Costs and cost estimation

The costs of prospecting and mining are influenced by so many variables and unforseen items that a
general or average cost estimation is very difficult to make. However, as a potential mine operator
or investor must estimate cost figures on certain mining jobs, an attempt will be made to give some
average figures and an indication of how production of ore influences cost.

The prospector may usually hire a bulldozer within the range from $35 an hour for light machines up
to $100 an hour for heavy machines. If the prospecting job is a short one, the cost of transporting
the bulldozer to the job may also be added to the quoted hourly rate. A bulldozer will move a large
quantity of material at a low unit cost, if digging materials are good.

If trenching is done by hired hand labor, the cost of removing one yard of dirt will vary from $20 to
$40 per yard, provided no large boulders are encountered. The estimated cost just given will depend
on manpower productivity and conditions.

Drilling costs are also difficult to estimate. If the area is known, a fair cost figure per foot of the hole
drilled may be estimated from previous drilling costs. For holes up to 300 feet in depth in unknown
country, the contact costs for diamond drilling will probably vary from $25 to $50 per foot, with
extra charges for hole cementation and other difficulties encountered.

Rotary drilling costs for shallow holes may be less than or fall within the range quoted for diamond
drilling costs. If percussion air drills can be used with extension steel, then holes up to 50 to 100 feet
may be drilled within the range of from $4 to $10 per foot in normal drilling ground. The number of
holes and footage of the holes will influence the contract price considerably on all drilling methods
mentioned.

Value of the ore

When assay returns come back on samples of ore, the operator can calculate the value of the ore by
figuring the pounds or ounces of valuable material present and multiplying this figure by the current
market price for the metal. (one percent means the ore contains 20 pounds of metal per ton; two
percent means the ore contains 40 pounds of metal per ton, etc.) However, a smelter or commercial
mill does not recover all of the metal, and mill or smelter operators make a deductions are made in
various ways by individual mill or smelter operators, a mill or smelter schedule should be obtained
to show schedule of payment on metals. To cover these losses, a mill or smelter will usually deduct
somewhere between 5 to 20 percent of the total value of the ore. Included in this figure may be
freigth and marketing costs. The above figure, again, is a general one; the exact figure for a certain
type of ore must be obtained from the mill or smelter.

Smelters also exact various penalties if ores contain certain metals detrimental to the smelting or
milling process. For example, arsenic, bismuth, antimony, and silica are commonly penalized in a
lead smelter. Hence, the ore should be tested by the mill or smelter prior to shipment. Because
some plants can handle certain metals better than others, a plant which can best handle your ore
must be found.

In addition, the smelter or mill also exacts a charge per ton of ore, which varies according to the
metal content an other constituents. Sampling and are other expences usually borne by the ore
producer.

Certain minimums of metallic content in an ore are not paid for by a smelter. Most smelters do not
pay for less than 0.003-ounce gold per ton, and there are commonly minimums on silver and others
metals.
Hence, the market value of the ore rather than the assay value is the critical value in determining the
worth of the ore. All expenses in mining, transporting, milling, smelting and taxes come out of the
market value of the ore.

Taking a hypothetical case, assume than a high grade lead-gold-silver ore is calculated to have a
gross value of $300 per ton at current metal prices. Asuming a 20 percent deduction resulting from
refining losses, taxes, bullion freight, and penalties, the value of the ore is $300 – ($300 x 0.20) = $
300 - $60 = $240. Asssume the smelting charge is $125 per ton; left is ($240 - $125) = $115 for the
net value of the ore. As the ore must be transported to the smelter, haulage or shipping costs must
be considered. Once again, these costs vary widely, dependent on whether the ore is shipped by rail
or truck, but for estimations purposes, a figure ranging from 15 to 20 cents per ton mile may be
used. Assuming that the mine is 150 mile froms from the smelter, and the shipping rate is 17 cents
per ton-mile, the cost to transport the ore to smelter would be approximately $25.50 per ton.
Hence, the value of the calculated $300 per ton ore is now reduced to $89.50 per ton ore at the
mine. Under favorable mining conditions, ore worth $89.50 a ton at the mine may be produced from
underground operations at a small profit. As can be seen from this example, the deductions,
smelting, and transportation cost consume about ( $300 -$89.50)/$300 x 100 = 70 percent of the
value of the ore. This is one of the reasons why mills must be considered so that the run of mine ore
can be upgraded; however, considerable ore must be blocked out or mined to support a mill.

There are some mills in the wetern United States at the present time which, om a custom basis,
charge from $30 to $50/ton to process the ore. Heap leaching with cyanide is usually much cheaper
to process ore than is a convetional mill. Assume that the ore can be processed for $40 a ton, the
mill is the mine, and it can recover about 85 percent of the valuable material at a concentration ratio
of 1:12; that is, for every 12 tons of ore fed into the mill, it produces one ton of concentrates. The
charges againts a ton of the entering the mill would be ($300 – 0.85) - $40 = $255 - $40 = $210/ton
from the mill. As tonnage is reduced to 1/12 of the original weight, we now have a concentrate
weighting 167 pounds with a value of $210, or a ton of concentrate would have $210 x 12 = $
2520/ton. Assuming the same deductions at the smelter, our original ton of ore has a value at the
smelter of $210 – ($210 x 0.20) = $210 - $42 = $168. The smelting charges on this amount of
concentrate is now $125/12 = $10.4, leaving a value of $168 - $10.40 = $157.60. the transportation
cost is $25.50/12 = $2.12, leaving a value of the ore at $157.60 - $2.12 =$155.48. wuth this
assumption, the milling cost, deductions, smelting costs, and transportation costs consume ($300-
$155.48)/$300 x 100 = 48 percent. Therefore, you have 52 percent of the value of the ore to mine
and make a profit.

Beberapa pabrik di Amerika Serikat bagian Barat saat ini, secara khusus mengeluarkan
biaya dari $ 30 sampai $ 50/ton untuk memproses bijih. Heap leaching dengan sianida
biasanya jauh lebih murah untuk memproses bijih daripada pabrik convetional.Asumsikan
bahwa bijih dapat diproses sebesar $ 40 per ton, pabrik adalah tambang, dan dapat pulih
sekitar 85 persen dari bahan yang berharga pada rasio konsentrasi 1:12, yaitu, untuk setiap
12 ton bijih diumpan ke dalam mill, menghasilkan satu ton konsentrat. atu ton dari
memasuki pabrik akan ($ 300 - 0.85) - $ 40 = $ 255 - $ 40 = $ 210/ton dari pabrik. Sebagai
tonase dikurangi menjadi 1/12 dari berat aslinya, kita sekarang memiliki bobot konsentrat £
167 dengan nilai $ 210, atau satu ton konsentrat akan memiliki $ 210 x 12 = $
2520/ton. Dengan asumsi pemotongan yang sama di pabrik tersebut, ton asli kita bijih
memiliki nilai di peleburan dari $ 210 - ($ 210 x 0,20) = $ 210 - $ 42 = $ 168. Biaya
peleburan pada jumlah konsentrat sekarang $ 125/12 = $ 10.4, meninggalkan nilai $ 168 - $
10,40 = $ 157,60.biaya transportasi $ 25.50/12 = $ 2.12, meninggalkan nilai bijih pada $
157,60 - $ 2,12 = $ 155,48. terhubungkan ini asumsi, biaya penggilingan, pemotongan,
biaya peleburan dan biaya transportasi mengkonsumsi ($ 300 - $ 155,48) / $ 300 x 100 = 48
persen.Oleh karena itu, Anda memiliki 52 persen dari nilai bijih untuk menambang dan
membuat keuntungan.
When a mill is put in, it is assumed that much lower grade ore can be mined. The following example
shows how the profit margin decreases. Assume all costs and deductions stau the same as in the
previous example, but the value of the ore is now $200/ton.

($200 x 0.85) - $40 = $170 - $40 = $130/ton.

Deductions = $130 – ($130 x 0.20) = $130 -$26 =$104

The smelting charge = $125/12 = $10.40, ;leaving a value of $104 -$10.40 = $93.60.

Transportation costs =$25.50/12 =$2.12, so the value of the ore is now $93.60 - $2.12 = $91.48.

With this lower grade of ore, the milling costs, deductions, smelting costs, and transportation costs
consume ($200 - $91.48)/$200 x 100 = 54 percent. Consequently, there is 46 percent of the value of
the ore to mine and make a profit.

Often it is cheaper to mine lower grade ore per ton than higher grade ore, so this may be a good
tradeoff. If the concentration ratio can be increased, the costs of milling reduced, or the recovery
increased, the profit margin can be greatly increased. The following example illustrates the increase
in this profit margin.

Assume that the recovery stays at 85 percent in the mill, but the cost of milling is reduced to $30/ton
and the concentration ratio increases to 20:1. With the $200/ton ore, the calculations are as follows:

($200 x 0.85) - $30 = $170 - $30 = $140/ton.

Deductions = $140 – ($140 x 0.20) = $140 - $28 = $112/ton.

The smelting charge = $125/20 = $6.25, leaving a value of $112 - $6.25 = $105.75

Transportation costs = $25.50/20 = $1.28. the value of the ore is now $105.75 - $1.28 = $104.47

The deductions, milling costs, smelting costs and transportation costs consume ($200 -
$104.47)/$200 x 100 = 48 percent. There is now about 52 percent of the value of the ore to mine
and make a profit.

Head leaching with cyanide to recover gold and silver has become both popular and common in
recent years. Altough heap leach costs are difficult to find, one heap leach operator with whom the
writer is familiar stated that preparing and placing and installing the recovery system cost about
$10/ton of ore placed on the pad. The estimates of other costs were as follows :

Recovery of gold and silver 80 percent

Cost of mining (open pit) $ 7.50/ton
Marketing costs $1/ton
Overhead costs $1/ton

The question is, what grade of ore would be necessary to make a 25 percent profit? Probably the
best way to solve this is to find out what proportion each cost is on one ton of ore.

Recovery deduction 1 x 0.80 = 0.80 of gold and silver is ore

Costs Heap leaching $10.00

Mining 7.50
Marketing 1.00
Overhead 1.00
 Total costs $19.50/ton
Value of ore for 25 percent profits = 19.50/0.75 = $26/ton

But you recover only 80 percent of the gold and silver = $26/0.80 =$32.50/ton

With these conditions, the recoverable combined gold and silver values in the ore must be
$32.50/ton. As can be seen from this example, if the ore must be $32.50/ton. As can be seen from
this example, if the ore can be heap leached and open pitted, money can be made on much lower
grade ore.

One of the problems that arises in an open pit is that it usually becomes necessary to strip and move
waste away from the ore deposit. It also costs money to drill, blast, and move this waste,so that
mining costs can increase rather alarmingly as the stripping ratio of waste to ore increases.

Cost of hired labor

The average rate of pay to undergorund miners varies in different places, but the present figure
ranges from $60 to $100 per shift. Besides wages (for conveniece in calculating, a rate of $80 per
shift will be used), the employer has additional costs. If the miner works over 40 hours per week, the
federal law requires overtime payment at the rate of 1 ½ times the base pay. If miners work 6 days
per week, this overtima rate must be calculated in the total cost. Various insurance and taxes are
figured an the payroll wage and not the base pay. The folloeing assumed rates and calculations are
for a miner earning $80/shift :

Employer contributions:
Social security 1982,
6.7 percent x 80 $5.36
Workman’s compensation,
12,3 percent x 80 9.84
Unemployment taxes*
Federal est. at 1.0 percent x 80 0.80
States est. At 1.35 percent x 80 1.08
Total $17.08

Minimum total cost to employer 97.08

For following calculations use $100,00

*these is an upper limit on enemployment taxes at both the federal and some state levels. If a
person works a full year, the costs calculate to the figure above.

Observing the above calculations, we notes that the minimum cost to the employer of hiring a
person for underground work is approximately 21 percent more than the calculated payroll wage.
Added to this 21 percent is the cost of accounting and bookkeeping which must be done by the
employer, so that these records, and records of withholding taxes for both federal and state, can be
kept accurately. Also, the cost of the overtime, vacations, paid holidays, and medical benefits usually
run the total to over 35 percent.

Development cost
Operating mines with past records can base their future expences on past operating costs. However,
a prospector or small operator just starting out in a mining venture does not have past operating
costs to guide him.

Another question to be considered in developing a mine is, just what do the costs cover? Are the
costs just the direct costs, such as manpower, powder, and supllies, for each development heading?
Does the cost include all the overhead, such as capital equipment, compressors, buliding,
supervision services, interest and taxes? The total cost must include everything, which is difficult to
estimate. In an initial prospect, if the program is unsuccessfull, then allcapital items must be charged
off to the development headings. However, if the development is successful, the equipment is useful
for a much longer time, and the cost per foot of development heading is reduced. The following
examples on drifting estimated costs assume that all of the overhead will be included in the drifting.

Another question to be considered in cost is: are the development headings being advanced by
miners on a day’s pay rate, or are they being paid an incentive footag, volume, or tonnage rate?
Obviously, miners will advance a heading faster or mine more tonnage when they are on an
incentive rate rather than a day’s pay rate if they can make more money on the incentive system.
Hence, both the pay rate per day and the incentive rate should be considered.
When investigating the feasibility of a mine, it costs money for the initial investigation, travel, legal
papers, and opening up costs as roads, building, machinery, etc. These are usually one-time costs,
but they are a factor in the opening up and development of a deposit; consequently, if the project is
to be economical, these costs must be paid.

Normally the costs estimated are the direct costs of mining. The cost of milling, taxes, royalty rate,
marketing and other expenses must be added to the direct mining cost. Profit is what is left after al
of these expenses are paid. Costs are dependent on production rates, and usually costs are less per
unit when higher production results. Some mines use an incentive rate tied into production so that
costs can be better controlled.

Level drilling

Two examples may help to determine drifting costs. Suppose two miners are on base pay, 5 days per
week, and they are driving a drift of 5 x 7 feet, untimbered cross section. The wages (to employer)
for these two miners are $100 x 2 = $200 per day.

Labor varies from 25 percent to 60 percent of the total cost of development headings. The
remainder of these total costs includes direct supplies, supervisors, overhead, etc. These remaining
costs can be broken down into fixed cost/foot of advance such as rail, pipe, timber, etc. The variable
fixed costs consist of overhead on equipment, cost of supervision, power, pumping water, support
labor, some supplies such as drilling, compressed air, explosive, etc. The fixed costs generally do not
vary if the cost of the supplies remains the same.

The variable fixed costs are greatly affected by production. For example, if the cost of supervision,
power, rent on equipment, etc., is $500/day and one foot of advance in a drift is made per day, the
varible fixed cost is $599/foot. If 5 feet is made/day, then the variable fixed cost is $100/foot, and if
the rate of advance is 20 feet/day, the variable fixed cost is charged to the one project. If several
places are working, then this cost can be appointioned over several headings.

The cost of compressed air, drilling explosives, etc., falls somewhere between variable cost and fixed
cost because it usually doesn’t take too many more drill holes to drill a round that will pull 6 feet
deep rather.