Project and

Innovation Finance &

Accounting
Assignment 3

A1202465
Date Due: 15/10/2010





Branden 0xford A1202465

Branden 0xford A1202465
Introduction

Surface Course Gravel for Haul Road Maintenance
Truck haulage costs can account for 10%-15% of the total costs incurred by an open
cut mining operation. Therefore there is a need for improved design technologies
encompassing the management techniques of mining haul roads appropriate for the
wheel loads of the vehicles currently in use on site. The maintenance of these haul
roads is a must to keep operations continuing economically and safely, so the best
means of obtaining the gravel for haul road maintenance needs to be evaluated.

The uppermost layer of the haul road that comes directly in contact with tires is
known as the surface course. A haul road surface is generally constructed with fine
gravel with closely controlled grading to avoid dust problems while maintaining
proper binding characteristic of the material. Apart from providing a smooth riding
surface, it also distributes the load over a larger area thus reducing stresses
experienced by the base course. When a selected waste rock layer is located under
the wearing course, road performance is significantly improved, primarily due to the
load carrying capacity of the waste rock layer which reduces the susceptibility of the
soft sub-grade and in-situ to the effects of high axle loads. It also has the added
advantage of reduced construction costs (by virtue of reduced volumetric and
compaction requirements), compared with the CBR cover-curve design approach. As
with structural designs, if local mine material can be used for construction, the costs
are all the more favourable.
The advantages haul road maintenance includes:
smooth haul roads
safer haul roads
less tyre wear
less water required on the haul road
more traction
less dust
more access time to the haul road after heavy rains and flooding
less wear and tear to suspension systems on trucks and light vehicles
haul roads can be reshaped to maintain a cross-fall for water run off
less fatigue for truck drivers
no dips, no bumps, therefore - no spillage
Project Objective
Evaluate three types of gravel crushing/screening facilities to be located on site to
provide gravel from blast waste rock. This gravel will be sold to recoup the projects
capital outlay and also be used on Bramoni EDIS own haul roads which will
eliminate current supply issues being experienced from third party contractors.
Branden 0xford A1202465
Evaluation of Crushing/Screening Plants

Smith Permanent In-line Gravel Crusher/Processor
An old erection site which has easy access to power and water has be chosen next
to the eastern blue pit dam for this module to be built. The complete crushing
process plant consists of the vibrating feeder, jaw crusher (coarse crushing), Impact
Crusher (secondary crushing), vibrating screen, belt conveyor etc. The Smith
production line is highly automated, large capacity, and high-yielding. The final size
has even particle size and grain shape that will meet the requirement of all mine
sites.

Base data for Discounted Cash Flow (DCF) Calculation
Item Value
Initial capital cost $2,200,000
Life of project 5 years
Salvage value at end of life $300,808
Production per year See table 1
Selling price $55/ton
Annual operating expenses See table 2
Depreciation rate for tax purposes 27.5%
Tax rate 35%
Discount rate 15%

Table1: Discounted Cash Flow
0 1 2 3 4 5
Production, ton 30,000 50,000 50,000 50,000 45,000
Operating revenue at $55/ton 1,650,000 2,750,000 2,750,000 2,750,000 2,475,000
Operating expenses 742,500 1,320,000 1,430,000 1,595,000 1,930,500
Operating profit 907,500 1,430,000 1,320,000 1,155,000 544,500
Capital Expenditure 2,200,000
Tax depreciation- 27.5% of the
start-of-year value of capital 453,750 328,969 238,502 172,914 125,363
End of year written-down value
for tax purposes 1,196,250 867,281 628,779 455,865 330,502
Salvage value 300,808
Taxable profit 453,750 1,101,031 1,081,498 982,086 419,137
Income tax payable at 35% tax
rate 158,813 385,361 378,524 343,730 146,698
After tax profit 294,938 715,670 702,973 638,356 272,439
Net cash flow -2,200,000 748,688 1,044,639 941,476 811,270 698,610
Discount factor(at 15% return
on investment) 1.000 0.8696 0.7561 0.6575 0.5718 0.4972
Discounted cash flow -2,200,000 651,059 789,852 619,020 463,884 347,349
Year

Branden 0xford A1202465

Net Present Value and Internal Rate of Return Calculation

Net Present Value (NPV) = -$191,683

Internal Rate of Return (IRR) = 10.84%



Graph 1 NPV Profile






Sensitivity Analysis
An evaluation was made checking sensitivity of the base-case NPV relative to
variations +/-10% of the selling price selling price of the gravel. This was based on
previous market data history and future forecasts.

Base-case
Selling price
$55/ton
Increase 10%
Selling price
$60.5/ton
Decrease 10%
Selling price
$49.5/ton
NPV -189,488 4,085 -383,061


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Branden 0xford A1202465
SBM Mobile Jaw Crusher Unit
The SBM mobile jaw crusher unit doesnt require a specific site it can be moved from
location to location which may be a benefit. The unit consists of vibrating feeder,
motor feeder, hopper feeder, jaw crusher, motor of jaw crusher, standard belt
conveyor and extended belt conveyor. SBM mobile crushing plant has high chassis
and small turning radius, which is suitable for most transportation conditions,
especially for driving to crushing sites that are difficult to access. The preparation
time of the mobile crushing plant is greatly reduced, compared with the fixed one and
reduced material transportation cost can also be achieved.
Base data for Discounted Cash Flow (DCF) Calculation
Item Value
Initial capital cost $2,100,000
Life of project 5 years
Salvage value at end of life $300,502
Production per year See table 2
Selling price $55/ton
Annual operating expenses See table 2
Depreciation rate for tax purposes 27.5%
Tax rate 35%
Discount rate 15%

Table 2: Discounted Cash Flow Summary
0 1 2 3 4 5
Production, ton 30,000 50,000 50,000 50,000 45,000
Operating revenue at $55/ton 1,650,000 2,750,000 2,750,000 2,750,000 2,475,000
Operating expenses 660,000 1,237,500 1,430,000 1,567,500 1,658,250
Operating profit 990,000 1,512,500 1,320,000 1,182,500 816,750
Capital Expenditure 2,100,000
Tax depreciation- 27.5% of the
start-of-year value of capital
453,750 328,969 238,502 172,914 125,363
End of year written-down value
for tax purposes 1,196,250 867,281 628,779 455,865 330,502
Salvage value 300,502
Taxable profit 536,250 1,183,531 1,081,498 1,009,586 691,387
Income tax payable at 35% tax
rate 187,688 414,236 378,524 353,355 241,986
After tax profit 348,563 769,295 702,973 656,231 449,402
Net cash flow -2,100,000 802,313 1,098,264 941,476 829,145 875,266
Discount factor (at 15% return on
investment) 1.000 0.8696 0.7561 0.6575 0.5718 0.4972
Discounted cash flow -2,100,000 697,691 830,397 619,020 474,105 435,182
Year

Branden 0xford A1202465


Net Present Value and Internal Rate of Return Calculation

Net Present Value (NPV) = $29,036

Internal Rate of Return (IRR) = 15.64%


Graph 2: NPV Profile




Sensitivity Analysis
An evaluation was made checking sensitivity of the base-case NPV relative to
variations +/-10% of the selling price of the gravel. This was based on previous
market data history and future forecasts.

Base-case
Selling price
$55/ton
Increase 10%
Selling price
$60.5/ton
Decrease 10%
Selling price
$49.5/ton
NPV 31,577 237,219 -174,148


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Branden 0xford A1202465

PFW Hydraulic Impact Crusher
An old dragline erection site which has easy access to power and water has been
chosen next to the eastern blue pit dam. PFW series impact crushers have the
features of heavy duty rotor design, unique hammer locking system, interchangeable
wearing parts, and easy maintenance. This series hydraulic impact crushers provide
low capital cost solutions, outstanding performance, good cubical shape, lowest
operation cost per ton, and wide materials applications. Due to the cubicle shape
and sizing a greater selling price is achievable.
Base data for Discounted Cash Flow (DCF) Calculation
Item Value
Initial capital cost $2, 500,000
Life of project 5 years
Salvage value at end of life $300,456
Production per year See table 3
Selling price (per ton) $70/ton
Annual operating expenses See table 3
Depreciation rate for tax purposes 27.5%
Tax rate 35%
Discount rate 15%

Table 3: Discounted Cash Flow Summary

0 1 2 3 4 5
Production, ton 30,000 50,000 50,000 50,000 45,000
Operating revenue at $70/ton 2,100,000 3,500,000 3,500,000 3,500,000 3,150,000
Operating expenses 777,000 1,400,000 1,470,000 1,575,000 1,795,500
Operating profit 1,323,000 2,100,000 2,030,000 1,925,000 1,354,500
Capital Expenditure 2,500,000
Tax depreciation- 27.5% of the
start-of-year value of capital 577,500 418,688 303,548 220,073 159,553
End of year written-down value
for tax purposes 1,522,500 1,103,813 800,264 580,191 420,639
Salvage value 300,456
Taxable profit 745,500 1,681,313 1,726,452 1,704,927 1,194,947
Income tax payable at 35% tax
rate 260,925 588,459 604,258 596,725 418,232
After tax profit 484,575 1,092,853 1,122,194 1,108,203 776,716
Net cash flow -2,500,000 1,062,075 1,511,541 1,425,742 1,328,275 1,236,724
Discount factor (at 15% return on
investment) 1.000 0.8696 0.7561 0.6575 0.5718 0.4972
Discounted cash flow -2,500,000 923,580 1,142,876 937,425 759,508 614,899
Year

Branden 0xford A1202465
Net Present Value and Internal Rate of Return Calculation

Net Present Value (NPV) = $523,688

Internal Rate of Return (IRR) = 27.88%



Graph 3: NPV Profile






Sensitivity Analysis
An evaluation was made checking sensitivity of the base-case NPV relative to
variations +/-10% of the selling price selling price of the gravel. This was based on
previous market data history and future forecasts.

Base-case
Selling price
$70/ton
Increase 10%
Selling price
$77/ton
Decrease 10%
Selling price
$63/ton
NPV 527,107 822,351 231,868


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Branden 0xford A1202465
Recommendation
After reviewing the three available gravel crushing/screening plants it is
recommended that Bramoni EDI installs the PFW Hydraulic crusher. The PFW
model had the best NPV value proving that with this project there will be more than
enough revenue generated to cover costs at the minimum rate of return. This model
also provided the best IRR which is crucial when looking at multiple investment
possibilities like on this occasion. One possible risk was the pricing of the gravel, the
resulting gravel product is high grade with a selling price some $15/ton above the
Smith and SBM plants but the sensitivity analysis showed even with a price
decrease of 10% a positive NPV can still be achieved.
Water and power issues can be eliminated by building the plant at the old dragline
erection site, power is already installed and water can be utilised from the nearby
eastern blue pit dam.

The importance of maintenance to haul roads to reduce hauling costs, provide safer
working conditions and less environmental impact is crucial to Bramoni EDIs
success. And due to the lack of availability of third party contractors to supply the
gravel needed to do this, installing the PFW crushing/screening plant on site will
eliminate this problem and as this report shows the revenue generated makes the
project worthwhile.


References

Atrill & Mclaney, 2008, Accounting An Introduction 4/E, Pearson Education Australia,
ISBN 978-0733990588

Ian C. Runge 1998 Mining Economics and Strategy Society for Mining, Metallurgy,
and Exploration, Inc ISBN 0-87335-165-7 P50-59