fail from rock cuts and abrasions
power (kW) × unit cost ($/kWh) • wear rates are high and component life is reduced
• workforce has limited skills, causing higher repair
Electrical demand cost ($/11) = costs.
peak power (kVA or kW) × DV × unit cost Often job conditions overlap. For example, difficult
($/kV per month or $/kW per month) digging conditions can be compensated by a skilled
Operating time (h/month) workforce, which reduces wear and tear on the machine.
mach ine.

72 Cost Estimation Handbook

CHAPTER 5 – OPER ATING COST ESTIMATION

ESTIMATION

Similarly, by implementing a sophisticated maintenance The second general formula is based on the
 system that monitors the machine, components can be assumption that any piece of equipment is just a set
replaced before they incur additional costs. of spare parts. Some of these parts last 500 hours,
while others last over 12 000 hours. By knowing the
Fuel and lubricants
lubrica nts ‘standard’ operating life it is possible to calculate the
The cost of fuel depends on the unit cost and the total cost of parts expected to be purchased throughout
engine consumption rate. As a rule-of-thumb, fuel this standard life, and therefore the hourly cost of these
consumption can be estimated as 0.3 L/h per kW of parts. Note that first-fill spares purchased at project
engine capacity. This consumption rate in turn depends start-up may be capitalised, whereas subsequent spares
on age and condition of the engine, duty cycle, idling use may be an operating cost.
time, operator skill and work area conditions. These The cost of spare parts is nominally in proportion to
machine- and site-specific items are reflected by the
fuel job factor (FJF). the original purchase price of the equipment. Therefore,
the repair parts cost can be calculated by multiplying
the initial capital cost by a repair parts capital factor
Fuel cost ($/h) = engine (kW) ×
(RPCF) and then dividing by the standard operating
0.3 (L/h per kW) × FJF × unit cost ($/L
($/L))
life, typically 10 000 hours, to obtain an hourly rate.
where: This value is then adjusted by the repair parts life factor
(RFLF) for items with other than the standard operating
FJF varies between 0.3 and 0.6
life and then further adjusted for job conditions (RPJF).
If no detailed figures on lubrication consumption are The selection of suitable repair parts factors requires
available, then it is usually calculated as a percentage experience and judgement. More than with other areas
of the hourly fuel cost. These proportions range of operating cost calculation, it is worthwhile accessing
from 15 per cent for equipment with a relatively low a database of real values over extended periods. These
proportion of hydraulic componentry (such as a truck) can then be updated so there is an inflation-adjusted
to 40 per cent for equipment with a high proportion of weighted average cost available for each equipment
hydraulic componentry (such as a hydraulic excavator). item.
Adjustments may be made to these figures depending
on how severe the duty is, but this is normally already Repair parts cost ($/h) =
covered by the FJF applied to the fuel cost. Cap
apiita
tall ($) # RPC
PCF F # RPL
PLF
F # RPJ
PJF
F
Alternatively, the consumption rate can be obtained 10 000
from either manufacturers or operational records. where typical values are:
These rates are then multiplied by the appropriate unit
RPCF varies between 0.15 and 0.25
cost. This is obviously more accurate, particularly in the
case of large electric equipment such as draglines and RPLF varies between 0.8 and 1.2
bucket wheel excavators, which consume substantial RPJF varies between 0.5 and 1.5
quantities of lubricants, but no fuel oil.
Maintenance labour
Maintenance supplies There is no easy method to estimate maintenance
Maintenance supplies are often also referred to as repair labour costs. Factors to allow for include:
parts. Two formulas for estimation of maintenance • amount of off-site repair work, such as component
supplies are presented. exchange and maintenance service agreements

The first general formula is appropriate for large • fleet size and degree of commonality
equipment such as shovels, draglines and crushing– • job conditions, including skill and experience of
conveying systems with operating lives in excess of operators and maintenance personnel
100 000 hours. The formula multiplies the capital cost • maintenance philosophy of management
by a percentage and divides
divides by the operating hours per • proximity of spare parts and support
annum. The appropriate adjustments are then made for
• time (operating hours) between scheduled services
job conditions by applying the repair parts job factor
(RPJF). • union requirements such as a rule for a trades-
person’s assistant to assist a fitter on the job
Repair parts cost ($/h) = • warranty agreements.
a
Capita
Capitall ($
($)) # 0.
0.005 # RPJ
PJF
F Estimation is based on determining the maintenance
Operating time (h/yr) ratio, which reflects the repair work hours required
per machine operating hour for a particular set of site
where: conditions.
RPJF typically varies between 0.5 and 1.5 These ratios are determined from handbooks,

a typically varies between 0.03 and 0.10 historical site or industry records or by back-calculation

Cost Estimation Handbook 73

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from the maintenance repair costs per machine per • degree of overloading
operated hour. The ratio changes with the duty of the • number of curves and grades
machine. Thus, in a detailed exercise, the ratio will vary • prevailing work conditions
prevailing
for individual operations to reflect a dozer on ripping
• road surface condition and ambient temperature
versus a dozer on stockpile duties.
• travel speeds
Table 5.4 shows various maintenance ratios for large
open cut equipment operating under average site • tyre maintenance conditions
conditions. • tyre type and quality.
In addition to the hourly charge for wearing out the
TABLE 5.4
5 .4 tyre, costs associated with ongoing tyre maintenance
Maintenance ratio s for open cut equipment. are usually expressed as a percentage of purchase cost:
Item Value No of ty
tyre
ress # un
unit
it co
cost($
st($)) # TJ
TJF
F # 1.05a
1.05
D ozer 0.5 0 Tyre cost ($/h) =
4000
Fr on t en d l o ad er 0.5 0 where:
Tr uc k 0.45 TJF varies between 0.3 and 4.0
Sc r a p er 0.4 0 a typically between 1.02 and 1.06
Gr a d e r 0.35 Where it is anticipated that tyres will not be recapped,
the hourly cost is derived as:
Dr ill 0.3 0
Tyre cost ($/h) = (NTS)/(1.1 × LNT)
Maintenance cost is then calculated from:
where:
Maintenance labour cost ($/h) = unit maintenance LNT life of new tyre, in hours, before recapping
labour cost ($/h) × maintenance ratio NTS cost of set of new tyres, delivered
The factor 1.1 represents the extension to tyre life that
Operating supplies occurs when the tyre is run to the end of its active life.
Operating supplies can also be referred to as wear Where it is anticipated that tyres will be recapped, the
parts or ground engagement tools. Wear items include hourly cost formula becomes:
bucket teeth, drill bits, stabilisers and cutting
cutting edges.
edges. For
a detailed evaluation, these are usually itemised and Tyre cost ($/h) = (NTS + RTS × NoR)/
calculated for specific ground conditions. In that case, (LNT + LCT × WF × NoR)
lives are applied to each item and costs
cos ts are individually
built up. This is the recommended approach for any where:
detailed level of evaluation. A simpler method is to LCT life of capped tyre, in hours
apply the wear parts cost factor (WPCF) to the capital NoR average number of possible recaps per tyre
cost, using the same logic as deriving maintenance
RTS cost of recapping a set of tyres
supplies, and adjust with a wear parts job j ob factor (WPJF).
WF wear factor, usually between 0.9 and 1.1
Wear
Wear parts cost ($/h) = capital ($) × WPCF × WPJF
Operating labour
where typical values are: Operating labour covers the total cost of labour to
WPCF varies between 5 × 10-6 and 20 × 10-6 operate a given machine. As such it allows for shift
roster coverage, absenteeism and multiple operators on
WPJF varies between 0.3 and 3.0
one machine. It does not include maintenance labour.
Tyre costs are usually included in operating supply Shift configuration and industrial practices are an
costs. Tyre costs are obtained by multiplying the integral part of the derivation of labour costs. In the
number of tyres by the purchase cost of each tyre and past in Australia, and still in many places, industrial
dividing by the life of the tyre. Tyre life might range practices have required two people (such as an operator
from 500 hours for an underground load-haul-dump and an ‘oiler’) on a machine designed for single-person
unit (LHD) in severe wet conditions to 5500 hours for a operation. Where a machine (say a dragline) requires
haul truck operating on a good road. two persons on a continuous four-panel roster, eight
Tyre life has improved recently because better tyre people are required in total: two each for day, afternoon
compounds are used, and because of better road and night shift plus another crew of two, who are
maintenance in response to rising tyre costs. By rostered off.
incorporating allowances for the following in a tyre job In allocating personnel, allowance should also be

factor (TJF), then site-specific costs are calculated from: made for the availability of equipment. Unavailable
74 Cost Estimation Handbook

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ESTIMATION

mobile equipment does not normally need operators, Major overhaul cost ($/hour) =
whereas large fixed or semi-mobile production
Capita
Cap 0.155a
itall ($) # 0.1
 equipment may need operators even when
10 000
mechanically unavailable. For example, dragline and
shovels typically need operators during maintenance. a typically between 0.10 and 0.40
Conversely, if there are 20 trucks in the fleet and the
expected availability is 80 per cent then normally only GENERAL AND ADMINISTRATION COSTS
16 trucks have operators.
Unlike direct operating costs, the basis for estimating
For example, a large shovel needs two operators general and administration (G&A) costs is often not
per shift costing $200 000 each/a (with on-costs of up well defined, particularly in the early stages of a project
to 60 per cent). Assume operators remain with the feasibility study. Fortunately, because the G&A cash
shovel on service days and that leave and absenteeism operating cost of a project is typically a low proportion
provisions run at 15 per cent, then on a four-panel of the total project cash operating cost, the effect of
roster and allowing 5500 shovel operating hours per lower accuracy will be diluted in the total project
annum, the hourly cost is calculated as: estimate. G&A costs are typically substantially higher
where a fly-in, fly out (FIFO) scheme is operating.
Operating labour cost = Some of the G&A costs, such as safety and training,
2 # $200 000 # 1.15 # 4 will vary significantly across projects. Also, technically
= $334.54 per operating hour similar projects may have significantly different
5500
administration costs as a result of the company’s
A useful term is the ‘operator ratio’, which refers to policy, the skill base of the workforce or the location of
the number of operators required to crew each machine. the operation. Some locations, for example, have high
The operator ratio allows for shift roster, absenteeism, security costs.
equipment availability
availability and providing operators
o perators during
equipment downtime. Checklists for general and administration costs
For example, a mine operating a truck fleet with The following checklists are useful to ensure all G&A
80 per cent availability, ten per cent absenteeism and costs are covered.
a single shift, five-day roster will have an effective
operator ratio of: Administration
Administrat ion salaries
salar ies and wages
Costs include:
1.0 × 0.8 × 1.1 = 0.88
• administration, commercial or contract manager
That is, for each truck in the total fleet, on average • environmental officer(s), if the environmental
0.88 operators will be required. monitoring and management tasks are not the
responsibility of various operating personnel
Operating labour cost ($/h) = • operations or general manager
Unit annua
annuall labour
labour cost ($/a) # oper
operator
ator ratio • personnel manager
Equipment operating time (h/a) • safety and industrial relations (IR) personnel if these
tasks are not the responsibility of various operating
Major overhauls personnel
Major overhauls cover the cost of major component • secretaries and telephonist/recep
telephonist/receptionist
tionist
exchanges or rebuilds. This can be estimated as a • site accountant(s) and account clerks
build-up of individual components and their lives. • site external relations or community affairs personnel
For example, a truck could be subdivided into engine, • site information technology (IT) personnel
transmission, body, frame and electricals, etc. The • site medical personnel
replacement or rebuild cost of each of these major • site security personnel
components is then estimated together with their
• town administration, catering and cleaning personnel
scheduled lives. This gives an average cost per hour,
even though expenditure may only occur when the • training personnel
damage is repaired or the rebuild is carried out. • warehouse and procurement personnel.
Alternatively, a simpler approach is to assume that Suppliess and services
Supplie serv ices – site administration
a proportion of the initial capital cost will require
Costs include:
rebuild, overhaul or replacement after a specified
period. Typically, for large mobile equipment, this • auditing
will be 15 per cent of the initial capital cost every • bank charges
10 000 hours. • cleaning

Cost Estimation Handbook 75

CHAPTER 5 – OPER ATING COST ESTIMATION

ESTIMATION

• communications including operating costs for • sewerage systems

telephones, facsimile and IT systems • sports and recreation facilities
• computer support and software (administration • potable water supply operating cost if not connected
 functions only) to plant system
• donations • power costs if not connected to main plant power
• employee benefits including: • supplies for recreation and sporting activities.
• death and total and permanent disability
(D&TPD) insurance Enviro
Environmental
nmental management
managem ent costs
• medical insurance The following costs should be included in G&A
• salary continuance insurance costs if they are not directly attributable to mining or
processing operations:
• entertainment, recreation and sports • environmental monitoring costs including habitat,
• first aid
noise, dust, vibration and water
• FIFO costs or similar rostered time-off travel
• environmental reporting and auditing costs.
expenses for remote sites
Increasingly, these costs are reported separately from
• freight:
G&A costs because they have become a significant
• express freight and couriers unless charged portion of the total. In this section they are included in
directly to other departments in the cost of the
the discussion of total G&A costs.
consumables or spare parts
• general road freight Social programs
• fringe benefits tax Projects located in an area where there may be
• insurance little other opportunity for employment of local or
• legal fees Indigenous people may be required to provide services
to the local community. These services might include:
• licence fees for pressure vessels, air receivers, liquor,
etc • providing medical services to the local community

• light vehicles • providing

community water and/or power to the local
• maintenance of administration facilities:
• administration office • training local people to fill mine site vacancies
• training local people in trades.
• airstrip
• change room Exclusions
• security systems The operating costs of the following items are not
• sewerage and ablution systems normally included with G&A costs but are apportioned
• warehouse to particular operating cost centres:
• workshop • fuel
• office supplies including stationery, telephone, IT • power
software and licences • waste disposal
• pastoral compensation • water.
• postage Other costs that are normally excluded from G&A
are:
• power • home (or head) office charges
• recruitment fees
• product marketing
• safety and training
• product shipment, insurance, brokerage, refining,
• subscriptions. smelting and off-site costs
Suppliess and services
Supplie serv ices – accommodation
accommodat ion or village • project royalties.
Costs include: Factors affecting general and administration costs
• catering and cleaning, including the cost of the The size of administration operating costs is affected
contract caterer’s staff and food by:
• laundry facilities including laundering of bedding • complexity of the mine and/or process plant
• maintenance cost for village facilities: • environmental and/or social impacts of the project
• dining facilities • product handling constraints through ports
• fencing and landscaping • philosophy of the company
• housing • toxicity or radioactivity of any product or reagent.

76 Cost Estimation Handbook

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ESTIMATION

The effect of company philosophy can be difficult to to be considered in more detail. For the purposes of
assess. It may be argued that the administrative cost of this handbook, the following cost components have
a mine site is only a function of the mine, the plant and been included under the administration heading and
its location. However, the size of the parent company each component given a cost range depending on the
 each component given a cost range depending on the
(or companies), and the management philosophy of the operation’s size and the policy adopted.
parent, may affect the operating costs.
Large multinational companies will often provide for Administration
Administrat ion staf f
a larger administrative budget than that of an emerging In Table 5.6 the different administration staff categories
‘single project’ company. This provides one reason that are listed together with their salary package cost; here
large companies often struggle with relatively small ‘salary’ includes base salary, site allowance, leave
projects. This larger budget may make allowance for: loading and superannuation. It does not include
• a salary and wage structure consistent with the total payroll tax. Examples are given for a small operation
company in a regional town and an industry-average value,
• extra personnel for corporate development effective mid-2011.
• a standard of administration and accommodation
facilities consistent with other operations Auditing
• the need for the larger company to provide greater Allow $125 000/a for a small operation and up to
services to the community due to worldwide $500 000/a for a large remote operation.
responsibility or company image.
Examples at each end of the scale are:
Bank charges
• a small open cut gold mine with little impact on the Allow $10 000/a for a small operation and $20 000/a for
environment a large operation.
• a large underground mine supporting a complex
Communications
polymetallic concentrator and smelter situated in a
remote region. Communication costs vary considerably depending
on location. Costs depend on whether dedicated
Cost estimation for conceptual and prefeasibility
studies data transmission
provided linescalls,
for personal are provided, a paycost
the installation phone is
of the
Because G&A operating costs constitute a small system is paid as part of the project set-up or as a lease,
proportion of the total mine operating costs, it may and a direct data link to home base is provided. For non-
be adequate for conceptual or prefeasibility studies to remote sites, allow $500/a per person on-site for the total
apply a percentage cost figure to the estimated non- cost of call charges. For remote sites, allow an additional
G&A operating costs to arrive at the G&A cost with $100 000/a for a data link to the corporate office.
acceptable accuracy. The appropriate percentages are It is recommended that the minimum numbers of
shown in Table 5.5. external lines are:
TABLE 5.55. 5 Persons on-site1 No of lines
Administ rat ion co
cost
st as a p erc ent age o f tot al mine o pe
perat
rat ing cost.
c ost. <30 Two external lines
>30 One external line per 15 people
Mine si ze Aust rali a, Developing world,
Developing wo rld,
residential (%) remote (%)
Donations
Donatio ns
S m a ll 10 - 13 15 - 20
La r g e 8 - 10 10 - 15 Allow
a large $10 000/a for
operation, a small
but this isoperation and $20 000/a for
discretionary.

For example, the range of sizes for the operation Enter

Entertainment,
tainment, recreatio
rec reationn and spor
spo r ts
would be from a small gold mine mining 250 000 t/a This item has diminished over the past few decades
ore to a large base metal mine with an output of greater as companies no longer take responsibility for it.
than say 2 000 000 t/a ore. Allow $250/a per person employed by the company
The policy towards administration facilities at a remote site with village. Allow $100/a per person
ranges from lean, with minimal on-site facilities (eg employed directly by the company at a site close to
accommodation, recreational area and office), to existing towns.
generous (eg extensive on-site administrative support
and superior recreation and accommodation facilities). First aid
Allow $300/a per person on-site.
Cost estimation for a feasibility study
To obtain the accuracy required for this level of study, 1. Calculated on the basis of all people on-site at the plant and village; that is, it
the individual cost components of the G&A costs need excludes people off-site, on leave or on rest and recreation (R&R).

Cost Estimation Handbook 77

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TABLE 5.6
Staff categories and salaries.

Posi t i on Small oper at i on Indust r y average

 He ad o f administ r at i on a nd ac c o unt in g $188 0 0 0 $205 0 0 0
S e ni o r a c c o un t a n t $128 0 0 0 $139 0 0 0
E x p e r i e n c e d a c c o un t a n t $9 6 0 0 0 $10 6 0 0 0
Gra duat e ac c o unt an t $69 0 0 0 $81 0 0 0
Acc ount ing sup er vi
visor
sor o r of fifice
cerr $744 000
$7 00 0 $88 000
0 00
Pay r o ll o f f ic er $6 8 0 0 0 $71 0 0 0
Acc ount s cler
cl erkk $60 000
0 00 $68 000
0 00
Re c ept i oni st $55 0 0 0 $62 0 0 0
Dep a r t m en t c ler k o r a dmini st ra t o r $63 0 0 0 $75 0 0 0
Si t e administ r at o r $71 0 0 0 $92 0 0 0
He ad o f supp l y N/A $142 0 0 0
Supp l y sup er v is o r $102 0 0 0 $114 0 0 0
Co n t r a c t s o f f i c e r $9 9 0 0 0 $118 0 0 0
Purc ha sin g o f f ic er $8 4 0 0 0 $95 0 0 0
St or ep er s o n (day shi f t) $71 0 0 0 $80 0 0 0
Hea d o f inf o r ma t i o n t e c hn o lo g y N/A $15 0 0 0 0
Co mp u t er t e c hnic a l supp o r t of f ic e r $8 6 0 0 0 $97 0 0 0
Hea d o f hum an re s o urc e s N/A $191 0 0 0
S enio r huma n r e s our c e s ad v is er N/A $135 0 0 0
Ex p er i enc e d huma n r e s our c e s ad v is er $93 0 0 0 $102 0 0 0
Gra dua te hum an re s o urc e s a d v i ser $87 0 0 0 $93 0 0 0

N/A = not applicable.

Fly-in, fly-out costs

c osts requiring special licences, then licence and permitting
fees may be expected to be around $10 000/a for a
Within Australia,
Australia, allow $80 per 100 km per person per
small operation and $20 000/a for a large operation.
round trip (ie if distance from the mine site to home
For computer support and software (administration
base is 600 km then the cost per person per round trip
functions only), allow $20 000/a for a small operation
would be $480).
and $40 000/a for a large operation.
Freight
Freight These amounts do not include specialist geological

For general road freight, express freight and couriers, modelling

included inordepartmental
mine planning software, which should be
costs.
allow $10 000/a for a small operation and $20 000/a for
a large operation.
Light vehicles
Insurance Administration personnel may not require vehicles.
For administration and village facilities, allow 0.5 per Estimate the operating cost of light vehicles at
cent of the total capital cost. 30 per cent of the capital cost of the vehicles used for
administration activities.
Legal fees
Legal fees can vary dramatically. Without a basis for Maintenance of administratio
adm inistrationn facilities
cost of legal expenses, allow $50 000/a for a small Allow five per cent of capital cost of administration
operation and $200 000/a for a large operation. facilities.

Licence fees Maintenance cost for

fo r village facilities
fac ilities
Assuming that the plant does not include highly Allow three per cent of capital cost of accommodation
specialised or complicated equipment or materials and township facilities.

78 Cost Estimation Handbook

CHAPTER 5 – OPER ATING COST ESTIMATION

ESTIMATION

Office supplies and social programs have already been identified

as additional administration operating costs. It is
Allow $15 000/a for a small operation and $50 000/a for
not possible to provide a meaningful cost guide for
large operation.
other factors in environmental management or social
Pastoral
Pastoral compens
c ompensatio
ationn programs. It is the responsibility of the feasibility
 This amount will vary from state to state according study manager to establish the need for and scope of
to legislation, but will probably be treated as a capital environmental and social programs.
item with a maximum cost equal to the land value for Checklist
Checklist for infrastructure and utilities
utilit ies
non-mining use.
Operating costs must be included for:
Postage • access and transport equipment for equipment and
The use of mail has diminished because of electronic supplies
communications. Allow $3000/a for a small operation • accommodation camp or township
and $15 000/a for a large operation.
• airstrip or airport
Recruitment
Recruitm ent fees • buildings including
including offices, workshops and stores
stores
Recruitment fees and relocation allowances for a remote • communications
location approximate to $10 000 × 0.12 × number of • compressed air production and reticulation
employees during the first two years of operation, • electric power supply and reticulation
where yearly turnover is assumed to be 12 per cent.
During later years allow $10 000 × 0.08 × number of • environmental monitoring stations and equipment
employees. For a project located near existing towns • natural gas supply and reticulation
allow $10 000 × 0.08 × number of employees during the • potable water supply
first two years of operation; during later years allow • process water supply
$10 000 × 0.05 × number of employees.
• pumping and storage systems for managing
For the top five site positions allow $50 000 per groundwater, rainfall and run-off
position for recruitment and relocation.
• road and railway systems to supply the operation
Safety and training and remove product
This category includes safety instruction, fire-fighting, • security facilities and activities
rescue training and skills training for administration • sewage and garbage disposal
staff. Where there are no dedicated safety and • ventilation equipment
training personnel, allow two to three per cent of • water supply for fire-fighting and dust suppression.
total administration wages and salary cost. Allow
one per cent of total administration wages and salary LABOUR COSTS
cost where there are dedicated safety and training
personnel on-site. The calculation of labour costs to operate machines was
covered in the section on operating labour, above.
Subscriptions The first step in estimating overall labour costs for
Allow $20 000/a for a small operation and $30 000/a for an operation is to establish an organisation chart and
a large operation. personnel (manning2) schedule detailing each position,
the number of persons involved and the work roster.
Suppliess and service – accommodat
Supplie accommodation/villa
ion/village
ge
Important decisions on manning will be influenced
The cost categories listed below are not necessarily by location. In some societies, two or three eight-hour
comprehensive and may include activities that are not shifts per day are normal, working five days per week
necessary for some operations. Consequently feasibility or with a 17-shift week including maintenance. In many
study managers will need to judge what items are
parts of the world and generally in remote locations,
included in the estimate.
ten- or 12-hour shifts are preferred. There are several
For camp costs for a remote site, allow a cost of $90/ permutations of rosters in common use.
day per person on-site at any time, which is $60/day
The shift length and roster should be determined
per employee on a 2:1 roster. The cost, which includes
cleaning, laundry and catering, may vary with the size with regard to base rates, overtime and penalty rates.
of camp and standard of service provided. These may represent a trade-off against infrastructure
(accommodation) capital costs and commuting
For power, allow 5000 kWh/a per person on-site.
and accommodation operating costs. There may be
Other administration costs constraints imposed by either governments or unions.
Environmental management costs (not directly 2. In this context ‘manning’
ng’ is applied as a gender-neutr al term deri ved from
attributable to mining or processing operations) ‘human’.

Cost Estimation Handbook 79

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The maintenance workforce may be shared among • workers’ compensation insurance (per cent of gross
departments so that the estimator for each department wages – may vary by state and company history).
needs to consult with other estimators working on the Costs that are additional to basic salary are called ‘on-
same study to prevent double counting or omission. costs’. Depending on location, on-costs typically vary
Project commissioning and the first year of operation from 20 to 60 per cent of the base salary.
often require additional labour and technical support. Employee benefits may include health insurance,
These requirements depend on the size and complexity motor vehicles, holiday travel, work clothing and
of the operation. An analysis of the risks associated miscellaneous items (eg telephone, membership fees
with start-up and process performance will assist in and loans). Accommodation and infrastructure support
determining the support needed during this period. includes the cost of housing, maintenance, power,
As it is more difficult to reduce numbers than to water and sewerage supply, recreation facilities, food
increase them it is common practice to hire additional and/or messing subsidies or direct costs and transport
commissioning personnel on a contract basis (see later costs for FIFO operations. Most employee benefits
discussion of the learning curve). and accommodation subsidies are subject to fringe
The use of contract labour or outsourcing (ie benefits tax (FBT). As this is a direct tax independent
where some normal site activities are conducted of profitability it is considered to be an on-cost for
off-site) can often be cost-effective especially if it employers.
reduces administrative burdens (such as contract
maintenance or control analyses) or capital expenses ENVIRONMENTAL AND REMEDIATION COSTS
(eg contract crushing where the contractor supplies The cost of progressive environmental rehabilitation
both the crushing plant and the operating labour). as a step toward
to ward eventual site closure may be included
The availability and suitability of contract labour for in operating costs. Sometimes it appears in operating
various aspects of the operation should be considered. cost reports as an allowance (per annum or per tonne
Once a manning schedule is established for the mined) against a cost that will be incurred later.
operation it is important to integrate it with the total This cost is estimated in the usual way as a cost of
site and company manning requirements to ensure that earthworks (per cubic metre) and surface treatment
no task is overlooked. Areas that need attention are and replanting (per square metre or hectare) of the area
the interface
the crusher?),between mining
maintenance of and milling (who
infrastructure, feeds
payroll, to be rehabilitated. On waste dumps it may involve
flattening batters to a stable angle, typically 1-in-3, then
stores procurement and expediting, general accounts covering with soil and replanting. In arid environments
and site-specific requirements such as environmental there may be a need for initial irrigation of plantings.
control and monitoring.
Chapter 19 – Rehabilitation and Closure presents
The completed mining schedule can then be used to further detail.
estimate labour costs, using:
• additional superannuation contribution if applicable CONTINGENCY ALLOW
A LLOWANCE
ANCE
• annual salaries or wage rate in dollars per hour or Depending on the purpose and status (eg prefeasibility
week study) of the estimate, a contingency allowance may
• commuting costs (airfares, etc) be included
in cluded in an operating cost estimate. This is an
• fringe benefits tax amount to cover costs that are currently not determinable
• leave provisions including: because they are unpredictable or unforseen. They
must be clearly identified so that sensitivity analysis
• annual leave
does not double up on these provisions.
• leave bonus
• long service leave A well-constructed operating cost estimate for a
feasibility study might not include a general contingency
• public holidays amount, although there may be contingency allowances
• sick leave on certain items. A scoping study estimate might
• medical benefits insurance or other insurances such include a general 20 per cent contingency allowance in
as salary continuance if applicable recognition of the lack of engineering detail supporting
the estimate.
• messing and accommodation
• motor vehicle provision, where not costed elsewhere SENSITIVITY ANALYSIS
• payroll tax (per cent of gross wages)
The sensitivity of the cost estimate to a wide range of
• production bonus if applicable parameters is often needed. It is usually required by
• recruitment and training costs the recipients of the estimate and also by the estimators
• shift loadings if applicable themselves. The estimator examines the sensitivity of
• statutory superannuation contribution (currently the principal parameters so that the required accuracy
nine per cent in Australia) of inputs for calculations is assessed. The accuracy of

80 Cost Estimation Handbook

CHAPTER 5 – OPER ATING COST ESTIMATION

ESTIMATION

an estimate is determined by the effort put into the This phenomenon is described as the learning curve,
estimation of those items that most affect the total. because if the average time taken to manufacture
In order to calculate the sensitivity of a variable, the new products is plotted against cumulative units of
costs are split into fixed and variable components as production, the points plotted form a curve. Formally,
previously mentioned. In a given mining situation, fixed the learning curve proposition is that each time the
costs for the whole of the enterprise are aggregated. quantity of production is doubled, the cumulative
 Variable costs are affected by many parameters and the average unit time will be some constant percentage
sensitivity of the cost of the mine, or any portion of it, of the previous cumulative average time. An 80 per
to those parameters is then determined. cent learning curve is common – meaning that each
time production quantity is doubled the cumulative
FIXED AND VARIABLE COSTS average unit time is 80 per cent of the previous average.
Table 5.7 illustrates an 80 per cent learning curve.
When adjusting cost estimates for differing scales of
operation (throughputs) it may be useful to classify all TABLE 5.75 .7
operating costs into fixed and variable components.
The 80 per cent lear ning curve.
Costs can then be re-estimated assuming that fixed
costs per annum do not change, while variable costs Units of Additi onal Cumulative Cumulative
change in proportion to throughput.
thro ughput. This usually gives output hours total hours average hours/unit
very similar results to the ‘six-tenths’ rule.
1 10 0 10 0 10 0
In practice, the fixed costs have capacity limits and
may be found to be ‘semi-fixed’ after detailed analysis. 2 60 160 80
This means that they are constant only within certain 4 96 256 64
throughput ranges. 8 153.6 409.6 51.2
Fixed costs might include:
• electric power demand charge The first unit required 100 hours to produce. When
• fixed contracts the output was doubled (that is, a second unit was
• insurances produced), the second unit required 60 hours, giving
a total of 160 hours for the two units, or a cumulative
• on-costs average of 160/2 = 80 hours per unit. The new cumulative
• salaries and wages.
average is exactly 80 per cent of the previous 100 hours
Variable costs might include: per unit average.
• electric power consumption When output is doubled to four units (ie another two
• fuel and lubricants units are produced) the additional two units required
• maintenance supplies 96 hours for a total of 256 hours for the four units; this
• operating supplies including reagents gives a cumulative average of 256/4 = 64 hours per
unit, which is 80 per cent of the previous cumulative
• variable contracts.
average of 80 hours per unit. Similarly, when output
On examination, many supposed variable costs are is again doubled to eight units (another four units are
actually fixed, at least in the short to medium term. produced) the cumulative average is 51.2 hours per
If a truck is on-site, then it will tend to incur a fixed unit, which is 80 per cent of the previous 64 hours
operating cost per month, regardless of how much cumulative average per unit.
material it moves. Doubling of progressively larger output quantities
For example, a mine’s operating cost of $30/t is gives the 80 per cent reduction in cumulative average
thought to be 70 per cent fixed (hence $21/t fixed and hours per unit. Thus, the curve of cumulative average
$9/t variable) and the throughput is to be increased by hours per unit quickly flattens out. This indicates
20 per cent. The new cost will be: progressively smaller gains from learning, as expected.
Fixed cost $21 now spread over 1.2 t = $17.50/t The 80 per cent learning curve tabulated above is
plotted in Figure 5.6.
Variable cost remains = $9.00/t
Mathematically, the learning curve can be expressed
New operating cost = $26.50/t
as the exponential equation:

START-UPS – THE LEARNING CURVE y = axI

where:
In any new task that is repeated, performance improves
improves
y cumulative average hours per unit
as operators gain experience, systems are tuned and
therefore costs are reduced, at least up to a point. a number of hours for the first unit
Obviously most of the benefit from learning occurs in x cumulative number of units
the start-up phase, but there tends to be a continual I an index of learning equal to the log of the
slight improvement over time. learning rate divided by log 2

Cost Estimation Handbook 81

CHAPTER 5 – OPER ATING COST ESTIMATION

ESTIMATION

proficiency. It can take as long as six months to optimise

the process and the probability is that the underground
it operators may take two years to reach their potential.
n
u
r
e
Process optimisation is likely to occur on a number
p
s
r
of interdependent fronts – concentrate quality versus
u
o
h
recovery, concentrate A versus concentrate B, and
e
g throughput versus recovery.
 a
r
e
v
a There is a view that full ramp-up is achieved when
e
v

a project is consistently producing the forecast tonnes
a
l
u and grade, at its nameplate throughput and recovery,
m
u
C
producing in-specification product at the forecast unit
costs. Demonstration of that, or at least an ability to
Number of units (cumulave) perform within ten per cent of it, is the purpose of the
Banker’s Completion Test. Ramping up to nominal
FIG 5.6 - The 80 per
p er cent
c ent lear
l ear ning cur
c urve.
ve. tonnage throughput is often achieved within the first
12 months with a relatively straightforward
straightforward project that
If a learning curve is plotted on a log–log chart it is not technically challenging. However, achievement
appears as a straight line, and is often easier to use in of the other parameters, most particularly unit costs,
this way. This can be seen by taking logarithms of both commonly takes much longer and sometimes is never
sides of the equation to give a linear equation: achieved.
Delays or underperformance in this area add
log y = log a + I log x
substantially to working capital and funding adequacy
The theoretical limits of the learning curve are a due to shortfalls in the revenue stream, and such
conditions present serious risks. A cash shortage during
100 per cent learning curve, meaning no learning at all,
the early production years can be serious, as financiers
and 50 per cent, where no time is taken for the additional
are unlikely to increase the financing package. Also, the
doubled output (first unit 100 h, average = 100; two
market may see the requirement for equity funds early
units for a total time of 100 h, or a cumulative average of
50 h). In practice, learning curves are usually between in
theastock
project’s
down lifeinasresponse,
a sign that
andallmaking
is not well,
equitymarking
raising
70 and 80 per cent.
that much more difficult.
It should be fairly obvious that when making cost
If the financial model considered that the ramp-up
predictions for mining and processing, attention
schedules are aggressive, or if there are inadequate
should be directed to the part of the learning curve provisions for contingency and capital over-run, it
on which the project currently sits. For new projects should be modified to reflect more reasonable or
there will be a large learning factor over the first few practical assumptions.
weeks and months. However, if the learning process
While mines commonly ramp-up quickly, plants
continues as theory suggests minor progressive gains
more commonly do not – to the extent that those that
can be perceived for at least the first two years.
do (apart from carbon-in-pulp (CIP) gold and most coal
The effect of the learning curve is often ignored or plants) are in the minority. McNulty (1998) and use of
underestimated in feasibility studies, leading to over- the McNulty curves on production ramp-up are useful
optimistic production schedules and budgets for the here.
first six to 12 months of production.

The
the learning
project. index
It may is per
be 70 different forexample,
cent, for differentwhere
parts an
of REFERENCES
International Monetary Fund, n/d. World economic and
experienced contract crew does overburden stripping. financial surveys, World economic outlook database
It is close to 50 per cent for the start-up of underground [online]. Available from: <http://www.imf.org/external/
mining with an untrained crew. Examples that conform pubs/ft/weo/2010/02/weodata/index.aspx>.
to the theoretical curve are the advance rates in a new McNulty, T, 1998. Innovative technology: Its development
decline or shaft with an inexperienced crew. and commercialization, in Managing Innovations in the
Minerals Industry (ed: M C Kuhn), Chapter 1 (Society for
A non-refractory open cut gold operation with simple Mining Metallurgy, and Exploration: Littleton).
metallurgy will achieve processing proficiency quickly Mular, A L, 1982. Mining and Mineral Processing Equipment
but it may take longer to optimise the grade control Costs and Preliminary Capital Cost Estimations, special
methods. A polymetallic base metal underground volume 25, 265 p (Canadian Institute of Mining and
operation will take considerably longer to achieve full Metallurgy: Montreal).

82 Cost Estimation Handbook

 CHAPTER 6
Busines
Businesss Cost
ostss

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CHAPTER CONTENTS

Basis of business costs 86

 Descriptions 86
Workin
Wor kingg cap itital
al 86
D ef er re d o r ex p a nsi on c ap i t a l 86

Sust a inin g c a pi t al 86
Clo sur e a n d r eha bili t at i on 86
Re sidua l valu e 87
Estimating methodologies 87
Estimating approaches 87
Workin
Wor kingg cap itital
al 87
D ef er re d a n d sust a inin g c a p i t al 87
Clo sur e a n d r eha bili t at i on 88
Re sidua l valu es 89
Definitions 89
Contingency 89

Escalation 89

CONTRIBUTORS
Neil Cuswort
Cuswort h FAusIMM, Executive Director, Enthalpy

Busi
Business
ness costs
c osts
Business costs are shareholder funds that must be or processed products, products in transit to customers,
added at various times to the underlying investment. but not
not yet
yet paid
paid for, and accounts
accounts receivables.
receivables. Accounts
They are needed so the development can meet planned receivabless are products delivered or when ownership
receivable
financial obligations that were forecast in the study or has been transferred to customers, but for which
the investment recommendatio
recommendation. n. funds have not yet been received. Working capital is
the conversion of shareholder funds into valuable
BASIS OF BUSINESS COSTS inventory or debtors’ liabilities.
Business costs consist of working capital, deferred Deferred
Deferred or expansion capital
or expansion capital, sustaining capital, closure and
rehabilitation costs and finally, residual value. Residual Deferred or expansion capital costs are used to acquire
value may recover part of the original capital costs at new capital items and install them in the operating
the end of the useful mine life. mine and processing plant business. These are capital
items necessary to increase the capacity of the mine or
Typically, when the capital cost of a mineral project the facilities, consistent with the original investment
is announced, these business costs are not included; plan.
rather it is understood that they are excluded from the
Deferred or expansion capital, for example, can be
‘headline’ number. When capital costs are presented in
new mining equipment that is planned to be acquired as
reports or opinions, it should be clearly stated whether
the pit or mine grows deeper or enters a new ore zone.
these business costs are included or not.
Additional
the new typesprocessing equipment
of ore, and additional may be needed
tailings for
dams and
DESCRIPTIONS leach pads may be required as the project progresses.
The definitions of business costs have been poorly Expansion of throughput may be planned once certain
understood by the industry in the past and, as such, initial physical or financial targets have been met.
people and organisations will have differing views on Deferred or expansion capital is neither used for
each of these costs. maintenance replacements nor for sustaining capital.
It is important that the business costs are recognised Deferred capital is always a well-defined and known
and that they are treated and presented on a consistent change in mining and processing facilities.
basis. These costs must be included
included in either
either the capital
capital
Sustaining capital
cost estimates and operating cost estimates, or in the
financial model cash flows. Sustaining capital is used for the complete replacement
of the original capital equipment on a like-for-like
Working
Work ing capit
ca pit al basis. Sustaining capital is sometimes referred to as
Working capital is additional net shareholders’ funds ‘replacement
‘replaceme nt capital’.

invested before funds are received or realised through Sustaining

original capital
assets; ratherisitnot used for
includes themaintenance
costs of new of the
assets
product sales. Working capital needs are allowed in
order to fund the differences between the payment of to replace old units that have reached the end of their
ongoing operating costs and the receivables of income useful life and must be completely replaced.
from sales after start-up. Working capital appears as Typically, sustaining capital will be the replacement
the difference between accounts paid (ie costs that have of the mining fleet during the mine’s life. It also
been incurred in operating) and payments received includes significant processing facilities such as leach
from customers for products. tanks, reactors and pressure vessels that are exposed
to chemicals or corrosive environments, and for which
It is usual to include stores’ inventory (spares) and maintenance is eventually not sufficient to retain
first-fill consumables in the project capital estimates, operational performance.
although they are sometimes incorrectly reported as
working capital. Closure and rehabilitation
Working capital properly includes the cost of Closure costs are allowed for redeployment of the
establishing stockpiles or inventorie
inventoriess of semi-processed workforce, physical removal of the mining and

86 Cost Estimation Handbook

CHAPTER 6 – BUSINESS COSTS

processing assets and making the sites safe for access Working
Work ing capit
ca pital
al
to rehabilitation works.
At scoping study level, it is not typically possible to
During this period the working capital will be reduced calculate working capital from the financial model
and returned as incomes are received from the sale of because there is not sufficient detail in the base data.
stockpiles. It is important to recognise this recovery in Therefore, to assess the requirements for working
the cash flows as part of the closure costs. capital, various estimating factors can be applied.
Rehabilitation costs are the costs of fulfilling For commodities sold at the mine gate, it is usual that
legal requirements, of commitments made in the
allowed working capital equals two to three months of
environmental plan and of meeting community
the full annual operating costs. The amount allowed
 expectations. They may be incurred progressively
depends on the complexity of processes and the
during the life of the operations as well as after closure.
remoteness of the mine site. Both add to the needs for
The cost estimates should include all relevant larger stockpiles and hence working capital.
overhead costs for management and supervision, full
operating expenses (including repairs) and ongoing For commodities that are sold at the customer gate and
which may need to be stockpiled by the operator prior
rehabilitation maintenance costs. These should include
all costs associated with labour, staff and consultants to sale, the working capital allowances are increased to
engaged in the activity. Also included are overhead four to six months of the full annual operating costs.
costs associated with the company’s operations and Again the range depends on complexity and location
which are in accordance with company procedures and of the project.
policies. For concentrate sales, there will be a certain
Rehabilitation programs are complex and involve minimum shipment size, which may represent several
a wide range of stakeholders. Where rehabilitation weeks of production, particularly during the early
costs will be incurred progressively over the mine’s commissioning phase. Further, full payment (the
operational life, they should be allowed in the annual outstanding ten to 15 per cent) will not be received
operating budgets as well as at the end of the useful life until receipt at the purchaser’s works some six weeks
of the investment. later. Therefore, the full cost of at least several weeks of
full operation has to be borne as working capital.
Residual value At prefeasibility study level, the financial models are
Residual values are the salvage, resale or scrap value generally such that the differential between costs paid
of the mining equipment and process facilities and and income received can be calculated with reasonable
equipment. The residual values may offset, to some accuracy.
extent, the closure and rehabilitation costs. It is not To this allowance must be added the costs to produce
sufficient, even in a scoping study, to assume that the the stockpile of partially completed and final products.
residual value of plant fully offsets the closure and These working capital costs will need to be identified
rehabilitation costs, as these costs are typically higher. from the model and reported in the study.
The residual value may also include the return of For feasibility studies, the financial models will be
bonds or guarantees held by governments or mining sufficient that the needs for working capital will be well
regulators. Trade arrangements with suppliers may defined and can be derived. Allowances for stockpile
also have a residual value built into the arrangements.
and process inventories will need to be derived from
the operational mining, processing and marketing
ESTIMATING METHODOLOGIES plans using detailed cash flows of the operating costs
Estimating methodologies should be consistent with and the revenues.
the estimating basis and methods set out in Chapter 4
– Capital Cost Estimation and Chapter 5 – Operating Deferred and sustaining capital
Cost Estimation. At scoping study level, it is not usual that deferred or
It is normal that business costs are estimated by the expansion capital costs can be identified, except possibly
same personnel using similar techniques as the study in the mining equipment area. If so, it is normal that the
costs estimates. For the methodologies to be consistent, same unit cost of mining equipment is used and an all-
the recommended business cost standards are shown up indirect costs factor is applied for the management
in Table 6.1. In this table, the purpose and phase of of procurement and field delivery costs.
development are shown along with class as given by With prefeasibility studies, the capital costs are
the American Association of Cost Engineers (AACE). sufficiently well defined for the various options and
alternatives so that the deferred or expansion capital
ESTIMATING
ESTIMATING APPROACHES cost estimates can identify the exact estimates for the
This section describes estimating approaches used equipment or facilities that need to be constructed.
for each type of cost described under definitions of The deferred or expansion capital costs should be
business costs, above.
above. presented using the same work breakdown structure

Cost Estimation Handbook 87

CHAPTER 6 – BUSINESS COSTS

TABLE 6.1
Basis of business cost estimates.

Scoping study – Prefeasibility study –

Prefeasibility Feasibility study – Execution – Phase 4
Phase 1 Class 5 Phase 2 Class 4 Phase 3 and investment and definiti ve estimate
estimate
decision Class 3 Class 2
C. Basis of deliverables and general data needed to be
b e available
C1 – Working capital Factorised from total Factorised – percentage Detailed calculation, Detailed calculations,
increases or decreases annual operating cost a, of operating cost based on the operating based on the operating
over project operating based on the current per process area costs for process costs for process
 life trading terms for mining, fo r preliminar
for pre liminar y systems to mine and systems to mine and
rail and port mine scheduleb and production schedulea, production schedule
calculated adjustments negotiat ed to binding using approved annual

fo
for
onr mining,
co ntrac
cont ractrail
t provi
proand
visio
sions
ns
port heads
fin
final agrofeemen
al agree agreement
ments f or or
ts for production plan and
actual or quoted costs b,
mining, rail and port based on final executed
agreements for mining,
rail and port
C2 – De
Deff err
erred
ed ca
capi
pita
tall Fac
acto
torisedda
rise Factorised – percentage Detailed calculationa Detailed calculationsa
by areas of costs, based Must be presented
on costsa by areas and units of
property lists
C3 – Su
Susta
stain
inin
ingg cap
capital
ital Fact
actoriseda
orised Factori sed – Percentage Detailed calculationa Detailed calculationsa
by areas of costs, based Must be presente d in
on costsa detail at Level 4 by units
of property
C4 – Closure and Factorised a Factori sed – some Detailed calculationa Detailed calculationa
rehabilitation detailed estimates and Costs must be with
wi th curr
c urrent
ent c ost s as
some percentage-based calculated to Level 3 basis
estimates a if scope definition
available
C5 – Res
esid
idua
uall val
alue
ue Fac
acto
tori
rise
sedd pe
perc
rcen
enta
tage
ge Factorised – percentage Calculated values Calculated values
of total capital costs a of total cost s by area on area and major on area and major
with
wi th appr
a pproxim
oximate va lues equipment component a
ate values equipment component
of major componentsa basis; possible quote
on residual equipment
value
a = Using same metho dolo gy and ba sis as, or as set out in, Chapter 5 – Oper ating Cost Estimati on, Table
Table 5.2.
b = Using same metho dolo gy and ba sis as, or as set out in, Chapter 4 – Capita l Cost Estimation, Table
Table 4.5.

as the basis of the initial capital cost estimate. Indirect types; hence the basis of project delivery will be
and owners’ costs are then applied. Indirect costs at different.
this stage should be the same as derived from the base Closure and rehabilitation
estimate, plus any adjustment down or up to suit the
likely approach to the implementation of the deferred At scoping and prefeasibility study levels, very little
or expansion capital works. published information is available, or is applicable, to
Similarly, the feasibility study will be typically provide general estimating factors or cost benchmarks
accurate enough to identify the direct costs of deferred for closure and rehabilitation costs. Therefore, most
or expansion capital costs using the same methodology estimates of the closure and rehabilitation costs at
as the initial capital cost estimate. However, the indirect scoping and prefeasibility phases are based on an order-
costs will need to be broken down into base estimates of-magnitude bottom-up estimate. Most Australian
and allowances specific to the timing and approach to state governments provide online tools or guidelines
implementation of the deferred or expansion capital for estimating mine rehabilitation costs.
works. At feasibility study stage, an outline of the closure and
The key issue to recognise with deferred or expansion the rehabilitation scope, approach, timing and costs can
projects is that they are brownfields, not greenfields be derived on a similar basis as the capital cost estimate
estimates.
s.

88 Cost Estimation Handbook

CHAPTER 6 – BUSINESS COSTS

Residual values CONTINGENCY

Unless the project has a short mine life and the Contingency for known unknowns has not traditionally
equipment and facilities are reasonably easy to been applied to business costs. The reasons for this
transport, then scoping studies simply ignore the practice are unclear and potentially not correct in a
residual value of the equipment. theoretical sense. The justification used in the past is
Alternatively, the scoping study methodology may that the project implementation team does not usually
allow a residual value of the mining equipment at manage the business costs. Rather, business costs
resale factors and for large mechanical processing are future operational issues, which have a degree
equipment, such as mills and crushers, at a resale value of capacity to be adjusted to reality. Other costs such
of a relatively low return on the original estimates. For as closure and rehabilitation and residual values are
mobile equipment
equipment the residual value depends on the age so far out in time that contingency seems an unreal
of the unit, its condition and the operating hours since expectation of the accuracy of contingency factors.
a major rebuild. A rebuilt 10 000-hour underground It is recommended that business costs for deferred or
mobile item could be worth 60 - 70 per cent of new expansion capital costs and closure and rehabilitation
cost. An older unit will generally be saleable for about costs contain contingencies consistent with the base
20 per cent
cent of new cost, if it is operable. capital costs estimates, but that the other business costs
During prefeasibility and feasibility studies it is need not contain these allowances. The criteria applied
normal to use budget quotes for the resale value, less to contingencies should be defined in the study cost
the estimated costs to remove and transport the specific estimate basis.
equipment and facilities. Budget allowances are best
obtained from agents and equipment traders, rather ESCALATION
than trying to use factorisation benchmarks. Escalation is not applied to the estimates of the business
In some projects involving large amounts of steelwork, costs. Rather, it is allowed in the financial model on
cabling, fittings and furnishings, it is justified to include a consistent evaluation basis. Some models apply
a scrap allowance on a dollar-per-tonne basis for the escalation, while others do not. This then determines
removal and sale of the high-value bulk materials. the basis for setting the future escalation of costs.

DEFINITIONS
Definitions used are available in the list of abbreviations
at the front of this handbook, and in Chapter 4 – Capital
Cost Estimation and Chapter 5 – Operating Cost
Estimation, so are not repeated here.

Cost Estimation Handbook 89

 CHAPTER 7
Surface Mining

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CHAPTER CONTENTS

Planning and design 95

Min e li f e 95
Or e c ha rac t er ist ic s 95
Minin g m et h o ds a n d e q uipm ent sel ec t i o n 97
 Sc he dulin g 97
Ca pi t a l ex p en di t ur e 98
Rock breaking equipment 99
R ip p in g 99
Dr illin g 99
Excavating
Excavating and l oading equipment 100
Lo a der sp e c i f ic a t io n s 10 0
Shovel-t y p e lo a der s 101
O t he r e q uipm en t 10 4
Haulage equipment 107
Tr uc k t y p e s 107
Tr uc k sp e c i f ic at io n s 108
Tr uc k t ravel t im e 116
Sc r a p er t y p e s 119
Co nveyo r s 120
Miscellaneous equipment 120
Haul r o ad ma int ena nc e 120
D ewat er in g pla nt s 121
Li ght ing pla nt s 121
Li ght vehic le s 121
Worked
Wor ked examp
ex amples
les 122
Minin g p r o duc t i v i t y 12 2
Equip m ent pr o duc t i v i t y 123

Per s o nne l 125

C o n t r a c t o r o p e r a t in g c o s t s 126
Equip m ent c a p i t a l c o st s 126
O p e r a t in g c o s t s 126
O t h e r o ve r h e a d s 132
Mis c ella n e o us c o st s 132
Co st summa r y 132
References 133

CONTRIBUTORS

First edition tex t by:

by: H Spark, P Westcott
Westcot t and R Hall

Revised and updated

update d by:

Ross Bertinshaw FAusIMM(CP), Principal, Golder Associates Pty Ltd

Nathan Robinson MAusIMM
MAusIMM(CP
(CP),), Senior Mining Engineer,
Engineer, Golder Assoc
Associates
iates Pt
Ptyy Ltd
Doug Turnbull MAusIMM, Principal Mining Engineer, Sandvik Mining Systems
Vic ki Woodwar
Vicki Woo dwardd MAusIMM
MAusIMM(CP
(CP),), Senior Mining Engineer,
Engineer, Golder As sociat
sociates
es Pt y Ltd

Surr fac
Su facee Mining
Mining

Surface mining cost estimation is a complex exercise In calculating the mine life, the economic limits of
that requires analysis of a variety of inputs, including the open cut mine must be known to determine the
the geology and physical properties of the deposit, quantity of ore available for mining. This requires
equipment selection, equipment productivity optimising the pit’s limits, which is part of the planning
 estimation, workforce roster and personnel planning. process and a complex iterative exercise.
Capital and operating cost estimation for the selected
fleet also needs to be analysed.
Ore characteristic
characteristic s
The physical characteristics of the ore and waste
This chapter details factors to be considered when
materials must be known in order to select appropriate
preparing a surface mining cost estimate. The final
excavation and haulage equipment. The most important
section provides a worked example of the cost
factors are:
estimation techniques applied to a small open pit gold
mining operation. • excavatability
• density
PLANNING AND DESIGN • volume measures.
For surface mining operations the objectives of the Excavatability
Excavata bility
planning process are to:
Excavatability is a measure of the effort required
• define the resource in terms of grade, tonnage and to remove ore or waste from its in situ position. It is
location generally described as one of:
• determine if a market exists for the products and if
so what are the quality and quantity constraints • drill-and-blast
• free digging
• select a mining method that is the most economic
• rippable.
given the physical characteristics of the orebody
and rate at which the ore is to be mined Assessment of the excavatability of the material is
not easily determined with accuracy. Many cases can
• decide if the project is either economically viable or
be cited where
where contract miners in particular have
have lost a
could be viable under a given set of conditions.
considerable amount of money as a result of an error of
Selection of the most economically viable mining judgement in its assessment.
assessment.
method requires an evaluation of the capital and
To gain an understanding of excavatability a
operating costs of the surface mining equipment. In
geotechnical investigation of the ore and waste
order to establish surface mining equipment costs for
materials is required in the early stages of the mine
a given project, the planning process must define the:
planning process. The information required from this
• mining method study should include:
• mining sequence (schedule) • engineering logs of boreholes in ore and waste in
• ore production rate and hence mine life, including both weathered and
and unweathered material
the overburden production rate required to sustain • engineering seismic surveys across the proposed
the ore production rate open cut mine.
• physical characteristics of the materials to be A typical engineering log includes a description of
handled. the hole, groundwater conditions, rock type, strength,
degree of weathering and discontinuities. All can
Mine lif
lifee indicate the excavatability.
The life of the mine is determined by dividing the Franklin, Broch and Walton (1971) proposed a method
quantity of ore in the designed pit to be extracted by of assessment, based on joint spacing and point load
the quantity of ore to be mined per annum to meet strength as shown in Figure 7.1.
the marketing requirements for the products. For a
constant rate of production: Density
Ore avail
available
able The in situ density of the ore and waste must be
Mine life =
Annual production rate assessed in order to determine the volume of material

Cost Estimation Handbook 95

CHAPTER 7 – SURFACE MINING

Volume measures
Difficult Unrippable-
The volume of material is defined depending on its
) Ripping Blast to fracture stage in the earthmoving process.
(m
g
in Bank measure
c
a
p
S
t
This is the in situ volume of material as it lies in the
in
Jo
Rippable ground before the excavation process has begun; it is
typically referred to as bank cubic metres (BCM). Most
Free contract mining is based on volume measurement, as it
Digging
is easy to check by surveying.

Point Load Stength (MPa) Loose measure

FIG 7.1 - Excava ta
tabilit
bilit y ass ess
essmen
men t This is the volume of material after it has been
(Franklin, Broch and Walton,
Wa lton, 197
971).
1). disturbed by drilling and blasting and excavation, and
 has swollen as a result. It is typically referred to as
that can be loaded and hauled without overloading loose cubic metres (LCM). This measure is important
the equipment. In dense ores particularly, there is because the measure is used
used to select appropriate load-
a tendency to overload trucks. A table of typical and-hauling equipment.
densities for various ore and rocks in given in It should be remembered that there are different loose
Table 7.1. However, it is preferable for the density to measures at different stages in the mining process.
be measured in the laborato
laboratory
ry using samples from In particular, during the dumping operation some
drill core. compaction of the material may occur. This is important
to consider during dump planning.
TABLE 7.1
7. 1
Material factor s for various
various ore and rock typ es. Swell factor
Swell is the volume increase after material has been
Material Bank Swell Load Loose
disturbed.
density factor density
(t/m3) (t/m3) Swell = Disturbed
Disturbed volum
volume
e - undis
undisturbed
turbed volum
volume
e
Undisturbed volume
B as al t 2.97 0.50 0.67 1.98
Swell can be expressed either as a percentage or ratio,
Clay – bed 2.02 0.22 0.82 1.66
eg 50 per cent or 0.5:
Clay – dr y 1.84 0.23 0.81 1.50
Swell factor = 1 + swell
Clay – wet 2.08 0.25 0.80 1.66
Coal – 20% ash 1.50 0.35 0.74 1.11 where swell is a proportion.
Coal washed N/A N/A N/A 0.80 - 1.00 Load factor
D o le r i t e 2.85 0.52 0.66 1.88 This allows for the conversion from loose to bank
Ear t h – topsoil 1.40 - 1.50 0.43 0.70 0.98 - 1.05 measure.

Ear t h – compacted 1.80 0.25 0.80 1.44 100%

Load factor =
100% + % swell
Granite 2.67 0.62 0.62 1.65
For example, if swell is 50 per cent:
Limestone 2.61 0.63 0.59 1.54
100
Load factor =
S a n d st o n e 2.50 0.63 0.60 1.5 100 + 50
Sand – dr y 1.45 0.12 0.89 1.29 = 0.67
Sand – damp 1.90 0.12 0.89 1.7
Load factor is usually expressed as a ratio:
Sand – wet 2.08 0.14 0.88 1.82
Sand and gravel – dr y 1.96 0.12 0.89 1.75 Volume (BCM) = volume (LCM) × load factor

Note: N/A = not applicable. Example

A granite material during excavation expands from a
Dry density is typically used to report mineral bank volume of 1500 m3 to a loose volume of 2500 m3.
resources and ore reserves, while productivity What are the swell and load factors? If a ten per cent
calculations require wet density to estimate bucket compaction during dumping is attained, what would
capacity and payload. the load factor become?

96 Cost Estimation Handbook

CHAPTER 7 – SURFACE MINING

2500
2500 - 15
1500
00 It is unlikely that the mine will have the facilities
Swell =
1500 to undertake major component overhauls on-site.
= 0.67 or 67% Therefore, the ability of the equipment supplier to
provide exchange units at short notice is of prime
100 consideration if an acceptable level of mechanical
Load factor = availability
availability is to be achieved.
100 + 67
= 0.60 The lead time required to obtain spare parts is of major
importance on remote sites. Careful consideration of
lead times is required in the planning stage of the project
Compacted dump volume = 2500 × (1 - 0.1)
and may necessitate the purchase or hire of additional
= 2250 m3 equipment to be located on-site to cover the periods
where a machine is down and waiting on spares.
2250
2250 - 15
1500
00
Swell =
1500 Scheduling
= 0.50
 The marketing
determine plan forproduction
the required the mining rateventure will
of saleable
Load factor = 100 products over the life of the mine. The purpose of
(100 + 50) scheduling is to determine how this production will
= 0.67 be achieved over time and thus the consequences in
terms of provision of labour, equipment and supplies.
Table 7.1 provides example density, swell and load The scheduling process is complex and involves the
factors for a few common materials. tabulation of quantities, qualities and other values for
each scheduling period in the mine schedule. Typical
Mining methods
methods and equipment selection
select ion tabulations for each period of the schedule include:
Selection of an appropriate mining method is primarily • allowances for significant weather events
dependent on: • average run-of-mine ore grade
• ground conditions • equipment cycle times
• mine life • machine hours required
• orebody characteristics and selectivity required to • personnel hours to be worked
minimise mining losses • ore and waste quantities.
• required production rate
An accurately prepared schedule of ore and waste
• topography of the mine site. quantities to be moved per period is an essential
These site characteristics will generally limit the prerequisite to determine the size and number of load-
choice of mining method to a few options that should and-hauling units.
be costed in detail to determine the most economic As a general rule, it is better to maintain relatively
method. constant volumes of ore and waste to be shifted per
The equipment selected for the operation must be period. This allows a constant level of personnel to be
compatible with the site characteristics and mining established and avoids the need to acquire additional
method adopted. The primary types of o f surface mining equipment or engage a contractor to overcome short-
equipment are provided in Table 7.2. term peaks in production.
With a new mine, there will be a training period
TABLE 7.2
7. 2 for operators while they become familiar with new
Main type s of surfac e mining
mining equipment.
equipment and mining procedures. It will generally
Exc avat io
ion equipment Haulage equipment Dr ilills be several months before the full productivity of a
new mine is realised and this inefficiency should be
Buck
ckeet wh
whee
eell exca
cavvat
ator
orss B ott
ottom
om dumpe
pers
rs Per
ercu
cuss
ssio
ionn
incorporated in the mine schedule.
Draglines Bulldozer s Rot a r y
Working hours
Front-end loader s Conveyor s
Working hours are key when determining a mining
Hydraulic exc avat or s Rail operation’s productivity and costs. The variables
Rop e shovels Rear dump t r uc ks controlling working hours include:
S c r a p er s Road t rains • award conditions
Sur f ac e miner s S c r a p er s
• operational delays
• plant maintenance
Also important in the selection of equipment is • plant utilisation
the availability of backup service and spare parts. • workforce roster.

Cost Estimation Handbook 97

CHAPTER 7 – SURFACE MINING

Table 7.3 provides the calculations used to determine TABLE 7.4

the available working hours per annum. The scheduled Typical estimates f or mech anical availability.
availability.
hours per shift includes non-productive time resulting
from shift changeover, lunch breaks and safety meetings, Pl ant Mec hani c al avail abili t y (%)
etc. In the example provided in Table 7.3, this time has Sh ovel/exc avat o r 85
been estimate
estimatedd at one hour
hour per shift. This unproducti
unproductive
ve
Tr uc k 85
time is often expressed as a reduction in the minutes
available per hour (eg 11/12 × 60 = 55 min/h). Dr ill 80
Fr on t-en d l o ade r 80
TABLE 7.3
Possible production calculation. Gr a d e r 75
Trac k d ozer 75
Line Material Units Resulting Calculation
no time Wheel
Wh eel d oze
ozerr 75
Maximum
1 days/annum d/a 365 TABLE 7.5
7. 5
 Shift calculations (three-panel, two we eks on, one week off).
2 Holidays d/a 0
3 Weekends d/a 0 Line I t em Uni t s Resul t ing Calculation
no time
Possible
4 d/a 365 1-2-3 1 Day s o n d/r o st er 14
days/annum
5 Weat her delays d/a 13 2 Day s o f f d/r o st er 7

Operating 3 Ma x imum
6 d/a 352 1-2-3-5 d/a 365
days/annum days/annum

Scheduled 4 We at h er
7 h/shif t 12 d/a 13
hours/shift delays

8 Shif ts/day shif t s 2 5 A nnual leave d/a 20

Scheduled 6 Sic k l eave d/a 10

9 h/a 8448 6×7×8
hours/annum 7 Fune ra l le ave d/a 5
Available
Available 8 A b se nt e eism d/a 10
10 h/shif t 11
hours/shift
9 Ro st er e d of f d/a 12 2 (3/(1 + 2)) × 2
Available
Available
11 h/a 7744 6 × 8 × 10 10 Tra ining d/a 12
hours/annum
11 3-5-6-7-8
Tot a l w o r ke d d/a 18 6
- 9 - 10
The available h/a does not take account of
o f equipment
availability,
availability, which is a function of downtime, resulting 12 Per s o n p a id/ person/
1.31 (3 - 9)/11
from mechanical breakdown and servicing. Plant possible shift shift
availability can be increased by providing spare units 13 Ef f e c t i ve
and servicing machines during lunch breaks or during h/shi f t 11
hours worked
other non-productive times. For new equipment and
efficient servicing the available factor can approach 14 Ro s t e r e d
h/a 2677 13 × (3 - 9)
100 per cent. However, as the hours of service approach time
the economic life of the machine, utilisation drops and 15 Ef f e c t i ve
eventually the machine will have to be replaced. Some hours worked h/a 2 05 0 13 × 11
typical estimates of mechanical availability suitable for
16 Ac t ua l h our s 11 × (1 - (4/3))
use in a feasibility study are provided in Table 7.4. h/a 1977
wor ked × 13
13
To estimate the hours worked per employee, rosters,
leave and absenteeism must be considered. Table 7.5
• owned and operated plant
provides an example of the methodology used to
determine the working hours per employee for an • equipment hire, including full (wet) hire or dry hire
operation working on a three-panel roster of two weeks (where labour and/or maintenance costs may be
on, one week off. excluded from the hire rates)
• contract mining.
Capital expenditure A mine may use a combination of these options. The
The operating models typically used in surface mining decisions to be made regarding capital expenditure on
operations are: a project are both numerous and complex. The prime

98 Cost Estimation Handbook

CHAPTER 7 – SURFACE MINING

consideration is availability of capital or the ability to

500 kw
raise funds for the purchase of equipment. Where the
funds are not available or the cost of raising capital )
/h 400 kw
is excessive, the alternatives of contract mining or 3
m
equipment hire should be considered. (B
n 300 kw
io
t
Further details regarding capital cost estimation are c
u
provided in Chapter 4 – Capital Cost Estimation. d
o
r Approximate
P
Economic Rip Limit
ROCK BREAKING EQUIPMENT
The most commonly used methods of breaking rock
in open cut mines are ripping with a dozer and drill-
Seismic Velocity (m/s)
and-blast. The selection of the appropriate method will
depend on the nature of the ground. Usually, there is FIG 7.2 - Rock
Roc k ripping
rip ping p ro
roduct
duct ion rat e (in bank
ba nk cubic met
metres).
res).
a transition point from one method to the other with
increasing depth of excavation and increasing rock down
on thethe
bit hole (DTH)
and no drilling,
energy is lostthe pistonthe
through strikes directly
joints in the
strength as the effects of weathering become less.
 strength as the effects of weathering become less.
Excavation by ripping is typically limited to rocks that drill string. The larger mast-type rotary/percussion rigs
are classified as extremely to moderately weathered. often use air-percussion hammers with independent
hydraulic drill steel rotation and hydraulic-powered
Ripping steel handling and traction motors.
Ripping is used to loosen material prior to loading with Rotary drilling has been adapted from oil well drilling
excavators, front-end loaders or scrapers. Engineering to large diameter holes for surface mining. A roller cone
seismic surveys using shallow refraction techniques bit is used with high feed pressure and slow rotation to
have been used extensively to assess rippability of rock. crush the rock. The relationship between pressure and
Dozer manufacturers published diagrams showing rotation speed varies with the type of rock, with lower
ease of ripping against seismic velocity. However, pressure and higher speeds used in softer formations.
seismic velocity alone is not a reliable indicator of the
The selection of a drilling machine for a surface
ease of excavation since it does not necessarily give
operation depends on:
a true indication of the excavation characteristics in
• hole depth
areas with
typically boulders
found and other horizon.
in the weathered non-homogeneities
Techniques • hole diameter
combining engineering and geophysical parameters • nature of the terrain
have been developed by Weaver
Weaver (1975) and Minty and • rate at which ore and waste is to be removed to
Kerns (1983). Factors that affect the ripping production comply with the mining schedule
of a dozer include: • rock hardness
• crawler traction • rock size that can be handled by the load-and-haul
• depth of penetration equipment.
• dozer power and weight Small top-hammer drills are used for small diameter
• groundwater conditions drilling of shallow holes in situations where a larger
• joint type, spacing and orientation rig cannot be used. For holes about 85 to 200 mm in
• length of rip diameter and up to 20 m deep, DTH hammer drilling
is commonly used. Rotary drilling is generally used
• number of rippers per machine
for larger diameter drilling of up to about 400 mm in
• rock type.
diameter and up to 100 m deep, mostly using tricone
Figure 7.2 shows ripping production against seismic bits, although drag bits have some application in soft
velocity for various sized dozers. It can be used ground.
for preliminary estimates in the absence of more
It is necessary to design a drilling pattern in order to
comprehensive site information.
determine the number and type of drilling machines
Drilling required. The procedure to be followed for a first-pass
design is given in publications issued by drilling and
The principal rock-drilling methods are rotary/
blasting companies and explosives manufacturers as
percussion and rotary. Rotary/percussion drills may
well as in various texts. Essentially, the design process
be air, air-hydraulic or hydraulic and may have the
involves the selection of the following key parameters:
hammer located at the top or bottom of the drill string.
With top-hammer drilling, the hammer’s piston hits • bench height (H)
the shank adaptor and creates a shock wave that is • burden (B)
transmitted through the drill steels to the bit. With • hole diameter (D)

Cost Estimation Handbook 99

CHAPTER 7 – SURFACE MINING

• spacing (S) Table 7.6 lists some average rates that may be used as
• subdrill (SD). a guide in preliminary studies in the absence of specific
The volume (V) of rock per drill hole can then be data. The rates assume a 67 per cent drilling efficiency.
efficiency.
determined by:
TABLE 7.6
V = H × B × S (m3) Avera ge dr illing rate
Average ra tes.
s.

The length of drilling (L) per cubic metre of rock is Class of Average drilling speed
spee d (m/h)
given by: rock
Jack- Air-tr ack Air- Rotary Rotary
hammer hydraulic tricone drag bit
L = (H + SD)/V (m/m 3)
S of t 8 - 12 25 - 35 3 0 - 45 21 - 3 0 35 - 70
If Q is the volume of rock to be excavated per hour Me dium 5-8 12 - 25 15 - 3 0 12 - 21 0 - 35
to comply with the mining schedule, then the required
drill metres per hour (M) is given by: Ha r d 0-5 0 - 12 0 - 15 0 - 12 N /A

M = Q/L (m) Note: N/A = not applicable.

 The required number of drills (N) to achieve the
production rate is given by:
EXCAVATING AND LOADING EQUIPMENT
In the past, the term ‘shovel’ has been used as a generic
N = M/R title for all loading units. This refers back to the days
when the electric rope shovel was the undisputed king
where: of the open pit mine. This is no longer true. Hydraulic
R is the average drilling rate (m/h) for each drill excavators have captured a large slice of the market,
R can be determined from the estimated with buckets of more than 40 m 3 now available
available.. Larger
instantaneous penetration rate (m/h) for a front-end loaders with bucket sizes of up to 40 m3 are
given rock type plus an allowance for relocation also available. Figure 7.3 categorises the major loading
and set-up over a new hole and other non- units. Rope shovels, hydraulic excavators and front-
productive drilling time end loaders are the main truck loading tools.
An example of the calculation of the average drilling
rate for a crawler-mounted pneumatic rig drilling an Loading unit

89 mm diameter hole to a depth of 9 m is given below.

Drilling Minutes Per cent Hydraulic
Rope shovel Front end loader
excavator
Instantaneous penetration rate 21.6 85 Miscellaneous
Dragline
Medium to hard granite, 25 m/h Surface miner
Front shovel Backhoe Dozer
Delays Scraper
Bucket wheel excavator
Two rod changes 0.8 3
Front dump Bottom dump
Cleaning hole 0.4 2
Pulling drill rods 1.3 6 FIG 7.3 - Loading
Loa ding unit
uni t typ
t ypes.
es.
Moving drill 1.0 4
Total delays 3.5 15 Loader
Loader specifications
specific ations
Total Cycle 25.1 100
Important loading unit specifications are given in this
Production section.
Metres drilled per 47 min = (47/25.1) × 9 = 16.8 m
Bucket size
Instantaneous penetration
penetration rate = 9/21.6 = 0.42 m/min
Bucket sizes can be given in two ways: either struck or
Average
Av erage drill rate = 16.8/60 = 0.28 m/min heaped volume. The usual capacity given for a bucket
Drilling efficiency = 0.28/0.42 × 100 = 67% is a 2:1 heaped capacity. It should be remembered that
Obtaining the estimation of the average drilling rate the rated capacity is more a method of comparing
for a particular site is difficult. The rate depends on bucket sizes than a measure of real capacity in any
the type of drill, available power, rock hardness, rock specific application. Selecting the correct bucket size
discontinuities and operator skill. In the planning stage and wear package is very important.
of a mine, it is advisable to conduct field drilling trials Another way of rating front-end loader capacity is
in conjunction with a drilling contractor or equipment by operating load. This is a nominal value intended
manufacturer. to represent the normal load under typical operating

100 Cost Estimation Handbook

CHAPTER 7 – SURFACE MINING

conditions. The rated operating load is defined as the power to the shovel and relocate cables during shovel
lesser of 50 per cent of wheel loader tipping load or moves creates operational problems and extra costs.
100 per cent of lifting capacity. Manufacturers often When comparing diesel units like hydraulic excavators
provide a rating in tonnes for a machine. This figure is and front-end loaders to rope shovels, it is important to
the sum of the bucket load and bucket weight. include the cost of power distribution.
Standard bucket sizes are usually based on a loose The effective use of power in front-end loaders is
density of about 1.7 t/m3. If the density is substantially limited by tyre traction and equipment tipping.
different from this value, then either a smaller or larger Table 7.9 gives the average engine power per cubic
bucket may be required.
required. metre of bucket capacity. Hydraulic excavators have a
higher ratio, which gives them an advantage in digging
Bucket fill factor
facto r ability.
Bucket fill factor is a measure of the real volume
excavated compared to the stated bucket size. Typical TABLE 7.9
bucket fill factors
factors are provided in Table 7.7. Loader horsepower to bucket capacity ratio.
Equipment Rat i o (kW/m3)
TABLE 7.7 7. 7
Bucket fill factors. Hydr aulic exc avat o r 5 6 - 114
 Bucket fill factors Fr o nt-en d l o a der 49 - 62
Shovel Fr on
ont-end Excavator
loader Reach and loading height
Fin e l o o s e m at er ia l 1.05 0.95 1.05 Reach and loading height are usually not a problem
for either rope shovels or hydraulic excavators. It
Co a r s e l o o s e m a t e r i a l 1.03 0.95 1.03 is, however, essential to match truck, excavator and
Well bla ste d 1.00 0.85 1.00 shovel sizes appropriately to ensure that productivity
is not reduced due to a poor truck fill factor. This could
Me dium blast e d 0.95 0.80 0.95
be created by pairing a large truck with a small
small shovel/
Po o r l y b l a s t e d 0.9 0 0.65 0.9 0 excavator.
On the other hand, for front-end loaders these
Ground pressure specifications can be critical. Should extra loading height

Ground pressure ofInloading

some applications. wet, softunits can be important
conditions, in
low ground- be require
required,
example ofd,the
it isdifference
possible toa obtain
possible obtain a high-li
high-lift high-lift
option ftmakes
option.
option. An
for a
pressure units are often required. The hydraulic Cat 992K front-end loader is given below (Table 7.10).
excavator has the least ground pressure followed by
rope shovels and finally by front-end loaders. With TABLE 7.10
tracked machines, the ground pressure can be modified Example of front-end loader reach an d truck loa ding height.
height.
by increasing track size. The disadvantage of using
larger tracks is that they are harder to turn and place Fro
ronnt-end lo
loaders Load he
heig
ighht (m
(m) Reach Bucket size
more stress on the track system and propel motors. (m) (m3)
Table 7.8 gives the typical ground pressure for different Cat 992K st andard 4.6 2.1 10.7
loading units. Cat 992K high lif t 5.5 2.2 10.7
TABLE 7.8 Tr uc ks Load hei ght (m) Widt h (m) Pay l oad (t)
Loading unit ground pressure.
Cat 777F 4.2 6.1 91
Uni t Gr ound pres sure – t y pi c al values
Cat 785D 5.0 7.1 133
(psi) (k Pa) Cat 789C 5.2 7.7 177
Ro p e s h o v e l s 30 - 5 0 207 - 3 45
Cat 793 5.9 7.6 218
Hydr aulic exc avat o r 15 - 3 0 10 4 - 207
Fr o nt-en d l o ad er >5 0 >3 4 5
Weight
Weight varies by the bucket size of a machine. Table 7.11
Power shows the approximate tonnes of machine weight by
Rope shovels with their electric power have few bucket size for the different machine types.
problems with motors. Electricity is generally a lower
cost item than fuel. Also, electric motors are usually Shovel-type loaders
cheaper to maintain than their diesel counterparts and Loader types, characterised by individual shovels
give excellent availability. The requirement to connect including dozers, front-end loaders, rope shovels and

Cost Estimation Handbook 1011

10

CHAPTER 7 – SURFACE MINING

TABLE 7.1
7 .111 Unlike rope shovels, hydraulic excavators do
Weight to
t o buc ket capac
ca pac it y rat io. not undergo lengthy rebuild sessions. Normal
maintenance involves replacing components at set
Uni t Capac i t y (t/m3)
hourly intervals. Good preventative maintenance is
Ro p e sh ovel 23 - 4 4 particularly important for ensuring high availabilities
Hydraulic exc ava t o r 16 - 22 from hydraulic excavators.
Most hydraulic excavators are diesel-powered,
Fro n t-en d lo ader 8 - 10
although it is possible to get electrically-powered
machines with an obvious loss of mobility.
hydraulic excavators, are detailed below. An example The main classification for hydraulic excavators is
of shovel productivity calculation is provided in this load-and-dump. The front-shovel-fitted excavator can
section. have two bucket styles, as shown in Figure 7.3. The
backhoe configuration is common in gold mines and
Front-end
Front-end loaders
loa ders
operations requiring a high degree of selectivity. The
The front-end loader is a self-propelled crawler or backhoe bucket is usually slightly smaller than the
wheeled machine with an integral front-mounted front-shovel bucket on the same machine. Backhoes are
bucket that loads with the motion of the machine. quite flexible and it is possible to load trucks either on
Crawler loaders are usually very small and generally the same level or at a lower level to the excavator.
not used for mine production applications. The main
advantage of the front-end loader is its mobility. Even Shovel
Shovel productivity
pro ductivity
if it is not the primary production unit on a mine site, Shovel productivity is detailed and calculated in
there will almost certainly be one or two units in backup Table 7.12.
or ancillary roles. Front-end loaders are primarily used Each step in the productivity estimation process and
to load trucks; however, they are also used in a load- definition of the input parameters is explained below
haul-dump operations, for example, at ore stockpiles by line number:
and crushers.
1. Equipment name – plus any special characteristics,
Front-end loaders operate more efficiently in very eg if high-lift bucket is used.
well blasted or stockpiled material because they are
2. Bucket size – rated capacity of the bucketbucket for the
limited in their breakout force. This restricted digging
equipment in line 1. This is usually the 2:1 heaped
envelope also sets a ceiling on the safe bench height
capacity.
under which a front-end loader can work. 3. Fill factor – measure of how well well the bucket gets
Rope shovels filled. Rope shovels and excavators achieve better
The standard rope shovel is a crawler-mounted fill factors than front-end loaders. Table 7.7 gives
electrically-powered machine with an upper structure typical fill factors for the various loading units.
capable of 360° rotation. It uses wire ropes to pull a 4. Material – description of material type.
bucket on the end of a dipper stick through the bank. 5. Bulk density – in situ density of the material being
This geometry means that the bucket angle of attack is loaded.
always the same. The main advantage of a rope shovel 6. Swell factor – as per per tests or table of material
is its heavy-duty construction and rugged nature. A characteristics.
rope shovel has a projected life of 100 000 hours or 7. Bucket load – estimated
estimated load
load that the bucket
bucket can
can
more. carry in BCM.
Rope shovels are at their best in heavy-duty conditions 8. Bucket load – recalculated to tonnes.
with long faces at long-life operations. Almost all rope 9. Nominal truck payload – rated truck payload in
shovels these days are electric. Diesel and diesel-electri
diesel-electricc tonnes.
shovels are used in rapidly declining numbers.
10. Calculated
buckett loadspasses
bucke to
(passes)
(passe fill requi
s) are r–equired
estimate fof
red to fill how
ill the
th many
e truck
truck to
Hydraulic excavators
excavato rs
its nominal capacity. The number of passes should
A hydraulic excavator is a self-propelled crawler be an inte
integer
ger for the best match betw
between
een loadi
loading
ng unit
machine with an upper structure capable of 360° and truck. Typically the number of passes should be
rotation. It excavates by using a bucket fitted to a boom between
betw een four and eight
eight.. For short trave
travell times the
and is powered by hydraulic motors. number of passes can be less, while as travel time
The hydraulic excavator is a very flexible machine. Its increases the number of passes to fill a truck becomes
high breakout force, selective digging and good mobility less important.
allow it to be used almost anywhere. Typical lives for 11. Use passes to fill – some engineers will only use
smaller machines (up to 8 m 3) are 25 000 hours, while integer values, saying that is all the shovel can
for larger machines, machine life can be 50 000 hours deliver. In fact, operators are quite able to deliver
or more. less than a full bucket to fill a truck. Another way

102 Cost Estimation Handbook

CHAPTER 7 – SURFACE MINING

TABLE 7.12 12. Calculated truck payload – estimated average

Shovel production estimation. payload that the truck will carry after considering all
the above factors.
Line Name of f ac t or Uni t s Cal c ul at i on
no 13. Load factor
fact or – percentage of truck filled
filled compared to
its nominal or rated payload.
1 Eq uipm en t
14. Time per pass – time taken for a loading unit to
2 B uc ket size m3 complete one pass. In the case of a rope shovel or
3 Fill f ac t or numb er excavator, this is the time taken to fill the bucket
in the bank, swing the load to the truck, drop the
4 Mat er ial load and then return empty to the face. The time
5 B ulk den si t y t/m3 for a front-end loader to complete a pass is similar
6 S w e ll f a c t o r numb er except for the extra time taken for the machine to
manoeuvre. The pass time is measured from the
7 Buc ket lo a d BCM 2 × 3/6 dumping of one pass to the next. Table 7.13 provides
8 B uc ket lo ad t 7×5 some typical values for the various loading units.
9 No min al t r uc k p ay lo ad t
TABLE 7.13
10 C a l c p a s s e s t o f ill numb er 9/8 Loading times.
 11 Us e p as s e s t o f ill numb er Loading unit time per pass (min)
12 Ca lc t r uc k p ay l o ad t 11 × 8 Front-end loader (large >8 m 3) 0.75
13 Lo ad f ac t o r 12/9 Exc avat or/sh ovel 0.5 0
14 Tim e p e r p as s min Excavator/shovel >25 m3 0.55
15 Lo a d t im e min 11 × 14
16 Sp ot t im e min 15. Load time – time taken to load the truck. There are
two approaches that can be taken to calculate this:
17 Lo ad + sp ot min 15 + 16
a) Simple – this
this is easy to understand, but is not
18 Ef f ic ien cy min/h 100 per cent rigorous.
19 Pr o p el f ac t o r %
20 Pr e s ent a t i o n f ac t o r % Load time = input passes
a pass × time to complete
21 Pr o duc t i v i t y t/h 18/17 × 12 × 19 × 20 b) Rigorous – this method takes into account that
22 Pr o duc t i v i t y BCM/h 21/5 on the first pass the bucket should already be
spotted. Therefore, the first pass should not be
23 Sc h e dule d h o ur s/ h
counted. The formula becomes:
annum
24 Me c ha nic a l availa bili t y % Load time = (input passes – 1) × time to
complete a pass
25 Us e o f ava ila bili t y %
26 U t ili s a t i o n % 24 × 25 It is generally advisable to use (a) as it is slightly
conservative. Calculation (b) is optimistic as
27 O p er at in g h o ur s/a nnum h 26 × 23 it assumes perfect loading synchronisation
28 Pr o duc t i o n/a nnum t 27 × 21 between truck
truck and shovel.
29 Pro duc t i o n/a nnum B CM 27 × 22 16. Spot time – time during which
which the loading unit has
the bucket in place to dump, but is waiting for the
30 Re quir e d pr o duc t i o n/ BCM truck to move into position. Spot time will depend
annum on the truck driver’s ability and the loading system.
31 Op e ra t in g h o ur s/a nnum h 3 0/22 Double-side loading should almost eliminate spot
32 Uni t s re quir e d numb e r 31/27
time. Table 7.14 gives some typical values.
17. Load + spot – addition of load
load and spot time.
Note: BCM = bank cubic metres. 18. Efficiency – measure of how much productive
work is done in one operating hour (ie to excavate
to consider it is that 4.4 passes is an average over material). This does not mean that the non-
different operators – some four-pass loading, others productive fraction is useless, only that the work
five-pass loading. This factor allows the engineer to done is not moving primary production ore or
choose a philosophy and, therefore, the number of waste. The activities that the efficiency factor allows
passes for input. for are:

Cost Estimation Handbook 103

CHAPTER 7 – SURFACE MINING

TABLE 7.14 24. Mechanical availability

availability – input value
value depending on
Typical spot times. machine type, age and maintenance philosophy.
Typical values are shown in Table 7.16.
Condi t i ons Spot t ime (min)
Go o d 0.25 TABLE 7.16
Mechanical avai
availability.
lability.
Average
Avera ge 0.60
New/ New/ Old/ Old/
Po o r 0.75
good poor good poor

• clean-up by the loading unit or dozer Ele c t r ic sh ovel 0.92 0.8 8 0.82 0.75
• crusher and dump slow-downs Hydraulic exc ava t o r 0.9 0 0.8 6 0.77 0.70
• fuelling Fr on t-en d lo ade r 0.8 8 0.8 4 0.75 0.65
• inspections Tr uc k 0.9 0 0.85 0.75 0.65
• loading unit movement

• operator experience 25. Use of availability – input value depending on

• under trucking the operating philosophy, roster, management
• unusual delays due to weather. efficiency and whether shift change and meal losses
are included in reduction hours. Some typical
 Efficiency is measured either as a proportion of an
hour or as the number of productive minutes in an values are given in Table 7.17.
hour. Table 7.15 gives typical values.
TABLE 7.17
TABLE 7.15 Use of availability.
Efficiency factors.
Condi t i ons Los s es in No losses in
Condi t i ons Pr o p o r t i o n Minutes/hour reduction hours reduction hours
Go o d 0.87 52 Go o d 0.9 0 0.8 0
Average
Avera ge 0.83 50 Average
Avera ge 0.85 0.75
Po o r 0.75 45 Po or 0.75 0.65

19. Propel factor – accounts for time lost due to 26. Utilisation – operating time divided by scheduled
movements of the loading units around the mine. time, also equals mechanical availability × use of
The efficiency factor accounts for the normal availability.
movements of a loading unit as it moves itself along
27. Operating hours/annum – the potential operating
the face during excavation. This factor depends on
hours that a loading unit could work in a year, if
the type of loading unit, size of pit and amount of
required.
movement required. Typical values might be 0.95
28. Production/annum – hourly productivity ×
for a rope shovel or 1.0 for a front-end loader.
operating hours.
20. Presentation factor – attempts to account for the
29. Refer to 28.
time a loading unit must wait for a truck. This
area is covered in more detail in the sections on 30. Required production/annum
production/annum – input value.
value.
queuing theory and simulation. It can also take into 31. Required operating hours/annum – calculated
account the priority a loading unit gets for trucks. operating hours for shovel fleet to excavate the
A primary production unit would probably have a required production input in the line above.
32. Required units – number of loading units required
required
presentation
ancillary unitfactor
couldbetween 0.95 andless
be substantially 1.0, at
while an
maybe to achieve required production considering, for
0.80. example, mechanical availabili
availability.
ty.
21. Productivity – tonnes of production excavated in Other equipmen
e quipmentt
an operating hour.
Equipment that does not use a single bucket, including
Productivity = eciency/(load + spot) × truck dozers, draglines, bucket wheel excavators and surface
payload × propel × presentation factor miners.

22. Productivity – BCM of production

production excavated in an Dozers
operating hour. Dozers can be either crawler or rubber tyred. Rubber-
23. Scheduled hours/annum – as discussed in the tyred wheel dozers have better mobility, speed and
previous section on ‘Scheduling’. manoeuvrability and are suited to applications with

104 Cost Estimation Handbook

CHAPTER 7 – SURFACE MINING

long push distances with loose lightweight materials on Draglines

level or downhill grades. These conditions are typically
Dragline bucket sizes range from less than 1 m3 to over
found at coal stockpiles or in a pit around shovels or
150 m3, although the commonly used size for stripping
stripping
excavators. The crawler-mounted dozer is usually
overburden in coalmines is 40 to 60 m 3. The smaller
fitted with a blade and a ripper. Typical specifications machines are crawler-mounted and diesel-powered.
for a dozer are given in Table 7.18. These machines have Machines above about 5 m3 are base-mounted with
many uses around the mine site, including: walker feet. Above about 15 m 3 draglines are electrically
• clearing and grubbing powered with AC mains supply driving DC generators,
• drainage construction which in turn power DC motors for the essential drive
functions of drag, hoist, swing and return propel.
• haul road formation
Most walking draglines comprise a central base on
• push loading scrapers
which the machine normally operates and two walking
• pushing up and loading machines shoes that work on a cam shaft to raise and lower the
• restoration and clean-up base, while also advancing the machine on each step. s tep.
• ripping and loading. Typical machine specifications are given in Table 7.19.
The dragline operates by the drag machinery pulling
TABLE 7.18 the bucket along the ground towards the operator. The
Crawler dozer specifications. full bucket is hoisted, while the drag cable keeps the
buckett from dumping. When the bucket is clear of the
bucke
 Flywheel power (kW) ground the boom is swung, while the bucket continues
100 200 30 0 500 to rise to the desired dump height. As the dump position
is reached, the tension on the drag cable is released to
Machine weight (t) 15 30 50 75 dump the load, while coming to a smooth stop. The
Ground contact area (m 2) 2.5 3.5 4.5 5.5 machine then swings back to the excavating position.
Blade width The cycle time can be estimated by first calculating
3.2 4.2 5.0 6.0 the theoretical time for completing the above cycle
(universal type) (m)
components from the manufacturers’ specifications.
Average life (h)
(h) 40 000 40 000 48 000 48 000 Then add delay factors for acceleration and deceleration,
angle of swing, depth of cut, excavatability of material
In the context of this section, the dozer can be and experience of the operator. Some typical cycle
considered an excavating and loading machine when times are given in Table 7.19. It should be noted,
it pushes loose or loosened material to a loading point. however, that draglines have more operating variables
The rate at which a dozer can move material depends than other loading machines and these variables
on the specifications, ground slope, pushing distance significantly affect the performance of the machine. It
and material characteristics. is advisable to perform a computer simulation for each
particular application. Figure 7.5 is a diagram defining
Figure 7.4 gives some curves for estimating the the dragline variables of digging depth, dumping
approximate production that can be expected from height and dump radius.
different sized dozers.
Example
An example of dragline productivity calculation is
given below, assuming the following conditions:
Material weathered sandstone
Density 2.2 t/m3
Swell 1.3
Machine size 50 m3
Swing angle 90°
Base cycle time 1.0 min
Bucket fill factor 0.85
The productivity per hour can be calculated as
follows:
Material per bucket = 50 m3 × 0.85/1.3 = 32.7 m 3
Cycles per hour = 60 min/h/1.0 min/cycle =
60 cycles/h
FIG 7.4 - Craw ler doze
d ozerr push
pus h capac
ca pac it y Productivity factor = 60 cycles/h × 47 min/h/60 min/h
(in bank cubic
cubic metres; sg = speci fic gravit y). = 47 cycles/h

Cost Estimation Handbook 105

CHAPTER 7 – SURFACE MINING

TABLE 7.19
Dragline specifications.
Capacity (m3)
0.75 2.5 5.0 15 50 75 135
Weight (t) 25 80 150 900 3 200 6000 9000
Ma ximum suspended load (t) 2.4 6 11 40 135 225 415
Power (kW) 90 165 30 0 1600 400 0 7500 13 500
Bo om lengt h (m) 15 22 30 80 95 100 100
Dumping radius (m) 14 20 27 65 85 95 95
Dumping height (m) 7 10 15 40 35 40 40
Digging depth (m) 10 12 18 55 40 50 55
Cycle time a
Easy digging (min) 0.40 0.55 0.60 0.65 0.75 0.75 0.75
Medium digging (min) 0.45 0.60 0.65 0.80 0.85 0.85 0.85
Hard digging (min) >0.50 >0.70 >0.80 >0.95 >1.00 >1.00 >1.00
 Walking speed (km/h) 2.5 1.5 1.2 0.27 0.22 0.22 0.20
Average life (h)
(h) 14 000 16 800 28 000 70 000 180 000 180 000 180 000

a. 90° swing,
swing, optimum dig
dig depth, casting specific ations and t ypical overburden material character istics.

of hard bands or boulders and is free-flowing when

excavated. They have been used to mine brown coal
and weathered overburden with compressive strengths
up to about 10 MPa.
Essentially, the machines comprise a rotating wheel
with buckets attached. The buckets have teeth on the
leading edge that cut the material. The bucket wheel
ranges in both vertical and horizontal planes over the
face. The excavated material drops onto a belt, which
conveys the material away from the face for transport
from the mining area by rail, truck, or more commonly,
belt conveyor. Typical specifications for bucket wheel
excavators are given in Table 7.20. The 12.5 m diameter
FIG 7.5 - Dragline
Dra gline ra nge diagr
diagram.
am. machine includes an 85 m conveyor bridge, which
increases the cost of the machine, but improves relative
Production per hour = 47 cycles/h × 32.7 m 3/cycle = output by reducing the number of bench conveyor
1537 bank cubic metres (BCM) moves.
Assume that the dragline is worked 19 h/d, 7 d/wk for Determination of the output from a bucket wheel
46 w/a, then: is a complex task and is highly dependent on the site
conditions. The machines also tend to be customised
Scheduled work days = 46 wk × 7 d = 322 to a particular application with regard to power
Less provision for disruptions = 10 d and gearing, making comparison between different
Available
Av ailable work days = 312 d machines difficult. The theoretical production in
Total available production = 312 d × 19 h = 5928 LCM/h from a bucket wheel is given by:
hours per annum
Q = W × N × C × 60
Hence production per annum = 5928 h × 1537 m3/h
= 9.1 M m3
where:
Bucket wheel
whee l excavators
excavator s Q theoretical output (m3/h)
Bucket wheel excavators are suitable for removing W wheel speed (rpm)
large volumes of soft overburden or ore that is free N number of buckets per wheel

106 Cost Estimation Handbook

CHAPTER 7 – SURFACE MINING

Bucket wheel TABLE

7.20specifications.
excavator
miner. This can be either loaded directly onto a truck
or conveyor or indirectly by windrowing where the
material will be picked up later.
Wheel diameter
diamet er (m)
Typical cut depth is 0.3 m. Because surface miners
5 .5 7.5 10 12.5 can take time to turn and set up at the end of each
Th e o r et ic a l c a p aci t y (LCM/h) 120 0 25 0 0 45 0 0 620 0 cut, a minimum of about 600 m of strike is required.
Consideration needs to be taken into account of
Ef f e c t i ve o u t pu t (BCM/h) 48 0 115 0 1950 325 0
any hard zones that might be cut across on a bench.
Bucket volume (m3) 0.25 0.60 1.20 2.35 Otherwise pick wear can be high.
Mac hine wei ght (t) 170 415 85 0 3 000
HAULAGE EQUIPMENT
Power
The haulage equipment covered in this section
B uc ket dr i ve (kW) 20 0 500 90 0 125 0 includes dump trucks, scrapers and conveyors. With
Conn e c t e d lo a d (kVA) 40 0 10 0 0 1850 4000 the exception of conveyors, which provide continuous
haulage, the equipment is cyclical and the estimation of
Bench dimensions
B a nk h eight (m) 9.0 14.0 19.0 3 0.0 the number of units required is dependent on accurate
estimation of the productivity of a haulage unit.
B elo w gr ad e r eac h (m) 5.0 7.0 10.0 5.0
Truck t ypes
Cu t w id t h (m) 13.0 19.0 26.0 5 0.0
Trucks can be classified as:
 B enc h c o nveyo r w id t h (mm) 90 0 1350 16 0 0 180 0 • dumping
Ty pic a l us a ge (h our s/a) 350 0 35 0 0 35 0 0 350 0 • rear dump
Average
Avera ge life
li fe (ye ar) 20 20 20 20 • bottom dump
• side dump
Notes: BCM = bank cubic metres; LCM
LCM = loose c ubic metres.
• steering
C bucket capacity (m3) • front wheel steer
S swell factor • articulated steer
The bucket fill factor typically equals one for the types • drive
of material commonly excavated. • rear wheel
The typical effective output in BCM/h for each • all wheel
machine specified is given in Table 7.20. The figures • centre drive
include the effect of material swell, excavator and • axles
conveyor availability, mining efficiency and conveyor
• two axles
moves.
• three axles
Surface miners
• more than three axles
Several designs of surface miners are applied in open cut
• power train
mining where medium-strength materials (up to 50 MPa)
are to be excavated. Their advantages are eliminating the • mechanical
need to drill-and-blast, mining with minimal dilution, • electric.
eliminating the need for primary crushing and providing The following sections discuss some of the distinctions
a continuous flow of material from the face. However, among these types.
pick wear and power consumption can be high in hard
abrasive material, making them more suitable for coal Dumping config
con figuratio
urations
ns
mining applications in similar materials. Rear and bottom dumps only are discussed in this
There are two main types of cutting head used on section.
the machines. One type is similar to underground Rear dumps
continuous coalminers and has an oscillating drum
head with picks attached. Cut material is fed onto a In these units the body is mounted on the truck
central conveyor by gathering arms at floor level for frame. Dumping is carried out by a hydraulic hoist
discharge at the rear of the machine. The other type system raising the body to greater than 45°. These
of head has some features in common with the bucket are very flexible units capable of handling all types of
wheel excavator, including that the cutting is done by material. They have good gradeability and are easily
a drum with bucket-type segments across the width of manoeuvred. They are the most common haulage unit.
the machine. Buckets lift the cut material and discharge The standard haul unit has two axles with two wheels
it onto a conveyor for delivery at the rear of the on the front axle and four wheels on the rear axle. The

Cost Estimation Handbook 1077

10

CHAPTER 7 – SURFACE MINING

rear wheels
trucks are common
are less usually the
in only ones
mines, butdriven. Three-axle
are used for on/ • rimpull curve
• braking curve
off highway hauls. An example is a coal unit loaded in- • drive system type
pit, but which does most of its hauling on good roads
• power
at high speed. The extra axle reduces the tyre loadings
and so improves tyre life at high speeds. • tyres.

Bottom dumps Payloa

Payload,
d, net vehicle weight
weig ht and gross
gro ss vehicle weight
we ight
These units provide faster dump times and higher The amount of useful material carried by trucks is
payloads for the same engine horsepower, but at the measured either as bank cubic metres (BCM) or tonnes.
cost of gradeability and manoeuvrability. In general, It is the weight of the load that is important in terms of
their use is in strip coal mines where the ramp gradients the vehicles performance. Manufacturers either define
are kept at five per cent or less. the capacity of their trucks in terms of nominal payload
(tonnes) or as a maximum gross vehicle weight (GVW).
Ar ticu
ticulated
lated steering
ste ering
The GVW system is very sensible as it accounts
Articulated units tend to be smaller and of lighter for the changes in net vehicle weight (NVW) due to
construction. Maximum size would be of the order specification differences between units:
of 50 t. Their main application is in wet and poor
underfoot conditions. Their lighter construction results Payload = GVW - NVW
in a shorter life.
As the above formula shows, payload is the difference
Power train
 between GVW and NVW. The NVW for the same trucks
The two basic power trains in large haul units are at different mines can be quite large. This is because
electric and mechanical. different options selected by each operation include
Electric tyres, wear packages, air conditioning, size of fuel tank
and body size.
Electric units use a generator-alternator, driven by a
diesel engine to power electric motors in the hubs of When calculating productivities we are usually only
the rear wheels. Retarding (braking) is provided by interested in average payloads. However, it must be
working the system backwards. The electric motors understood that payloads follow a distribution of some
are used as generators with the electric power created sort. This will not necessarily be a normal distribution.
as feed to large resistor banks. This retardation will However, as a rule-of-thumb it can be assumed that a
reduce the speed to a few kilometres per hour where standard deviation will be ten per cent of the average
the disc-drum braking system (service) can be used. payload and that payloads will be normally distributed.
The engine of the electric drive units runs at set Therefore, assuming an average payload of 172 t and
revolutions per minute (rpm) all the time. This means a ten per cent standard deviation (17.2 t) with a normal
that it uses substantial fuel even under braking distribution, the truck payloads could be expected
conditions. to range from 138 t to 206 t for 95 per cent of loads
Electric drive manufacturers counter that their units (Figure 7.6).
are cheaper to maintain. Electric drive trucks can be The two equations below give the calculations for
matched to a particular haul cycle and may outperform maximum and average payloads:
mechanical drive trucks in this situation; however,
mechanical drive trucks are more flexible. Maximum payload = average payload + number of
SD × SD as a per cent of mean
Mechanical
These operate in much the same manner as a car with Maximum payload
Average payload =
an automatic gearbox. Trucks are available in a range 1 + %SD # number of SD from mean
of sizes up to a payload of more than 300 t. 100
The main advantages of mechanical drive units lie in
c m
where:
their better gradeability and lower fuel consumption.
SD standard deviation
Truck specif
specifications
ications Example
This section discusses truck specifications that can be What will be the average payload if the maximum
important in analysing truck shovel systems. Some GVW of a truck is 317 t and the NVW is 130 t?
important specifications are: Assuming a normal distribution, a standard deviation
• payload, net vehicle weight and maximum gross of seven per cent of average payload and acceptance of
vehicle weight five loads in 100 being more than the maximum, the
• dimensions maximum load is:

108 Cost Estimation Handbook

CHAPTER 7 – SURFACE MINING

9.0%
A good
one scaled
for the diagram
loading is veryand
equipment useful. Combined
careful scaling with
on a
8.0%
photocopy, they are invaluable for ensuring units are a
7.0% good match.
6.0% Equipment manufacturers are a good source of
data for initial analysis to match loading and hauling
5.0%
equipment.
4.0%
Power
3.0%
Power is usually quoted as either gross power or
2.0%
flywheel power. Gross power is the maximum power
1.0% that can be produced by the engine. Flywheel power is
gross power less the power used by ancillary equipment
0.0%
120 140 160 180 200 220 240 on the truck. This equipment includes fan, air cleaner,
PAYLOAD (t) alternator, water pump, fuel pump, oil pump and
100%
muffler. Flywheel
of maximum power is typically 90 to 95 per cent
power.
90%

80% Operating altitude can affect the power output of

an engine because there is less oxygen with increased
70%
elevation. Most equipment these days is turbo-charged
60%
and the effect of altitude will not be noticed until above
 50% 2300 m.
40%
Perr formanc
Pe formancee char ts
30%
Manufacturers’ performance charts provide the
20% maximum speed of a truck under given total resistance
10% and truck weight. It also gives information on rimpull
available. Figure 7.7 is a typical chart for a mechanical
0%
120 140 160 180 200 220 240 drive unit. To read the chart the following rules apply:
PAYLOAD (t)
• read down the appropriate weight line to the total
FIG 7.6m:- Payloa
Botto Payl oadd distdistribution
cumulative ribut
rib ution.
ion. Top:
of pdistr
dis tr ibu
ibutition
ayload. on o f payloa
of
Mean pay1loa
72 t,d.
= 172
resistance line (percentage)
• total resistance is the sum of the rolling resistance
standard deviation = 17.2 t. (RR) and the grade resistance
Maximum load = 317 - 130 • RR is always positive
= 187 t • grade resistance will be positive for an uphill
haul and negative for downhill
The number of standard deviations from the mean
to ensure only five per cent of loads exceed maximum • from the point where the total resistance line and
payload is 1.65. weight line meet move horizontally until the speed
curve is met
Average payload = 187/(1 + (7/100 × 1.65)) • then on the x-axis read the maximum speed attain-
= 168 t able under the conditions.
Dimensions Example
Some dimensions and their uses are: What is the maximum speed for a loaded unit on an
uphill ten per cent grade with a rolling resistance of
• body size – loading equipment compatibility, size
versus payload two per cent?
Total resistance = 2% + 10%
• height – truck bay and dump design and suitability,
loading equipment compatibility = 12%
• length – parking and maintenance area requirements Figure 7.8 shows maximum speed is 12 km/h in first
gear.
• raised body height – maintenance bay and power
line height Rimpull
• width – road and crusher width design, parking Rimpull is the force available at the tyre that is required
and maintenance area required. to move the vehicle forward. This force is limited by
Dimensions will change depending on tyre type, traction. The difference between the rimpull required
body size and whether
whether the unit is empty
empty or loaded. to overcome total resistance and the available rimpull

Cost Estimation Handbook 109

CHAPTER 7 – SURFACE MINING

 FIG 7.7 - Sample
Sam ple rimp ull cur ve.

FIG 7.8 - Sample

Sam ple use
u se of
o f rimpull
rim pull cur ve to f ind ma ximum spe
s peed.
ed.

110 Cost Estimation Handbook

CHAPTER 7 – SURFACE MINING

determines vehicle acceleration. Rimpull from the Although each manufacturer’s charts differ to some
charts is useful for input into computer simulations. To extent, the general principles are the same. Note that on
pick rimpull from the chart: electric trucks the speed curve will be smooth. Figure 7.10
• choose velocity and move vertically up until the is an example of an electric truck rimpull curve.
speed curve is hit
Braking/retarding
Braking/retar ding charts
char ts
• move horizontally from that point toward the
The braking/retarding curves are read in a similar
rimpull axis and read off
o ff the value.
way to the performance chart. In this case the speed
Example 1 obtained will be the maximum speed that the vehicle
What is the rimpull of the vehicle at 30 km/h? Figure 7.9 can travel and still stay within the braking envelope of
shows the rimpull is 15 000 kg force. the unit.
The rimpull curve can also be used to estimate power Different braking systems have different
train efficiency using the following formula. characteristics. For example, the curves shown in
Figure 7.11 are the braking curves for the Cat 789.
Eciency = (Rm × V)/(Power × 367) The Cat 789 uses disc brakes as the primary braking
system. The longer the period of braking required, the
where: hotter and less efficient the brakes become. Caterpillar
Rm rimpull (kg) supplies a series of curves for various distances on
V velocity (km/h) grade. Thus the maximum speed on a 450 m grade
distance will be higher than that for 1500 m.
Power engine power (kW)
Example
Example 2
What is the maximum speed for a loaded unit on a
What is the power train efficiency of the vehicle at
 ten per cent downhill grade with two per cent RR over
30 km/h if the gross engine power is 1342 kW?
grade distances of 450 m and 1500 m?
Eciency = (15 000 × 30)/(1342 × 367) Total resistance = 2% + (-10%)
= 0.91 or 91% = –8% or 8% favourable

Rimpull
15,000kg

Selected Speed

FIG 7.9 - Sample

Sam ple use o f per
pe r for man
mance
ce c har t to obta
o btain
in rimpull.
rim pull.

Cost Estimation Handbook 111

CHAPTER 7 – SURFACE MINING

FIG 7.10 - Sample

Sam ple elec
e lec tr ic rimpull
r impull cur
c urve.
ve.
 FIG 7.11 - Sample
Sam ple r eta
etarding
rding cur ves for
f or t he Cat 789
78 9 tr uck.
Maximum speed on a 450 m grade is 41 km/h in fifth distance the maximum speed drops to 22 km/h in third
gear or 30 km/h in fourth gear. Over a 1500 m grade gear (Figure 7.12).

112 Cost Estimation Handbook

CHAPTER 7 – SURFACE MINING

 FIG 7.13 - Elec tr ic ret ar
arding
ding cur
c urve.
ve.

Heaped Portion
2 2 2 2

1 1 1 1
FIG 7.12 - Use of
o f retar
ret arding
ding cur
c urve.
ve.

Electrical
Electr ical retarding
retar ding systems
systems
The electrical retarder acts to control the acceleration
Struck Portion
of a truck or to slow it down to the point where the
truck’s service brakes can halt the vehicle. If a truck FIG 7.14 - Tray
Tray size
si ze measur
me asureme
ement.
nt.
moves outside the retarding curve, the truck will start
to accelerate. The secondary braking system must be Too large a tray will mean carrying around metal not
used to bring the unit back into the retarding envelope required as well as potentially overloading the unit, with
before the retarder will
will control speed again.
again. Figure
Figure 7.13 risk to tyres, parts and warranty.
is an example of an electric retarding system chart. Tyres
Tray si
size
ze Tyres are one of the most important elements of truck
Tray size and weight will depend on material loose cost and of its successful
s uccessful operation. There are two basic

density, sizing and abrasiveness. Tray sizes, like tyre types – bias and radial.
bucket sizes, are defined in terms of struck and heaped
heaped In general, radial tyres are becoming more
mor e popular in
(2:1) capacity. Figure 7.14 demonstrates the standard open pit mines. Potential advantages include:
method of measuring tray size. A standard tray would • good flotation
be designed for unabrasive material of 1.7 t/m t/m3 to • good grip
3
1.8 t m loose density. On Figure 7.14, numerals 1 and
• long tyre life
2 are ratios representing the slope angles of the load.
• low fuel consumption
The actual tray size and wear package requirements
need to be determined in consultation with the distributor • smooth ride.
and manufacturer. Too small a tray will under-load There are situations in which radials have problems.
the vehicle, with a potential large opportunity cost. These include:

Cost Estimation Handbook 113

CHAPTER 7 – SURFACE MINING

• high gradients, where dumping is difficult A trolley pole or pantograph system is used to collect
• poor floor conditions, where sidewall cuts are the electricity from the overhead power line. The truck
common can be used in either the trolley assist mode or in normal
• sharp switchbacks, where tyre flexibility can cause diesel mode. The main advantages for trolley assist are:
rubbing on the flange. • decreased diesel engine maintenance – less work
Operating tyres at temperatures above their carried out by motor
capability will result in ply separations and other • decreased fuel consumption – uses electricity rather
temperature-related
temperature-relate d failures. Heat is generated in tyres than fuel
as they roll and flex. If heat is created faster in the tyre • increased productivity – faster speed on loaded
than it can be expelled to the atmosphere, then heat uphill section
build-up occurs. In the extreme, this can reverse the
• improved deep pit performance – can run for longer
vulcanisation process and initiate tyre failure. Even if
periods up ramp.
this critical level is not reached, the tyre loses strength
as temperature increases and becomes more liable to The main use for trolley assist is in deep pit operations
damage from braking, cornering, impact and cuts. where fuel is very expensive while electric power is
cheap. Disadvantages include:
The tonne kilometre per hour (TKPH) formula is
designed to predict such potential failure. Temperature • capital cost of truck modifications
is a function of speed, load and the time that tyres are • cost of initial power distribution and maintenance
not working and are allowed to cool: • relocation of power system as pit expands.

TKPH = mean tyre load (t) × average hourly Truck pro

productivity
ductivity
speed (km/h)
Calculation of truck productivity is discussed with
The mean tyre load is the average weight carried reference to the worksheet shown in Table 7.21. Steps
and definition of the input parameters are explained.
on the tyre over the haul cycle. It is the average of the
empty and loaded machine weight on each tyre: It is important to remember that truck productivity
depends on haul profile, which affects the truck cycle
Mean tyre load = (tyre load empty + tyre load full)/2 time per load. This is discussed in more detail in the
section on ‘Truck travel time’.
The average hourly speed is the average speed (km/h)
of the unit over a one-hour period. It is important to Each step in the truck productivity estimation process
realise that the TKPH rating should not be exceeded for and definition of the input parameters is explained

any one hour. Just because the overall average for the below by line number:
shift is within specification does not mean that damage 1. Equipment name – plus any special characteristics,
could not have occurred over one particular hour. eg if high-lift bucket is used.
Example 2. Nominal payload – rated capacity of the payload of
the equipment in line 1.
What is the TKPH of a 136 t class truck with an empty
3. Material – description of material type.
weight of 100 t, loaded weight of 236 t and operating at
an average hourly speed of 18 km/h? 4. Bulk density – in situ density of the material being
loaded.
Mean tyre load = (100 + 236)/2/6
5. Swell factor – from material
material characteristic
characteristic tables
tables or
= 28 t tests.
TKPH = 28 × 18 6. Bucket load – estimated
estimated bucket load that the
= 504 t.km/h loading unit can carry in BCM. This is from line 8
A truck of this class could use either 33.00-51 bias ply in the shovel productivity estimation process sheet.
or 33.00R51 radials in E-4 class. 7. Calculated passes to fill – estimate of how many

Typical
from bias
394 to 533,tyre TKPH
while ratings
radial for this
tyres offer size of
ratings range
480 bucket loadscapacity.
its nominal (passes) The
(passes) are required
number to
of fill
fipasses
ll the truck to
should
to 820. be an integer for the best match between loading
Based on the required work and tyre selected, tyre life unit and truck. Typically, the number of passes
can be estimated. Typical tyre life ranges between 4500 should be between four and eight. For short travel
and 5000 h/a. Howeve
However, r, tyre life can reduce significantly times the number of passes can be less, while as
if haul road conditions are not well maintained. travel time increases, the number of passes to fill a
truck becomes less important.
Trolley assist 8. Use passes to fill – some engineers
engineers will only use use
Trolley assist for trucks uses an overhead electric integer values, saying that is all the shovel can
power line to supply power directly to the hub motors. deliver. In fact, operators are quite able to deliver

114 Cost Estimation Handbook

CHAPTER 7 – SURFACE MINING

TABLE 7.21 five-pass loading. This factor allows the engineer to

Truck product ivit y estimation sheet. choose a philosophy and, therefore, the number of
passes for input.
Line Factor Unit s Calculation Input dat a
no or result 9. Calculated truck payload – estimated average
payload that the truck will carry after considering
1 Equipment Cat 789 all the above factors.
2 Nominal pay load t 172.0 10. Load factor – percentage of truck fill compared to
3 Mater i al Granite its nominal or rated payload.
4 Bulk densit y t/m3 2.65 11. Time per pass – time taken for a loading unit to
complete one pass. In the case of a rope shovel or
5 Swell factor 1.50 excavator this is the time taken to fill the bucket in
6 Bucket load t 38.87 the bank, swing the load to the truck, drop the load
7 Calc passes to f ill 2/6) 4.4 and then return empty to the face. The time per
pass for a front-end loader is similar except that it
8 Use passes to f ill 4.0 includes extra time for the machine to manoeuvre.
9 Calc t r uck payload t 8×6 155.5 The pass time is typically measured from the
10 Load factor 9/2 90.4% dumping of one pass to the next. Table 7.13 provides
some typical values for the various loading units.
11 Time per pass min 0.50 12. Load time – time taken to load the truck. There are
12 Load time min 11 × 8 2.00 two approaches that can be taken to calculate this:
13 Spot t ime min 0.80 • Simple – easy to understand but not 100 per cent
rigorous:
14 Dump time min 1.00
Load time = input passes × time to complete
15 Fi xed time min 12 + 13 + 14 3.80
a pass
 16 Travel time min 12.00
17 Wait time min 0.00 • Rigorous – takes into account that on the first
pass the bucket should already be spotted.
18 Cycle t ime min 15 + 16 + 17 15.80 Therefore, the first pass should not be counted.
19 Ef f iciency min/h 50.0 The formula becomes:
20 Queue factor 1.00 Load time = (input passes – 1) × time to
21 Pro duct ivit y t/h 19/18 × 20 × 9 492.0 complete a pass
22 Product ivit y BCM/h 20/4 185.7 13. Spot time – time during which the loading unit
Scheduled has the bucket in place to dump, but is waiting
23 h 7580 for the truck to move into position. Spot time will
hours/annum
depend on the truck driver’s ability and the system
Mechanical of loading. Double-side loading should almost
24 82.0%
availability eliminate spot time.
25 Use of availabilit y 85.0% 14. Dump time – time
time taken for the truck to manoeuvre
26 Ut ilisat ion 25 × 24 69.7% and dump its load either at a crusher or dump.
Table 7.22 gives some typical values.
Operating
27 h 26 × 23 5283
hours/annum TABLE 7.22
28 Pro duction/annum t 27 × 21 2 599 498 Typical dump times.

29 Pro duction/annum BCM 27/22 980 943 Condi t i ons Rear (min) B ot tom (min)

30 Required BCM 10 000 000 Go o d 0.70 0.3 0

production Average
Avera ge 1.00 0.60
Required Po o r 1.5 0 1.5 0
31 h 30/22 53 859
operating hours
32 Required unit s 30/29 10.2 15. Fixed time – sum of load, spot and dump time. It is
called ‘fixed’ because it is essentially invariable for
Note: BCM = bank cubic metre. a truck and loading unit combination.
less than a full bucket to fill a truck. Another way 16. Travel time – time taken to haul and return the
to consider it is that 4.4 passes is an average over load. This is discussed in more detail in the section
different operators – some four-pass loading, others on ‘Truck travel time’.

Cost Estimation Handbook 115

CHAPTER 7 – SURFACE MINING

17. Wait time – time the truck must wait before being 22. Productivity – BCM of production hauled in an

served
will notby
bethe loading
known andunit. In general,
is handled thismethods
by other number operating hour.
23. Scheduled h/a – as
as discussed in the previous
previous section
(eg queuing theory or simulation). If this number on ‘Scheduling’.
is known, because of time studies, it can be added
24. Mechanical availability
availability – input value
value depending on
in here.
machine type, age and maintenance philosophy.
18. Cycle time – round trip time for the truck. It is the Typical values are shown in Table 7.16.
sum of fixed, travel and wait times.
25. Use of availability
availability – input value depending on the
19. Efficiency – measure of how much productive
operating philosophy, roster and management
time is achieved in one hour of operating time (ie
efficiency, and whether shift change and meal
to excavate material). This does not mean that the
losses are included in reduction hours. Typical
non-productive time is useless, only that it does not
produce primary material movement. The sort of values are given in Table 7.17.
activities that the efficiency factor includes is: 26. Utilisation – operating time divided by scheduled
• clean-up by the loading unit or dozer time; also equals mechanical availability × use of
availability.
• crusher and dump slow-downs
• fuelling 27. Operating
hours that ahours/annum
trucking unit –could
potential o perating
operating
work in a year,
• inspections if required.
• loading unit movement 28. Production/annum – hourly productivity ×
• operator experience operating hours.
• under trucking 29. Refer to 28.
• unusual delays due to weather. 30. Required production/annum
production/annum – input value.
value.
Table 7.15 gives typical values of efficiency. Efficiency 31. Required operating hours/annum – calculated
is measured either as a proportion of an hour or as operating hours for truck fleet to move the required
 the number of productive minutes in an hour. production input in the line above.
20. Queue factor – accounts for time lost due to 32. Required units – number of trucks required to
queuing. It is another measure of wait time. In achieve required production, considering both
general, it should be left at 1.0 unless some estimate mechanical availability
availability and use of availability.
of queuing losses is available. A typical queuing The use of spreadsheets for calculating productivity
factor might be 0.90.
has a number of advantages, including the ability to:
Productivity – tonnes of production hauled • carry out sensitivity analysis
in an operating hour • compare different truck/loading unit combinations,
by copying the last column
21. Figure 7.15 shows how the various
various factors interact
to affect productivity. • carry out back-analyses to check various factors.
To make the best use of this system, it is necessary
Productivity = eciency/(cycle time) × to develop a set of factors that are suitable for each
truck payload × queuing factor
operation.
Spot Load Dump Travel
Truck travel time
The four ways of calculating travel time – that most
Fixed Variable
important factor of truck productivity– include:

Total
1. time study
cycle
2. rimpull curves
Queue Job 3. empirical
factor efficiency 4. computer simulation.
Trips per With the availability of cheap personal computers,
Payload
hour simulation is now open to all. There are a number of
good and readily available programs such as Talpac
by Runge Associates and FPC by Caterpillar. These
Productivity
(t/h, BCM/h) not only calculate travel time, but also go through the
whole process of calculating productivity. This section
FIG 7.15 - Facto rs influ
in flu enc
encing
ing tru
t ruck
ck pro
p roduct
duct iv
ivitit y. will briefly discusses items 1 to 3.

116 Cost Estimation Handbook

CHAPTER 7 – SURFACE MINING

Haul profile
pro file Speed limitations

Before going further, the basic information for Speed limitations are placed on road sections for
estimating travel time needs to be collected. This is reasons including:
called the haul profile and breaks the truck route into • operational constraints
sections. Each section has information on its distance, • operator capability
rolling resistance, grade and speed limitations. • safety.
Distance Many times equipment will have theoretical
The distance is the one-way distance per section in capabilities beyond practical ones. For example,
metres. There is usually only a need to note the loaded although a retarding curve suggests that a unit can
sections. The return sections, when the truck is empty, travel down a grade at 40 km/h, road conditions may
will usually be the same with the exception of the mean it is not physically safe to achieve that speed on
grade, which will be reversed. that section of road. The operators may use a lower gear
on that section and, therefore, only achieve a speed of
Rolling
Rolling resistanc e 35 km/h. Company policy may also set speed limits
The RR of the road is measured as a percentage of the for various reasons. These speed limitations are very
important, particularly on the return journey (empty)
vehicle weight.
to overcome theRRretarding
is a measure
effectof between
the force the
required
tyres where maximum speeds are usually achievable and the
and the road. It includes the resistance caused by speed limits will determine the travel time.
tyre penetration of the ground and tyre flexing. Some
Time studies
typical RRs are given in Table 7.23.
One simple way to get good data is simply to carry
TABLE 7.23 out time studies in the pit. Even if the data are not
Typical rolling resistances. used directly, time study data are useful to validate
computer generated times and for calibration purposes.
Rolling
Radar guns are useful for checking downhill speeds.
resistance (%)
 They are particularly useful on downhill runs where
Bi t um en, c o nc r et e 1.5 the operator, rather than the engine power, determines
Dir t – sm oo
oot h,
h, h ar d, dr y a nd well m aint ai
aine d 2.0 the speed.
Gravel – well
well compacte d, dry and free of Perr formanc
Pe formancee curves
cur ves and factors
factor s
2.0
loose material
It is quite possible to use performance charts to
Dir t – dr y bu t no t f ir ml y p ac ke d 3.0 determine the speed on a section of a haul profile. The
Gr avel – dr y n ot f ir ml y c o mp ac t e d 3.0 actual average speed achieved on the section, however,
will be affected by a number of factors such as:
Mu d – w i t h f ir m ba se 4.0
• initial and end speeds
Gr avel o r s a n d – l o o s e 10.0 • length of haul
Mu d – w i t h so f t sp o n g y b as e 16.0 • power to weight ratio.
Speed factors are used to convert the performance
The typical main mine road would have an RR of chart speed to estimated average speed on a section.
two per cent if it is hard and well maintained. On the Figures 7.16 to 7.18 present these factors in graphical
bench and close to the dump end, the road quality drops form.
and a RR of three per cent could be expected. During
wet periods when the road conditions deteriorate, the Average section speed = maximum aainable speed
RR might increase to four per cent. Under very poor × speed factor
conditions, the RR could rise from ten per cent to
Travel time (min) = section length (m) ×
16 per cent.
of road andThis wouldonly
hopefully be only
for over
shortvery smallWhen
periods. sections
in 0.06/average speed (km/h)
doubt, an average RR of three per cent over the whole
Example
profile gives reasonable results.
What is the travel time for a truck over a 500 m section of
Grade
road where the maximum attainable speed is 16 km/h?
Grade is the slope of the section, measured as a Average speed = 16 × 0.75
percentage. Slope is the ratio between the rise of the
= 12 km/h
road and the horizontal length. Therefore, a section of
road that rises at 10 m over 100 m has a ten per cent Travel time = 500 × 0.06/12
grade. = 2.5 min

Cost Estimation Handbook 117

CHAPTER 7 – SURFACE MINING

0.9
0.8

0.7
r
o
t
0.6
c
a
F
d
0.5
e
e
p
S
0.4

0.3

0.2

0.1

0
0 200 400 600 800 1000 1200 1400
Road Length (m)

Level start 0 km/h Level start moving Downhill start moving

FIG 7.16 - Speed

Spe ed fac
f actor
tor cha r ts (less
(l ess th
than
an 180 kg/kW).

0.9

0.8

0.7
r
o
t
0.6
c
a
F
d
0.5
e
 e
p
S
0.4

0.3

0.2

0.1

0
0 200 400 600 800 1000 1200 1400
Road Length (m)

Level start 0 km/h Level start moving Downhill start moving

FIG 7.17 - Speed

Spe ed fact
f act or char
c har ts (180 - 230
23 0 kg/kW).

0.9

0.8

0.7
r
o
t
0.6
c
a
F
d
0.5
e
e
p
S
0.4

0.3

0.2

0.1

0
0 200 400 600 800 1000 1200 1400
Road Length (m)

Level start 0 km/h Level start moving Downhill start moving

FIG 7.18 - Speed

Spe ed fact
f act or char
c har ts (great
(gr eat er than
t han 230
2 30 kg/kW).

118 Cost Estimation Handbook

CHAPTER 7 – SURFACE MINING

Empir
Empir ical approac
app roachh Scraper typ
types
es
This system uses previous simulations, or time studies, Rubber-tyred scrapers consist of one or more prime
to provide a rate in terms of seconds per metre of
o f haul. movers and a central bowl structure, which carries the
Example payload. The scraper is loaded by lowering the bowl
until a cutting edge at the front of the bowl engages
Create a rate for an uphill loaded haul with average the ground and then as the scraper moves forward, the
speed of 14 km/h loaded and 35 km/h return. Use this
front apron of the bowl opens to allow material to enter
rate to calculate the travel time over a 500 m section.
the bowl. The power required to force the material
Speed loaded = 14 km/h into the bowl is considerable and comes from the
= 3.89 m/s scraper itself, with or without the assistance of another
Haul rate = 0.257 s/m machine, which is usually a dozer or unloaded scraper.
Speed empty = 35 km/h The two common types of scraper are elevating and
= 9.72 m/s open bowl.
Empty rate = 0.103 s/m
Elevating type
Total rate = 0.103 + 0.257
The elevating type of scraper incorporates a flight
= 0.360 s/m
Travel time = 0.360 × 500 elevator
material atinto
the the
frontbowl.
of theThey
bowl have
to assist loading the
application in
= 180 s unconsolidated material such as topsoil and alluvium.
= 3 min The advantages of the elevating scraper are that they:
The advantage of the empirical system is that a • are self-contained load-and-haul units
number of rates may be calculated for typical haul • may work as individual units.
sections. These can be used to very quickly calculate
travel time for a profile without using a computer. Put Open bowl
into a spreadsheet, the rates can be used to analyse The open bowl type of rubber-tyred scraper generally
different haul routes for productivity. requires assistance in loading from another machine,
either a dozer or another scraper, depending on the
 Queuing approach type of machine. They can either be single-engine or
In a truck-shovel system, trucks do not arrive at the twin-powered. The single-engine machines perform
shovel to be serviced in a predictable manner. It does well over relatively flat terrain with medium-haul
not take exactly the same time for the shovel to serve distances. The twin-powered machines have better
each truck. The interaction between the randomness traction and can handle steeper grades. However, they
of the inter-arrival times of the trucks and the shovel are more expensive to purchase and operate and their
service time causes either a waiting line to form at the increased productivity has to be large enough to offset
shovel, or leaves it idle. This situation suggests that a the increased costs of owning and operating. Typical
queuing approach may help to assess how much time performance curves for an open bowl scraper are given
is lost in waiting both by the shovel and the trucks. in Figures 7.19 and 7.20.

FIG 7.19 - Open

Op en bow
b owll scr ap
aper
er per
p er fo
form
rmanc
anc e on uphill
up hill grades.
grad es.

Cost Estimation Handbook 119

CHAPTER 7 – SURFACE MINING

FIG 7.20 - Open

Op en bow
b owll scr ap
aper
er per
p er fo
form
rmanc
anc e on dow
d ownhill
nhill grades.
grad es.

Scraper productivity Dump = 0.7 min

In order to determine the number of scrapers required Total = 8.5 min
on a mine site, the cycle time and quantity of material Productivity
carried per cycle must first be determined. The Cycles per hour = 60/8.5 = 7.1
procedure adopted in making these determinations is Productivity = 7.1/(47/60) = 5.5 cycles/h
illustrated in the following example: (47 min hour)
Site conditions Production per hour = 5.5 × 17 = 93 m3/h
Haul road Maintained dirt Scraper production = 93 × 8 = 744 m3/shift
RR 3% Scrapers required = 4000/744 = 5.4
Material Clay overburden = say 6 units

Swell 1.2 Dozers required – assume dozers push load then

Density 2.0 t/m3 back-track to push next scraper
Haul 1.5 km at 3% grade Dozer cycle time = 0.7 + 0.7 = 1.4 min
Production required 4000 BCM per eight-hour shift Number of scrapers per dozer = 8.5/1.4 = 6.1
Machine specifications Dozers required = 1 unit
Scraper 23 m3, single engin
engine,
e, open bowl
Conveyors
Dozer power 315 kW
Conveyors are typically used in surface mine haulage
Calculations
for overburden disposal, using conventional or stacking
Scraper capacity = 23/1.2 = 19 m3 × 2.0 = 38 t conveyors and for transporting ore from the face to an
Rated load = 34 t in-pit crusher or external beneficiation plant. They are
Maximum load = 34/2 = 17 m3 particularly suited when a bucket wheel excavator or
Total resistance = 3.0 + 3.0 = 6.0% surface miner continuously excavates the mining face.
Loaded haul speed = 21.5 km/h × 0.85 = 18.2 km/h
MISCELLANEOUS EQUIPMENT
(from Figure 7.19)
Loaded haul time = 1.5 × 60/18.2 = 4.9 min Numerous items of minor equipment are required
Empty haul speed = 50 km/h × 0.85 = 42.5 km/h around a surface mine to support major equipment.
(from Figure 7.20) The minor items include haul road maintenance
Empty haul time = 1.5 × 60/42.5 = 2.2 min machines, dewatering plants, lighting plants and light
service vehicles.
Total cycle time
Load = 0.7 min Haul road maintenance
Haul full = 4.9 min Haul roads are usually constructed with unsealed
Haul empty = 2.2 min gravel pavement and, in order to reduce RR, they must

120 Cost Estimation Handbook

CHAPTER 7 – SURFACE MINING

be constantly graded and repaired. Motor graders equal to the rate of evaporation to maintain constant
are the main item of plant required. The frequency moisture content in the pavement material.
of grading is dependent on the standard of road The number of water trucks required can be calculated
construction and traffic density. The grading frequency by analysis of the haul cycle time. The time to fill is
can be as often as once per hour or up to once per shift. dependent on filling-point arrangement. If an overhead
Grader specifications are given in Table 7.24. tank is installed, filling can be very rapid. If filling is
directly from a suction pump at a lagoon, the filling time
TABLE 7.24 will depend on the pump capacity. In rare situations,
Grader specifications. no filling facilities are provided and the spray pump
Blade width (m) 3.7 4.3 4.9 7.3 on the truck is used for filling, which can be quite slow.
Typical times are 2.5 minutes for overhead facilities,
Power (f ly wheel kW) 10 0 - 120 19 0 220 400 five minutes for pup-stand-type arrangements and
Machine weight (t) 13 - 15 21 27 62 15 minutes for self-loading. Discharge time depends on
the truck-mounted pump size.
Typical operating
5.0 5.0 6.5 6.5
speed (km/h) Dewatering plants
Typic al pass w idt h (m) 2.0 2.4 2.8 4.5 Surface mining operations accumulate water from

Area
47 cove
covered
min/h a red
(m2) per 780 0 10 3 0 0 14 25 0 22 30 0 groundwater
amount of water ingress, surface run-off
to be pumped from anand rainfall.must
excavation The
be determined by a hydrological study for each site.
Average life (h)
(h) 30 000
0 00 30 000
0 00 30 000
0 00 30 000
0 00
The quantity can be reduced by constructing surface
a. This is the efficiency, as discussed and shown in Table 7.15. water diversion drains and channels and levee banks
around the excavation. A sump must be maintained at
The number of graders required can be calculated by the lowest point in the excavation for the collection of
dividing the surface area of roads to be maintained by water and to facilitate pumping. Various pump types
the hourly production per machine. are available, including submersible, suction centrifugal
The other essential item for haul road maintenance and diaphragm. Motors can be diesel or electric.
is the water truck. The surface of an unsealed haul
road should be kept moist (but not wet) to reduce
Lighting plants
 dust, and hence improve driver visibility. Watering Mining operations carried out in the field at night
roads also keeps the surface compact and prevents the require good illumination for safety and efficient
development of surface irregularities. The amount of operation. Relatively permanent installations, such as
water required depends on: dump hoppers, can be lit by mains-powered lights.
• density of traffic However, other areas, such as loading points for mobile
machines, will change position as mining progresses.
• evaporation In these cases, portable lighting plants are often used
• humidity and typically consist of a diesel generator with lamps,
• natural ground moisture located on a mast about 10 m high.
• rainfall Many factors are involved in determining the number
• surface material type. and location of lights. The most important factor is the
type of work undertaken, and hence the intensity of
Of the above, the most important factor is the
evaporation rate. Values of evaporation per day for light required and the area to be illuminated. On an area
various climatic regions and months are given in of relatively low-level illumination,
illumination, such as a haul road,
Table 7.25. Under conditions of little rainfall, it will be one 1000 W tungsten halogen lamp should illuminate
necessary to apply water to the road surface at least about 0.25 ha. The same
s ame wattage high-pressure sodium
lamps would cover about 0.75 ha. However, areas of
TABLE 7.25 high activity could require more than ten times this
Averag e dail y evapor
evap orat
ation
ion rat es for
f or four
f our Aust
Au stra
ralian
lian sit
s ites.
es. illumination level.

Mont h Evaporat i on (mm) Light vehicle

vehicless
Meekatharra, Mt Isa, Cowra, Queenstown, Mobile equipment, such as loaders and dozers, are
WA
WA Qld NSW Tas normally fuelled and serviced in the field, while trucks
often travel to a central fuelling point at the end of a
Januar y 16.7 10.3 7.4 3.5
shift. When the machines are worked on single shift,
Aprilil
Apr 9.0 8.5 2.8 1.3 fuelling and servicing is done at the end of the shift. On
July 4.1 5.5 1.0 0.7 multiple shifts, servicing will be undertaken during the
productive shift. Meal breaks and shift changeovers are
O c to b er 11.4 10.6 3.8 2.0 used, as far as possible, to minimise downtime.

Cost Estimation Handbook 1211

12

CHAPTER 7 – SURFACE MINING

Servicing involves checking and topping up hydraulic fleet will be predominantly Caterpillar equipment.
and lubricating oils, greasing, cleaning and changing Mining equipment will be selected to suit the size and
filters, adding air to tyres and carrying out preventative selectivity of the selective mining unit block size.
maintenance. Two people operating from a well-
equipped service truck can complete the average mobile Operating hours
equipment service in about ten minutes. Refuelling in The equipment operating hours determine the
the field is undertaken from fuel tankers, equipped with production and cost of a mining unit. The mining
pumps that deliver about 5 L/s of fuel. Thus, with extra operation will run on a three-panel, 12-hour shift basis.
tasks such as connecting and disconnecting hoses and The mine is planned to be operated 365/a, 24 h/d. An
caps, a machine requiring 500 L of fuel can normally
nor mally be allowance has also been made for bad weather, other
refuelled in about five minutes. Tyres often have to be stoppages and unproduct
unproductive
ive time. Table 7.27 gives
replaced in the field and, unless a custom tyre-changing the estimated annual operating hours for the mining
facility is close at hand, this can best be accomplished operation.
with a tyre servicing truck. A well-equipped
well-equipped tyre truck
Table 7.28 gives the operating hours potential
potentially
ly
comprises a tray body large enough to hold the largest
available for the main production equipment.
tyre, hydraulic crane and a compressor.
TABLE 7.27
WORKED EXAMPLE
EXA MPLES
S Possible productio n calculation.
This section provides a worked example of how mining
costs could be estimated for a small contract gold Line Calculation Mater ial Units Resul ting
mining operation. It is planned to run the operation no time
on a contract mining basis, with a workforce roster of Maximum
1 d/a 365
two weeks on followed by one week off. All personnel days/annum
would operate on a fly-in, fly-out basis.
2 Holidays d/a 0
The mining schedule developed during a feasibility
study is provided in Table 7.26. 3 Weekends d/a 0
The anticipated annual production rate for this study Possible
4 d/a 365
is a mill ore feed rate of 2 Mt/a. days/annum
The load-and-haul equipment for this study is: 5 Weather delays d/a 13
 Loading (ore + waste): 15 m3 excavator Operating
6 4-5 d/a 352
days/annum
Haulage (ore + waste): 90 t rear
r ear dump Scheduled
(non-automated) 7 h/shif t 12
hours/shift
Mining
Mining producti
productivit
vit y 8 Shif t s/day d 2
The following sections detail the parameters, costs and Scheduled
9 6×7×8 h/a 8 448
equipment selection methodology used as inputs for hours/annum
the mining cost models for each of the cases assessed. Available
Available
10 h/shif t 11
hours/shift
Ore and waste mining
The ore and waste will be mined using a conventional Available
Available
11 6 × 8 × 10 h/a 7744
truck and shovel fleet. This study assumes that the hours/annum

TABLE 7.26
Mining schedule.

Mater i al quant i t i es Uni t s 2015 2016 2017 2018 2019 2020 Tot al
Tot a l m ovem ent Mt 11.50 16.80 14.6 0 15.0 0 12.10 9.45 79.45
St r ip ra t io Wast e:o re 2 2.0 7.4 6.3 6.5 5.1 6.0 7.1
Wastee
Wast Mt 11.00 14.80 12.60 13.00 10.100
10.1 8.10 69.60
Or e Mt 0.5 0 2.0 0 2.0 0 2.0 0 2.0 0 1.35 9.85
Au g/t 1.90 1.93 1.99 2.01 1.94 1.96 1.96
Au re co
cover
ver y % 85 85 85 85 85 85 85
Au in situ oz 3 0 5 43 124 102 127 9 60 129 24 6 124 745 8 5 071 621 65 6
Au pr odu
oduce
ce d oz 25 962 105 487 108 766 109 859 106 033 72 310
310 528 41
417

122 Cost Estimation Handbook

CHAPTER 7 – SURFACE MINING

TABLE 7.28 Equipm

quipment
ent productivit
producti vit y
Operating hour parameters. Examples of productivities of various equipment items
Uni t MA UA Potential Calculation are presented in this section.
(%) (%) operating Excavator pro
p roductiv
ductiv ity
hours
Excavator productivities are estimated, as shown in
Shovels/ Table 7.29.
85 80 5745 8 4 48 × 0.8 5 × 0.8 0
excavators
Fr o nt-en d l o ad er 80 75 5 0 69 8 4 48 × 0.80 × 0.75 Haul unit productiv
pro ductiv ity
Haul truck rated payloads are 91 t for both ore and
Tr uc ks 85 70 5027 8 4 48 × 0.85 × 0.70
waste. Cycle times for both ore and waste hauls were
D o z e r s t r ac k 75 75 4752 8 44 8 × 0.75 × 0.75 calculated empirically using the assumptions provided
D ozer s (RT) 75 75 4752 8 44 8 × 0.75 × 0.75 in Table 7.30. The estimated haul truck requirements
are provided in Table 7.31.
Gr a d e r s 75 75 4752 8 44 8 × 0.75 × 0.75
Dr ill s 80 70 4731 8 4 48 × 0.8 0 × 0.70 Drilling pro duct
ductivity
ivity
Material will be drilled on 5 m benches. Drilling and
Notes:
MA = mechanical availability – propor tion of time that a unit
unit is mechanically blasting will be carried out in advance
advance of ore and waste
waste
available. removal. Material will be drilled with top-hammer
RT = rubber-tyred.
blasthole rigs.
UA = use of availability – proportion of mechanically available time that a Drilling production rates depend on penetration rates
unit is actually operated. and the blasting design parameters. Typical ore and

TABLE 7.29
Excavator productivit y model for Cat 6030 excavator.
excavator.

Line no Calculation Type Units Ore Waste

1 Dipper capacit y m3 15.0 15.0
2 Fill factor number 0.95 0.95
 3 Swell factor number 1.3 1.3
4 Material densit y t/m3 2.8 2.8
5 1 × 2/3 × 4 Dipper load t 30.7 30.7
6 Truck payload t 90.7 90.7
7 6/5 Passes to f ill number 2.96 2.96
8 Use passes number 3.0 3.0
9 Actual payload t 90.7 90.7
10 Minutes/pass min 0.5 0.5
11 Load time single side min 1.0 1.0
12 Spot time + f irst bucket min 1.0 1.0
13 11 + 12 Loading + spot time + f irst bucket min 2.0 2.0
14 50 min/13 Trucks/hour (assuming 50 min/h) number 25.1 25.1
15 Propel factor % 100 100
16 Presentation factor % 80 80
17 9 × 14 × 15 × 16 Tonnes/operating hour t/op.h 2165 2165
18 Scheduled hours/annum h 8448 8448
19 Mechanical availabilit y % 90 90
20 Use of availabilit y % 80 80
21 18 × 19 × 20 Operating hours op.h/y 5745 5745
22 17 × 21 Capacit y kt/a 12 473 12 473

Cost Estimation Handbook 123

CHAPTER 7 – SURFACE MINING

TABLE 7.30
Haul truck segment speeds.

Haul segment Speed f ull Speed Haul segment Speed f ull Speed
(km/h) empty (km/h) (km/h) empty (km/h)
Fir st 50 m 20 25 Dump ramp uphill (dow nhill ret ur n) 12 45
Pi t f lo or 25 30 Dump ramp dow nhill (uphill ret ur n) 26 26
Hair pin 20 20 Dump f lat 35 45
Dow nhill ra mp (uphill ret ur n) 26 26 Dump last 50 m 25 25
Uphill ramp (do w nhill retur n) 10 30 Ore ramp do w nhill (uphill ret ur n) 26 26
Ex-pit f lat 35 45 Ore ramp uphill (do w nhill ret ur n) 10 30

TABLE 7.31
Estimated haul truck requirements.

Line Calculat i on 2015 2016 2017 2018 2019 2020

no
Mater ial movement Uni ts
1 Ore Mt 0.50 2.0 0 2.00 2.0 0 2.0 0 1.35
2 Wast e Mt 11.0 0 14.80 12.60 13.0 0 10.10 8.10
Travel times
3 Ore min 15.20 16.10 17.50 18.90 21.30 25.40
4 Waste min 12.50 16.50 19.10 22.00 24.70 28.30
5 O r e t r uc k s t 9 0.7 9 0.7 90.7 9 0.7 9 0.7 90.7
6 Tur n and dump min 1.0 1.0 1.0 1.0 1.0 1.0
 7 Sp ot a nd mano euv re min 0.95 0.95 0.95 0.95 0.95 0.95
8 Load t r uck min 1.0 4 1.04 1.04 1.04 1.04 1.04
9 Waste t r ucks t 90.7 9 0.7 90.7 90.7 9 0.7 9 0.7
10 Tur n and dump min 1.00 1.00 1.0 0 1.00 1.00 1.0 0
11 Sp ot and man o eu v re min 0.95 0.95 0.95 0.95 0.95 0.95
12 Load t r uck min 1.04 1.0 4 1.04 1.04 1.0 4 1.04
13 3+6+7+8 Ore cyc le t ime min 18.19 19.09 20.49 21.89 24.29 28.39
14 4 + 10 + 11+ 12 Waste cyc le t ime min 15.49 19.49 22.09 24.99 27.69 31.29
Efficiency
Eff iciency (50 min/h)
min/h)
15 Q ueu e f ac t o r % 95 95 95 95 95 95
16 50 min/13 × 5 × 16 Ore t/h t/h 237 2 26 210 197 177 152
17 50 min/14 × 9 × 16 Waste t/h t/h 278 221 195 172 156 138

18 Training f act or % 80 100 100 10 0 100 100

19 1/17/19 Op erat ing hour s – ore t r uc ks 2639 8862 9512 10 162 11 276 8 89 6
20 2/18/19 Op erat ing hours – waste t r uc ks 49 437 66 953 6 4 6 05 75 40 6 64 915 58 829
21 20/5027 ha O re t r u c ks numb er 0.5 1.8 1.9 2.0 2.2 1.8
22 21/5027 ha Waste truc
t rucks
ks number 9.8 13.3 12.9
12.9 15.0 12.99
12. 11.7
23 21 + 22 Tot al numb er of t r ucks numb er 10.4 15.1 14.7 17.0 15.2 13.5

a. See Table 7.27.

1244
12 Cost Estimation Handbook

CHAPTER 7 – SURFACE MINING

waste hole parameters and drilling productivities are Assumptions regarding ancillary equipment fleet
summarised in Table 7.32. requirements are:

TABLE 7.32 • one tracked

loading tool dozer is assigned to each primary
Drilling pa rameters.
Drilling
• two tracked dozers are assigned to the dumps and
Parameter Uni t s Ore Waste general works
B ench height m 5.0 5.0 • one rubber-tyred dozer provides mobile support
H o l e de pt h m 5.8 5.8 • one grader is assigned to cover the pit, dump and
infrastructure roads
Hole diam eter mm 127 127 • one 90 t water truck covers the pit dump and
Average penet
p enetrat
ration
ion rate
ra te m/h 31 31 infrastructure roads.

Grade contro
controll
Blasting pro ductiv ity
Grade control samples will be collected during blasthole
It has been assumed that emulsion explosive will be drilling. An allowance
allowance has been made for 20 per cent of
produced and delivered to the hole by a specialist the waste to be sampled and 100 per cent of the ore at a
third-party subcontractor. The blasting parameters are rate of one sample per metre drilled.
given in Table 7.33.
TABLE 7.33 Personnel
Blasting parameters. Crewing considerations include the roster and the
number of tradespeople and operators.
Bl ast ing paramet er s Uni t s Waste Ore
Ho le diam et er m 0.127 0.127 Crew roster
Sp ac in g m 5.18 5.18 The roster is a continuous three-panel crew roster. The
roster parameters provided in Table 7.34 have been
B ur den m 4.50 4.50 based on these assumptions. The
T he roster is 14 days on
Dep t h m 5.0 5.0 followed by seven days off.
Ro c k d e n s i t y t/m3 2.8 0 2.80 TABLE 7.34
Ho le d ept h m 5.8 5.8 Personnel roster parameters.
Sub gr ad e m 0.8 0.8 It em Uni t s Resul t ing t ime
 St emmin g len g t h m 2.4 2.4 Days o n d/r o st er 14
3
Ex p l o s i v e d ens i t y t/m 1.20 1.20 Days o f f d/r o st er 7
kg ex p l o si ve p er m et r e kg 15.2 15.2 Ma x imum days/a nnum d/a 3 65
E x p l o si ve p e r h o l e kg 51.7 51.7 Weat her delay
d elayss d/a 13
R o c k /h o l e t 326 326 Annual
Annu al leave
le ave d/a 20
R o c k /h o l e B CM 116 116 Sic k le ave d/a 10
Po wder f ac t or kg/t 0.16 0.16 Fun er al l eave d/a 5
Po w der f ac t o r kg/BCM 0.44 0.44 Absen
Ab sente
teeis
eism
m d/a 10
Ro s t e r e d o f f d/a 122
Note: BCM = bank cubic metres.
Tr ainin g d/a 12
Ancillary equipment
eq uipment Tot a l wo r ke d d/a 18 6
The ancillary fleet provides services to ensure continued
Per
erso
sonnne
nell pai
paidd/pos
possi
sibl
blee sh
shift pers
person
on//sh
shift
ift 1.31 (us
(usee 1.
1.30
30))
production and perform any general pit and dump
work not directly involved in the mining operations.
Services include: Operator and trades requirements
• dust suppression Operator numbers are based on effective hours
• in-pit refuelling and lubrication of equipment with labour factor added to cover
availability, vacation, sickness and compassionate
• lighting of work areas
leave. Absenteeism is unpaid, so is not considered in
• mobile maintenance the cost model.
• personnel transport The personnel numbers assume an efficient
• road construction and maintenance workforce operating with high levels of multi-skilling
• waste dump and in-pit bench maintenance. and flexibility.

Cost Estimation Handbook 125

CHAPTER 7 – SURFACE MINING

The numbers of tradespeople have been estimated TABLE 7.37

using a ratio of maintenance hours/unit operating Capital co st and life of major mobile equipment.
hours, as given in Table 7.35.
Mac hine Capi t al c ost Life
TABLE 7.35 (A$M) (operating hours)
Trades to op erator rat io. Exc avat o r – Ca t 6030 5.9 50 0 0 0
Uni t Tr ades hour s/op er at ing hour Tr uc ks – Ca t 777 2.4 48 0 0 0
Exc ava t o r s 0.6 6 Fuel t r uc k 2.2 80 0 0 0
D r ill 0.55 Fr on t-en d l o ade r – Cat 98 8 1.7 48 0 0 0
Fro n t-en d lo ader 0.45 Wheel
Wh eel d oze
ozerr – Cat 85 4 1.4 48 000
0 00
Tr uc ks 0.4 4 D o z e r – Ca t D 9 1.2 40 0 0 0
Waterr tr uck
Wate 0.44 Dr ills 1.0 60 0 0 0
D o z e r s t r a c ke d 0.40 Gra der – Ca t 16M 0.9 36 0 0 0
Rubb er-t y r e d do zer 0.40 Sump p ump s 0.12 20 0 0 0
Gr a d e r 0.3 0 Li ght ve hic le s 0.07 75 0 0
O t h er 0.3 0 Light in g p la nt s 0.0 6 25 0 0 0

Contractor operating costs Lease factor = i (1 + i) N/((1 + i)N – 1)

A contractor cost model has been developed using a where:
margin of 15 per cent. This scenario assumes that the
i interest rate
contractor will carry out all mining, maintenance and
supervision. N life or payment period in years
The operating costs have been estimated to a Example
prefeasibility level of accuracy. Purchase price = $1 800 000
Table 7.36 gives the major cost assumptions used in Life = 8 years
the study for exchange rates and fuel price. Usage per annum = 5000 hours
 TABLE 7.36 Interest rate 15%
Fuel pric e and exchange rates. Salvage value = 10%
Fuel p r ic e A$/L 0.95 Lease factor = 0.15 (1.15)8/((1.15)8 - 1)
= 0.2229
Exc ha n ge ra t e - A$1.0 0 = US$1.0 0
Discounted salvage value = (1 800 000 × 0.1)/(1.15)8
= $58 842
Equipment capital costs Yearly lease cost = (1 800 000 - 58 842) × 0.2229
Individual major mining equipment capital cost, = $388 104
estimated equipment life and ownership cost for the Average lease cost/hour = $388 104/5000
selected fleet are provided in Table 7.37. = $77.62/h
Table 7.38 gives the lease assumptions used in this
Operating
Operating costs
c osts study.
The cost of operating the loading and hauling fleets TABLE 7.38
makes up the majority of mining operating costs. Lease cost assumptions.
For this study, the ownership cost was estimated as
a lease payment. Equipment capital costs can also be I t em Value (%)
handled by estimating the number of units required, Int er e st ra t e 8
then determining an initial purchase and a replace-
ment schedule based on the expected life of the Sa l vag e va lue 10
equipment.
Equipment operating costs on a $/h basis for the
The basic formula and sample calculation for the
main and ancillary fleets are summarised in Table
ownership cost method is given below:
7.39 and Table 7.40. Total costs by year for the main
Lease cost per annum = purchase price × and ancillary fleets are summarised
summar ised in Table 7.41 and
lease factor/yearly hours Table 7.42. These costs are exclusive of labour costs.

126 Cost Estimation Handbook

CHAPTER 7 – SURFACE MINING

TABLE 7.39
Summary of main eq uipment operating c osts – exclud
excluding
ing labour ($/h).
($/h).

Machine Model Capital Operating Life Ownership Fuel + Parts, Overhaul Tyres, GET, Opex Capex
cost hours/a (op.h) costs lube workshop
workshop ($/op.h) tracks body, excl + Opex
($M) (h/a) ($/op.h) ($/op.h) ($/op.h) ($/op.h) bucket, labour excl
etc ($/op.h) labour
($/op.h) ($/op.h)
Excavator 15 m3 5.9 5745 50 000 159.68 248.86 65.61 58.92 51.46 100.96 525.82 685.50
Front-end
6 m3 1.7 5069 48 000 49.34 44.84 4.62 3.57 23.27 1.36 77.66 127.01
loader
Truck 90 t 2.4 5027 48 000 69.87 84.08 9.78 6.73 34.52 15.31 150.42 220.29
152
Drill mm 1.0 4731 60 000 26.11 67.26 3.90 2.36 11.92 0.93 86.37 112.48
dia
4.3 m
Grader 0.9 4752 36 000 32.38 33.63 4.91 3.30 16.27 9.16 67.27 99.65
blade
Track 300
1.2 4752 40 000 40.15 67.26 6.19 4.42 30.60 15.30 123.77 163.93
dozer kW
Wheel 340
1.4 4752 40 000 46.84 78.47 5.31 3.90 13.26 1.46 102.40 149.24
dozer kW
Water
90 t 2.4 5027 48 000 69.87 84.08 9.78 6.73 34.52 15.31 150.42 220.29
truck

Note: GET = ground engineering tools.

TABLE 7.40
Summary of ancillary equipment operat ing costs – excluding
excluding labour ($/h).
($/h).
 Machine Capi tal Operating Life Ownership Fuel Lube Repairs and Opex Capex
cost hours/a (years) costs ($/a) ($/a) maintenance excluding + Opex
($M) (h/a) ($/a) ($/a) labour ($/a) excluding
labour ($/a)
Shift change
0.150 30 0 0 5.0 35 012 4750 713 600 0 11 463 46 474
bus
Light vehicle 0.070 3 600 3.0 25 006 2850 428 2800 6078 31 084
Person haul
0.100 20 00 5.0 23 341 4750 713 400 0 9463 32 804
vehicles
Ambulancee
Ambulanc 0.100
0.100 500 10.0 14 21
213 950 143 4000 5093 19 305
Fire tr uck 0.250 50 0 10.0 35 532 1425 214 10 000 11 639 47 170
Fuel/lube t r uck 0.300 30 0 0 10.0 42 638 3 80 0 570 12 000 16 370 59 008
Maintenance
0.125 30 0 0 5.0 29 176 3 800 570 5 00 0 9370 38 546
truck
Lighting plant 0.060 3590 10.0 8 528 5700 855 2400 8955 17 483
Sump pump 0.120 30 0 0 10.0 17 055 5700 855 480 0 11 355 28 410
Tyre handler/
0.200 30 0 0 10.0 28 425 950 143 800 0 9093 37 518
fork-lift
for k-lift
Compactor 0.285 1500 10.0 40 50 6 19 000 2850 11 400 33 250 73 756
Crane 0.400 30 0 0 20.0 39 867 2850 428 16 000 19 278 59 144

Cost Estimation Handbook 127

CHAPTER 7 – SURFACE MINING

TABLE 7.41
Summary of main fleet costs – excluding labour ($/h).

Machine Ocost
per($/h)
ating Year
Year 20115
20 20116
20 20117
20 20118
20 20119
20 2020 Total
Hours 7083 7760 6744 6929 5589 4365 38 469
Exca
cavvato
torr – ore + waste 685.50
Cost ($’000) 4855 5320 4623 4750 3831 2992 26 371
Hours 5069 5069 5069 5069 5069 5069 30 413
Front-end loader 127.01
Cost ($’000) 644 831 831 831 831 831 4798
Hours 52 076 75 815 74 117 85 5 68 76 191 67 725 431 492
Tr ucks – ore + waste 220.29
Cost ($’000) 11 472 16 701 16 327 18 850 16 784 14 919 95 052
Hours 5370 8966 9091 9340 7534 588 4 46 185
Dr ill 112.48
Cost ($’000) 60 4 1009 1023 1051 847 662 5195
Hours 4752 4752 4752 4752 4752 4752 28 512
Grader 99.65
Cost ($’000) 474 474 474 474 474 474 2841
Hours 15 363 15 923 15 083 15 235 14 127 13 115 8 8 8 46
Tracked dozer 163.93
Cost ($’000) 2518 2610 2472 2497 2316 2150 14 564
Hours 4752 4752 4752 4752 4752 4752 28 512
Wheell dozer
Whee 149.
49.24
24
Cost ($’000) 709 709 709 709 709 709 4255
Hours 3379 3379 3379 3379 3379 3379 20 275
Water truck
truc k 220.29
Cost ($’000) 744 744 744 744 744 744 4466
Total cos
costt ($
($’0
’000)
00) 157 543

TABLE 7.42
Summary of ancillar y fle et costs – excluding
ng labo ur ($/h).
($/h).
Ancillarr y plant
Ancilla Annual Year
Year 20155
201 20166
201 20177
201 20188
201 20199
201 2020 Total
cost ($/a)
 Shi f t c ha n g e b us 46 474 No uni t s 4 4 4 4 4 4
Co st ($’0 0 0) 18 6 186 186 18 6 18 6 18 6 1115
No uni t s 20 20 20 20 20 20
Li ght vehic le s 31 0 8 4
Co st ($’0 0 0) 622 62 2 62 2 622 622 622 3730
No uni t s 6 6 6 6 6 6
Per so
so n h au
aul vehic le
le s 32 8 04
04
Co st ($’0 0 0) 197 197 197 197 197 197 1181
No uni t s 1 1 1 1 1 1
Amb ulan
ulance
ce 19 305
Co st ($’0 0 0) 19 19 19 19 19 19 116
No uni t s 1 1 1 1 1 1
Fir e t r uc k 47 170
Co st ($’0 0 0) 47 47 47 47 47 47 283
No uni t s 1 1 1 1 1 1
Fue l/lub e t r uc k 59 0 0 8
Co st ($’0 0 0) 59 59 59 59 59 59 35 4
No uni t s 1 1 1 1 1 1
M a in t e n a n c e t r u c k 3 8 5 46
Co st ($’0 0 0) 39 39 39 39 39 39 231
No uni t s 5 5 5 5 5 5
Li ght in g p la nt s 17 4 83
Co st ($’0 0 0) 87 87 87 87 87 87 524
No uni t s 2 2 2 2 2 2
Sump p ump s 28 410
Co st ($’0 0 0) 57 57 57 57 57 57 3 41

128 Cost Estimation Handbook

CHAPTER 7 – SURFACE MINING

TABLE 7.42 CONT …

Ancillary
Ancilla ry plant
p lant Annual Year
Year 20155
201 20166
201 20177
201 20188
201 20199
201 2020 Total
cost ($/a)
No uni t s 1 1 1 1 1 1
Ty re
re ha
ha nd
ndl er
er/f o rk
rk-li ftf t 37 51
518
Co st ($’0 0 0) 38 38 38 38 38 38 225
No uni t s 1 1 1 1 1 1
Co m p a c t o r 73 75 6
Co st ($’0 0 0) 74 74 74 74 74 74 4 43
No uni t s 1 1 1 1 1 1
Cr a ne 59 14 4
Co st ($’0 0 0) 59 59 59 59 59 59 3 55
Tota
tall co
cosst ($’00
0000) 8898
8898

Remuneratio
Remunerationn Blasting costs
The base pay remuneration, inclusive of 28 per cent on- It has been assumed that a specialist third-party
costs, airfares at $750 per return trip and accommo- subcontractor will produce and deliver emulsion

dation and
according messing level
to personnel at $120/d, are summarised
in Table 7.43. explosive to the
cost estimates hole.
are The
given inblasting parameters and unit
Table 7.44.

TABLE 7.43
Remuneration according to perso nnel level.
level.

Posi t i on Sal ar y + 2015 2016 2017 2018 2019 2020

on-costs (A$/a)
Management
Management and technical servic es
Gener a l ma na g er 45 5 0 0 0 1 1 1 1 1 1
Mine ma na ge r 350 0 0 0 1 1 1 1 1 1
M a in t e n a n c e m a n a g e r 250 0 0 0 1 1 1 1 1 1
Tec hnic a l s er v ic es ma na ger 350 0 0 0 1 1 1 1 1 1
 Admin superin
supe rinten
ten den
dentt 350 0 00 1 1 1 1 1 1
Chi ef ge ol o gist 35 0 0 0 0 1 1 1 1 1 1
S eni or min e e ngin e er s 35 0 0 0 0 1 1 1 1 1 1
Chief sur veyo r 275 0 0 0 1 1 1 1 1 1
Sur veyo r s 175 0 0 0 1 1 1 1 1 1
Mine en gine er s 175 0 0 0 2 2 2 2 2 2
Ge o lo gi st 15 6 25 0 4 4 4 4 4 4
Sur veyo r as sist a nt 125 0 0 0 1 1 1 1 1 1
Fie ld a s si st an t 125 0 0 0 4 4 4 4 4 4
Seni o r s a f et y a n d t r ainin g o f f ic er 187 5 0 0 1 1 1 1 1 1
Sa f et y a n d t r ainin g o f f ic er 15 6 25 0 1 1 1 1 1 1
Hum a n r es o urc e s o f f ic er 145 0 0 0 1 1 1 1 1 1
S ec ret a r y 115 0 0 0 2 2 2 2 2 2
Cl e r k s 105 0 0 0 2 2 2 2 2 2
Sy s t em s a na l y s t 125 0 0 0 1 1 1 1 1 1
Assist
As sist ant s/tr
s/traine
aine es 95 00 0 2 2 2 2 2 2
Tot al 30 30 30 30 30 30

Cost Estimation Handbook 129

CHAPTER 7 – SURFACE MINING

TABLE 7.43 CONT...

Posi t i on Salar y + 2015 2016 2017 2018 2019 2020

on-costs (A$/a
(A$/a))
Operations
Sup er int en den t 39 0 0 0 0 1 1 1 1 1 1
Fo rem a n 325 0 0 0 3 3 3 3 3 3
Shi f t sup e r v is o r s 325 0 0 0 3 3 3 3 3 3
Sh o v e l o p e r a t o r 215 0 0 0 4 4 4 4 3 2
Tr uc k o p er at or 195 0 0 0 26 38 38 43 39 34
Lo ade r op er at o r 215 0 0 0 3 3 3 3 3 3
D ozer o p er at o r 202 0 0 0 10 10 10 10 9 9
Gr a d e r o p e r a t o r 202 0 0 0 2 2 2 2 2 2
Dr ill op er at o r 202 0 0 0 3 5 5 5 4 3
Waterr tr uck o pe
Wate perat
rat or 202 000
0 00 3 3 3 3 3 3
Ex p lo/RC dr ill o p er a t or s 202 0 0 0 0 0 0 0 0 0
Sh ot c re w 195 0 0 0 5 5 5 5 5 5
Sa mple c o lle c t o r s/dr ill as sist a nt 202 0 0 0 3 3 3 3 3 3
Allowa
All owanc
ncee for
fo r sick
sic k leave/tr
leav e/training,
aining, etc 202 000
0 00 15 18 18 20 18 16
He lp er s/t ra ine e s 15 0 0 0 0 0 0 0 0 0 0
Tot al 81 98 98 105 96 87
Maintenance
Maint en an c e sup er int en dent 299 0 0 0 1 1 1 1 1 1
Shi f t sup er v is o r 24 0 5 0 0 3 3 3 3 3 3
 Fi t t e r 24 0 5 0 0 8 10 10 10 10 9
El e c t r i c i a n 240 50 0 3 3 3 3 3 3
Welder
Weld er 155 000 8 10 10 10 10 9
S er v ic e ma n 135 0 0 0 8 10 10 10 10 9
Ma int ena nc e p la nne r 187 50 0 1 1 1 1 1 1
S enio r m e c h anic a l en gine er 20 0 0 0 0 1 1 1 1 1 1
Allowa
All owa nc
ncee for
fo r sick/tr
sic k/trainin
aining,
g, etc 187 500 7 8 8 8 8 8
Help er s/t ra ine es 95 0 0 0 0 0 0 0 0 0
Tot al 40 47 47 47 47 44
Grand t ot al 151 176 176 182 173 161

The total annual blasting cost estimates given in Grade contro

controll
Table 7.45 were generated using the blasting parameters
Table
and unit costs (Table 7.44) and the mining schedule It has been assumed that grade control samples will be
(Table 7.26). collected during the blasthole drilling process. It has
been estimated that 100 per cent of ore and 20 per cent
Drilling costs of waste will be sampled at a rate of one sample per
Drilling costs are a function of the operating hours blasthole metre. A cost of A$30 has been estimated for
incurred; an estimate of drill operating hours is given collecting and assaying each sample. A grade control
in Table 7.46. cost estimate is provided in Table 7.47.

130 Cost Estimation Handbook

CHAPTER 7 – SURFACE MINING

TABLE 7.44
Blasting parameter and unit cost estimate.
Ex plosive c ost Units Ore c osts Waste c ost
Emulsion $/t 1120.00 1120.00
Emulsion $/hole 57.89 57.89
Fixed cost $/hole 2.00 2.00
Downhole detonators and nonel $/hole 13.63 13.63
Bo osters $/hole 10.69 10.69
Sur fac e delay $/hole 9.41 9.41
Blasting tot al $ 93.62 93.62
Cost/tonne $/t $0.29 $0.29

TABLE 7.45
Estimated blasting costs.

Blasting Uni t s 2015 2016 2017 2018 2019 2020 Tot al

To nn es/a nnum o r e M t/a 0.5 2.0 2.0 2.0 2.0 1.4 9.9
Tonnes/annum waste M t/a 11.0 14.8 12.6 13.0 10.1 8.1 69.6
Ex plosives required t 1823 26 63 2315 2378 1918 1498 12 595
Explosives required/day
kg/day 5179 75 66 6575 6755 5 449 425 6 35 781
(assuming 352 days operation)
Blast ing cost $’0 0 0 33 02 4824 4192 4307 3373 2714 22 712

TABLE 7.46
Drill operating hours.

Parameter Uni t s 2015 2016 2017 2018 2019 2020 Tot al

Ho le s dr ille d o re numb er 153 4 613 4 613 4 613 4 613 4 4141 3 0 211
 Holes dr illed waste numb er 33 740 45 3 95 3 8 6 47 39 874 30 979 24 8 45 213 48 0
Metres drilled (including 5% re-dr ill, etc) m 214 815 313 816 272 721 28 0 193 226 023 176 522 1 484 090
Training factor % 0.8 0 1.0 0 1.0 0 1.0 0 1.0 0 1.0 0
Mechanical availabilit y % 0.8 0 0.8 0 0.8 0 0.8 0 0.8 0 0.8 0
Use of availabilit y % 0.70 0.70 0.70 0.70 0.70 0.70
Dr illing hour s/annum h/a 5370 89 6 6 9 091 93 40 753 4 5 88 4 46 185
Numb er of rigs numb e r 1.4 1.9 1.9 2.0 1.6 1.2

TABLE 7.47
Grade control cost estimate.

Gr ade c ont r ol Year 2015 2016 2017 2018 2019 2020 Tot al
Or e m et re dr ille d m 8 895 30 672 3 0 672 3 0 672 30 672 20 70 4 152 287
Wastee metre
Wast met ress drilled
drill ed m 39 138 45 395 38 647
6 47 39 874
874 38 034
03 4 24 845 225 933
Tot a l m 4 8 033 76 0 6 8 69 320 70 5 47 6 8 70 6 45 5 49 378 223
S a mp l e s numb e r 16 723 39 752 3 8 402 38 6 47 36 868 25 673 19 6 0 65
Co st of a s say in g $/s a mp le 30 30 30 30 30 30 30
Tot a l c o st $’0 0 0 502 1193 1152 1159 110 6 770 5 8 82

Cost Estimation Handbook 131

CHAPTER 7 – SURFACE MINING

Other overheads Unallocated maintenance expenses have been

estimated at two per cent of the fleet operating costs
Other overhead costs are given in Table
Table 7.48. and unallocated operating expenses are estimated to be
0.5 per cent of fleet operating costs.
Miscellaneous
Miscellaneous costs
cost s
Cost summar
summaryy
Allowances for miscellaneous costs have been included
in the estimate; they are given on a yearly basis in The cost summary for all components of the estimate
is given in Table 7.50. This would normally form one
Table 7.49.
input into a cost model for the entire operation.

TABLE 7.48
Other overhead costs.
Ancillarr y plant
Ancilla Annual cost
c ost (A$) Ancilla
Ancillary
ry plant
p lant Annual cost
c ost (A$) Ancilla
Ancillarr y plant Annual cost
c ost (A$)
Se r v i c e t r uc k 708 313 M a in t e n a n c e t r u c k 38 54 6 A m b ul a n c e 19 3 05
Lo w b e d a n d p r im e m ove r 61 919 Ty r e ha ndl er/f o r k-li f t 37 518 Fir e t r uc k 47 170
Per so n haul vehic le s 32 8 0 4 Shi f t c h an g e b us 4 6 474 Cr a n e 59 14 4
Co mp ac t o r 73 75 6 Li ght in g pla nt 17 483 Li ght vehic le s 31 08 4

T ip p e r – 6 t 14 752 Pi t dewa t er in g p ump 28 410 Fuel/lub e t r uc k 59 0 08

TABLE 7.49
Miscellaneous costs.
Cost Uni t s 2015 2016 2017 2018 2019 2020 Tot al
Co nsul t a nt s $’0 0 0 25 0 250 25 0 25 0 250 25 0 150 0
Co n t r a c t o r s – o t h e r $’0 0 0 225 225 2 25 225 225 225 1350
Te c hnic al ser v ic e s $’0 0 0 275 275 275 275 275 275 165 0
He a d o f f i c e $’0 0 0 0 0 0 0 0 0 0
D e w a t e r in g $’0 0 0 25 0 25 0 250 25 0 250 25 0 150 0
M o bili sa t io n/e st ablishm ent $’0 0 0 60 0 0 0 0 0 0 0 0 60 00 0
Unallocated maintenance
$’0 0 0 317 4 08 391 428 3 80 33 6 2260
expenses
Unallocated operating
$’0 0 0 79 102 98 107 95 84 5 65
expenses
Tot a l mi sc ellan e o us $’0 0 0 61 397 1510 148 8 1535 1474 1420 68 824

TABLE 7.50
Cost summary.
Mine operat ing c ost s Uni t s 2015 2016 2017 2018 2019 2020 Tot al
Lab o ur $M 3 0.23 35.03 3 4.77 36.0 0 33.83 32.10 202.0
Fle et $M 23.5 0 29.8 8 28.69 31.39 28.02 24.9 6 16 6.4
B l a s t in g $M 3.3 0 4.82 4.19 4.31 3.47 2.71 22.8
Mi sc ellan e o us $M 61.40 1.51 1.49 1.53 1.47 1.42 68.8
Gr a d e c o n t r o l $M 0.5 0 1.19 1.15 1.16 1.11 0.77 5.9
Subt ot al $M 118.94 72.43 70.29 74.39 67.91 61.97 465.9
C o n t in g e n c i e s $M 0 0 0 0 0 0 0
Pr o f i t $M 17.8 4 10.87 10.54 11.16 10.19 9.29 69.9
Tot al $M 136.78 83.30 80.84 85.55 78.09 71.26 535.8
Uni t c ost/t ro c k $/ t 11.89 4.9 6 5.54 5 .7 0 6.45 7.54 6.74
Uni t c ost/t or e $/ t 273.56 41.65 40.42 42.78 39.05 52.79 54.40

132 Cost Estimation Handbook

CHAPTER 7 – SURFACE MINING

REFERENCES Weaver, J M, 1975. Geological factors – Significance in

the assessment of rippability, Die Siviele Ingenieur in
Franklin, J E, Broch, E and Wa
Walton,
lton, G, 1971. Logging the Suid-Africa, p 313.
mechanical character of rock, Transactions of the Institute
of Mining and Metallurgy, Mining
Mini ng Technology, 80: A1-A10.
Minty, E J and Kerns, G K, 1983. Rock mass workability, special
publication 11, pp 59-81 (Geological Society of Australia:
Sydney).
 Cost Estimation Handbook 133

CHAPTER 8

Underground
Harr d Ro c k Mi
Ha Mini
ninng
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CHAPTER CONTENTS

Cost estimates 138

Ca pi t a l c o st – o p e ra t in g c o st re lat io n ship 13 8
Prelimina r y a nd det a ile d e st ima t e s 13 8
Physic al sc he dule s 13 8
Op er at i on al wa ste 13 8
Capital costs 139
Si te e st ablishm ent a nd pr ep a ra t i o n 139
Sur f ac e f ac ili t i e s 140
Sha f t sink ing 141
Ho ist in g sh a f t e quip m ent 144
Ventilat
Ventil atio
ionn shaf
sha f t equipme
eq uipment
nt 1477
14
Un der gr o un d c a pi t a l 147
M obil e e q uip m ent 150
O t he r e q uipm en t 150
Fir st-f ills a n d invent o r y 151
Operating cost estimates 151
Uni t o p era t io n s an d c o st ele men t s 151
Op er at in g develo p m ent 152
S t o p in g 158
Min e s er v ic e s 161
Te c hnic a l se r v ic e s 162
Sup e r v isi on a nd ma na g em ent 163
 CONTRIBUTORS

First edition text

tex t by: W Kellerman, E Clark and S Gemell

Revised and updated

update d by:

Stephen G Gemell FAusIMM(CP

AusIMM(CP),), Principal,
Princip al, Gemell
Geme ll Mining Engineers
Peter
Peter L McCarthy
McCar thy FAusIMM(CP), Chairman and Principal Mining Consultant, AMC Consultants Pty Ltd

Underground Hard Rock Mining

We are indebted to contributors to the first edition of physical schedules. The essential physical schedules,
this handbook, in particular W Kellerman and E Clark, including timings, required for preparing cost estimates
who wrote the chapter on hard rock underground are specified in Table 8.1.
capital costs. Note that capital development is differentiated from
operating development. The precise definition of capital
COST ESTIMATE
ESTIMATES
S development is that which actively serves the mine for
Example costs in this chapter are in 2010 A$ unless more than one accounting period; that is, more than
otherwise noted. one year. However, in some cases this is difficult to
accurately define or, for unique reasons, may be treated
Capital cost – operating cost relationship
As in most activities there is a relationship between differently for tax purposes. Long-life development
such as shafts and, in most cases, declines are readily
capital and operating costs in underground mining, so discernable as capital development. Development in
that changes cannot be made to one without influencing ore is generally defined as operating development.
the other, most likely by different degrees. For this For waste development for any given mine level, the
reason, it is important to estimate capital and operating rule-of-thumb is that if it serves a function beyond the
costs at similar levels of accuracy in order to produce a stoping life of that level, then it is treated as capital.
coherent cost analysis. Specialist advice may be required when establishing
The classification of costs used in this chapter is based the scheduling and costing categories.
on our personal experience: Chapter 4 – Capital Cost
Estimation and Chapter 5 – Operating Cost Estimation Operational waste
present a more general discussion. The cost classification
should be adapted to the individual mine situation More than any other component of mine site operat-
becausee of speci
becaus specific
fic physic
physical
al or operati
operational
onal charact
characteristi
eristics,
cs, ions, underground mining (and, in particular, hard
and because the uses intended for the cost estimation rock underground mining) is prone to sometimes
unavoidable operational inefficiencies and a certain
may warrant greater
cost categorisation is or lesser
used, complexity.
it needs Whatever
to be consistent level of wastage, and the resulting additional costs.
with the two principal rules of the estimator: Operational waste includes inefficiencies. One of the
principal causes of error in many cost studies derives
1. ensure that the cost categories capture
capture all anticipated
 from an assumption that theoretical levels of efficiency
costs
can and will be maintained consistently, irrespective of
2. estimate these categorised costs so they comply operating conditions.
with realistic, not optimal, operating conditions and
schedules. In general, the levels of inefficiency and wastage will
be related to ground conditions, operational complexity
Preliminary and detailed estimates and scale of operations. Poor ground conditions
In this chapter, cost estimates are considered as either may result in delays while satisfying re-entry safety
preliminary or detailed. Preliminary estimates are conditions, longer times to establish ground support
high-level and are described in terms of approximate and the more frequent replacement of installed ground
capital costs or unit operating costs (eg $/m or $/t).They support (often referred to as rework). High water
are suitable for application to scoping or conceptual inflows may increase the cost of road maintenance.
Diverse operations with numerous stopes spread over
studies and may, in limited circumstances, be applied a large number of operating levels cannot achieve the
to elements of prefeasibility studies. Detailed estimates
are required for feasibility studies, budgets and most load-and-haul productivity ratings available to a block
elements of prefeasibility studies. cave operation with only one or two extraction levels,
each with a levelled concrete floor.
Physical schedules A large-scale operation is generally more efficient
After designing the underground workings to the than a small-scale operation because of labour and
extent required, the costing process begins with the equipment specialisation capability. However, this can

138 Cost Estimation Handbook

CHAPTER 8 – UNDERGROUND HARD ROCK MINING

TABLE 8.1
Required physical schedules.
Gr oup Sc hedul es Uni t s Not es

Sur f ac e c on st r uc t i o n m In c lude s f i xe d p la nt
Includes decline stockpiles
Ca pi t a l d evel op m ent De c lin e
Sh a f t m
Lat e ra l m Clas si f ie d by dim ensio n s
Vert ic
ical/inc
al/incline
linedd m
La r g e exc avat i on s m3
Un der gr o un d c o n st r uc t io n In c lude s f i xe d p la nt
O p e r a t in g d e v e l o p m e n t Lat er al or e m, m3, t, grade
Lat er a l wast e m, m3, t
Vertic
Ver tic al/inc lined ore m, m3, t, gra de Clas si f ie d by m et h o d
S t o p in g Dr ill-a n d-blast m3, t, gra de Clas si f ie d by m et h o d
Load-and-haul m3, t, grade
Tot a l o re ho i st e d o r haul e d m3, t, grade, t-km
S t o p e f ill b c m o r lc m Clas si f ie d by m et h o d
Wastee hoist
Wast ho isted/haul
ed/haul ed m3, t, t-km
Ventilat
Ventil atio
ionn m3, kPa
M o bil e f le et Purc h as e/lea se Clas si f ie d by uni t
En gin e h o ur s Clas si f ie d by uni t
Di s p o s a l Clas si f ie d by uni t
Po w e r De ma n d kVA
Us a g e kW h
Waterr
Wate Raw wate
w aterr sche
sc hedule
dule m3
D e w a t e r in g m3
Per s o nn el Co n st r uc t io n Per s on s Clas si f ie d by ac t i v i t y
O p e r a t in g Per s on s Clas si f ie d by ac t i v i t y
 M a in t e n a n c e Per s on s Cla s si f i e d by sk ill
Camp occupancy/FIFO

Note: FIFO
FIFO = fl y-in, fly-out.

be reversed at the very bottom of the scale. One of the Site establishment and preparation
more efficient mines reviewed involved airleg stoping
Site establishment costs associated with a new or
with a total underground shift complement of fewer upgraded underground mine may include:
than half a dozen miners. Efficiency does not translate
• access roads
directly to low unit cost, as the influence of the fixed
• mining area hardstand and laydown areas
componentinofFigure
illustrated cost cannot be avoided.
8.1, which shows theThis
uniteffect is
costs in • owners and/or contractor mobilisation
2010 A$ as a function of production rate for 35 hard • site drainage
rock underground mines. • temporary facilities.
Temporary facilities will be required if, as is normally
Temporary
CAPITAL COSTS the case, underground development is on the project’s
Capital cost estimates start with site establishment and critical path. The cost of the temporary facilities is
continue to first-fills. almost invariably justified by the resulting advantages

Cost Estimation Handbook 139

CHAPTER 8 – UNDERGROUND HARD ROCK MINING

500.00

450.00

400.00

350.00

)t
/
$
( 300.00
t
s
o
C
g250.00
in
in
M
ti 200.00
n
U

150.00

100.00

50.00

0.00
0 200, 00
000 400, 00
000 600, 00
000 800, 00
000 1, 00
000, 00
000 1, 2
20
00, 0
00
00 1, 4
40
00, 0
00
00 1, 6
60
00, 0
00
00 1, 8
80
00, 0
00
00 2, 0
00
00, 0
00
00
Production Rate (tpa)

FIG 8.1 - Unit mining

minin g co st an d produ
pr oduct
ction
ion rat e.
to cash flow timing. The type of temporary facilities Surr face faciliti
Su facilities
es
required may be smaller scale versions of those listed
Irrespective of whether the mine uses a decline,
in the section on ‘Surface facilities’.
conveyor drift, adits or a shaft as its principal ore
Depending on geography, timing and scale, the delivery route, common facilities will be required.
temporary facilities may be considered in conjunction These include all or some of the following:
with or separately from site establishment for the
processing plant and site infrastructure. • air-compressor station and delivery lines (if used)
The establishment of underground mines obviously • emergency facilities including fire-fighting and
requires some site preparation work at every proposed ambulance
point of connection of the workings to surface. This • mine area fencing
may involve geotechnical, hydrological or sterilisation • mine area roads
drilling and test work, clearing and grubbing and soil • mine offices
removal to a stockpile or respread area.
• mine power supply generators, substation or trans-
Porta
Por tals
ls for declines
dec lines formers, and distribution facilities
The development of a decline from the surface requires • mine store (warehouse) and yard
preparation of a portal area. This may vary from minor • mine water storage and delivery line
face and pad preparation in existing road cuttings in • mine workshops
steep country or a pit to extensive box cuts in flat country
 • muster room, changehouse and lamproom
with deep surface weathering. Hence the areas to be
prepared are highly variable and must be assessed on • pump discharge line and pondage, settlement and
a case-by-case basis. Costs include excavation, ground treatment
support, drainage works, road-base establishment, • surface drainage works
portal fans, over-height alarms and power supply. • ventilation facilities.
Preliminary estimates may be prepared using factored
Shaft collars
data based on costs per unit such as linear metre,
Minimal site preparation works may be required for the square metre, tonne or kilowatt. Detailed estimates
shaft collar on flat ground with an exposed competent should be prepared in the normal manner for surface
basement. Depending on the method of construction construction. In general, a three-tier cost classification
a substantial concrete pad, footings and pre-sink may is used to facilitate estimation, as shown in Table 8.2.
be required. In soft ground, preparation may include For presentation purposes, costs for the first two (first
extensive sheeting with crushed rock and specialised and second) or the second two (second and third) tiers
techniques such as ground freezing or sheet piling. are often collated in matrix form.
Raise bored shafts will require excavation and concrete Where construction is on a fixed-sum contract
works to suit the raise borer. An exhaust ventilation basis,
bas is, all thi
third-
rd-tie
tierr cos
costs
ts may be col
collect
lected
ed und
under
er
shaft will require a collar and a plat area sufficient to ‘contract services’. Plant hire includes items such as
mount ducting, the fan (or fans) and evasés. crane use.

140 Cost Estimation Handbook

CHAPTER 8 – UNDERGROUND HARD ROCK MINING

TABLE 8.2
8. 2 shaft; ground conditions; and whether bottom access
Construction cost layout. is available. Worldwide, specialist contractors now
do most vertical development. A presink is likely to
Fir st-t i er Sec ond-t i er Thir d-t i er
be required to a depth dictated by the near-surface
Facility Ea r t h w o r k s Ma t er ia ls ground conditions and the method of development.
(eg changehouse) Costs may be based on the contractor’s providing
Ci v ils Lab o ur
all of the shaft development equipment or else new
St r uc t ur a l Po w e r a n d w a t e r equipment including a headframe and stage may need
Pla t ewo r k Con t rac t ser vi
vic e s to be manufactured. If such equipment is not available,
at least four months after award of contract should be
M ec ha nic a l Fr eight allowed for fabrication.
Pip ew or k Pla n t hire The principal cost components are:
Electrical • contractor demobilisation
Archi
Ar chite
tect
ctural
ural • contractor mobilisation
Other • contractor site establishment
• lining
EPCM
• plat development and ancillary excavations sinking.
Note: EPCM = engineering, procurement and construction management. Again, services (power and water) are often provided
by the owners, so these must be either added to or

beThe cost of items

estimated ass embled
assembled
by applying fromfactor
a cost fabricated steel
to their can
mass. incorporated within the above charges.
A standard blind sinking program can cope with
The factor will vary with exchange rates, steel prices
the widest range of geotechnical conditions and often
and mine location, and accordingly has ranged from
A$4000 to A$15 000 per tonne over the past decade. presents the lowest risk of failure. A diameter of 5.5 m
For example, at one mine in 2010 the factor might have (inside lining) is the practical minimum in which
been calculated
calculated as shown in Table
Table 8.3. mechanised drilling and mucking with full-sized kibbles
can be used efficiently, although 4.5 m diameter shafts
TABLE 8.3
8. 3 (such as at the Scuddles mine in Western Australia)
Cost of fabricated components. have been sunk using this technique. Rectangular
shafts have generally been sunk only for small-scale
Component Cost (A$/t)
mining operations and are rare today. Typical advance
Fa br ic a t io n 30 0 0 rates for shaft sinking in Australia
Australia range from 12 m per
S t e el suppl y 25 0 0 week (in poor conditions or with inexperienced crew)
up to 18 m per week, based on a six-day working week.
Ere c t io n lab o ur 240 0
In certain cases access to the proposed shaft base may
Er e c t i o n p l a n t 900 be available before shaft sinking (from, say, decline
Worksh
Wor kshop op deta
d etailing
iling 5000
50 development). It may be beneficial for both timing and
cost to develop the shaft by raise boring, or raise boring
Tr an sp or t t o si t e 20 0
with strip and lining.
To t a l 95 0 0 It is misleading to consider an overall cost per metre
 It is misleading to consider an overall cost per metre
for shaft sinking, as many other costs apply. Estimates
Shaft sinking should be based on factoring from similar work, or a
contractor’s response to a pre-tender or tender document.
Vertical shafts may be required for ventilation, services,
Owners’ costs must be added to the contractor’s
emergency escape or haulage. While inclined shafts
estimate. The following examples should be used as
were used in the past they are no longer favoured in
checklists for costs rather than reliable estimates, as site
most situations and are not considered here. Methods
conditions vary widely.
for developing vertical shafts include:
• Alimak raising method Conventional blind sink example
• blind boring without a pilot raise The example given in Tables
Tables 8.4, 8.5 and 8.6 is based on
• conventional blind sink ashaft
500 with
m deep,
steel 5.5
setsmand
diameter concrete-lined
steel conveyance circular
guides. Two
• raise boring at full diameter
plats are required, one at the production level and one
• shaft boring downward boring on a pilot raise to access the loading station via a 240 m access drive or
• strip and line on a raise bored pilot hole. ramp. Development includes 20 m long ore and waste
The choice of method may be influenced by the passes. Note that this is an unusually small shaft by
availability of experienced labour, suitable equipment today’s standards, and decline access would probably
and skilled contractors; the depth and diameter of the be preferred. Costs are summarised in Table
Table 8.4.

Cost Estimation Handbook 1411

14

CHAPTER 8 – UNDERGROUND HARD ROCK MINING

TABLE 8.4 TABLE 8.5

Equipment
Equipment and surface wo rks for shaf t sink.
sink. Conventional shaf t sink estimate.
Item Cost Notes Item Unit Rate Qt y Amount
($000) ($) ($000)
Gene
nera
rall surf
rfac
acee pr
preepa
para
ratition
on 100 Mobilisation and establishment
He a d f r a m e 1600 Includes f ootings Surfacee facilities and
Surfac
Lump sum 400
personnel
Winder 3300
St age w inder Lump sum 400
New, fully
fully amortised
amor tised
Sinking ropes 130
over sink Shaf t sinking equipment Lump sum 1430
Head sheaves 200 Rig down and
Lump sum 400
demobilisation
Headf rame mechanicals 160
Subtot al 2630
Includes main and stage
Winder house 600
winder foundations
foundat ions Shaft sinking and lining
Conveyanc es 390 Excavate shaft collar to
m 36 000 5 180
5m
Loading st ation elect r ic s 230
Excavate and line presink m 3 0 0 00 45 1350
Final hoist ropes 130 Shaf t sink and concrete line m 20 000 450 9 0 00
Rope at t achment s 330
Subtot al 10 530
11 kV supply to shaf t 70
Off-shaft development
11 kV subst ation 200
Plat 1 m3 40 0 900 360
11 kV dist r ibution board 130
Plat 2 m3 40 0 900 360
11 kV signal cabling 100
Loading st ation m3 40 0 750 300
Emergency hoist 120
Tot al 7790 Plat 1 stub dr ive m 5500 15 83
Plat 2 loading station m
6500 240 1560
access
Raise borin
bo ringg example
The following example is for a 4.0 m diameter shaft Waste pass to loading m
6500 20 130
to a depth of 350 m. Costs include a 15 m presink and station

provision
reflecting for use of mud
a potential loss and directional The
of circulation. guidance
costs Orepass to loading st ation m 6500 20 130
Subtot al 2840
assume that the headframe on-site can be used by the
contractor for internally ground supporting the raise, Ground suppor
supportt
with a crew working off a stage. 1.8 m splitset s (33 mm) Each 150 200 30
 The total unit cost in this case is $24 915/m, which is 1.5 m split set s (33 mm) Each 140 2000 280
much more than the reaming rate of $5040/m. Note that
the cost to the owners of supervision and removing 1.2 m split set s (33 mm) Each 120 3 00 36
raise bore cuttings is not included in Table 8.7. Gewi Bar, 2.4 m × 20 mm Each 230 400 92
The example assumes satisfactory ground conditions. Gewi Bar, 1.8 m × 20 mm Each 20 0 450 90
For a raise to fail it only requires a weak zone of thickness
Gewi Bar, 1.5 m × 20 mm Each 180 3 00 54
equal to one raise diameter to be present somewhere
in the geotechnical profile. Although methods exist to Mesh, F41, galvanised m2 90 1800 162
preconsolidate near-surface weathering effects, weak Subtot al 744
zones that exist at depth cannot be preconsolidated.
Tot al 16 744
It may take 16 months to complete the shaft using this
method. This schedule is not based on best performance
but rather on expected performance, with delays, for a Raise bore,
bo re, strip
str ip and line example
examp le
typical project. It includes two months for pregrouting This method requires bottom access to back-ream a
the upper section of the shaft and assumes that the pilot raise, which is then used as a rock pass to dispose
contractor would not mobilise until pregrouting had of shaft development waste as the shaft is stripped to
been completed satisfactorily.
satisfactorily. final size. The headframe and stage arrangements can

142 Cost Estimation Handbook

CHAPTER 8 – UNDERGROUND HARD ROCK MINING

TABLE 8.68. 6 TABLE 8.8

Cost of shaft e quippi
quipping.
ng. Raise bore, strip and line capita l cost example.
I t em Uni t Rat e ($) Qt y A mount I t em Uni t Rate Qt y A mount
($000) ($) ($000)

Supply loading station Ea c h 650 0 0 0 2 13 0 0 Mo bilis e Lump sum 126 0

and grizzly
Hire of sink ing e quipment Lump sum 145 0
Install loading station
Ea c h 170 0 0 0 2 3 40 Sink in g s et-up Lump sum 15 40
and grizzly
Gen er at o r s et hir e Lump sum 320
Supp l y sha f t st e el w o r k Lump sum 19 0 0
Co lla r m 81 0 0 0 20 1620
In st all sha f t st e el wo r k m 3000 500 15 0 0
Sink m 21 0 0 0 40
40 840
Supp l y sha f t s er v ic es Lump sum 33 0
Hoi st in g p la nt hir e Lump sum 350
Change ropes, install
Lump sum 260 Pilo t h o le a n d r ea m m 10 0 0 0 29 0 29 0 0
conveyances
Sha f t c o mmis sio nin g Lump sum 260 St r ip (4 m dia met er) m 11 0 0 0 29 0 319 0
To t a l 5 89 0 Co nc r et e linin g Lump sum 2520
He ad f r a me hire Lump sum 500
TABLE 8.7
Raise bored shaf t development capital cost example. Dem o bilis e Lump sum 500
En gine er in g (7%) Lump sum 119 0
It em Uni t Rate Q t y A mount
(A$) ($000) Co nt in g ency (15%) Lump sum 2550
Pre gr ou t Lump sum 1120 Tot a l 20 730
Co lla r a n d p r esink Lump sum 105 0 diameter), arguing improved safety. There is a cost
M obilis e Lump sum 350 advantage in sinking because of the more rapid advance,
but this is offset by the cost of the pilot raise. The cost
R i g up Lump sum 70
advantage becomes more attractive with deeper shafts.
P il o t h o l e m 1120 335 375 If ground conditions are poor, the cost of the pilot
Bit s Eac h 70 0 0 0 2 140 raise may negate the savings in sinking costs. Table 8.8
summarises the cost of developing a 350 m shafts haft using
Mud pumps and this method.
Lump sum 420
ancillary
The total unit cost in this case is $20 730 000/350 m
Dire c t i on al ali gnm ent Lump sum 400
=supervision
$59 229/m. and
Noteremoving
that the raise
cost bore
to thecuttings
ownersand
of
Re am (4 m diam et er) m 50 4 0 335 1689
stripped waste is not included in Table 8.8.
Sur veys Lump sum 28
St a n dby a ll o wa nc e Lump sum 15 0 Blind bor
b or ing example
examp le
Gen era t o r s et s Lump sum 20 0 Blind boring involves full-face development of the shaft
 without a predeveloped central raise. The challenge for
R ig do w n Lump sum 70 this method is the removal of cuttings to the surface.
St a bilis er s Eac h 36 40 0 6 218 Blind boring techniques have been available for many
years, but most have been experimental. For example,
Internal ground
Lump sum 2240 in the 1970s a Hughes CSD 300 rig operated by Santa
support
Fe Drilling Company at the Agnew nickel mine in
Dem o bilis e Lump sum 20 0 Western
We stern Australia
Australia reached 754 m at 4.4 m diameter but
Tot a l 8720 then suffered a mechanical failure.
The system now offered by Ardent Underground Pty
be simpler as there is no requirement to kibble rock. Ltd has a track record of success in Australasia. The
The method has been commonly used since the Cassidy Ardent system uses a surface drive system to rotate the
Shaft sink in Kalgoorlie in the early 1980s. Advance 500 mm drill string, which is attached to a cutting head.
rates for the stripping and lining phase in good ground During the construction phase the shaft remains full of
are typically 30 m per week compared to 18 m per week water or drilling mud, which provides stability to the
for conventional sinking. excavation. Cuttings are removed from the shaft using
Some contractors
con tractors use a larger pilot raise (3.0 m reverse circulation. The range of cutting heads includes
diameter) while others prefer a smaller one (1.8 m diameters varying from 5.8 m to 1.8 m.

Cost Estimation Handbook 143

CHAPTER 8 – UNDERGROUND HARD ROCK MINING

The shaft can be lined using: or mullock hoisting and that a single-cage, balanced
• hydrostatically designed steel or composite steel with a counterweight, man-riding system is used in a
and concrete liners for completely watertight shafts common shaft. There are many other configurations
through any strata, including severe ground condit- that should be considered before establishing the most
cost-effective shaft arrangement for any given set of
ions and high-pressure aquifers
• precast concrete shaft segments for ground with circumstances, for example:
• combined skip and cage with counterweight, or
significant aquifers
solo skip
• remotely applied shotcrete for reasonably dry strata.
• Koepe winder(s), tower or ground mounted
Ardent (and its predecessor Zeni drilling) completed
• rock hoisting only, with decline access for personnel
26 shafts using this method in the early 1990s. The
and materials
system has been used recently for developing several
• separate shafts for service and rock hoisting
ventilation shafts for coalmines in New South Wales
and Queensland and has proven capable of dealing • single skip, with or without counterweight.
with weak and incompetent ground conditions. A Note that decline access may be preferred at the
number of hard rock mine shafts have been bored in example depths and tonnage rates. Before costing the
the past including Henty (main shaft), Porgera (six main items, basic calculations must determine, within
shafts), Northparkes (ventilation shaft) and Osborne limits, the sizes of each element. The configuration
(two shafts). selected for the shaft layout is of a classical nature
because of its general acceptance worldwide. In both
As this is a proprietary technique, contract prices
cannot be readily estimated by a third party. Table 8.9 examples given, this is as follows:
shows estimate for a finished 4.0 m (inside liner) • shaft is equipped with fixed steel guides
diameter raise 350 m deep was derived from known • personnel and material cage is balanced with a
pricing on past projects, factored for time and scale, counterweight
and serves as a checklist for cost items. • underground sizing of material is typically -250 mm
The total unit cost in this case is $13 894 000/350 m = • two skips work in balance
$39 697/m. • receiving bin at surface is sized for ten skips.
TABLE 8.9 For the two examples, the criteria are shown in
Blind boring capi tal cost example. Table 8.10. Shaft diameter has been determined from
the required capacity, configuration and skip size.
I t em Uni t Rat e Qt y A mo
mount
($) ($000)
TABLE 8.10
Engineer ing and test wor k Lump sum 64 Hoisting shaft physical criteria.
Pre grou t Lump sum 800 Shaft Shaft
Mo bilis at io n Lump sum 800 example 1 example 2
Pilo t h o le m 20 0 0 35 0 70 0 Shaf t dept h (m) 600 1000
Co lla r Lump sum 40 0 Pro duction rate (t/a) 750 000 1 200 000
Pr e sink m 25 0 0 0 10 25 0 Available
Available rock hoisting hours per annum
annum 6000 6500
 D r ill m 14 0 0 0 35
35 0 49 0 0 Shaf t diameter (m) 4.5 6.0
Suppl y linin g m 12 0 0 0 35 0 420 0
These estimates are often based on equipment scale
Inst a ll a nd gr o u t lining m 3 60 0 35 0 1260
derived from similar existing or designed project
Flush sha f t Lump sum 120 requirements. Alternatively, and more precisely, shaft
R ig do w n an d dem o bilise Lump sum 400 equipment can be sized by the application of some
preliminary estimates, as shown in Table 8.11.
Tot a l
These examples illustrate simply how a suitable
winder, skip, rope and attachments can be selected, and
Hoisting shaft equipment how the forces likely to be induced into the headframe
and foundations, and the power requirements of the
Shafts require an assessment of hoisting criteria prior to
even preliminary cost estimates. In order to demonstrate winder, can be estimated. Calculations for drift haulage
variations in costs in relation to these criteria, two and shaft sinking winders are similar.
examples with different capacities and depths have been
selected. In both cases, it has been assumed that a basic Cost estimate
double drum, two-skip arrangement is used for ore The cost estimate includes the following items.

144 Cost Estimation Handbook

CHAPTER 8 – UNDERGROUND HARD ROCK MINING

TABLE 8.1
8 .111
Production shaft physical calculations.
Shaf t example 2 Shaf t example 3
Skip winder
Operating rate 125 t/h 185 t/h
Skip velocit y 6 m/s 14 m/s
Skip single cycle t ime 140 s 136 s
Skip pay load 5.0 t 7.0 t
Skip tare 4.0 t 5.5 t
St a t i c l o a d a t r o p e e n d 5t + 4t = 9 t 7.0 t + 5.5 t = 12.5 t
Assumed rope
ro pe specs
spec s 32 mm ϕ, 4.3 kg/m, 1750 MPa 38 mm ϕ, 6 kg/m, 1750 MPa
Rope breaking force 712 kN 1000 kN
Weight of rope 600 × 4.3
4.3 = 2580
2580 kg 22..6 t ≈ 1000 × 6 = 6000 kg = 6.0 t
Load at w inder drum 9 t + 2.6 t = 11.6 t (114 kN) 12.5 t + 6.0 t = 18.5 t (182 kN)
Factor of safet y 712 / 114 = 6.2 1000 / 182 = 5.5
Dr um diameter/rop e diameter 80 (t ypical value) 90 (t ypic al value)
Winder drum diameter 32 × 80 = 2560
2560 mm (2.6
(2.6 m) 38 × 90 = 3420 mm (3.4
(3.4 m)
Winder power
powe r (approximately) 75 × 6 × 0.8
0.8 = 360 kW 128 × 14 × 0.8
0.8 = 14
1434
34 kW
Cage winder
Capacit y 18 persons 18 p ersons
Ma x imum load 10 t 10 t
Cage weight 4t 4t
Cage velocit y 6 m/s 6 m/s
Counter weight 9t 9t
10 t + 4 t = 14 t (ma x load) 10 t + 4 t = 14 t (ma x load)
Static load at rope end
1.5 t + 4 t = 5.5 t (personnel) 1.5 t + 4 t = 5.5 t (p ersonnel)

Assumed rope
rop e specs 38 mm ϕ, 6 kg/m, 1750 MPa 44 mm ϕ, 8.4 kg/m, 1750 MPa
Rope breaking f orce 1000 kN 1400 kN
Weight of rope 600 × 6 = 3600 kg = 3.6 t 1000 × 8.4 = 8400 kg = 8.4 t
Load at winder drum
Car r ying materials 14 t + 3.6 t = 17.6 t (173 kN) 14 t + 8.4 t = 22.4 t (220 kN)
 Car r ying per sonnel 5.5 t + 3.6 t = 9.1 t (91 kN) 5.5 t + 8.4 t = 13.9 t (136 kN)
Factor of safety
safet y
Car r ying materials 1000/173 = 5.8 1400/220 = 6.4
Car r ying per sonnel 1000/89 = 11.2 1400/136 = 10.3
Drum diameter/rope diameter 80 (t ypic al value) 80 (t ypic al value)
Winder drum diameter 38 × 80 = 3040 mm (3.0
(3.0 m) 44 × 80 = 3520 mm (3.5
(3.5 m)

Winder power (approximately)

(approx imately) 84 × 6 × 0.8 = 403 kW 131 × 6 × 0.8
0.8 = 629
629 kW
Headframe
Height 28 m 35 m
Weight 120 t 250 t
Skip sheave diameter/rope diameter 60 (absolute minimum) 90

Cost Estimation Handbook 145

CHAPTER 8 – UNDERGROUND HARD ROCK MINING

TABLE 8.1
8 .111 CONT ...

Shaf t example 2 Shaf t example 3

Headframe
Sk ip sh e ave diam et e r 1920 mm 3420 mm
Cage sheave diameter/rope diameter 60 (absolute minimum) 60
Cage sheave diameter 2280 mm 2640 mm
Skip ropes
Dist ance sheave to winder 40 m (estimated)
Spare turns allowance 2 × � × 2.6 = 16 m
Dead turns allowance 3 × � × 2.6 = 25 m
Tot al lengt h per rope 600 + 28 + 40 +16 + 25 = 709 m 1140 m
Cage ropes
Dist ance sheave to winder 40 m (estimated)
Spare turns allowance 2 × � × 3.0 = 19 m
Dead turns allowance 3 × � × 3.0 = 29 m
Tot al lengt h per rope 600 + 28 + 40 +19 + 28 = 715 m 1150 m

Notes:
• Winder approximate power is set by out-of-balance load and speed.
• Headframe height is determined from the layout of the tipping system, bins and overwind requirements.
• Headframe weight is based on height of structure, foundations are incorporate d in the collar concrete.
• Lengths of rope as calc ulated for shaf t example 1 should be rounded-up for budget purposes; calculations for sha ft example 2 rope lengt h are similar
lar
to those of shaf t example 1.

Bins are for balanced winding, the cost of the counterweight

The size and therefore the cost of bins depends on must be added to that of
o f the cage.
whether crushing is carried out underground. A bin Head sheaves
should be sized to even-out the flow of material from
the skips typically to a conveyor. A decision must be The head sheaves should be considered separately
made on the number of skip loads that should be held from other headframe
very expensive. mechanicals,
It is quite common toassource
these second-
can be
in the bin to provide an even flow and give some surge
capacity. In example 2 above, if a 10 t skip capacity is hand sheaves for the production operation, thus
assumed, the bin would be sized at 50 t and provide saving significant amounts of money, although non-
approximately 23 minutes surge capacity. Assuming destructive testing (NDT) must be carried out.
loose material density of 2.0 t/m3, the size of the bin to Headframe mechanicals
contain the material would be 25 m3. To accommodate
This includes other items in the headframe such as jack
side protection and gates, etc, allow about 40 m3.
Assuming the bin walls are fabricated from 12 mm steel catches and tipping equipment. The steelwork can be
plate, the real volume of steel is 4.8 m3. As steel weighs generally lumped together with most other items and
7.5 t/m3, the total weight
weight of the bin would
would be 36 t. costed at a rate per tonne.

Cage Headframe
It is usual practice to purpose-design a riding cage. To estimate the capital cost of a headframe, some layout
The variables of shaft space, number of persons and work is required. The skip unloading method should
size of equipment to be transported does not allow for have been decided, as should any other requirements
‘off-the-shelf’ designs. As with skips, a balance must be for space to allow access for lowering large sections
determined between capacity, winder size, acceptable of equipment. Any requirements for overwind and
winder speed and time to access the level. Similarly, safety equipment should be considered. Once a basic
the cost of a cage can be related to its weight, in turn height and shape has been determined, weight must
related to the number of persons to be carried and the be estimated. It is not warranted, at this stage, to
factor of safety required. Construction is simpler and commence design but from experience it is possible to
usually lighter than for a skip. As the examples used arrive at a weight.

146 Cost Estimation Handbook

CHAPTER 8 – UNDERGROUND HARD ROCK MINING

Ropes and attachments Declines

Decl ines and lateral
la teral developm
devel opment
ent
The cost of ropes and attachments can vary significantly, Declines, either alone or in conjunction with shafts,
depending on where and when they are available. The are the most common form of principal access to
construction of the rope should be decided, and where Australian underground mining operations. It is the
practical, standard types of ropes used (eg flattened preferred method for developing an underground
triangular strand right-hand Langs lay). The final mine in Australia for depths to 1200 m below surface
detail of rope construction can be examined later. For and production rates up to 2 Mt/a, although these
the purpose of estimates, the specifications nominated are not firm limits. Declines have been developed
above in the examples would be sufficient for a rope in sizes (height × width) ranging from 3.5 m × 3.5 m
supplier or manufacturer to provide a budget price. for low production rates with small equipment, up
Skips to 5.5 m × 6.5 m. The long-term average decline face
advance rate is 38 m per week, or about 45 m per week
The many types of skips range from standard
including stockpile bay development. Higher rates are
manufacturer’s designs to custom-designed and custom-
possible for short periods in favourable conditions or
built types. Cost estimat
estimates
es can genera
generally
lly be based on
using the new generation of high-speed jumbo drills.
tare weight. The size of the skip is selected from the
At the time of writing, the Australian
Australian record of 58 m per
number of loads required per hour and balance must be
week of decline face advance was held by a contractor
determined for depth and speed of wind and size of skip.
at Newcrest’s Cadia East mine.
Obviously the cost of the winder must be considered
along with ropes and other items. In example 1, a skip Decline development, and other associated capital
payload of 5 t has been selected. The weight of the skip development, may be undertaken directly by the mine
itself, from experience, is approximately 0.8 (k-factor) owners or by an underground mining contractor. It
of its intended payload. Therefore the skip would may therefore be costed under either of these options.
weigh approximately 4 t. Single-heading development is more expensive than
Wind er house
ho use multi-heading development. The cost is minimised
when there are five or more headings available to
The winder house size, and therefore costing, will be
maximise the utilisation of equipment and personnel
related to the size of the winders. Costs should include and to minimise downtime caused by adverse face
foundations, housing for electrics and any necessary conditions. Thus the in-house cost of multi-heading
cab arrangements. The foundation cost depends on level development (4.5 m × 4.5 m) might range from
knowledge of the site ground conditions. $3500 to $4000/m (including loading but not trucking,
Wind ers with bolt-and-mesh support), while the cost of single-
The calculations in Table 8.11 provide sufficient basic heading decline development by the contractor (5.8 m
information to supply to a winder manufacturer. There height × 5.5 m width with permanent bolting and
fibrecrete support) could be $8000 per metre including
are other details that could be supplied, but for an
trucking to surface under otherwise similar conditions.
initial budget
sufficient. price
To the estimate
winder this information
manufacturer’s should
price, be
add the Decline development costs can be approximated
cost of delivery, installation and commissioning. using typical contract rates appropriate for the antici-
pated ground conditions and water inflow. Given
Ventil
Ventilati
ation
on shaf t equipment the volatility of contractors’ market conditions, the
Surface ducting, fan (or fans), evasés, a substation and estimator must ensure that the applied rates are recently
a control room may be required. An intake shaft, or obtained. Hence the rates provided in Table 8.12
exhaust shaft with reverse flow capability, may also are applicable for only mid-2011 A$ conditions. The
 be fitted as a second means of egress. Depending on assumptions include:
the scale of operation, this may be as simple as having • cablebolting, road-base, trucking, supervision and
ladderway collar mountings or this may require cage- design excluded
hoisting facilities similar to those established for • development of 5.8 m height × 5.5 m width
production shafts. • drill, blast, services, mucking, ground support,
labour on-costs, secondary vent fans and face
Underground capital pumping included

Underground capital stations,

transfer and loading development may include
ventilation ore
raises and • fibrecrete from backs to grade line at 60 mm thick
• power is diesel generated ($0.25/kWh)
drives, declines/inclines, conveyor drifts, serviceways,
• reasonably accessible, Australian site
escapeway access, orepasses, main level development,
pump stations, underground crusher stations, under- • workforce
ground workshops, underground magazines and • contract labour rates
various cuddies. • fly-in, fly-out (FIFO) even-time roster

Cost Estimation Handbook 1477

14

CHAPTER 8 – UNDERGROUND HARD ROCK MINING

TABLE 8.12
Example decline development cost.
Cost t ype Unit s Total unit c ost Drill Blast Muck Ground suppor t Ser vic es
Labour /m adv $3100 $400 $900 $200 $1400 $200
Maintenance lab our /m adv $800 $100 $- $100 $600 $-
Equ
quiipm
pmeent ma
maiintenan
ance
ce /m ad
advv $700 $100 $50 $100 $400 $50
Mater i al s /m adv $1700 $100 $300 $- $800 $500
Fuel /m adv $100 $- $5 $50 $40 $5
Power /m adv $200 $50 $30 $20 $100 $-
Total /m adv $6600 $750 $1285 $470 $3340 $755

• up to and including shift supervisor (not including Large undergroun

underg roundd excavat ions
superintendent).
Large excavations are required for facilities such as
Load-and-haul costs are charged in a variety of ways. crushing stations, loading stations, workshops and
One common approach is to quote loading on a per- pump stations. In a scoping study, factored costs of
tonne basis and hauling on a per-tonne-kilometre basis, similar facilities, including the excavation costs, are
which permits escalation of costs with increasing haul appropriate. Alternatively,
Alternatively, an excavation cost per cubic
distances. metre and a support cost per square metre can be used,
Ground support costs will vary according to the together with a factored lump sum for the installed cost
physical requirements. Prior to costing, consumption of the equipment. Costs should be factored from a site
of ground support per metre of development must be with similar rock conditions.
estimated and converted to a ground support cost per In a prefeasibility study a general layout of the
metre developed. facility should be prepared at least in plan view, and
The above costs are direct operating costs to the a preliminary assessment of ground support require-
owners (or contractors) doing the work. To convert ments made. Sufficient thought should be given to
these to contract rates, additional allowances must be excavation techniques
techniques to be able to estimate the volume
made for: of rock to be broken by each of hand-held, jumbo or
• contractors’ overheads and profit, typically ten to longhole drilling, and the method of rock removal for
15 per cent of the Table 8.12 costs each. Excavation, loading and haulage costs per cubic
• equipment ownership costs (depreciation and metre for each method can then be applied. Ground
interest charges) support costs can be estimated per rock bolt in backs
and walls, plus per metre of cablebolt where required.
• insurances (typically three to five per cent). Mesh and shotcrete or fibrecrete costs can be estimated
To illustrate the depreciation charge, consider a per square metre applied, with shotcrete typically at
truck that has an initial cost of $1.0 M and a salvage 75 mm or 100 mm thickness.
value of $0.2 M after an estimated four-year service
If estimating shotcrete costs volumetrically, allow ten
life. The depreciation is thus $0.8 M over four years or
to 20 per cent rebound losses for wet-mix fibrecrete and
$0.2 M/a. If the truck is used for 5000 hours/a then the
average performance, with a further ten to 20 per cent
depreciation charge is $40/hour.
for roughness factor. After allowing these factors and
The interest expense arises because owning an asset
 wastage (spillage, left in agitator bowl or dumped) the
ties up capital. This is true whether all or part of the total shotcrete usage will be 1.8 to 2.5 times that for a
purchase price is borrowed, or whether capital is used. theoretical case using the design thickness of shotcrete
In the latter case there is an opportunity cost because applied to a design excavation. Overbreak, actual
that money could have been invested elsewhere. The excavation roughness, rework, temporary support and
average investment for the same truck is ($1.0 M + specification of a minimum design shotcrete thickness
$0.2 M)/2 = $0.6 M. are other causes besides rebound and wastage. The
If the company has a cost of capital (or cost of specification of 50 mm minimum thickness can result
borrowing) of ten per cent per annum then the annual in an average actual thickness of 75 mm, depending
interest expense is 0.1 × $0.6 M or $60 000 for each of on the roughness of the actual excavation. In large
the four years, or $12 per operating hour. excavations there is a greater possibility of overbreak.
The format of a typical development schedule of rates Depending on its purpose, the excavation cost may
is illustrated in Table 8.13. Note that this is unrelated to include the cost of a concrete floor. In poor ground,
the estimate in Table 8.12. particularly where well-developed structures are

148 Cost Estimation Handbook

CHAPTER 8 – UNDERGROUND HARD ROCK MINING

TABLE 8.13
Example development schedule of rates.
Unit Rate Comments
Development

Lateral – 5.5 × 5.5 (mesh and bo

bollts
ts)) $/m 5408 Assume 13 bo
Ass boltltss pe
perr ri
ring
ng an
andd me
messh to gra
radde – ri
ring
ngss to be 1.9 m spa
paci
cing
ng
Lateral – 5 × 4.8 (mesh and bolts) $/m 4702 A ss
ssume 11 b ol
ol ts
ts p er
er r ing and me sh
sh to grade – r in
ings t o b e 1.9 m spacin g
As sume 13 bolt
Assume bo ltss per
pe r ring
rin g and
an d shotc
sho tcrete
rete to grade
gr ade – rin
rings
gs to
t o be
Lateral – 5.5 × 5.5 (shotcrete 75 mm thick) $/m 6767
1.9 m spacing
As sume 13 bolt
Assume bo ltss per
pe r ring
rin g and
an d shotc
sho tcrete
rete to grade
gr ade – r ings t o be 1.9 m
Lateral – 5 × 4.8 (shotcrete 75 mm thick) $/m 6133
spacing
As sume 13 bolt
Assume bo ltss per
pe r ring
rin g and
an d shotc
sho tcrete
rete to grade
gr ade – r ings t o be 1.9 m
Lateral – 5.5 × 5.5 (shotcrete 50 mm thick) $/m 5878
spacing
As sume 13 bolt
Assume bo ltss per
pe r ring
rin g and
an d shotc
sho tcrete
rete to grade
gr ade – r ings t o be 1.9 m
Lateral – 5 × 4.8 (shotcrete 50 mm thick) $/m 5344
spacing
As sume 13 bolt
Assume bo ltss per
pe r ring
rin g and
an d shotc
sho tcrete
rete to grade
gr ade – r ings t o be 1.9 m
Vertical – 4 × 4 $/m 2946
spacing
Assume
Ass ume 13
13 bolts
bol ts per
pe r ring and
an d shotc rete to grade
gra de – rings
ring s to be 1.9 m
Miscellaneous stripping $/m3 139
spacing
Ground suppor
supportt and rehab
Supply, drill, install, grout, plate and
$/each 380
tension twin stand cable bolt
Supply and install 46 mm galvalised split
$/each 80
set – 2.4 m – extra over
Supply and install 39 mm galvalised split
$/each 40
set – 0.9 m – extra over
Supply and install
inst all mesh, 100 × 100
100 mm –
$/m2 40
5.6 gauge – extra over
Miscellaneous shotcrete $/m3 1015
Haulage
Truck haulage $/tkm 3.45 Level and up-ramp
Fixed costs
Mobilisation Lump sum 900 000
Demobilisation Lump sum 600 000

present, substantial overbreak may occur, for example work, possibly including stress measurement and
around the crusher pit and crushed orepass below the 3D modelling, should have been done to enable the
crusher. This needs to be considered when estimating orientation to be optimised and the permanent ground
 concrete volumes. Blinding concrete on final excavation support to be specified in detail. A construction
floors in a particular area can reduce overbreak from method statement should be prepared, explaining
subsequent adjacent excavations below this level. the method and sequence of excavation, temporary
Blinding concrete helps prevent chamfers (overbreak) ventilation, how the broken rock will be removed, any
being created at the interse
intersection
ction betwe
between
en a horizont
horizontal
al need for temporary ground support and the method of
surface, such as a permanent floor, and a vertical face installing permanent ground support.
subsequently excavated adjacent to this permanent floor. In many tall excavations a top-down method is used,
In a feasibility study a detailed design of the allowing cable dowels and permanent back support to
excavation should be prepared, showing how the be installed before taking out the bulk of the chamber.
major mechanical components fit into the excavation. Typical industry practice is to complete mining and
Allowance needs to be made also for the installation support of the chamber before handing it over for
of the mechanical comp-onents including mobile crane civil and mechanical construction. An alternative is
access and conveyor cable reels. Sufficient geotechnical an integrated mining and construction schedule, with

Cost Estimation Handbook 149

CHAPTER 8 – UNDERGROUND HARD ROCK MINING

concrete and steelwork constructed at the top of the Underground fixed plant
chamber off a solid rock floor, eliminating the need for
When estimating the cost of fixed plant it is important
extensive scaffolding and working at heights. Careful
blasting techniques will then be required for later to identify all related costs, as the cost of the primary
stages of excavation to prevent damage, but the overall equipment may be only a small part of the total.
cost and/or duration of the project may be reduced. Table 8.14 is an example showing all costs related to
Large excavations are now more likely to be made the installation of three double-acting duplex piston
diaphragm pumps.
using development jumbos than longhole methods.
Access by rubber-tyred vehicles allows shotcreting TABLE 8.14
and cablebolting to be safely and efficiently performed. Cost estimate for an underground pump station.
Longhole methods need to take account of more skilled
and labour intensive installation of ground support, Item Qt y Unit cost Total cost
and the potential for ground movement or relaxation ($) ($)
while support is being installed. Mobile cranes, specially Pump and f rame 3 1 500 000 4 500 000
constructed ladderways and systems for working at
Pump motor 3 68 000 204 000
heights may also be necessary. Longhole methods may
also result in overbreak in poorer ground, and efforts Fluid coupling 3 70 000 210 000
to reduce overbreak can result in underbreak with Freight 3 20 000 60 000
associated time-consuming survey and minor stripping.
Pump room f loor 1 240 000 240 000
Temporary ground support is likely to be required in
Pump f it tings 3 175 000 525 000
one (temporary)
cablebolts in thewall
backswhen
of aexcavating and installing
large chamber and in Pump spares 1 90 000 90 000
subsequent excavation lifts below this level. Good Pump electrics 1 930 000 930 000
geotechnical knowledge of crusher chambers is required
as there is less flexibility in locating crusher chambers, Pump room excavation and f itit titings 1 810 000 810 000
particularly in relation to long conveyors or a block Underground dam and screen 1 1 200 000 1 200 000
cave. Conveyor transfer points require some thought in
Rising main 1 1 300 000 1 300 000
scheduling of excavation sequences, particularly where
access is required for two or perhaps even three separate Engineering,
neering, procurement and
1 006 900
excavation lifts. Good quality assurance (QA) and construction
constr uction management
mana gement (10%)
(10%)
survey systems or generous (0.3 m to 0.5 m) tolerances Contingency (20%) 2 215 180
are required to ensure that steelwork and infrastructure
Total 13 291 080
components fit in the completed excavations.
Excavation crews need to understand that large
excavations are civil engineering projects and not Mobile equipmen
e quipmentt
a mining job such as advancing a decline for truck Purchase costs for mobile fleet can be readily obtained
haulage. A dedicated crew for large excavations may from the various equipment manufacturers as budget
have quality and schedule benefits although initially prices. These vary over time and with exchange rates, so
they appear more expensive. The interface between a recent data should be sought. Additional costs should
mining contractor and infrastructure contractor also be allowed as in TaTable
ble 8.15, or more detail obtained
needs consideration. Schedule delays on the excavation from the supplier.
can result in significant costs to the infrastructure
contractor and the principal. TABLE 8.15
All of the points mentioned have direct or indirect Typical a llowances for m obile fleet purchase.
costs, which are probably not all captured in most
I t em Typical allowance
costing systems. Actual costs are therefore typically
higher than those shown in cost reports. Opt i on al f e at ure s 5% o f b ud get pr ic e
Cost estimation for a feasibility study should be based Frei ght 2% o f b ud get pr ic e
on contractor’s tender or at least a firm contractor’s
Commis si onin g 2% o f b ud get pr ic e
schedule of rates based on a detailed scope of work for
the specific project. Alternatively the cost may be built In sur a nc e 1% o f b ud get pr ic e
up from first principles using a ‘notional gang’ mining
crew with hourly labour and on-costs, together with
Other equipmen
e quipmentt
current itemised costs for drilling equipment and
consumables, explosives, loading and haulage, ground Other equipment not readily described as fixed plant
support, concrete, ventilation, temporary pumping, or mobile plant may include:
maintenance, power supply and supervision. • airleg drills

150 Cost Estimation Handbook

CHAPTER 8 – UNDERGROUND HARD ROCK MINING

• ammonium nitrate and fuel oil (ANFO) loaders and no more than 60 per cent of
o f the initial consumables
• blast initiation systems cost be recovered in financial modelling.
• cap lamps, with belts and chargers For detailed estimates destined for mine budgets, more
• computers and software information is required. The required consumables will
• core yard shelves, layout tables, core splitters or depend on the security of the supply chain, which itself
is affected by project location, transport infrastructure,
saws funding mechanisms and general market conditions.
• extensometers and seismic monitoring equipment
• gas monitors and test units At this level, more precise estimates in terms of number
of days’ supply of each type of general consumable
• grouting units and towed cement mixers
(explosives, rock bolts and fuel, etc) can be made.
• jumbo boxes and distribution board In addition, equipment manufacturers will provide a
• mine rescue equipment list and costing of required initial spare parts. As the
• mobile equipment (not immediately identified number of purchased mobile fleet items of a particular
from the detailed operations examples) including model increases, the allowance for initial spare parts,
graders, track and rubber tyred dozers, service expressed as a percentage of the purchase cost for
vehicles, fuel tankers, concrete agitator trucks and that segment of the fleet, will decrease albeit not
shotcrete machines proportionally.
• pull-test units for rock bolts
• radios (both hand-held and vehicle mounted) for OPERATING COST ESTIMATES
underground communications There are many valid approaches to estimating
•
• remote operations systems
self-rescuers underground mine operating costs and the best
approaches vary according to the mining method.
• survey equipment including cavity monitoring Whichever approach is used, it is important to check
• trailer- or skid-mounted generator sets, compressors, that totals from the various schedules are consistent.
water tanks and fuel tanks For example:
• transportable (particularly face and sump) pumps • total tonnes of ore produced must equal the
• transportable vent fans tonnes of ore in the costed vertical and horizontal
• underground and surface first aid equipment development schedules and the stoping schedules
• underground communications (including fixed • total personnel numbers must equal the number
phones, leaky feeder cables or ethernet systems), of personnel costed under supervision, services,
information and signalling systems operating and maintenance areas in each labour
category.
• workshop equipment (mechanical, electrics, tyre
changing and hydraulic hose fitting) and tools. Provided such checks are undertaken, then the
costing approach and sequence are not important, as
In general, these pieces of equipment have much
all methods should converge to the same answer.
shorter life spans than fixed or mobile plant. Hence,
a repurchase schedule is an essential prerequisite in As a minimum, the following inputs are required:
establishing sustaining capital requirements. Pers- • activity times (operating hours, etc) per unit activity
onal protective equipment is often considered as a • equipment list and unit costs
consumable, rather than as equipment under a capital • labour list and unit costs
items listing, because of the high rate of turnover. • materials list and unit costs
First-fills and inventory • schedule of contract and other costs
An initial stock of consumables and spare parts is • schedule of quantities of activities.
required to be established on-site prior to commence-
 ment of operations. Should production levels increase
Unit operations and cost elements
during the life of the mine, then inventory levels will As with all other operating cost estimates, the basic
need to be adjusted accordingly. divisions are important in ensuring there are no
omissions, otherwise an overly optimistic total would
As a preliminary estimate, it should be sufficient
result.
to allow one month’s consumables and two month’s
spare parts consumption as the initial stock. For remote The recommended divisions are:
locations where seasonal weather can isolate the 1st Level Geographic
operation, and for equipment requiring sophisticated 2nd Level Activity
components, higher allowances should be applied.
3rd Level Unit operation
As it will not be possible to dispose of the stock at full
value at the end of the mine’s life, it is recommended 4th Level Cost category
that no recoupment value be placed on the spare parts, 5th Level Cost elements

Cost Estimation Handbook 1511

15

CHAPTER 8 – UNDERGROUND HARD ROCK MINING

Geographic allocation will be used for very large It is useful to separate development in ore and waste so
mines, or for physically dispersed operations where, that ore production sources can be reconciled.
for example, several widely spaced orebodies are Included in operating development are:
accessed by separate declines.
• access cross-cuts from declines or footwall/hanging
For underground mining, the key activities are wall drives
(operating) development, stoping, stope backfill (should
it be required), mine services, technical services and • extraction cross-cuts and drives
supervision. A typical breakdown of these into unit • mill holes, chute raises, jump-ups and undercut
operations and cost categories is shown in Table 8.16. drives
• raises in ore, although the costs of slot raising and
Operating deve
development
lopment establishing the slot itself in sublevel open stoping
Operating development is taken as that development are often incorporated into the stope drill-and-blast
which is reasonably assumed to be dedicated to the life costs if the same rig is used for all three activities
of a sloping block. Accordingly, the active life of stope • stope drives in cut-and-fill stopes (or can be included
development rarely exceeds that of sloping block itself. in stoping cost)

TABLE 8.16
Typical unit operations and co st categor ies.
Level 2 Level 2 A Level 3 Level 3A Level 4
Acti vit y Subactivi
Subact ivi ty Unit operat
op eration
ion Suboperati
Suboper ation
on Cost categor
cat egor y

O p e r a t in g Lat er a l in o re Dr ill Op er at in g la b our

Vert ic
ical
al in ore
o re
Development Lateral in waste B last Ma in t ena nc e la b o ur
Vert ic
ical
al in waste
wa ste
Lo ad Co nsum able s
Haul M a in t e n a n c e s p a r e s
Gr oun d supp o r t Eq uip m ent le as e/hire
Inst a ll s er v ic e s Co n t r a c t s e r v i c e s
St o p in g (B y m et h o d) Dr ill Po w er
B last Wa t er
(Cle a n) C o m p r e s s e d a ir
Lo ad Sun dr ie s
Haul (Li ght vehic le s)
Ground suppor
suppor t
S t o p e f ill Pr ep a ra t i o n
Delivery
Install services
Haulage
Hoisting
 Mine se r v ic e s Vent ilat i on
Dewatering
Communications
Te c hnic a l ser v ic e s Ge o lo g y
Geotechnical
Mine planning
Survey
Sup er v isi on (By leve l)

152 Cost Estimation Handbook

CHAPTER 8 – UNDERGROUND HARD ROCK MINING

• stripping back of access ramps in mechanised cut- • Unless multi-skilling is applicable, ensure that short-
and-fill stopes term troughs in drilling personnel are repaired,
• sublevels and drill drives, including associated even to the extent ofo f retaining additional personnel.
footwall and hanging wall drives. • Estimate a base salary rate for each category of
For preliminary cost studies most estimators consider driller or drill assistant.
typical stope layouts as adequate intermediate steps • Add an allowance for superannuation, workers’
in the calculation of stope development requirements. compensation insurance, long-service leave accruals
Costs per metre developed are similar to those for and (if applicable) bonuses to derive a total salary
capital development.
rate for each category of driller or assistant. Note that
At feasibility and detailed planning stages it is some estimators calculate this for the labour force
necessary to calculate the various requirements by on-site at any one time, which thus involves incor-
estimating the specific development distances for each porating all the allowances specified in the second
stope for at least the first two years. Once the physical point here rather than as above.
development requirements
requirements are assessed and scheduled,
• The total cost for the development drillers and
costings can be applied to each unit operation.
assistants is divided by the scheduled development
development
The following procedure applies to a jumbo metres to provide an operating labour cost per
development program, with a separate charging crew. metre, which will vary from period to period.
Drilling
Drill ing For an initial estimate of the base salary or wages
Drilling includes face preparation and is broken down cost, a number of public realm sources are available to
into the following sections: the estimator, including data provided by personnel
recruitment organisations. In Table 8.17, typical base
Physicals salary ranges for jumbo operators as applicable in 2009
Physical considerations include: are outlined to show the range of variation in salaries
• From the theoretical drill time for a given face by location.
(including allowances for reaming easers and In Table 8.17, the salaries apply to residential positions
aligning each hole), drilling length per face, except for Western Australia, where the range is based
expected average face advance and the scheduled on 9&5 and 2&1 rosters. The positioning within the
total development distances, estimate the theoretical range will depend on operating philosophies, selected
number of drilling hours required per period rosters and work hours, location and work conditions.
(month, quarter or year). For feasibility studies, nearby operations should be
• Add additional hours for re-entry inspection, face canvassed in order to provide the required level of
preparation, re-drilling (depending on ground conformity.
conditions), rock bolting (as most estimators
TABLE 8.17
consider it far more practicable to consider the Typical jumbo operat or’s base salary, 2009.
drilling components for development drill-and-blast
and development ground support together, if they Regi on Cur r ency Low Hi gh
are undertaken by the same crew with the same Wester
West ernn Austr
Aus tralia
alia A$ 145 000 180 000
equipment) to provide total effective drilling hours.
Q u e e n s la n d A$ 120 0 0 0 165 0 0 0
• Divide by an efficiency factor (83 per cent, say,
representing an operating hour of 55 effective S o u t h A u s t r a li a A$ 110 0 0 0 125 0 0 0
working minutes) to determine the total drilling N e w S o u t h Wa l e s A$ 90 000 125 0 0 0
hours.
Vic to
toririaa A$ 85 00 0 110 000
• Add a pro rata allowance for shift commencement,
rig relocation and set-up, crib breaks, rig close-down No r t h er n Ter r i t o r y A$ 80 0 0 0 10 0 0 0 0
and removal, and shift completion to determine total N e w Ze a l a n d NZ$ 130 0 0 0 16 0 0 0 0
operating hours.
 Courtesy: Hays Recruiting.
Operating labour
Operating labour considerations include: Maintenance labour
• For each period, estimate the total number of drillers Maintenance personnel numbers are most often derived
and, if appropriate, drill assistants required to
theoretically fulfil the total operating hours required. from a perceived ratio to operating personnel, which
will vary according to plant type and scale. A typical
• Add an allowance to cover time off for shift rotation, ratio for basic underground fleet and equipment is 0.3:1,
training, sick leave and holiday leave. although this will increase with equipment complexity,
• Round-up to whole numbers unless multi-skilling the application of remote control and adverse operating
is applicable. conditions.

Cost Estimation Handbook 153

CHAPTER 8 – UNDERGROUND HARD ROCK MINING

Once the theoretical numbers of tradespeople are TABLE 8.18

determined, a similar procedure to that for operating Operating development –
personnel is applied. However, the individual fac e prepa
pr epa rat ion a nd drilling
dr illing cons
c onsumab
umables.
les.
tradesperson may be responsible for a range of
unit operations, not merely development drilling. I t em Uni t No/r ound
Therefore, first-pass personnel estimates for this single Face preparation
activity are notthe
point. When rounded-up to whole integers
total tradesperson at this
requirements Jumb o f uel Li t r e 9.0
are known for the entire mining department, whole- Jumb o lubr ic a nt s A ll o w a n c e
integer rationalisations can be made, with adjustments
Jumb o t y re s Eac h 0.0 01
to individual unit operation allocations as necessary.
Sc a lin g ba r Eac h 0.1
Consumables
Ho s e (3 8 mm) Met re 1.0
The following example illustrates a cost estimate for
consumables required for face preparation and drilling H o s e r e p a ir A ll o wa nc e
lateral development. For convenience, the consumables Drill consumables
costs for the jumbo carrier are here grouped under
face preparation, but this is a question of personal Dr ill bi t (45 mm) Eac h 3.74
preference. The design parameters on which the Re a ming bi t (89 mm) Eac h 0.26
example is based are:
Re a min g ada pt er Eac h 0.26
Coupling usage 830 m/coupling
Sha nk a dap te r Eac h 0.14
Drill bit usage 50 m/bit
Face area 20.3 m2 Ro d Eac h 0.3 5
Face production 208 t Co up lin g Ea c h 0.21
Jumbo fuel consumption
consumption 10 L/h
Jumbo travel/set-up
travel/set-up time 45 minutes followed by 60 monthly payments of 5.9 per cent of the
listed purchase price.
Jumbo tyre life 2500 h
Length of round advance 3.1 m Contract services
Length of round drilled 3.4 m This component may vary from a minor cost
Number of drilled holes 55 per round contributor, such as the provision of a specialist off-
(including reamed holes) site maintenance service to refurbish (say) hydraulic
pumps, to the provision of the entire drilling operation
Number of reamed holes 3 per round by a contract miner.
Reaming bit usage 40 m/bit
Electric power
Rod usage 500 m/rod
A derived power schedule for both demand (kVA) and
Shank usage 1300 m/shank
usage (kWh) will be based on the anticipated power
The resulting consumables consumptions are listed consumption of the jumbo over the scheduled face/
in Table 8.18, from which each unit cost per metre of preparation drilling time.
development can be calculated once the individual unit
Power costs derived from grid supply are usually
costs have been obtained from suppliers.
invoiced as fixed charges (monthly connection and
Maintenance spares administration fees, etc), demand charges (according to
Maintenance spares costs can be sourced from jumbo maximum demand incurred during the invoice period)
manufacturers or, where available, historical records. and usage charges (according to peak, shoulder and
They are typically estimated on a basis of per metre off-peak use). The fixed charges are generally allocated
drilled. to a single centre under mine services, without being
distributed to individual cost activities or subcategories.
Equipment lease or hire The demand charge can similarly be treated as a single
Should the mining fleet be leased or hired instead of charge, or can be allocated to individual activities on a
being purch
purchased
ased outrigh
outright,
t, the lease and hire charge
chargess pro rata basis. The first of these options better matches
(except initiating payments and pay-out of the residuals) the measurement of actual costs against budgeted costs

are treated asvary

mechanisms operating costs. to
according The chargesor
supplier and charge
financier because
point, butdemand is only
the second measured
of these at the metering
options provides a more
and the economic conditions at the time of organising useful basis for management costing purposes.
finance. A typical charge in 2010 would have been an Power generated on-site is usually costed and, if
initial payment (considered as a capital cost) of 12 per provided by a specialist generating party, invoiced
cent of the listed purchase price of the fleet item, as a fixed period cost plus a cost per kWh delivered.

154 Cost Estimation Handbook

CHAPTER 8 – UNDERGROUND HARD ROCK MINING

These costs may or may not be influenced by generator Operating labour

availability and utilisation experienced during the For operating development, the blast crew may be separ-
invoice period. Again, the fixed cost may remain ate from the drilling crew if sufficient development
collected under a single cost centre or alternatively be advance is scheduled. Blast crew members are typically
distributed on a pro rata basis to unit activities. paid rates similar to, or slightly higher than, service
Waterr and co
Wate compr
mpres
esse
sedd air crews.
Water is usually calculated as supplied into a dedicated Maintenance labour
header tank in the vicinity of the portal or shaft at a As with drilling, the maintenance labour requirement
specific charge per kilolitre. The charge may have a can be based on a proportion of the operating labour
demand component, such as a fixed monthly charge, allocation. In our example, 0.2 could be considered an
or may simply be a consumption charge per kilolitre. appropriate ratio of maintenance labour to operating
For trackless operations, compressed air is generated labour.
on-board the drill jumbo. Consequently, the costs Consumables
of generation are already included in the standard The consumables requirement can be estimated in
operating costs of the unit. However, narrow-vein two main groups: items required for the blasting itself
and small-scale airleg machine operations may use (explosives, etc) and items required for the mobile plant
a central compressor bank to provide compressed and equipment (face charging unit, etc).
air underground via a piping network. Some
To our previous example, the following design
other operations use smaller decentralised electric
parameters have been added:
compressor stations to provide compressed air locally.
Again, the supply cost is most readily allocated as a Explosives consumption 1.2 kg/m3 blasted
charge per cubic metre of air delivered. Number of charged holes 52 per round
Packaged explosives requirement 16 per cent of
Sundries anticipated charge
This is the usual catch-all for any cost elements which The resulting consumables consumptions are given in
either cannot be allocated to only one of the above Table 8.19, from which a cost per metre of development
categories, or are separated out from other collections can be calculated once the unit costs have been obtained.
as specifically allocated to the activity in question. An
Maintenance spares
example of this may be the retention of a specialist
drilling consultant or manufacturer’s representative Maintenance spares costs can be sourced from charge
addressing a problem unique to the particular mine. unit manufacturers or, where available, historical
The consultant’s charges may be allocated to ‘operating
development–drilling–contract services’, but if the TABLE 8.19
Operating development – blasting consumables c ost example.
company is paying directly for the consultant’s
accommodation and travel, those costs may be collected I t em Uni t No/r ound
under ‘operating development–drilling–sundries’.
Blasting consumables
If the operation is relatively small, or management
determines it does not need to differentiate to this Pac ka ge d ex p lo si ve s 25 kg c as e 0.5
extent, the travel and accommodation costs may be Am monium
Ammo nium nitrat
nit rat e and
an d
alternatively collected in a centralised account under, 25 kg 3.6
fuel
fu el oil
say, supervision.
No nel det o na t o r s Ea c h 52
Light vehicles
D et o nat in g c o r d M et re 20
Many estimators consider it appropriate to determine
Plain d et o nat o r s Ea c h 1
a total monthly operating cost, including allowances
for registration if applicable and maintenance, and to Li f t er t ub e M et re 9
then charge the vehicle usage against the individual Sa f et y f us e M et re 2
 activities. If, in our example, the jumbo drillers had
specific light vehicles allocated for their use or support, Ta mp ing st ic k Ea c h 0.1
or could justifiably be allocated pro rata access to such Lo-st a t A NFO t ub e M et re 0.1
vehicles, then the vehicle charge can be assigned. Once Wast age 10%
again, this provides a more accurate management
accounting distribution than having underground light Mobile plant consumables
vehicle costs collected within a single centre. Cha r ge uni t f u el Li t re

Blasting Cha r ge uni t lub r ic a nt s Li t re

Blasting is broken down into the following sections. Cha r ge uni t t y r e s Eac h

Cost Estimation Handbook 155

CHAPTER 8 – UNDERGROUND HARD ROCK MINING

records. If an integrated tool carrier is adapted for TABLE 8.20

charging operations, the maintenance cost is that of the Operating development – loading consumables.
ANFO or slurry bowl, the delivery apparatus and an
appropriate proportion of the integrated tool carrier I t em Li f e (engine hour s) Uni t
maintenance cost, depending on other users. Fuel L/h
Lub e/f il t er s 50, et c a Set
Other
Costs associated with equipment lease or hire, contract Ty r e s 15 0 0 S et o f 4
services, power, water, compressed air, sundries and Gr o und en ga gem en t t o o ls 10 0 0 S et
light vehicles are estimated using the same procedures
as for the drilling costs. a. Additional
Additional lubricants w ill be required at various frequencie s.

Maintenance spares
Loading
Maintenance spares costs can be sourced from LHD
Loading is broken down into the following sections.
manufacturers or, where available, historical records.
Physicals Standard component replacement costs are based
on anticipated component life spans, which may
For operating development, loading operations may
vary considerably from the manufacturer’s estimates
have two components: mucking the face and hauling according to operating conditions. Table 8.21 provides
the ore or mullock to a stockpile bay, and loading trucks a typical checklist.
from the stockpile bay. These operations may use the
same load-haul-dump (LHD) unit or different LHDs. TABLE 8.21

The procedure for calculating physicals is similar to Operating development – loading maintenance spares.
that applied to the drilling operations:
I t em Li f e (engine hour s)
• From the load-tram-dump cycle time for a given
face, and the cycle time for loading trucks (including Tra n smi s si o n 80 0 0
waiting time) from the stockpile, estimate the Fina l dr i ve s a n d b ra ke s 80 0 0
theoretical engine hours required per period Ar titicula
cula tition
on jo int 800 0
(month, quarter or year).
Lo a der linka g e 80 0 0
• Divide by an efficiency factor (83 per cent, say,
representing an operating hour of 55 effective Radia t o r gr o up 80 0 0
working minutes). To r q ue c onver t o r 60 0 0
• Add hours for relocation between various develop-
Di f f e r e n t i a l 60 0 0
ment ends, and shutdowns for refuelling or crib
breaks to determine the total engine hours. Tra n sf er b ox 40 0 0
• Add a pro rata allowance for shift commencement, Co c k p i t 40 0 0
refuelling, crib breaks and shift completion to
determine total operating hours for labour. B uc ket rep a ir 10 0 0
Min or s 250
Operating labour
Unsc h e dul e d 250
Apply the same procedure as described for drilling.

Maintenance labour Note that these items do not include the parts
As with drilling, the maintenance labour requirement components designated for a major rebuild, which may
can be based on a proportion of the operating occur about 10 000 hours into the LHD life.
labour allocation. Again, 0.3 would be considered an In reality, hourly maintenance costs will vary between
appropriate ratio of maintenance labour to operating LHDs with the same model designation, and will
labour in our example. generally increase with LHD age. The application of a
single hourly maintenance cost throughout the LHD’s