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Total Drilling Cost

Total Drilling Cost. AC BHMT's Value Proposition Prepared for: Indiana Society of Mining and Reclamation 19 th Annual Technolocy Transfer Seminar Dec. 5 th & 6 th , 2005. What is "value"?. The AC BHMT "value proposition" is based on drill productivity , not "bit life".

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Total Drilling Cost

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  1. Total Drilling Cost AC BHMT's Value Proposition Prepared for:Indiana Society of Mining and Reclamation19th Annual Technolocy Transfer SeminarDec. 5th & 6th, 2005

  2. What is "value"? • The AC BHMT "value proposition" is based on drill productivity, not "bit life". • “Drill productivity” costs a mining company much more than "bit life". • Let's take a few minutes to talk about and understand what YOUR value proposition is based on. • Then we will explain ours.

  3. Total Drilling Cost Total Drilling Cost is a value concept that places its' emphasis on the cost of drill productivity. Progressive customers understand and adopt the philosophy that the cost of productivity drives the economics of a mine. Total Drilling Cost captures and shows the cost of drill productivity.

  4. The Total Cost of Drilling • TDC includes everything it takes to run a drill: • Labor • Power: fuel or electricity • Drilling tools and supplies • Maintenance labor & parts • Supervision, administration • Cost of equipment ownership (lease, purchase, or rental payments) With all things considered, drill operating costs can exceed US$300 per operating hour. $ $ $ $

  5. Total Drilling Cost Method 1 TDC = (Bit Price / Meters Drilled) + (Drill Operating Cost per Hour / ROP)

  6. Total Drilling Cost • Example #1: • Bit cost = US$5,000 • Bit life, meters = 6,500 • Penetration Rate = 52 meters/hour • Rig Cost = US$200 per hour

  7. Total Drilling Cost Example #1: TDC = Bit Life + Productivity ($5,000 / 6,500m) + ($200 / 52 m/hr) = $0.77 / meter + $3.84 / meter = $4.61/meter

  8. Total Drilling Cost • Example #2: • Bit cost = US$5,000 • Bit life, meters = 8,000 • Penetration Rate = 40 meters/hour • Rig Cost = US$200 per hour • TDC = (Bit Cost / Bit Life) + (Rig Cost / Pen Rate)

  9. Total Drilling Cost • Example #2: TDC = ($5,000 / 8,000 m.) + ($200 / 40 m/hr) = $.625 + $5.00 = $5.63 / meter

  10. Total Drilling Cost Example #2 TDC = ($0.63 / m.) + ($5.00 / m.) = $5.63 / meter $1.02 MORE! for a bit that is less productive but has longer life?! (52 vs. 40 m/hr., 8,000 vs. 6,500 m) Where is the advantage really found?

  11. Total Drilling Cost TDC Method 2 TDC = (Bit Price / Meters Drilled) + Fixed Cost + (Variable Cost / Rate of Penetration) Where: • Fixed Cost = Annual Overhead Cost / Annual Meter Budget • Variable Cost = Labor + Fuel + Supervision + Repair Parts + Repair Maintenance + Repair Labor

  12. TDC Method 2 Fixed Cost Calculation: • For example: $1.50/meter fixed cost $1.50 / meter = $900,000 overhead cost for drill fleet / 600,000 annual budget meters • Ownership cost of the drill fleet (lease, rent, purchase payments) • Drill Maintence budget for fleet (PM parts, fluids, normal wear parts, etc.) • Budgeted drilled meters.

  13. TDC Method 2 Example A: • Bit cost = US$5,000 • Bit life, meters = 6,500 • Penetration Rate = 52 meters/hour • Fixed Cost = $1.50 / meter • Variable Cost = $95 / hour TDC = ($5,000 / 6500) + $1.50 + ($95 / 52) TDC = $.77 + $1.50 + $1.83 = $4.10

  14. TDC Method 2 Example B: • Bit cost = US$5,000 • Bit life, meters = 8,000 • Penetration Rate = 40 meters/hour • Fixed Cost = $1.50 / meter • Variable Cost = $95 / hour TDC = ($5,000 / 8000) + $1.50 + ($95 / 40) TDC = $.63 + $1.50 + $2.38 = $4.51 $.41 / meter MORE for every meter drilled!($246,000 per year based on 600,000 m drilled/yr)

  15. Production Cost Only What is the cost of producing a single blasthole? • Cost = Drill Cost per Hour x Time spent drilling, hrs • $$ = $150 per hour x 30 minutes • $$ = 150 x .5 • $$ = $75 per hole drilled • $$ = $150 per hour x 20 minutes • $$ = $150 x .33 • $$ = $50 per hole drilled • Productivity costs less!

  16. Total Drilling Cost • With Total Drilling Cost calculated by any method, the productivity (ROP) and drill cost are the “drivers” of the calculation. • Bit Price per Meter is a small part of theTDC. • Ex. 1, bit price/m, $.77 is 17% of $4.61/m. • Ex. 2, bit price/m, $.63 is 11% of $5.63/m. • Ex. A, bit price/m = 19%, FC + VC = 81% • Ex B, bit price/m = 14%, FC + VC = 86%

  17. Total Drilling Cost

  18. Total Drilling Cost • The cost of productivity is the largest part of TDC • Spend less time drilling each hole. • Choose faster drilling bits. • Run bits to give high Penetration Rate and reasonable bit life. • This will keep the TDC low.

  19. Results Western USA Copper Mining Company Total Drill Cost (TDC) 2.40 2.00 1.60 BHMT US Dollars 1.20 Manuf #2 0.80 Manuf #3 0.40 0 01/01/2002 thru 12/31/2002 1/01/2003 thru 12/31/2003 01/01/2004 thru 12/31/2004 01/01/2005 thru 12/31/2005 11/15/2005

  20. Results • Western USA Copper Mining Cost Savings: • 2003 vs. 2002: $ -84,735 $1.89/ft • 2004 vs. 2003: $ 837,561 $1.65/ft • 2005 vs. 2004: $ 228,637 $1.58/ft • Total savings year on year: $981,463 • If no change in TDC: • Would have spent: $22,921,117 (at $1.86/ft, 2002) • Actually spent: $21,254,869 • Saved: $ 1,666,248

  21. Canadian Coal Miner Total Drill Cost (TDC) 10.00 8.00 6.00 BHMT US Dollars 4.00 2.00 0 01/01/2002 thru 12/31/2002 01/01/2003 thru 12/31/2003 01/01/2004 thru 12/31/2004 01/01/2005 thru 12/31/2005 11/15/2005 Results

  22. Results • Canadian Coal Miner Operating Cost Savings: • 2003 vs. 2002: $1,235,237 $7.58/m • 2004 vs. 2003: $ 520,781 $6.30/m • 2005 vs. 2004: $ 120,268 $5.85/m • Total savings year on year: $1,876,286 • If no change in TDC: • Would have spent: $13,888,389 (at $9.91/meter, 2002) • Actually spent: $10,101,431 • Saved: $ 3,786,958

  23. Thank You! • Questions??

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