Course description

Understanding the drivers in determining the economic viability of a mineral extraction project, be it a mega mine or a quarry, is fundamentally important to operators, investors, legislators and others. Especially for bulk commodities, such as coal or aggregates, external factors can have as much of an influence on mine economics as internal factors. Therefore, mineral economics in bulk commodities need to focus on the entire supply and demand system and not only on the mine level.

The course explains the factors and relationships in markets and mining that determine mineral economics in bulk commodities. Using coal markets and mining as an example, the learning can easily be applied to other bulk commodities.

The course discusses the roles of types of markets, mechanism of trade and logistic. Methodologies of estimating and applying long term supply and demand forecasts are explained, as well as cost curves and application of the principle of “last mine needed” to derive long term market prices.

Using these parameters, mine economics are explained by applying estimated costs and revenues in a simple discounted cash flow model. Quantification of market and operational risks are demonstrated and discussed by modifying input parameters and observing the effect of the modifications on the model.

Course content

1) General characteristics of bulk commodities

2) Understanding on-mine cost factors
2.1) Geological cost factors
2.2) Mining cost factors
2.3) Metallurgy / Processing cost factors
2.4) Non-technical cost factors
2.5) Concept of "free on mine" cost

3) Transportation costs factors
3.1) Modes of transport: road, rail, sea
3.2) capacity restrictions
3.3) Concept of "as delivered" cost

4) Markets
4.1) Market location & size
4.2) Entry restrictions
4.3) Cost to access / participate
4.4) Estimating supply & demand

5) Prices
5.1) Where and how are prices set?
5.2) Cost curves
5.3) Understanding the "last mine needed" principle

6) Discounted Cash Flow
6.1) The long term production plan
6.2) Capex and opex
6.3) Cost of capital, depreciation, taxation
6.3) Determining unit costs
6.4) Your position on the cost curve

7) Improving your position
7.1) Understanding fixed & variable costs
7.2) Internal & external cost factors: what can you control?
7.3) Reducing unit costs
7.4) Calculating sensitivities

Objectives and outcomes

• Participants will be able to understand the market drivers for a specific bulk commodity.
• They will be able to identify the different marketing options for a given mineral product, determine market sizes, and will be able to make realistic assumptions about long term price ranges.
• They will understand how to determine the competitiveness of a mineral extraction operation in the market it operates in, using cost curves and discounted cash flow methodologies.
• They will have learned how to carry out risk analysis and how to identify and rank measures to improve economic performance of a mining asset.

Practising geologists and mining engineers in mineral resources production, consultancies and public institutions.

Non-technical managers and analysts that need to have a basic understanding of mineral economics.

Students in geology, mining and mineral resource management without exposure to the topic at their institution of learning.