Over the last decade, there has been a strong demand for commodities and numerous mining projects and expansions are being developed to meet this demand, each of which requires a preliminary assessment or feasibility study to demonstrate its economic viability. At the same time, the industry finds itself struggling with significant cost inflation and other operational pressures that constrain production. This module examines the various components and inputs to development of production schedules, financial appraisal of mines and projects and the economic analysis of project alternatives.

This module aims to help you understand both the macro-economic and the industry specific economic environment in which mines and projects operate and are evaluated. You will learn about how technical and operational parameters influence the revenue stream and cost structure at mines.

We will discuss the generation of development and production schedules for both open pit and underground mines, and illustrate this with calculations of development rates, production cycle times and equipment selection.

Furthermore, we will review cost estimation methods (for both capital expenditure and operating costs), including the use of database models and "real-life" data.

Finally, we will examine the application of economic analysis techniques (within spreadsheet software), with specific reference to case studies and scenarios considering engineering alternatives.

On successful completion of this module, you should be able to:

Module Specific Skills and Knowledge:

1. Acquire, analyse and interpret types of economic and cost data covered in the syllabus, recognising the inconsistencies or errors in such data and methods;

2. Apply a variety of cost estimation techniques to mining methods. Capital and operating cost estimates can be developed for mine development and production/stoping activities; following a provisional approach to equipment selection and production scheduling;

3. Combine revenue and cost data using discounted cashflow and real options analyses to derive financial valuations of mines and projects and their alternative scenarios.

Discipline Specific Skills and Knowledge:

4. Conduct and present financial appraisals and valuations with awareness of industry standard assumptions and/or exercising personal judgment;

5. Show critical awareness of current problems and risks in the financial appraisal of mining projects.

Personal and Key Transferable/ Employment Skills and Knowledge:

6. Enhance and refine data-assessment and software based analysis/presentation skills, particularly with the use of Excel spreadsheet and proprietary database; calculations for cost estimation and financial evaluation exercises;

7. Demonstrate technical report writing skills.

Introduction:

Review of general mineral economics theory and more detailed review of mining industry specific drivers and business risks. Sources of mine financing; fundamentals of project finance, project viability and risk assessment.

 

Development and Production Scheduling:

For both open pit and underground mines; review, discussion and calculation of: equipment selection, matching trucks and shovels, development rates, production cycle times and replacement/rebuild requirements.

Cost Estimation:

Capital costs - the methods available for estimating both fixed and working capital costs, depending on the type of study being carried out. Cost indices, and a description of various approaches to cost estimation. Development of pre-production and sustaining/ongoing capital cost requirements. Operating cost estimations: methods, analysis and key data inputs and cost drivers. Cost trends and pressures in the mining industry; the impact of exchange rates; fuel/power prices and labour cost inflation. Infrastructure costs.

Financial Analysis:

Role of cash flow modelling & detailed financial analysis/valuation of mining projects and operations. Coverage of the main technical and engineering components of such an analysis. General coverage of development of metal profuction schedules, Net Smelter Revenue calculations and risk/sensitivity analysis. The main factors considered and the techniques used in project evaluation and feasibility studies.

Project alternatives:

Examination of engineering and financial alternatives using economic analysis techniques. A number of scenarios will be examined from among: contract vs. owner mining; shaft vs. decline/conveyor haulage, equipment lease vs. buy, optimum fleet sizing, IPCC vs. truck-shovel, production rate optimisation etc.

Basic reading: 

Reading list books are available as e-books through University of Exeter Library

ELE: http://vle.exeter.ac.uk/



Web based and Electronic Resources: As advised

Reading list for this module: