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Modeling How Capital Cost Impacts Your Mining Operation

September 01, 2017

One of the most common questions we get asked at Alight Mining Solutions is “can you handle Capex modeling?” It’s a great question because if you don’t monitor Capex closely, it can quickly sink your mining operation.

Upfront Capex spend can be a good thing

 When we look at what has traditionally made up Capex for a mine, it’s what you would expect – equipment, infrastructure and maybe some construction. Nowadays, though, there are new technologies being put into equipment and infrastructure— autonomy and fleet monitoring, for instance, or, if you’re looking at alternative fuels, building a new plant—and they all require initial upfront costs that will spike your Capex. So Capex planning is going to have to change. When evaluating your Capex spend, the long-term impact on Opex—15+ years down the road—should be taken into consideration, as well.

But many in the mining industry have the notion that a higher upfront cost of a mine is unacceptable and that whatever can be done to reduce those costs should be done—they are likely not looking at the entire picture.

Evaluating a spend in the context of Opex

 So, let’s take a look at an autonomy investment more closely with the full picture in view. You may have to spend an extra $20 million upfront for an autonomous fleet of trucks. Not a trivial amount of money, by any means. But, through autonomous trucking, you will remove employees from the face of the mine, increasing efficiency and lowering Opex. A life-of-mine view will allow you to see that the higher Capex spend on autonomy will lower Opex and increase NPV significantly. A customer of ours in this exact situation was able to reduce Opex by $3 million per year. To give you a sense of scale, it was a very large mine set to operate until 2060. Autonomy also increases safety—and that’s priceless. A win-win and great example of capital cost modeling, done right.

You can take that higher Capex, lower Opex option to Wall Street and other investors with the message: yes, we do need to spend more capital up front, but here is what the payback for an autonomous operation looks like compared to a less capital-intensive traditional operation.

Investors very much care about the long-term effects of initiatives for a mine site, and they will appreciate a higher NPV.

Upfront Capex—not for every operation

But the higher upfront capital expenditure associated with an investment in autonomy is not for every mine. With autonomous trucking, you’re likely not going to experience an Opex benefit for the first couple of years. So if you have a 7-year mine life, you may be shooting yourself in the foot by spending all that capital for autonomy, especially since all mines will have different operating costs related to autonomy. You can still apply the same methodology to your capital cost modeling, but you need to evaluate it differently than a mine with a much longer life.

When it comes to modeling how capital cost impacts your mining operation, we can help.

The Alight Mining Solutions team is built on years of mining industry experience combined with the best of the Bay Area’s technological talent. Our experience spans from mining engineering to equipment to finance to metallurgy.