introduction to itemized cost estimating

8/13/2019 Introduction to Itemized Cost Estimating

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Introduction to Itemized Cost Estimating

Session Headings:Introduction

You will cover the following points in Part 2: Itemized

Cost Estimation: Planning.

the advantages of the itemized cost estimatemethod

the twelve steps to an itemized cost estimate how to develop a conceptual mine (step 1) how to determine ore and waste production

rates (step 2)

how to determine haul distances and routes(step 3)

Introduction

(SeeSummaryfor main points)

As practiced here, itemized cost estimating is an equipment-based procedure, in that particularemphasis is placed on determining equipment productivity and utilization from first principles. These

determinations are then extended to create listings of equipment, labor and supply requirements.

Current unit prices for supplies, wages and salaries, equipment, and equipment operation cost per

hour are then applied to the lists to complete the estimate. Commonly, certain less significant costs,

such as administrative charges, are not determined in this manner, but rather by some "rule-of-

thumb" type of method.

Throughout any cost estimating exercise, the estimator needs to recognize that his or her time is

valuable and limited. Typically adequate time is not available to devote maximum attention to every

detail of an estimate. Hence, time and effort should be focused on those aspects of an estimate

having the greatest impact on the outcome of the estimate. This means that some items will receive

what may seem to be inadequate attention to detail, but regardless of the level of detail, the impact

of the item on the final outcome will be insignificant.

Advantages of the Method


Compared to other methods discussed here, the itemized method requires more effort and skill; but

it actually is surprisingly easy to apply, particularly with the ready availability of published cost and

technical information needed. The method doesnt require any skills or knowledge that any mining

engineer or mine geologist does not have. The advantages of the method are as follows.
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It is highly credible if done well. It provides results that, if properly presented, are clear and understandable by others. It is easily adapted to less detailed studies, as well as to more detailed studies; in fact, the

first cost estimate for a proposed mine usually evolves into more detailed estimates as more

information becomes available, right on into the final feasibility stage using essentially the

same procedures as used in the first estimate.

It provides a basis for understanding the economic implications of changes to mine designand operational considerations. For instance, it aids in the selection of a mill or dump site by

facilitating the calculation of haulage costs to various locations.

A completed estimate provides important information beyond that needed for the feasibilitystudy itself - information that is useful in a variety of ways, especially during the permitting

process. For instance, determination of the size of the workforce will help predict hiring

requirements, and may help the local government plan for infrastructure needs, housing,

schooling, and transportation. The expected size of the payroll is certainly an interesting

issue to most communities. The amount and value of materials and supplies needed is useful

information for potential suppliers.

The itemized method is in fact the basis for virtually all the other methods discussed in this course.

So, even if you never plan to use this method, but will use some of the other shortcut methods

described inPart 7: Other Cost Estimating Methods,you need to understand how this method

works so you are aware of the pitfalls of using a less-detailed shortcut method.

Estimating Costs for an Open Pit Mine


The itemized cost estimating method will be demonstrated by estimating

the operating and capital costs for an open pit mine. The equipment-

based nature of the method is illustrated by the following procedure

chart (Figure 1).

Twelve steps to an itemized cost estimate

The procedure for estimating costs for an open pit mine can be boiled

down to twelve distinct steps. Each of these steps is described in the following sections, along with

an example of how the step is completed. The steps and examples are described at a level of detail

suitable for a preliminary cost estimate. A brief discussion following each step explains how the step

might be completed for a less detailed estimate, as well as how it might be completed for a more

advanced, detailed estimate. The twelve steps are as follows.

Step 1 - Develop a conceptual mine plan Step 2 - Determine ore and waste production rates Step 3 - Determine haul distances and routes Step 4 - Select excavating and hauling equipment and determine its productivity
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Step 5 - Select auxiliary equipment and determine its utilization Step 6 - Determine supply requirements Step 7 - Determine personnel requirements Step 8 - Determine preproduction stripping requirements Step 9 - Determine building and structure requirements Step 10 - Determine haul road construction requirements Step 11 - Determine unit prices and costs Step 12 - Prepare capital and operating cost summaries

Example

To illustrate concepts described in the text, an example estimate of costs for a theoretical open pitmine will be completed step by step as each concept is described. We begin with a brief description

of the theoretical deposit to be mined.

Project Description

A copper porphyry deposit has been partially drilled out

and a preliminary resource estimate has been

completed. Location, geometry and resource data have

been provided to us in the form of plan maps and cross

sections. Resource and waste amounts for a pit withslopes of 45 degrees have been estimated based on

limited drilling and outcrop data. Ore grades are

variable and ore boundaries are irregular. A potential

waste dump site and mill site have been identified. Ore

and waste material consist of granodiorite . Estimated

resource and waste amounts are:

100,000,000 tonnes Resource (ore)

230,000,000 tonnes Waste

Our Assignment:

Provide an estimate of mining costs (capital and

operating) at an appropriate level of detail to be utilized

in an economic analysis (DCF) to determine if the

property shows potential profitability sufficient to

warrant further expenditure of moneys for additional

drilling.
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