Mine operating costs in selected countries.
* A deposit model to serve as a common denominator in setting forth a comparison;
* Some basic assumptions common to the model and all eleven political entities;
* Basic costs and regulations inherent to each entity which serve as inputs in developing operating cost estimates for each entity being compared.
Also required, but this time on behalf of the reader, are the following:
* Tolerance for, and acceptance of, the likelihood that the accuracy of cost estimates is probably greater on a relative political entity basis than on an absolute deposit basis;
* Realisation that the estimated costs and relative political entity positions as regards these costs reflect but a |moment in time' and could quickly become obsolete.
The deposit model
The deposit has been chosen for two reasons:
* The commodity, copper, is of considerable current interest and is likely to experience continued exploration and development interest as individual entity economies improve;
* The model was felt to have the greatest potential of existing - if it did not already exist - in all eleven geographic entities.
The deposit model is a porphyry copper deposit of sulphide ore only. Ore grade is 0.8% Cu with 92% recovery of copper in flotation concentrates. The sulphide ore is to be mined by electric shovel and diesel-fuel trucks at 20,000 t/d at a 2:1 life-of-mine waste-to-ore ratio and processed by crushing, grinding and flotation. Haul distances from the mine are 2.0 km to the waste dumps and 2.5 km to the grinding and flotation mill. The distances are average over the mining life of the deposit.
Basic assumptions are as follows:
* The location of the deposit in each of the respective entities is at an elevation where fuel efficiencies are similar. Cost differences in climatic conditions, albeit at no differences in elevations, are taken into consideration;
* The location of the deposit in each of the respective entities is such in relation to the port or city of import and export that access time and transportation conditions and costs are similar, except-again-for those imposed by climatic differences;
* Regulations affecting repatriation of capital and payment of dividends are ignored;
* The cost of implementing and maintaining facilities and procedures to comply with environmental regulations is not taken into consideration;
* Infrastructure conditions, such as availability (but not cost) of power, water, labour and labour living facilities are all taken as similar;
* Value-added taxes are recoverable upon export and consequently are not treated as a cost, even though there is a time lag between payment and recovery of VAT, except for Colombia, Panama and Peru, where VAT is not recoverable and except for the U.S. and Alaska, where a sales tax is not recoverable.
* 345 days/year of processing are assumed.
* Management and manning by nationals of the respective entity are assumed.
* Costs are direct operating cash and do not include interest, income taxes, capital additions, etc.
* All operating costs are performed internally by employed labour and not by contractors.
* All tonnes are metric.
The extreme differences in climatic conditions create differences in operating methods which require adjustment to a common denominator. For example, Yukon and Alaskan operations (as well as some in British Columbia) tend to schedule labour over a period of |x' days or weeks on and |y' days or weeks off, in contrast to operations in other locations scheduling labour as 5 or 6 days on and 1 or 2 days off. For this analysis, Behre Dolbear has assumed each employee in Alaska, B.C. and the Yukon works an average of 1,960 hours/year for determining the base wages.
The above-described operating difference pertaining to scheduling of labour engenders an operating cost add-on as regards transportation and food. The add-on is estimated as an additional 5 to 7% of payroll cost for Alaska and as much as 15 to 20% for the Yukon. This nature of add-on has not been included in costs because infrastructure conditions have been assumed |similar'. In turn, the cost of operating a town, hospital and school - which can be easily envisaged as being necessary for Andean deposits in Chile, Peru, etc - has likewise not been included.
Operating costs clearly do not include taxes based on income. However, royalties on gross revenues have been included. This gives rise to the inequity that a country applying a royalty and a low income tax schedule is penalised in this study when compared to a country which does not apply a royalty but may have an income tax schedule whose effect is more unfavourable. This situation exists, for example, in the cases of Argentina and Bolivia vis-a-vis British Columbia and the Yukon. Behre Dolbear & Company has not corrected for this inequity, which is felt beyond the article's scope of comparison. But the reader, is alerted to the existence of the inequity. Income tax schedules could easily alter the cost ranking of the entities being compared in this study.
The authors' original paper contained a Table setting out basic unit operating and consumable costs, along the lines indicated here in Table 1. Translating these costs into the deposit model, not including allowances for labour productivity and income taxes, yielded another Table showing operating costs. Regarding a net smelter return royalty base, a copper price of $0.88/lb and a smelting and refining charge of $0.26/lb are assumed. Transportation, assumed the same for all compared political entities, was ignored. The resulting dominant positive or negative cost factor in relation to each of the eleven political entities. is set out in Table 2. A dash (-) indicates that that particular country has no dominant factor in that category.
Table 1: Examples of unit cost and consumables data (The full Table appears in the author's paper, cited as a reference. Limitations of Space preclude its inclusion here in full). Item Alaska Argentina Bolivia Time unit 5 days/wk 5.5 days/wk 6 days\wk Base wages, labour, $US a) range/month 2600-4900 400-900 300-1000 b) majority in range/month 3250-4100 600-700 500-600 Payroll cost, % 15 60 21 a) legislated 15(a) 20 24 b) union/company Total, % 30 80 45 Power, c/k Wh(b) 7.606 6.71 4.10 Diesel fuel, c/lt 25 24 36 ANFO, $/t 440 433 506 Reagents, $/kg a) xanthate 1.95 1.75 2.42 b) frother 1.90 1.75 4.06 c) flocculant 2.40 2.50 4.06 d) lime 0.09 0.11 0.15 Maintenance supplies (tyres, liners, drill steel), grinding media, etc. U.S. at 1.0(c) 1.1 1.4 1.5 Imports duties, effective rate, % a) Capital items - 19 13 b) Consumables - 19 18 Federal royalties, NSR basis. % none(d) 3.0 2.5 Corporate income tax rate, $ 34(e) 30 30 Notes (a) Exclude associated company costs for employee transportation (i.e. fly-in/fly-out type of operation) to mine site, and on-site accommodations (housing, meals, recreation) which could add 5-7% onto figure shown. (b) Average cost among each region or province of the respective country. (c) Figures are factors, the basic factor taken for the U.S. being 1.0. (d) Subject to current congressional deliberations. (e) See text. Table 2: Dominant cost factors Entity Positive Negative Alaska - Labour/Power Argentina - Royalty Bolivia Power Reagents/Supplies/Fuel British Columbia Power/ANFO Labour Chile ANFO Power Colombia Labour Payroll Mexico Labour Payroll Panama Labour Payroll Peru Labour ANFO U.S. (Arizona) Reagents/Supplies Labour Yukon ANFO/Payroll Labour/Power
Among the political entities being compared, there would be a difference in the manpower factor (the inverse of the productivity factor) if the manning of the project were completely managed and manned by nationals of the subject political entity.
The manpower factor postulated and applied by Behre Dolbear & Company is set out in Table 3.
Table 3: The manpower factor (The inverse of productivity) Entity Factor Rationale Alaska 1.1 Native inhabitants influence Argentina 1.75 No mining/smokestack' industry tradition Bolivia 1.5 Comibol |overhang' British Columbia 0.95 Strong mining culture Chile 1.4 Culture influence Colombia 1.9 Cultural and social influence Mexico 1.2 Recent productivity attainments Panama 1.2 |Panama Canal' influence Peru 1.45 Culture influence U.S. (Arizona) 1.0 Arbitrary standard Yukon 0.95 Strong mining culture
The above factors are opinions based on projects and deposits in which Behre Dolbear & Company has been involved, based on discussions with selected companies and persons, and based on intuitive feeling. The factors are certainly debatable. The factors are, however, based on strictly private enterprise and assume no government or quasi-government involvement.
Once again, shortage of space precludes publication here of the full results of Behre Dolbear & Company's quantification of the estimated costs allowing for the manpower factor, although examples are given in Table 4, with a complete summary of the result being shown in Table 5.
[TABULAR DATA OMITTED]
Table 5: Ranking of comparable operating costs (Cost of copper in concentrate) Without manpower factor With manpower factor Rank Entity Cost Rank Entity Cost 1 Mexico 28 1 Mexico 29 2 B.C. 31 2 B.C. 31 3 Peru 33 2 B.C. 35 4 Panama 35 3 Peru 35 5 U.S. 35 4 U.S. 36 6 Bolivia 36 5 Panama 37 7 Chile 36 6 Yukon 38 8 Colombia 36 7 Chile 39 9 Yukom 38 8 Bolivia 40 10 Argentina 39 10 Argentina 44 11 Alaska 46 11 Alaska 48
The operating cost ranking set out in the article is at best only one of at least three of any considerations regarding investing capital in the political entities being compared. A second consideration is any and all taxes on income which, while beyond the scope of the article, were mentioned earlier and, for example in the case of British Columbia, would significantly lower its competitive position.
A third consideration is simply the government's attitude towards mining and its propensity to weigh and balance the favourable economic consequences of mining against the unfavourable environmental consequences. Regarding this third consideration, the trend is clear that South American countries, especially Peru and Bolivia, are carefully balancing economic and environmental consequences and are not necessarily heavily weighing one over the other. Should the trend continue in South America as it is currently developing, the importance of differences in direct cash operating costs will lessen.
Schreiber, Hans W., and Kuestermeyer, Alva L., A Quantification of and Underlying Factors for Differences in Mine Operating Costs in Selected Countries and States or Provinces of the American Continents, paper presented at Cordilleran Geology and Exploration Roundup, Vancouver, B.C., Jan. 27, 1994.
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|Author:||Schreiber, Hans W.; Kuestermeyer, Alva L.|
|Date:||May 1, 1994|
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