Economic Evaluation of a Mine - A case evaluation of a Small Alluvial Mining Operation

In this post we will go through few tips on evaluating the economic viability of a mineral deposit (simple alluvial mining operation). In this example we will ignore the effects of the specific definition of mineral resources and ore reserves (Recommended: see definitions) and holistically assume all as mineral resources. Note that this is a simulated example and does not represent any real data from any mine.

Project Economic Evaluation of a Simple Alluvial Mining Operation with Mine Life of 5 years

General Information of the Project

Resources Information

During the resource evaluation, it was estimated that 30% of the total material is composed of large boulders, hence only 70% throughput materials from the total resources. The average fineness of gold discovered is 85% and variations may exist within the deposit.

Although higher grades are expected, the average ore grade determined is 1.5g/m3 from the materials processed during sampling.

Polygonmethod of ore reserve estimation has been used to estimate the resources in which the summary is tabulated below (recommended: see calculation on how todetermine tonnage and grade of a mineral deposit).

Area (m2)
Volume (m3)
70% Gravel
Average Grade (g/m3)
Contained Metal (g)
Contained Metal (Oz)

Estimates indicate a total of 245,000m3 minable materials at an average grade of 1.5g/m3.

Mining & Processing Information

Small alluvial mining operation in which excavation, sluicing and dredging will be employed to concentrate and recover gold. Materials will be mined using an excavator and temporarily stockpiled for processing.
Materials from the stockpile will then be fed to a primary screen and though a series of sluice boxes to concentrate gold. Furthermore, the concentrated material from sluice boxes will be removed from the primary concentrator and brought to a concentration table in which 90% of the gold contained is anticipated to be recovered.
The operational budget has been estimated on the basis of incorporating important operational variables. The table below is a summary of the operational expenditures monthly and annually.
Operational Cost
 Operational Variables
Salary of Employees
 $     8,222.22
 $    98,666.67
Excavator and Loader
 $     6,666.67
 $    80,000.00
Support Vehicle
 $        666.67
 $      8,000.00
 $     1,250.00
 $    15,000.00
Mining Cost
 $     1,666.67
 $    20,000.00
Processing Cost
 $     1,666.67
 $    20,000.00
Administration Cost
 $        833.33
 $    10,000.00
 $        833.33
 $    10,000.00
 $   21,805.56
 $  261,666.67

Capital Cost
Capital cost has been estimated on the basis of important mining and processing equipment. The table below entails the summary of initial capital cost of this investment.
 $   50,000.00
 $   20,000.00
 $   28,333.33
Dump Truck
 $   13,333.33
Shaking Table
 $     5,000.00
Panning Dishes
 $        100.00
Support Vehicle
 $   13,333.33
 $     2,333.33
Electric Furnace
 $     1,333.33

 $ 133,766.67


To evaluate the economic viability of the project provided the following mining variables:

Important Data derived from feasibility studies of the project. 

Production Variables
Gold Price (USD/oz)
Gold Price (USD/g)
Hourly  Production (m3/hr)
Operational Hours/day
Annual Production Days
Annual Production  Ore (m3)
Head Grade (best) (g/m3)

Utilisation (%)
Mill Recovery (%)

Step 1: 

Gather all relevant information together and logically outlay and analyse them including but not limited to.

  1. Ore grade and tonnage - 245,000m3 at 1.5g/m3
  2. Current Metal Price - USD1200.00/oz
  3. Mill/Mining Recovery - 90%
  4. Operational Expenditure - $  261,666.67
  5. Capital Expenditure -  $ 133,766.67
  6. Hourly Production Target - 5 m3/hr
  7. Annual Production Targets - 16500m3
  8. Operational Hours/day  - 11
  9. Operational Days - 300
  10. Contingency etc
Step 2
Calculate ore Revenue for a year's Operation (Recommended: Read on Ore value Calculations)

Using the Base formula (Value = Grade x Recovery x Price), determine the revenue for a year. 

Revenue = Ore Grade x Recovery x Metal Price x Hourly Production x Operational Hours/Day x Operational Days/year x Utilization x Availiability
(NB: in bold represents the annual production)
 = 1.5 x 0.95 x 42.33 x 5 x 11 x 300 x 0.8 x 0.8
 =  $603,439.21/ year

Step 3:

Profit = Revenue - Operational Expenditure
$603,439.21/ year - $261 000/year
= $341 772.55/year

Step 4: 
Draw up a cash flow model for the life of the Project and determine the net present value (NPV) of the project. If the NPV is positive, the project is economical, if however the NPV is negative, the project is uneconomical and if the NPV = 0, then the project is break-even. (Recommended: Read how to calculate NPV)

In conclusion,  we have a positive NPV of $910,879.60 which indicate the operation is profitable over the 5 years planned duration.

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Economic Evaluation of a Mine - A case evaluation of a Small Alluvial Mining Operation Economic Evaluation of a Mine - A case evaluation of a Small Alluvial Mining Operation Reviewed by CEDRICK KAU on May 09, 2018 Rating: 5

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