COST ESTIMATION IN MINING:

THE EVOLUTION OF QUICK EVALUATION

METHODS
 AUTHORS
J. Gavronski*, C. Petter** and B. Escobar1, R. D’Arrigo2

Universidade Federal do Rio Grande do Sul1

Av. Bento Gonçalves 9500
Porto Alegre, Brazil 91501-970
(Corresponding Author: Jorge.Gavronski@ufrgs.br* ; **cpetter@ufrgs.br)

Programa de Pós-Graduação em Engenharia de Minas, Metalúrgica e de

Materiais2
Av. Bento Gonçalves, 9500
Setor 4 - Prédio 74 - Sala 211
Porto Alegre, Brazil 91501-970
 Objective

• Present "Quick Evaluations” in mine projects.

• Discusses in a special way the use of techniques originally
proposed by O'Hara.
• Report the MAFMINE software.
 Summary
• Characteristics mining projects
• Precision mining studies at different stages
• Quick evaluations (comparison and parametric methods)
• O’Hara model
• MAFMINE
• Some results obtained with MAFMINE
• Conclusion
 Characteristics mining projects

• New investments involving many uncertain, reserve,

technological characterization of the ore, economic and
political factors.
• Rely on large amounts of resources and have long maturation
periods.
• It is an iterative process.
• Highlight the necessity to periodically evaluate projects from a
technical and economic point of view.
 Why quick evaluation?

• The decision to start or continue investing time and resources

needs to be revised in light of new information that will be
aggregated.

• It is necessary to confirm at every stage whether the project

should continue or be paralyzed.
• May confirm the whether or not to continue more demanding
studies and project implementation.
• A mining project is started after evaluation mineral reserves
create interest.
 Precision mining studies at different stages
Project Phase % Engineering Precision (%)
Concluded
Conceptual 0 ± 50
Pre-Feasability 0 - 30 25 - 30
Feasability 30+ 10 -15
Detailed Study 60 ±5

Reynolds,1990
 Conceptual engineering project

• Corresponds to a phase which is very preliminary.

• No proper engineering studies exist and the calculated costs

reflect only the order of magnitude expected.
 Quick evaluations

• Constitutes a tool to assist in early design phase.

• There are several published articles based on empirical
formulas of actual operating statistics.
• Usually these papers indicate the cost of acquisition and
operation according to particular type and size of equipment or
installation.
 Example - QUICK EVALUATIONS

Cost 1/Cost 2 = (Capacity 1/Capacity 2)0,6

• This simple rule compares the investment that should be

analyzed for a stipulated production capacity, with another
known and existing investment of similar operation.

• Considers the relationship between costs is proportional to the

high capacity ratio in the exponent 0.6
 Quick evaluations based on Comparison Method
• Comparison of similar projects with adjustments to balance
differences.
• The background information includes: listing of operations,
supplies and equipment, deposit information, and proposed
development.
Examples:
• Proposed by Stebbins and Schumacher (SME 2011- chapter
4.8) Cost Estimating for Underground Mines.
• "Mine and Mill Equipment Costs” - An Estimator's Guide,
Western Mine Engineering Inc" (2015).
 Quick evaluations - Parametric Methods
• Estimate derived costs through generalized algorithms.

• Most present the following relationship: "Cost = x (parameter)y".

• The variable can represent: Length, mass, production rate…..

• x and y are values derived from known data of statistical

evaluations or estimated from field operations.

• Examples of this methodology may be found in the U. S. Bureau of

Mining Cost Estimating System (CES USBM 1987) and the
O'Hara Model (1980).
 Example of parametric estimation method
• Costs are calculated from general algorithms by the
following relation:

𝐂𝐨𝐨𝐨 = 𝐜𝐜𝐜𝐜𝐭 × (𝐓𝐓𝐓)𝐲

Cost

13
Tpd
 Parametric method - Quick evaluations
• Proposes costs derived from general parameterization
algorithms.

• T. Alan O'Hara developed mathematical models to estimate

mining costs (CAPEX and OPEX).
• From O'Hara’s formulas → Modele d'Analyse Financière -
developed at the Centre of GEOTECHNIQUE et
d'Exploitation du Sous-sol, (Ecole des Mines de Paris).

• MAFMO software
 Example - O’Hara Model

Pre-stripping cost:
Validity interval: (𝑇𝑇) from 10 000 to 10 000 000 t.
– Alterated rock or soft rock
• 𝐶 = 𝐹𝐹𝐹𝐹𝐹𝐹 × 1245 × 𝑇𝑇0,5
– Hard rock:
• 𝐶 = 𝐹𝐹𝐹𝐹𝐹𝐹 × 13235 × 𝑇𝑇0,5

where 𝑇𝑇(t) is the pre-stripping tonnage.

 Price Indexation

𝐂 = 𝐅𝐅𝐅𝐅𝐅𝐅 𝐢𝐢𝐢𝐢𝐢 × 𝟏𝟏𝟏𝟏𝟏 × 𝐓𝐓𝟎,𝟓

• 𝑭𝒂𝒂𝒂𝒂𝒂 𝒊𝒊𝒊𝒊𝒊 = 𝐹𝐹𝐹𝐹𝑜𝑜 𝛼 × 𝐹𝐹𝐹𝐹𝐹𝐹 𝛽

• 𝑭𝒂𝒂𝒂𝒂𝒂 𝜶 = (managment, time) Producer Price Index

• 𝑭𝒂𝒂𝒂𝒂𝒂 𝜷 = (economic local) Big Mac Index

16
 Main inputs for CAPEX (O’Hara Model )
• Daily ore production for underground mine and processing plant
• Daily ore + waste production for open pit mine
• Pre-stripping tonnage for open pit mine
• Size of equipement for open pit mine
• Size of stopes for underground mine
• Type of access
• Depth
• Hoisting/haulage capacity
• Grinding Index (Bond Index) for crushing and grinding
• Manpower productivity (= f(mechanisation)
• Equipment types for energy consumption
17
 Main inputs for OPEX (O’Hara Model )

• Man power productivity

• Man power cost
• Mining method
• Processing method
• Indirect and general costs (structure of the company)

18
 MAFMINE
• A group of researchers from the Federal University of Rio
Grande do Sul is developing a software.

• Called MAFMINE

• Based on MAFMO and the O'Hara formulations with

adjustments made to capture modern mining technology costs.
 MAFMINE - academic purpose software

• Tool to support pre-scooping studies, due diligences and

operational bench marking.

• Deliverables: CAPEX estimation, OPEX, workforce and

infrastructure needs.

• Involved the use of a computer model known as client-server.

20
 Some features present in MAFMINE software
• Investment
• Operating Cost
• Export of Data for Risk Analysis (in the implementation
phase)
• Save project settings
• Change of base year and country estimates
• Print report data
• Model Customization for different users (in the
implementation phase)
Cloud computing
Cloud computing
Platform
Architecture of MAFMINE
 RESULTS AND DISCUSSION

• Some results obtained with MAFMINE software.

 Results are compared in two distinct situations

• CASE 1 - the conceptual study of an open pit copper mine

(performed by a consulting firm) is tested by comparing the
CAPEX between the consultant and MAFMINE.
• CASE 2 - compares the OPEX from MAFMINE to the result
obtained by applying Stebbins methodology (SHERPA) and
the actual OPEX from an underground coal mine.

• Cases 1 and 2 are focused on operations in Brazil.

 CASE 1
Open pit copper mine
• Daily ore production: 12 000 t
• Daily waste production: 48 000 t
• Initial stripping: 12 126 Mt (80% without explosives and 20% use
explosives)
• Ground conditions of beneficiation plant: flat with less than 3m of
earthmoving
• Ground support of building foundations: resistant soil with low
humidity
• Climatic characteristics: tropical
• Processing plant capacity: 10 224 t / day
• Work Index = 16
• Electricity: high voltage provided by the existing system located 50
km away
Values proposed by case 1 investment consulting firm
(Carriconde, 2010)
 Report generated
by MAFMINE

Case 1 – open pit copper mine

 Result – Case 1

• CAPEX (Consultant project) – US$ 180,5 million

• CAPEX (MAFMINE) - US$ 200 million
• The overall results are very similar to obtained by the conceptual
study.
• The total value of investments made by MAFMINE exceeds the
conceptual study by 10.85%.
• Some individual values present a bit more difference, such as pre-
stripping and mining equipment.
• These are items that should be investigated in the model.
 CASE 2 – Coal mine underground mine

• Year – 2013
• Underground Coal Mine
• Method- Room and Pillar
• Country – Brazil/Santa Catarina State/ Criciúma City
 CASE 2 - Value comparison
Stebbins, MAFMINE, Actual

Mining Production Actual OPEX STEBBINS MAFMINE

Project
Method ROM (t/Year) (US$/t; 2013) (US$/t; 2011) (US$/t; 2012)

Room Underground
1 047 568 19,74 20,18 19,8
and Pillar Coal/Criciuma
 Conclusion
Mining cost evaluation

• Reliability is proportional to the quality of information available from the ore

body.
• Reliability also increases with the level of effort involved in finding and
evaluating information.
• Cost estimation constitutes an interactive process.
• The more information is available for reviews, the greater the reliability of the
estimated costs.
 Conclusion

"Quick Evaluations" are less accurate but easier and applied

faster than a conventional design .
• Results can be evaluated and adjusted on each compilation
documenting all assumptions and the data source.
• Require little information but when combined with
experience can provide good results.

• It should be noted that results with reliability can only

be achieved with a good understanding of the deposit
and diligent work.
Thank You!!!