MINE396 MINEPROJECTECONOMICS

MineRevenueandCosts 1
September2014

NormanB.Keevil InstituteofMiningEngineering
Topics
Revenueestimationfor
Preciousmetals(orpureproducts)
Basemetals
Costestimates
Componentsofmineoperatingcosts
CashflowmodelsforMinesCMandGM

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Notes:Refinerycontracts

Typical terms of a gold refinery contract are:

A treatment charge of $0.80 to $1.20 per oz, depending on current market conditions
The refinery typically pays the mine for 98% to 99.95% of the gold contained in the dor,
depending on market conditions.
Penalties are applied for deleterious elements such as iron, lead, tellurium and nickel.
The refinery will pay between 95% and 99% of the silver content of the dor.

The complexity of refinery contracts lies in the procedures established for weighing and assaying.
Security measures, delivery dates, disposition of refinery waste, and transportation of the gold are all
dealt with in a refinery contract.

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Revenueequations
For a metal or pure product:
Revenue=oreproduction grade (1 dilution) recovery price f

For a concentrate:
Revenue=oreproduction NSRo

oreproduction tons,tonnes
grade masspercentage,gm/t,oz/t
dilution percentage
recovery percentage
price $/unitmass
f paymentfactor(9899.5%typical)
NSRo NetSmelterReturn$/unitmassofore

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Refinerycontracts

Forpreciousmetals
~25kg ~13.4kg

Orebody Mineral Dor

210g/t Processing 6090%Au
Goldbars
>99.5%Au
Mine Refinery

Refinerycontractdictateswhatpercentageofthegoldpricethe
minewillreceive,typically9899.95%.

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Smeltercontracts
Creditfor Creditsfor
inthecaseofcopper payablecopper preciousand
othermetals

Orebody Freightcosts,
<1%Cu insurance,etc
Anodecopper Cathode
Concentrate 9598%Cu copper
2530%Cu Treatment >99.9%Cu
charges(TC) Refinery
andpenalties charges(RC)

AtMineReturn NetSmelter
(AMR) Return(NSR)

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Notes:Smeltercontracts

A smelter contract contains details concerning:

how the mine will be paid for the principal metal in its concentrate,
how the mine will be credited for other desirable metals in the concentrate (e.g., byproducts
such as gold),
what penalties will be applied for materials that affect the performance of the smelter (e.g.,
antimony, bismuth, moisture)
how the delivery is to be made, and
the manner in which check assays of the concentrate will be done.

The payment received by the mine is often called the Net Smelter Return (NSR). The mine is usually
responsible for transportation, insurance, and agents costs (realization costs). These costs are
subtracted from the net smelter return to obtain the At Mine Return (AMR).

The NSR can range between 60% and 90% of the value of the metal shipped to the smelter depending
on thecurrent demand and supply conditions for the metal and concentrates.

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NetSmelterReturn
NSRc CP C S TC X $/massofconcentrate

CP = Creditforprimarymetal
CS = Creditforsecondarymetals
Tc = Treatment(smelting) cost
X = Penaltyfordeleterious materials

CP andCS includetheamountofpayablemetalandtherefining
charges

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HowdoyoucomputeNSR
Weneedtoknow
Metalbalance:Howmuchorewillproduce1unitmass
ofconcentrateofagivengradeofprimarymetal?
Howtocomputeconcentrationsofsecondarymetals
(byproducts)andimpurities(deleteriousmaterials)
Howtocomputecreditsforprimaryandsecondary
metals
Howtocomputepenaltiesforimpurities

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Concentrationfactor
Howmanytonnesoforeareneededtoproduceonetonneof
concentrate?
mustcomeout
whatgoesin recovery% 1tonne
gradeG%
K tonnes
grade% Concentrate
diluted%
K 1 1 G
Ore
G
K
1
CopperatCM:G =27%, =0.3%, =90%, =0 K =100tonnes

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Notes:Metalbalance

In general if X tonnes of ore yields Y tonnes of concentrate, then a metal balance gives

X 1 d Y G
X
K
Y

If grade, recovery and dilution are unknown, knowing the tonnes of concentrate produced
for a given amount of ore processed gives K.

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Dilution

Wastemined
Dilution
Oremined+Wastemined

Isitonlyorethatisbeingblasted?

BlastatNewmontsAhafo mine,Ghana

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Concentrationsofnonprimarymetals
The concentration of the principal metal (e.g., copper) is known. For
other metals in the concentrate (e.g., gold) it is assumed that
Dilution affects all metals equally
The relationship between the concentrations of metals in the ore
does not change during processing,
i.e.,allthemetalsrideonthesameflotationtrain
Then the concentration of the ith nonprincipal metal is
Gi K i i
where i is the grade of the ith metal and ri is its recovery

e.g.,K =100,gold: =0.2g/t, =85% Ggold =17g/t

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Underthemicroscope
~550microns

~450microns
free goldin
gold arsenopyrite

Copperconcentrate(Neves Corvo/Portugal)
Chalcopyriteandpyrite.

Source:http://www.unige.ch/sciences/terre/mineral/fontbote/teaching/lehne_oredressing/lehne_oredressing.html

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 NSRtheshortway

Sixeasysteps

1) Assume Percentage Paid PP = 8090%

2) Compute
3) Compute Vc of concentrate given grades, recoveries, and prices
4) Compute NSRc = PP Vc
5) Compute annual concentrate production Tc = To/
6) Annual revenue R = Tc NSRc

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Thecalculations 1

Assume PP = 90%
Prices last week:
Pcopper = $3.22/lb $7,100/t
Pgold = $1,388/oz $45/g

Vc 0.27 7,100 17 45 $2,682/t

NSRc PP Vc 0.9 2,682 $2,414/t

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Thecalculations 2

Compute annual ore production

540Mt
To 27Mt/year
20years
Compute annual concentrate production

27Mt
Tc 0.27Mt/year
100

Compute annual revenue

R Tc NSRc 0.27 2,414 $651.8M/year

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ThecashflowmodelforMineCMlookslike
651.8M/yr
this

0 3 23

213.3M/yr 651.8M/yr

500M/yr

orthis
0 3 23

213.3M/yr

500M/yr
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CostDefinitions

Capitalcosts
Costsofphysicalassetsusedinproductionandprocessing
Recoveredoverminelifeasdepreciation deductionsfromrevenuebeforetax
Operatingcosts
Costsofmaterialsandlabordirectlyassociatedwithproductionandprocessing
Usuallyexpressedasmoneyunits/mass
Recovered(hopefully)fromminerevenue
Indirectcosts
Costsofoperationthatbenefittwoormorepartsofanoperatione.g.,
maintenance,orderingparts,gradecontrol,electricpowerandheat
Generalandadministrative(G&A)costs(akaoverhead)
costswhichcannotbereasonablyrelatedtoproductionbutwhicharenecessary,
e.g.,managerssalary,securitypersonnel,recruitingandtraining

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Notes:CostDefinitions

The distinction between indirect costs and G&A costs (also known as overhead)
is that there are ways to fairly allocate indirect costs to production from a
particular part of a mine operation whereas it is impossible to allocate G&A costs
to production from any part of a mine.
Sometimes indirect costs and overhead are bundled. Strictly speaking overhead is
a cost (usually a fixed cost) that is incurred whether production occurs or not, as
long as the mine remains open.

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OperatingcostsofMineCM
Compute annual ore tonnage
540
To 27 Mt/year
20
(ThetotaltonnesminedperyearisT(1+SR)=81Mt)
From current feasibility study of similar mine in BC:
Processing cost: $4.00/t ore
Mining cost $1.30/t material
Need to mine waste to get ore
Mining cost = $1.30 (1 + SR) = $1.30 3 = $3.90/t ore

C 27Mt $3.90 $4.00 $213.3M/year

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MineGM Revenue
Reserves 64.8Mtaveraging1.6g/tAu
Mining rate(waste+ore) 10.8Mt/year(30,000tpd)
Stripratio(waste/ore) 2.0
Dilution 5%
Minelife 18years
Recovery 70%

Assumegoldprice=$45/g
T 10.8
AnnualoretonnageTo 3.6Mt/year
1 SR 3
RevenueR 3.6 1.6 1 0.05 0.70 45 $172.4M/year

Revenue=oreproduction grade (1 dilution) recovery price f

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MineGM Operatingcost

From current feasibility study of a similar mine in Peru

Processing cost: $9.25/t ore
Mining cost $1.60/t material
Need to mine waste to get ore
Mining cost = $1.60 (1 + SR) = $1.60 3 = $4.80/t ore
G & A cost = $2.25/t ore

OperatingcostC 3.6Mt $9.25 $4.80 $2.25 $58.7M/year

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ThecashflowmodelforGMlookslike

172.4M/yr
0.5
0
2.0 2.5 20.5

58.7M/yr
100M/yr

200M/yr
250M/yr

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