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determination of revenue

the first component of revenue estimation is metal or commodity price. With the
exception of gold, estimation of revenue for mine products is complex and
commonly requires considerable research or input from expert minerals marketing
personnel. Anyone carrying out the financial study should be aware that one cannot
simply take a quoted metalprice and multiply the price by the ore grade to obtain a
revenue estimate.
Calculation of revenue requires
1) An estimation of grade of the run of mine ore, which includes an estimate or
assumption of mine dilution,
2) An estimate or assumption of mill recovery,
3) A forecast of product price for the mine life, which might be equal to, lower or
higher than the current price, factored by exchange rates if the product is
paid for in another currency, and by forecast cyclic variations in price,
4) Deduction of transport, stevedoring and smelter charges for concentrates,
5) Deduction of any penalties for deleterious minerals or impurities in
concentrates.

Quotation of metal prices


Metals are traded internationally and metal prices negotiated on the major metals
exchanges of London (the LME) and new York (the NYME) are quoted at least daily in
capital city newspapers around the word. Gold prices are also quoted from hong
kong and tin prices are quoted daily from kuala lumpur. Metal-producing countries
also generally have a daily or regular local producer metal price quoted. In
kalgoorlie, the centre of the western Australian gold industry, until recently the gold
price was shown with half hourly updates on a display panel above the entrance to
the palace hotel !

Mine dilution
Mine dilution is the dilution of ore with waste. Because of the impracticability of
mining to uneven geological or grade boundaries between ore and waste, it is
inevitable that some waste will be incorporated with ore, and likewise some ore
inadvertently will be mixed with waste. The unintentional dilution of ore with waste
is an ongoing problem in mining, and one which is commonly not paid suffucent
attention, given that it can be a major cost factor.
An ore resource has no assumption of dilution. If this is the basis for a financial
model, if there is no prior practical knowlrdge of what minimum dilution really has to
be accepted as unavoidable in a particular mine, an assumption must be made
regarding dilution. A common dilution figure is 15% although actual dilution may be
less than 10% or may be very much higher, depending on mining conditions and
practice. An ore reseve should include an assumption about mine dilution.

Mill recovery
No mill will achieve 100% recovery of metal, altrough modern cip mills can achieve
96% reconvery of gold from the ore under favourable circumstances. If the gold ore
is refractory, recovery my be lower than 70%. Typical recoveries for other major
metals using industry-standard technologies and good operating practice to deal
with non refractory ores are;
Chalcopyrite 80%-90%
Sphalerite
Galena

60%-80%
60%-80%

Determination of an appropriate mill recovery facto to be use in a financial model


requires information from merallurgical laboratory and pilot scale testing. The tests
should be carried out on truly representative samples of ore, and backed up by
thorough geological studies of the ore to identify major mineralogical or textural
variations which may affect mill recovery.
Selection of samples for metallurgical testing is particularly problematic. It is
common practice for a bulk sample to be composited from a number of drill cores,
or from trial mine excavation. Extreme care should be taken to ensure that the bulk
sample is indeed representative of the ore, and forms a realistic basic for
determination of the optimum method to treat the ore. This only possible if the
geologists have done their job properly and understand the mineralogy and mineral
distribution in the deposit. It is also important that the drilling has not physically
altered the sample in a way which affect metallurgical test, and that artificial
weathering (for example,due to leaving drill samples exposed to air for lengthy
periods) will not affect metallurgical results.
Because it is one of those areas which tends to occur during the handover of the
discovery from the geologists to the engineersm it is common for metallurgical
sampling to be carried out with insufficient geological control.

at the time this quote was received, the copper price was 2257 per tonne and gold
452 per ounce. the exchange rate was 1.00 =0,47.
the revenues were calculated as follows :

the lead zinc ore contained 2% lead,14% zinc ( with no allowance for mine dilution
in estimation of ore grade). in the calculation below, mine dilution of 15% was
allowed for. the calculation are made in terms of net revenueper tonne of ore; this is
recomended as id lessens the likelihood of mistakes in estimating revenue for mine
production when modelling the cash flow.

lead:
price of the day 796/ton

the mill recovered 80% of the lead and produced a concentrate containing 50% lead
metal.