COSTING The process of estimating It is only possible to estimate costs once the production fleets and work rosters have been nominated. Some equipment has high up front capital, but requires no replacement, only periodic refurbishment (c.g, dragline), while other machines have to be regularly replaced (e.g. bulldozers, loaders, trucks etc). The project costing is estimated in two separate areas — capital and operating. Where a mine life is more than a few years, the prediction of all costs is subject to estimated inflation and foreign exchange rates, both of which are likely to vary significantly the further into the future the schedule runs, It is important to note the assumed parameters and to examine the effect of these by means of a sensitivity analysis. Operating costs should not be viewed in isolation. Capital end operating costs together show the total picture. For instance, if a major equipment fleet is near the end of its economic life, operating costs would be expected to rise. Once it is replaced, with an associated injection of capital, operating costs should reduce, Capital estimates For capital estimating, current budget purchase prices should be sought from several reputable suppliers. This cost should contain the following information: ‘+ Manufacturing costs; ‘© Costs for transport to site, including overseas road transport, sea freight and local road transport; ‘* Insurance costs; © Erection costs; '* Costs for inclusion of site modifications and finishing (paint); '* Portion subject to foreign exchange; ‘© Duty, tax and depreciation information; ‘© Training packages and manuals for operators and maintenance personnel; © Recommended spares holding with resultant costs; © Guarantee arrangements; -44-© Delivery times; © Payment schedule tied to placement of order, delivery, erection and commissioning milestones; © Escalation of charges (if any); + Provision of other components, ¢.g. power, tyres; Ground engaging gear and bucket or dipper; and * Contingency allowance, often 5% to 10% of the nominated machine cost, dependent on the accuracy of the quotations sought. From this information, it is possible to make accurate predictions of outlays on the purchase of the production fleets, ancillary equipment and support infrastructure. This then leads to a replacement schedule and/or a refurbishment schedule, all of which can now also be costed in current dollars. Underlying these estimates are certain foreign exchange and escalation assumptions, which should be noted, Establishing the operating costs Mine operating costs are estimated on the basis of scheduling all necessary resources and support to deliver the plan, Pit designs derive quantities of material to be handled. Scheduling ensures periodic targets are established and identifies necessary plant, operating hours and workforce rosters. Operating costs are constructed from estimates of: 1. Equipment costs; 2. Labour costs; 3. Consumed materials; and 4, Various other charges. 1. Equipment costs: The operating cost of each item or fleet of equipment is estimated, This is usually undertaken by the operating hour, based on the manufacturer's advice and tempered with ‘experience drawn from similar duty profiles at nearby mines, if possible, Hourly operating costs depend on; # Fuel bum or electricity usage; © Lubrication use; © Component life; -45-Parts consumption; Ground engaging tools wear; ‘Tyre/track wear rates, ‘Maintenance and service labour charges; and Operating labour charges. 2. Labour costs need to account for: Base wages; Superannuation; Overtime, shift penalties, work conditions loadings, travel; Payroll tax, workers compensation insurance; Bonuses; Leave - annual, sick, long service, maternity, ete; ‘Training; and Voluntary absenteeism. All necessary support labour should also be captured. This includes cleaning, pumping, supervision, ete. 3. Consumed materials (“consumables”) Drill and ground engaging tools. Blasting products and CHPP materials are major contributors,. Fuel and lubrication should be included if they have not already been accounted for in equipment costs, 4, Various other charges On-site overheads, e.g, professional and management services. Further costs that have to be considered are mining lease rentals, exploration expenses and legal fees. Offsite costs include: * Housing and accommodation; * Rail and road transport of product;© Port charges; © Royalties, levies, fees and taxes; and Corporate overheads. Some costs estimated as operating costs ere then transferred into the capital ledger. Only a ‘commercial department professional can advise on these, since such allocations tend to be site or corporation specific. ‘Once the full set of operating costs are aggregated, these can be spread over the total material movement or split by process. Thus operating costs per bank cubic metre (bom), per run of mine {RoM) tonne and per tonne of product can be estimated for each time period, i.e. by month or quarter for a budget and by year for a medium or long term plan. By comparing these costs across a sequence of time periods, trends can be observed, e.g. the cost per bem may reduce with time as larger equipment is installed, but since the stripping ratio may also be increasing, the cost of producing a tonne of coal may still rise. Time periods that include major equipment refurbishment would be expected to show a substantial rise in unit operating costs, reflecting the lump sum maintenance expenditure and the reduced production while the machine is being rebuilt. If possible, the unit operating costs should be benchmarked against other similar operations. This audits the costing estimates relative to actual experience. Sometimes operating costs are expressed including an allowance for depreciation in an attempt to capture the capital component, i.e. representing total costing, When comparing costs across operations or with contract miners, the mine planner must ensure that the comparison is either with or without depreciation to reach a meaningful conclusion. Similarly, there are other components of costs that may or may not be included in stated unit operating costs: © Drilling and blasting, + Pit support, road maintenance, power reticulation, pumping and lighting functions, = Supervision, Professional services — mine planner, coal quality adviser, short term scheduler, and Accommodation allowances. 47+