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Doing Order of Magnitude Cost Estimates (C) 2002 Dr. Bradley C Paul.

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Presentation on theme: "Doing Order of Magnitude Cost Estimates (C) 2002 Dr. Bradley C Paul."— Presentation transcript:

1 Doing Order of Magnitude Cost Estimates (C) 2002 Dr. Bradley C Paul

2 Order of Magnitude n Get right number of zeros to +/- 50% n Part of Taking A Global Picture of the Project – Example n How much ore do you have and at what grade? n Are you going to go after it by surface or underground – What will your underground method cost per ton? – What will your overburden removal cost be? – Whats your surface mining cost? n How does that last choice change your cut-off grade and ore body tonnage?

3 Order of Magnitude Sizing n What kinds of fixed costs does the mine have – Fixed costs may be diluted by size, but only if there is enough ore and market to justify bigger capital – May be capital access or environmental visibility issues n By now you have an idea of what you are going to build and how big it is Mine Size Cut-Off Grade Contours of PVR May Only Be Limited Area of Feasible Design What Would You Feel Like if You Discovered You were Wrong Sized at the End?

4 Great - So Where Do You Get All These Fantastic Numbers n Actually good order of magnitude estimates are one of the trickiest to come up with n Need to have finger on the pulse of your business or industry – Trade Journals n commonly report when someone builds a mine, what the project size is, what the company put into the project, what they have for ore reserves n Mining Engineering front section n Mining News

5 A Trade Journal Game n Build a data base – Stan Michelson (former SME president) started doing this as an undergrad in the 1930s n Was a red hot consultant with his 40-50 years of data – Today we have data base programs that allow you to easily add fields and compile information

6 The Buddy System n Your contacts in the industry (friends from school) n People talk to at SME n Most people will not tell you down to +/- 50 cents what it costs to mine a ton of coal – Trick - knowing its between $10.50 and $12.50 per ton is very much good enough to do an order of magnitude estimate – Can get information for order of magnitude without undermining competitive position

7 Library Information n Mining Handbooks may give cost per ton by method and estimate of administrative cost relative to production n Canadian Institute of Mining puts out an annual costs volume – Use is mostly metal mining

8 Cost Manuals n Build canned models of perspective mining operations – allows you to compare your idea to a cost model that someone else did more detailed work on – Obviously an alternative/supplement to fragmented databases assembled from trade journals

9 Cost Manuals Players n Canadian Mining Journal Annual Cost Volume – Gathered from industrial data but is intended to be comprehensive in giving initial capital costs, infrastructure, milling, and mining by method costs n Serpa – A private cost program with a lot of defaults, gives comprehensive mine costs with just a few sizing proposal parameters n Western Mine Cost Service – designed some model theoretical operations that can be pieced together n are some reasons to question whether fully comprehensive in coverage

10 The Inflation Bugaboo n Problem is the information is gathered over time – Even mild inflation or shifts in productivity can render 10 year old information questionable n Trick is inflation indexing – Inflation usually measured with 3 main indices n Consumer Price Index (CPI) n Producer Price Index (PPI) n GNP Implicit Price Deflator

11 Most Information Compiled by Departments of Labor and Commerce n Example of Order of Magnitude Update – I wish to sink a 20 ft diameter shaft 750 ft deep – I know Frontline Camper sunk a 20 ft diameter shaft to 800 ft in 1981 for $2 million n Ill use PPI because based on industrial goods – index value set at 100 in 1982 – Go to BLS n 1981 PPI is 98 n 2002 PPI is 133.2

12 Updating the Cost of getting the Shaft n Adjusted depth – $2,000,000* 750/800 =$1,875,000 n Adjusted for inflation – $1,875,000*133.2/98 = $2,548,000 n Report the cost as $2.6 million

13 Comments on Order of Magnitude Cost n I assumed cost as a linear function of depth – there is a fixed cost of setting up frames – cost through unconsolidated likely to be higher n I used the over-all PPI when in fact a specific basket of goods is needed for shaft sinking – To get specific Id have to have a break-down on what was needed and how much of the total cost it was n most time dont have info n most time for order magnitude you are loosing yourself in detail when fast results are needed

14 More Comments n What was included? - Be careful – Is this a shaft with ore loading equipment and a hoist? – Since from shaft sinking company may not have the hoist (in this case it doesn't) – What about the ore pocket excavation and doors? n Might or might not FC does do ore pockets n May need to find out more n In this case it was just the shaft

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