Question 1 of 13: 1 (6 marks, compulsory)

Question 1.1 (6 marks, compulsory)

Question text not reproduced: the examination questions are © Engineers and Geoscientists BC. Open the official past paper (linked at the top of this page) to read the question, then follow the worked solution below.

1.1.1 – Who to consult for a ±40% quick estimate. A ±40%, same-day figure is an order-of-magnitude / ratio (ballpark) estimate (AACE Class 5), not an engineering estimate. The person to communicate with is a senior mining engineer or cost estimator inside the company’s own technical-services group who already holds (or can quickly pull) a parametric cost model – typically the same kind of capacity/depth power-law model used in O’Hara (1980) or Camm (1991, USBM IC 9298). Equally valid: a mine planning/engineering consultancy that keeps an in-house cost database (e.g. an SME/CIM-affiliated cost engineer), since building a bottom-up estimate from vendor quotes cannot be turned around in a day.

1.1.2 – The O’Hara method. O’Hara’s method (CIM Bulletin, Feb. 1980; extended by Mular & Poulin’s CapCost, CIM Special Volume 47, 1998) is a parametric (power-law) capital-cost model: total mine capital cost is broken into a small number of major cost centres (site preparation, mine equipment – shovels, trucks, drills – and ancillary/indirect costs), and each cost centre is correlated empirically against one or two simple, early-known design variables – principally daily ore+waste tonnage T and, for underground/shaft work, depth D – via equations of the form C = a·X^b fitted by regression to a historical database of built mines. Because it needs only tonnage and depth (both known before any detailed engineering), it lets an estimator produce a full capital number within hours, at the expected ±35–40% accuracy of a Class 5 estimate. Equipment counts (number of shovels/trucks/drills) fall out of the same regressions and are then rounded to the nearest standard equipment size.

1.1.3 – Escalating a 1980/1998 estimate to 2012 or 2015. A parametric estimate is escalated, never re-derived, using a cost index ratio: $$C_{year2} = C_{year1}\times\dfrac{Index_{year2}}{Index_{year1}}$$ Mining capital estimates use separate indices for the capital-equipment portion and the labour/operating portion (e.g. the Camm/CIM capital-cost index and operating-cost index tables, or the Marshall & Swift / CE Plant Cost Index equivalents used in North American mining practice) – applying one blended index to both understates the labour-heavy components and overstates the equipment-heavy ones. To go from 1980 (O’Hara’s base year) to 2012, and again to 2015, the estimator looks up the published index value for each of those three years and multiplies through in two steps (1980→2012, then 2012→2015), since the two index series do not grow at the same annual rate and compounding them separately is more accurate than a single blended long-run escalation factor.