1. Factored Cost Estimates (With Inflation Indexing) ©2002 Dr. Bradley C Paul

2. Example of Factored Cost Estimating n Shaft Sinking - USBM Cost Estimating System – Shaft sinking cost a function of 3 curves n Labor n Supplies n Equipment Operation – All functions are dependent on shaft area n Note that with one parameter (how big do you want it?) you can do all costs without engineering detail – Output is cost per meter of shaft sunk (need to know how deep you’ll go)

3. The Labor Curve n Y L = 615.595 * (X) 0.542 – X is the shaft area in square meters n We were doing a 20 ft diameter shaft – about 29.2 meters square n Plug and Chug – $3833/meter of depth

4. Modification Factors n Difficulty and cost of a shaft is a function of both size and rock hardness n Adjusting for rock hardness – F L = 0.388*(C) 0.093 – C is average rock strength in psi – suppose this is a coal operation through sedimentary rock with 17,000 psi n Plug and Chug – 0.96

5. Applying Modification Factor n $3,833.16/meter * 0.96 = $3,679.65 n Shaft Depth – better consider that we do leave a sump area below the last level accessed n (obviously need some industry specific knowledge) – 750 feet of depth n about 228.66 meters – Estimated Shaft Cost for Labor n $841,343

6. The Cost Indexing Bugaboo n Cost base for USBM CES is 1984 – Need to inflation adjust n Use US Bureau of Labor Statistics – Can’t really use the PPI this time – PPI is an index of what industries sell their goods for – This is a labor cost n BLS still has an index

7. Raiding the BLS Web Site n Go to www.bls.gov n Under Industries – Go to employment costs n Takes to Compensation Cost Trends Area Home Page – Go to get detailed statistics n Look at Create Customized Tables – Choose Employer Cost for Employee Compensation (ECEC)

8. Continue the Raid n Now on National Employment, Hours and Earnings area – Select “Average Hourly Earnings of Production Workers” n do note that these earnings figures are not going to include fringe costs n Note that these kinds of figures can be selected for a region of the country too – Since we are updating a national average manual we need to use the national statistics – Select Mining code 100000 n Note that could pick specific industries within mining – we are working coal but shaft sinking is sort of its own area

9. Continuing the Excitement n Send the computer to Fetch your data n comes back with data that doesn't go back far enough – reset the year range and send it out again n This time it returns with answers

10. Here Come the Goodies

11. Using the Goodies n Our figures give average wage excluding fringe – Our cost manual gave employer cost including fringe as $16.35/hr in 1984 n Fringe costs are usually a function of wage – paid vacation – workmans comp – unemployment – retirement – (Health insurance probably only stick in the mud)

12. Response - Use it as an Index n Labor cost in 1984 dollars – $841,343 n Indexing – $841,343*17.89/11.63 – Plug and Chug n $1,294,000 (with just a little rounding) n updated to Nov. 2002

13. Our Next Exciting Task n Supply Operating Cost – Y S =182.051*(X) 0.558 n Plug and Chug – X = 29.2 square meters – $1196.43/meter n Adjust it for Rock Hardness – F S =0.579*(C) 0.033 – C = 17,000 psi – Plug and Chug 0.9798

14. Finish Getting Our 1984 Cost n Apply rock hardness correction – $1196.43 * 0.9798 = $1172.22 n Use the depth of the shaft – 228.66 * $1172.22 = $268,000 n (note that rounding is being done down road) n Leaves us with need to update to current costs – Our contractor probably buys direct from wholesaler (PPI type update)

15. A Specific Basket of Goods n Needs specific supplies – 21% cost due to explosives – 34% steel items – 38% misc items – 6% electricity – 1% timber n We will need a weighted average of several cost indices – PPI is broken down into specific sub-indexes

16. Indices to Use n Have to use codes to get – past has been SIC code number (from IRS) – June 2003 plans to switch to NAIC codes n probably a NAFTA issue – Numbers won’t change much for mining n Heaven help the service industries n Chemical is 06 – Explosives are a specific type of chemical n 067902 n Iron and Steel 101 for the steel items

17. More Indices n Miscellaneous Items – Use PPI industrial commodities index n already a weighted average we don’t want to worry about n Electricity – 05 is energy – 0543 is industrial power n Timber – 08 is wood products – Mines use mostly softwood - 0811

18. Time to Run and Fetch n Go to BLS home page n Select Industrial – PPI n Takes you to PPI home page – Go to Get Detailed Statistics – Select Create Customized Tables Commodity Data n Let the Fishing Begin

19. Index Values n Explosives – 1984 = 103.6 – 2002 = 149.7 n Steel Items – 1984 = 105.3 – 2002 = 117.9 n Misc Items (Industrial Commod) – 1984 = 103.3 – 2002 = 134.9

20. More Index Values n Industrial Electric Power – 1984 = 108.4 – 2002 = 140.1 n Timber – 1984 = 110 – 2002 = 167

21. Break Our Shaft Supplies Cost Down for Indexing n Explosives – $268,000 * 21% = $56,288 – Index n $56,288 * 149.7/103.6 = $81,335 n Steel Items – $268,000 * 34% = $91,133 – Index n $91,133 * 117.9/105.3 = $102,038

22. Break Down and Index n Misc Items – $268,000 * 38% = $101,855 – Index n $101,855 * 134.9/103.3 = $133,013 n Electricity – $268,000 * 6% = $16,082 * 140.1/108.4 – Crank = $20,785 n Timber 1% – $2,680 * 167/110 = $4,069

23. Recombine n Explosives $81,335 n Steel Items $102,038 n Misc Items $133,013 n Electricity $20,785 n Timber $4,069 n Total $341,241

24. Last Cost Component n Equipment Operating Cost – Y E = 681.476 * (X) 0.407 – $2,690.73 – Hardness Adjustment n F E =0.715*(C) 0.033 gives 0.986 for 17000 psi rock – 1984 cost for shaft of depth $606,691 n Breakdown – 88% Repair parts – 7% Fuel and Lubrication – 5% Tires

25. Selecting Indices n Repair Parts - Use Construction Machinery and Equipment – $533,888*151.7/103.8 = $780,258 n Fuel and Lubricants - Use Refined Petroleum Products – $42,468 * 86.2/87.4 = $41,885 n Tires - Use bus and off-highway industrial vehicle tires – $30,335 * 90.6/83.4 = $32,953 n Total Equipment Operating $855,097

26. Cost of Pre-Feasibility Shaft Estimate n Labor $1,294,000 n Supplies $341,241 n Equipment $855,097 n Total $2,491,000

27. Understanding Whats Included n Cost of Shaft Sinking n Installation of Guides n Installation of Manways n Air, Water, Communications Lines n Does not include Hoist n Does not include Ore Pockets

28. Where to Get All This Stuff n After Lecture on Website See Resources on Pre-Feasibility Estimates page – Links to Bureau of Mines Cost Estimating System – Links to Bureau of Labor Statistics Web Site – Links to Cost Indices collected from Web Site to Nov. 2002 – Links to Cost Indices from Western Mine Cost Service