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Cost Estimating Methods

The document discusses different cost estimation methods used in feasibility studies for undeveloped mining properties, ranging from less detailed to more detailed: comparison to other mine costs, comparison to cost models, parametric methods, cost modeling software, and itemized methods. The accuracy of estimates increases with more detailed methods and better quality input data. Feasibility studies are considered accurate to within +/- 50% at prefeasibility, +/- 25% at preliminary, +/- 15% at feasibility, and +/- 5% at final feasibility levels. However, these accuracy ranges are guidelines and not statistically proven. The Galore Creek project estimate was within the stated +/- 15% accuracy at feasibility level but later review found it was off by 185%, showing the difficulty of assigning

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260 views2 pages

Cost Estimating Methods

The document discusses different cost estimation methods used in feasibility studies for undeveloped mining properties, ranging from less detailed to more detailed: comparison to other mine costs, comparison to cost models, parametric methods, cost modeling software, and itemized methods. The accuracy of estimates increases with more detailed methods and better quality input data. Feasibility studies are considered accurate to within +/- 50% at prefeasibility, +/- 25% at preliminary, +/- 15% at feasibility, and +/- 5% at final feasibility levels. However, these accuracy ranges are guidelines and not statistically proven. The Galore Creek project estimate was within the stated +/- 15% accuracy at feasibility level but later review found it was off by 185%, showing the difficulty of assigning

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Cost Estimating Methods

(See Summary for main points) The focus of this course will be on cost estimation methods that are commonly used for the purposes described in Part 1: Why Estimate Costs?, especially those usually applied in conducting feasibility or pre-feasibility studies on undeveloped properties. These methods listed in order from less detailed to more detailed are as follows.

comparison to costs at other mines comparison to established cost models (Figure 1) parametric methods (Figure 2) cost modeling software (Figure 3) itemized methods (Table 1)

Method Application (See Summary for main points) The types of feasibility studies for which each of these methods is generally appropriate can be depicted graphically as shown in Figure 4 (right). Feasibility studies and their associated cost estimates are generally considered to be accurate to within about plus or minus 50% at the prefeasibility level, plus or minus 25% at the preliminary feasibility level, plus or minus 15% at the feasibility level, and plus or minus 5% at the final feasibility level. While this is a handy rule of thumb for discussion purposes, it should never be considered to apply with any degree of specificity. While the ranges are commonly quoted in the literature, as far as this author knows, there are no known statistical studies to support them for the mining industry. The expected accuracy of a cost estimate depends upon the accuracy and amount of information available to support the estimate, the method used to make the estimate, and the care and skill employed by the estimator.

The difficulty of assigning accuracy levels to a cost estimate is well illustrated by a series of news releases regarding the Galore Creek project in northern British Columbia issued by joint venture partners, Teck-Cominco and NovaGold. In an October 25, 2006 news release, NovaGold reported the following: Hatch Ltd., and independent engineering services company,[...], together with a number of specialized consultants, has completed the final Feasibility Study for NovaGolds Galore Creek project [...]. The study confirms the economic viability of a conventional open-pit mining operation [...] . Total capital cost was estimated to be US$ 1,805 million. The news release went on to say The cost estimates of the study reflect a +15%/-10% feasibility study level of engineering accuracy." In a November 26, 2007 news release, NovaGold and Teck-Cominco announced the suspension of construction activities at the Galore Creek project. A recent review and completion of the first season of construction indicate substantially higher capital costs. They also noted that AMEC Americas Limited was retained to review the 2006 feasibility study. In July 2011, NovaGold announced that AMEC had reviewed the 2006 study and estimated the capital cost to be $5,155 million. AMECs estimate was said to be within an accuracy range of +25%/-20%. The 2006 study was completed by competent people using standard methodologies appropriate for a final feasibility study and supposedly accurate to within +15%/-10%, yet according to the AMEC study it was off by 185%. Each of the previousliy described methods will be discussed in detail in the sections that follow, with considerably more emphasis placed on itemized methods, the preferred methodology for all cases for which adequate time is available to complete the estimate in the most useful and reliable manner. Itemized methods draw on "first principles," such as material densities, swell factors, haul distances and gradients, etc. Suggestions will be provided to help make this methodology useful and efficient at varying levels of detail and effort. Cost estimating for surface mines will be emphasized, but most of the principles discussed apply to underground mining as well.

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