Economics of Mine Planning and Equipment Selection

This paper examines some of the fundamental economics of mining - in particular, for optimisation studies, for production rate determination and for reserve estimates.It includes introductory discussion on the principles as to how economics drives mining investment decision-making, applicable to the optimising of pit shapes and production, or truck fleets, or any other part of the mine.The main part of this paper looks at the decision to start-up a mine and why the 'optimum' production rate to start-up a mine is not the point of lowest cost according to traditional discounted cash flow (DCF) analysis. The optimum production rate is usually substantially less than this rate. The paper recognises the difference between typical mining investments and investments in other industries that do not have the unique characteristics of mining and the problem of uncertainty resolution. It examines the marginal revenue effects, the marginal cost of capital and the value of a real option to expand pending uncertainty resolution as determinants of optimum initial production rates.The final part of this paper looks at applying these principles to renewable and non-renewable resources. It examines mine life and reserve estimates from an economic perspective.