| Chapter 7 - Mineral Economics |
| Number |
Topic |
Rule of Thumb |
| 7.01 |
Metal Price |
The long-term average price of a common mineral commodity (the price best used for economic evaluation in a feasibility study) is 1.5 times the average cost of production, worldwide. Source: Sir Ronald Prain |
| 7.02 |
Pre-production Capital Cost |
The pre-production capital cost estimate (Capex) should include all construction and operating expenses until the mine has reached full production capacity or three months after reaching 50% of full capacity, whichever occurs first. This is the basic transition point between capital and operating costs. Source: John Halls |
| 7.03 |
Pre-production Capital Cost |
The pre-production capital cost expenditure includes all costs of construction and mine development until three months after the mine has reached 25% of its rated production capacity. Source: Jon Gill |
| 7.04 |
Cash Flow |
The total cash flow must be sufficient to repay the capital cost at least twice. Source: L. D. Smith |
| 7.05 |
Cash Flow |
Project loans should be repaid before half the known reserves are consumed. Source: G.R Castle |
| 7.06 |
Cash Flow |
Incremented cash flow projections should each be at least 150% of the loan repayment scheduled for the same period. Source: G.R. Castle |
| 7.07 |
Cash Flow |
The operating cost should not exceed half the market value of minerals recovered. Source: Alan Provost |
| 7.08 |
Net Present Value |
The discount factor employed to determine the NPV is often 10%; however, it should be Prime + 5%. Source: G.R. Castle |
| 7.09 |
Net Present Value |
The increment for risk may add 4% to 6% to the base opportunity cost of capital in the determination of a discount rate. Source: Bruce Cavender |
| 7.10 |
Net Present Value |
The value of the long-term, real (no inflation) interest rate is 2.5%. This value is supported by numerous references in the literature. Source: L.D. Smith |
| 7.11 |
Net Present Value |
In numerous conversations with managers of mining firms, I have found that 15% in real terms is the common discount rate used for decision purposes. Source: Herbert Drecshler (1980) |
| 7.12 |
Net Present Value |
In 1985, the discount rates of many mining companies raged from 14% to15%. Source: H. J. Sandri |
| 7.13 |
Net Present Value |
The true present value (market value) of a project determined for purposes of joint venture or outright purchase is equal to half the NPV typically calculated. Source: J. B. Redpath |
| 7.14 |
Rate of Return |
The feasibility study for a hard rock mine should demonstrate an internal rate of return (IRR) of at least 20% – more during periods of high inflation. Source: J. B. Redpath |
| 7.15 |
Working Capital |
Working capital equals ten weeks operating cost plus cost of capital spares and parts. Source: Alan O’Hara |
| 7.16 |
Working Capital |
Working capital is typically ten weeks of operating cost plus the spare parts inventory. Source: METSInfo |
| 7.17 |
Closure Costs |
The salvage value of plant and equipment should pay for the mine closure costs. Source: Ron Haflidson |
| 7.18 |
Closure Costs |
For purposes of cash flow, the cost of reclamation used to be equated with the salvage value of the mine plant, but this is no longer valid in industrialized nations. Source: Paul Bartos |