Page 278 - Introduction to Mineral Exploration

11: PROJECT EVALUATION 261

+ve Production
Cash flow

FIG. 11.6 The cash flow of a mineral project over 15
years. During the first 4 years the mineralisation is −ve
evaluated and over the next 2 years the mine is built
at a total capital cost of $US250M. Over these 6
years the cash flow is negative in that there is no −6 −4 −2 1 3 5 7 9
revenue generated. In the first year of production Year
(Year 1) revenue commences and continues during
the life of the mine. From this revenue is paid all the
mine operating costs and repayment of the capital Probability of failure
loans, plus interest, which were used to develop the
mining operation. The lenders of capital require
their money back within the first 3–5 years of 0
production. Also shown is the probability of failure
of the project, and its main stages. Obviously the Exploration Develop-
size of the database increases with time and the Stage evaluation ment Production
probability of failure decreases correspondingly.

BOX 11.1 Cash flow calculation.

From the results of an order of magnitude feasibility study on an occurrence of sphalerite and galena
mineralisation, the first 3 years of a 10-year cash flow are given below. The plan is to mine the miner-
alisation underground and produce galena and sphalerite concentrates at the main site. These would be
sold to a lead and zinc smelter for metal production.
Calculations are for year end; interest payments on borrowed capital to build the project are excluded.
Units are $US1000 and 1000 tonnes.
(a) Total initial capital (CAPEX) to establish the mine is $140,600. Construction will take 2 years: years
−1 and −2.
−1
−1
(b) Ore production is 2400 t yr but only 1600 t yr in the first year of production (year 1). Ore grade is
9.3% zinc and 2.0% lead.
(c) Ore treatment is as in Fig. 11.3.
−1
−1
(d) Revenue: the selling price of zinc is taken as $0.43 lb and for lead as $0.21 lb . Translating this
value to ore gives a revenue of $46.6 per tonne.
(e) Operating costs per tonne:
Mining $7.25
Mineral processing 8.10
Overheads 4.35
$19.70 per tonne ore

The cost includes transporting the sphalerite and galena concentrates to a local port, and loading
charges. The concentrates are sold to the smelter at the port and it is then the smelter company’s
responsibility to ship the concentrates to their plant.
(f ) There is a royalty payment to the previous mineral owners of 4.5% of gross revenue less production
cost.
(g) Calculation f is made before the payment of tax.