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Doing Order of Magnitude Cost Estimates

Doing Order of Magnitude Cost Estimates. (C) 2002 Dr. Bradley C Paul. Order of Magnitude. Get right number of zeros to +/- 50% Part of Taking A Global Picture of the Project Example How much ore do you have and at what grade? Are you going to go after it by surface or underground

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Doing Order of Magnitude Cost Estimates

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

  2. Order of Magnitude • Get right number of zeros to +/- 50% • Part of Taking A Global Picture of the Project • Example • How much ore do you have and at what grade? • 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? • How does that last choice change your cut-off grade and ore body tonnage?

  3. Contours of PVR May Only Be Limited Area of Feasible Design Cut-Off Grade Mine Size Order of Magnitude Sizing • 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 • By now you have an idea of what you are going to build and how big it is 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 • Actually good order of magnitude estimates are one of the trickiest to come up with • Need to have finger on the pulse of your business or industry • Trade Journals • 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 • Mining Engineering front section • Mining News

  5. A Trade Journal Game • Build a data base • Stan Michelson (former SME president) started doing this as an undergrad in the 1930’s • 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 • Your contacts in the industry (friends from school) • People talk to at SME • 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 • Mining Handbooks may give cost per ton by method and estimate of administrative cost relative to production • Canadian Institute of Mining puts out an annual costs volume • Use is mostly metal mining

  8. Cost Manuals • 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 • 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 • Serpa • A private cost program with a lot of defaults, gives comprehensive mine costs with just a few sizing proposal parameters • Western Mine Cost Service • designed some model theoretical operations that can be pieced together • are some reasons to question whether fully comprehensive in coverage

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

  11. Most Information Compiled by Departments of Labor and Commerce • 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 • I’ll use PPI because based on industrial goods • index value set at 100 in 1982 • Go to BLS • 1981 PPI is 98 • 2002 PPI is 133.2

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

  13. Comments on Order of Magnitude Cost • 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 • I used the over-all PPI when in fact a specific basket of goods is needed for shaft sinking • To get specific I’d have to have a break-down on what was needed and how much of the total cost it was • most time don’t have info • most time for order magnitude you are loosing yourself in detail when fast results are needed

  14. More Comments • 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? • Might or might not FC does do ore pockets • May need to find out more • In this case it was just the shaft

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