Mining is a large, vital and lucrative business. Its rewards are spread across a wide cross-section of our population. But not all mining ventures are successful, Risks are high and they take many forms.
The process of discovering and developing any mineral deposit involves dozens of different people with different skills, and the expenditure of many millions of dollars. But the question to ask when evaluating a deposit is always same: Does it contain enough recoverable and marketable metal or gems to be dug out of the ground, transported to market and sold at a profit? Obviously, there risks involved in each of the steps and one wrong calculation can be disastrous.
The most serious risks in any mining project are those associated with geology (the actual size and grade of the minable portion of the orebody), metallurgy (how much of the metal can be recovered) and economics (metal markets, interest rates, transportation costs). But there are many others, such as problems arising from unforeseen political developments, new restrictive regulations or the availability of workers, to name a few.
Feasibility Studies: One of the features that distinguishes a mining enterprise from many other businesses is that during production, the company’s asset (i.e., the ore) is progressively consumed. Some day, the mines assets will be gone, hence, a mine is referred to as a wasting asset. This has important implications for the justification of allocating capital to any new mining project.
The time value of money plays an important role here. Simply put, the annual profits generated by a mine must be sufficient to pay back (within a reasonable time) the money invested in the mine. It is the job of mining engineers to estimate the ”payback period” in what is called a feasibility study.
One of the important elements in a feasibility study is the estimate of mine operating costs. It is impossible to suggest what the costs might be for a particular mine without looking at all the details of the planned operation, and reasonable estimates can only be made when complete information is available. The final estimate will only be as dependable as the information used to arrive at the individual cost estimates from which it is derived.
The prices the mining company will have to pay for labor, electrical power, supplies and the shipping out of its concentrate are all factors that influence the capital costs of a mining project.
Each country has its cost-reIate advantages and disadvantages. For example, mining in the vast, undeveloped regions of Canada make the constructions of roads, railways and airstrips much more expensive than in developing countries. Also, miners in both Canada and the United States demand higher wages than their counterparts in developing countries.
On the other hand, mining companies working in many developing countries can encounter problems such as high tax and tariff costs, and the corruption of civiI servants such as customs officials, without whose help they would have difficulty getting their project off the ground. The overall political instability of some countries can be a great deterrent to the development of mines.
Somewhat perversely, however, the existence of any combination of negative factors leads to less exploration in that country or legion, which, in turn, can increase the chances of discovering an economic orebody. In mineral exploration, something is always better than nothing.