MINERAL ECONOMICS

AND EVALUATION

Joseph Banda
[email protected] / +265992105655 /+265887359904
 BACKGROUND AND STRUCTURE OF THE
MINING INDUSTRY
• The structure of the mining industry changed greatly in the 1990s and early
2000s with the decline in government-funded mineral exploration,
• The merging and globalization of many mining companies.
• In 2002, dominance of three companies mining a range of commodities (BHP
Billiton, Rio Tinto, and Anglo American) and Alcoa, an aluminium producer

• Junior companies are ones exclusively involved in major mineral

exploration activities.
• Their strategies is to explore and negotiate agreements with major companies on any
deposits they discover
• To retain at least a shares of any discovery and to control the production of any
discovery
• Speculative activities of small companies has led to extreme risks
• Deposits cropping out at the surface are nearly depleted

The Fimiston gold mine since 1989 covers over five square
kilometres maximum depth of 700m : Wikimedia
• We are now searching for concealed mineral deposit
• Need for sophisticated exploration methods
• Require huge investment
The following terms define the industry
✓Mine - an excavation made in the earth to extract minerals
• Civil Works Excavations - necessary to build structures including tunnels, and Mining
Excavations - necessary to exploit minerals.
✓Mining - the activity, occupation, and industry concerned with the extraction of
minerals
✓Mining engineering - the practice of applying engineering principles to the
development, planning, operation, closure, and reclamation of mines
✓Mineral processing - deals with the extraction, separation, and concentration of
minerals from raw ores.
✓Metallurgy – The process of extracting and refining pure metals from their ores.
Includes pyrometallurgy (heat-based), hydrometallurgy (using chemical
solutions), and electrometallurgy (using electricity)
Economic differences in the nature of mineral
deposits is evident in the following terms;
✓Ore - a mineral deposit that has sufficient utility and value to be mined at a
profit.
✓Gangue - the valueless mineral particles within an ore deposit that must be
discarded.
✓Waste - all unwanted materials produced during mining.
• The valuable mineral in one deposit may be a gangue mineral in the other.
• e.g. Kanyika Niobium tantalum deposit (Mzimba District) own by Global Metals
Ltd will produce a gangue with uranium
• An economical study goes parallel with geological and
technical investigations, with the following aims to achieve
• To ascertain what exists? In terms of geology, mineralogy, geography and infrastructures.
• To determine what can be done technically? In terms of mining, processing and handling the
materials produced.
• To investigate whether the proposed product can be sold? In terms of quantity and rate (i.e.
price/unit).
• To estimate the project costs: In terms of cost of construction (capital) and operating.
• To calculate the revenues after meeting expenses to fulfill the financial goals (i.e. profit
margin) set by the sponsoring organization/company.
• To consider impacts on social and physical environment, not just costs and returns on
investment.
• Question: How can we process everything from the mine and market
the products at a profit?

• Very few mineral operations where everything is mined gainfully

• comprehensive mineralogical examination of a mineral deposit and its

waste rocks is important as additional valuable materials in the deposit
can be identified.
• Additional mineral add value and helps to avoid undervaluation
Ore mineral classification
1. Hypogene (primary)
• Minerals deposited during the original period of rock formation or
mineralisation

2. Supergene (secondary)
• Minerals formed during a later period of mineralisation, usually associated
with weathering and other near-surface processes, leading to precipitation of
the secondary

• Supergene enrichment: Secondary mineralisation superimposed on

primary mineralisation where the grade of the hypogene increased
Factors that determine the successiveness
of a mine
1. Geological Factors
• Ore Grade and Quantity – The quality (grade) and size (tonnage) of
the mineral deposit significantly impact profitability.
• Mineral Composition – The ease of extraction and processing depends
on the mineralogy of the ore.
• Depth and Location of the Ore Body – Shallow deposits are generally
cheaper to mine than deep ones.
2. Technical and Operational Factors
• Mining Method – The choice between open-pit, underground, or other
mining methods affects cost and efficiency.
• Processing Technology – The efficiency of mineral processing and
recovery techniques determines profitability.
• Infrastructure Availability – Roads, power supply, water, and
processing facilities influence operational success.
3. Economic Factors
• Market Demand and Commodity Prices – Fluctuations in global
commodity prices impact revenue and profitability.
• Capital and Operating Costs – High costs for machinery, labor,
energy, and maintenance can affect sustainability.
• Investment and Financing – Access to capital for development and
operations is crucial for long-term success.
4. Social and Political Factors
• Community Relations – Good engagement with local communities
ensures social license to operate.
• Government Policies and Stability – Favorable mining laws, tax
policies, and political stability influence investment decisions.
• Some governments demand so much from mining companies to extent that
companies cannot make a reasonable profit.
• Other governments offer taxation incentives through waiver during the early
years of mining encouraging mineral development
• Workforce and Labor Relations – Skilled labor availability and good
employee relations improve productivity.
5. Environmental and Regulatory Factors

• Environmental Regulations – Compliance with environmental laws

and rehabilitation requirements affects operations.
• Water and Waste Management – Proper handling of tailings, waste
rock, and water resources is critical.
• Land Access and Permitting – Securing mining licenses and
community approvals is necessary.
6. Sustainability and Innovation

• Environmental, Social, and Governance (ESG) Compliance –

Sustainable mining practices attract investors and reduce legal risks.
• Mine Closure and Rehabilitation Plans – Proper mine closure
planning ensures long-term environmental and community benefits.
RATIONALE OF MINERAL EXPLORATION

• Mineral exploration is a critical process aimed at identifying and

evaluating mineral resources that can be economically extracted
• Mineral sector is very paramount in development of many nations
• Exploration and exploitation is just a response to demand from the
industrial sector
• Environmentalists most of the times do not understand the importance
of the mineral sector
• Environmentalists make exploration and exploitation activities as a risk
business
Mineral exploration steps
1. Study phase (1–2 years, US$0.25M): Choice of potential target,
study of demand, supply, commodity price trends, available markets,
exploration cost, draw up budget.
2. Reconnaissance phase: (2 years, US$0.5–1.5M)
• Literature search and review
• Remote sensing and photogeological data leading to selection of favourable areas
• Initial field reconnaissance
• Land acquisition
• Probably followed by airborne surveys
• Geological mapping and prospecting
• Geochemical and geophysical surveys, and limited drilling
3. Target testing (2–3 years, US$2.5–50M): Detailed geological mapping
and detailed geochemical and geophysical surveys, trenching and pitting,
drilling
• If successful this will lead to a prefeasibility study
4. Pre-feasibility (2–3years, US$2.5–50M;): Major sampling and test work
programs, including mineralogical examination of the ore and pilot plant
testing to ascertain the viability of the selected mineral processing option
and likely recoverability
• It evaluates the various options and possible combinations of technical and business
issues.
5. Feasibility study (2 years, US$2.5–50M): Drilling, assaying,
mineralogical, and pilot plant test work will continue.
• Confirms and maximizes the value of the preferred technical and business option
identified in the prefeasibility study stage.
Principal steps in exploration and exploitation
of mineral deposits

The steps in the life cycle of a mineral deposit

1. Mineral exploration: To discover a mineral deposit.
2. Feasibility study: To prove its commercial viability.
3. Mine development: Establishment of the entire infrastructure.
4. Mining: Extraction of ore from the ground.
5. Mineral processing: Milling of the ore, separation of ore minerals from
gangue material, separation of the ore minerals into concentrates, e.g.
copper concentrate; separation and refinement of industrial mineral
products.
6. Smelting: recovering metals from the mineral concentrate
Exploration productivity
• Economic measure of mineral exploration success is more difficult to
assess
• But should be measured at global, national and company scale
Expected financial return
• Exploration productivity=
Exploration costs
• after adjustments taking into account of inflation.
• analysis is complicated, only being recognized some years after initial drilling
Mineral market mechanism
Mineral market mechanism
• Minerals prices or mineral products are governed by supply and
demand

• Resources in the form of capital investment are attracted into the

industry and supply expand
• Case study of REE

• If consumers don’t want a particular mineral/product its price falls,

producers make a loss, and resources leave the industry
• Case example of Uranium
International markets
• Price change in one part of the world affects the price in the rest of the
world especially for ore minerals
• Few centuries
• formal organized markets have developed
• Buying and selling takes place in a recognized building,
• Business is governed by agreed rules conventions
• only members are allowed to engage in transactions
• Base metals are traded on the London Metal Exchange (LME)
• Gold and silver on the London Bullion Market.
• New York Commodity Exchange (Comex).
International market
• Specialist buyers and sellers
• Prices are sensitive to any change in worldwide supply and demand
• Prices of some metals on Comex and the LME are quoted daily by
many newspapers and websites
• Other price are quoted in Journal (Minerals, Mining & technique )
International market
• Buyers and sellers usually sign contracts based on fluctuating price

• Some agree contract price in advance of production, with clauses

allowing for price changes
• Contracts of this nature are common in the cases of iron, uranium, and
industrial minerals
• For any type of agreement, the demand forecast is very important;
• Mineral economists therefore plays an important role in mineral
exploration strategy
 Commodity Price
• Price or a Cost is the value that must be given up to acquire a good or service;
• In economics, the cost of anything is the highest valued opportunity
necessarily forsaken.
• Project costs generally vary with the level of production activity of the
project.
• If cost is to influence choice, it must be based on anticipations. After the
reality, someone else might;
• Enjoy some of the benefits; and
• Endure some of the pain;
• Therefore, the choice is based on;
• The anticipated value (in your mind) of this enjoyment; or
• The pain (cost) in the mind of the decision maker (you.)
• Every business needs to know what the costs to produce its products
are, if it is to make sensible business decisions.
• Some of the more important cost include;
• Fixed costs (costs that does not vary with the level of output);
• Variable costs (costs that change with the level of output);
• Sunk costs (costs that have already been incurred and cannot be recovered
e.g. exploration costs)
• Opportunity costs (are costs that result from not taking up the alternative use
of a good, service or asset);
• Operating costs (Operating costs are the recurring expenses which are
related to the operation of a business);
Break-even analysis
• It refers to calculations to determine how much product a company must
sell in order to cover business's total costs.
• It is an effective analysis to measure the impact of different marketing
decisions.
• It focuses on the product to determine the potential outcomes of marketing
tactics.
• Components of breakeven analysis
• The three components of breakeven analysis are;
• Volume
• Cost
• Profit
Forces determining prices
• Demand
• Commodity substitution: price decline
• Expectation of future price changes
• Change in technology

Percentage increase in world production of some metals and industrial

minerals 1973–88.
Forces determining prices…
• Supply

• High prices stimulate supply and investment by suppliers to

increase their output
• Fall in prices has the opposite effect and some mines may be
closed or put on a care and maintenance basis in the hope of
better times in the future. e.g. Kayelekera Uranium Mine in
Karonga, Northern Malawi
• Discovery and exploitation of large new orebodies
• Improved techniques in exploitation
• Natural disasters, war, other political events, fire, strikes at the
mines of big suppliers
Forces determining prices…
• Government action

• Governments can stabilize or change prices through

• Stockpiling: can push up prices markedly.

• Governments cannot act to stabilize or change prices on

world the wide market
Forces determining prices…
• Recycling
• Recycling will prolong resource life and reduce mining wastes
and smelter effluents
• Partial immunity from price rises
• Direct economic and environmental bonus
• 80% less electricity is needed for recycled aluminium
Forces determining prices…
• Substitution and new technology
• Reduction in demand
• Great changes such as the development of longer lasting car
batteries that use less lead,
• Increase in Research and development (R&D) in industrial
minerals
Economic Influence
Mineral evaluation techniques
• These techniques help assess the composition, quantity, and quality
of minerals in a given area through;

❖Sampling

❖Drilling

❖Mineral Resource and ore reserve estimation.

❖Grade calculations.