Accurate estimation of underground mining costs is an essential part of any scoping or feasibility study. It is also an essential part of any underground contractor’s business if they are to be successful in winning tenders and want to return a profit on the project.

First principles estimating is considered as being the “best practice” method for estimating these underground mining costs. This is the process of building up the total cost for a mining activity by considering all the individual costs of the requirements and components that are needed to undertake the activity. It is about having accurate knowledge of the direct costs of your resources – plant, labour, materials and subcontractors and an in-depth knowledge of underground development and production processes. These all contribute significantly to the calculation of accurate estimates.

First principle estimating is undertaken by developing spreadsheets or the use of a database programme to model these processes and incorporate the various labour, plant, materials and consumable costs that is expected to be expended. Ideally, the models are put together by experienced mining engineers whom have spent considerable time on mine sites or time spent with an underground mining contractor in a project engineer or management role. This is because contractors focus on the cost and productivity side of mining.

The cost estimate model is generally based on a mining schedule of underground activities such as ore and waste development, ground support, production and haulage and generates an output of the total mining cost to undertake these underground activities. The model is applicable for both mine owner estimates for feasibility studies or calculations for contractor tender submissions. The output from the model can be presented in a fixed and variable format, a schedule of rates format or in a cashflow style format. The format used will depend on the purpose of the cost estimate or for the first two formats, the pricing schedule requirements of a tender document or a shadow estimate.

The fixed and variable output format separates the costs into two parts. The first part is the variable cost for each mining activity as a rate per metre, tonne, tkm or other appropriate unit. The second part is the projects fixed and overhead costs as a rate per month. Separating out these two parts alleviates the requirement to spread the fixed and overhead costs over the variable mining activities (tonnes, metres, ground support etc) which would result in a range of unit mining costs for each mining activity dependent upon the estimators spreading allocations (ie what percentage of the fixed cost is allocated to each mining activity).

The schedule of rates output format reports the costs as the fixed and variable costs added together to obtain a single total cost for the mining activity as a rate per metre, tonne, tkm or other appropriate unit. This requires spreading all the fixed and overhead costs over the items to be costed in the output format and converting to a cost per metre, tonne, tkm or other appropriate unit. However, this can result in different unit costs for a mining activity because of the estimators spreading allocations (ie what percentage of fixed cost is allocated to each mining activity), and if assessing contractor tender submissions can make it difficult to compare bids.

The cashflow output format reports the mining costs on a month by month basis as lump sum expense categories as opposed to a cost per mining activity. This format is useful for budgeting purposes and can also be used in conjunction with the other two formats.

A good cost model should be able to switch between all three output formats with each format generating the same total all up mining cost for the mining schedule.