Total Drilling Cost

AC BHMT's Value Proposition

Prepared for:
Indiana Society of Mining and Reclamation
19th Annual Technolocy Transfer Seminar
Dec. 5th & 6th, 2005
What is "value"?

• The AC BHMT "value proposition" is based on

drill productivity, not "bit life".
• “Drill productivity” costs a mining company
much more than "bit life".

• Let's take a few minutes to talk about and

understand what YOUR value proposition is
based on.
• Then we will explain ours.
Total Drilling Cost

Total Drilling Cost is a value concept that places

its' emphasis on the cost of drill productivity.

Progressive customers understand and adopt the

philosophy that the cost of productivity drives the
economics of a mine.

Total Drilling Cost captures and shows the cost of

drill productivity.
The Total Cost of Drilling

• TDC includes everything it takes to

run a drill:
– Labor
– Power: fuel or electricity
– Drilling tools and supplies
$
– Maintenance labor & parts
$ $ – Supervision, administration
– Cost of equipment ownership (lease,
$ purchase, or rental payments)
With all things considered, drill
operating costs can exceed US$300
per operating hour.
Total Drilling Cost

Method 1

TDC =

(Bit Price / Meters Drilled)

+
(Drill Operating Cost per Hour / ROP)
Total Drilling Cost

• Example #1:
– Bit cost = US$5,000
– Bit life, meters = 6,500
– Penetration Rate = 52 meters/hour
– Rig Cost = US$200 per hour
Total Drilling Cost

Example #1:
TDC =
Bit Life + Productivity

($5,000 / 6,500m) + ($200 / 52 m/hr)

=
$0.77 / meter + $3.84 / meter

= $4.61/meter
Total Drilling Cost

• Example #2:
– Bit cost = US$5,000
– Bit life, meters = 8,000
– Penetration Rate = 40 meters/hour
– Rig Cost = US$200 per hour

• TDC = (Bit Cost / Bit Life) + (Rig Cost / Pen Rate)

Total Drilling Cost

• Example #2:
TDC =
($5,000 / 8,000 m.) + ($200 / 40 m/hr)
=
$.625 + $5.00 =

$5.63 / meter
Total Drilling Cost

Example #2
TDC =
($0.63 / m.) + ($5.00 / m.) =
$5.63 / meter
$1.02 MORE!

for a bit that is less productive but has longer

life?!
(52 vs. 40 m/hr., 8,000 vs. 6,500 m)

Where is the advantage really found?

Total Drilling Cost

TDC Method 2

TDC =
(Bit Price / Meters Drilled) +
Fixed Cost +
(Variable Cost / Rate of Penetration)

Where:
• Fixed Cost = Annual Overhead Cost / Annual Meter Budget
• Variable Cost = Labor + Fuel + Supervision + Repair Parts +
Repair Maintenance + Repair Labor
TDC Method 2

Fixed Cost Calculation:

• For example: $1.50/meter fixed cost

$1.50 / meter = $900,000 overhead cost for drill fleet /

600,000 annual budget meters
• Ownership cost of the drill fleet (lease, rent, purchase
payments)
• Drill Maintence budget for fleet (PM parts, fluids,
normal wear parts, etc.)
• Budgeted drilled meters.
TDC Method 2

Example A:
– Bit cost = US$5,000
– Bit life, meters = 6,500
– Penetration Rate = 52 meters/hour
– Fixed Cost = $1.50 / meter
– Variable Cost = $95 / hour

TDC = ($5,000 / 6500) + $1.50 + ($95 / 52)

TDC = $.77 + $1.50 + $1.83 = $4.10
TDC Method 2

Example B:
– Bit cost = US$5,000
– Bit life, meters = 8,000
– Penetration Rate = 40 meters/hour
– Fixed Cost = $1.50 / meter
– Variable Cost = $95 / hour
TDC = ($5,000 / 8000) + $1.50 + ($95 / 40)
TDC = $.63 + $1.50 + $2.38 = $4.51

$.41 / meter MORE for every meter drilled!

($246,000 per year based on 600,000 m drilled/yr)
Production Cost Only

What is the cost of producing a single blasthole?

• Cost = Drill Cost per Hour x Time spent drilling, hrs
• $$ = $150 per hour x 30 minutes
– $$ = 150 x .5
– $$ = $75 per hole drilled
• $$ = $150 per hour x 20 minutes
– $$ = $150 x .33
– $$ = $50 per hole drilled

• Productivity costs less!

Total Drilling Cost

• With Total Drilling Cost calculated by any method,

the productivity (ROP) and drill cost are the
“drivers” of the calculation.
• Bit Price per Meter is a small part of theTDC.
– Ex. 1, bit price/m, $.77 is 17% of $4.61/m.
– Ex. 2, bit price/m, $.63 is 11% of $5.63/m.
– Ex. A, bit price/m = 19%, FC + VC = 81%
– Ex B, bit price/m = 14%, FC + VC = 86%
Total Drilling Cost

% of TDC Cost Breakdown

100%

75% 45%
53%
% Cost

83% 89%
50%
37%
33%
25%

17% 11% 19% 14%

0%
Ex. 1 Ex. 2 Ex. A Ex. B
Bit Cost/M Fixed Cost Variable Cost
Total Drilling Cost

• The cost of productivity is the largest part of TDC

• Spend less time drilling each hole.
• Choose faster drilling bits.
– Run bits to give high Penetration Rate and reasonable bit
life.
– This will keep the TDC low.
Results
Western USA Copper Mining Company
Total Drill Cost (TDC)
2.40

2.00

1.60
US Dollars

BHMT
1.20

Manuf #2

0.80
Manuf #3

0.40

0
01/01/2002 1/01/2003 01/01/2004 01/01/2005
thru thru thru thru
12/31/2002 12/31/2003 12/31/2004 12/31/2005
11/15/2005
Results

• Western USA Copper Mining Cost Savings:

– 2003 vs. 2002: $ -84,735 $1.89/ft
– 2004 vs. 2003: $ 837,561 $1.65/ft
– 2005 vs. 2004: $ 228,637 $1.58/ft
– Total savings year on year: $981,463
• If no change in TDC:
– Would have spent: $22,921,117 (at $1.86/ft, 2002)
– Actually spent: $21,254,869
– Saved: $ 1,666,248
Results
Canadian Coal Miner
Total Drill Cost (TDC)
10.00

8.00
US Dollars

6.00 BHMT

4.00

2.00

0
01/01/2002 01/01/2003 01/01/2004 01/01/2005
thru thru thru thru
12/31/2002 12/31/2003 12/31/2004 12/31/2005

11/15/2005
Results

• Canadian Coal Miner Operating Cost Savings:

– 2003 vs. 2002: $1,235,237 $7.58/m
– 2004 vs. 2003: $ 520,781 $6.30/m
– 2005 vs. 2004: $ 120,268 $5.85/m
– Total savings year on year: $1,876,286
• If no change in TDC:
– Would have spent: $13,888,389 (at $9.91/meter, 2002)
– Actually spent: $10,101,431
– Saved: $ 3,786,958
Thank You!

• Questions??