Mine Machinery Selection

ENGR 5276 - Winter 2024

Lec08 – Equipment Cost

Dr. Ahlam Maremi

Bharti School of Engineering
Laurentian University

F215B
Email: amaremi@laurentian.ca

2
Introduction
• The cost of any mining projects is determined by
incorporating all of the following values:
– Mining cost per tonne mined (ore and waste):
• Includes clearing the site and topsoil removal, dewatering the pit, drilling
and blasting, ground support, loading and hauling, ….
– Processing or milling cost per tonne processed;
• Includes crushing and grinding, grade control, mill services, stockpile
management, …
– Rehabilitation cost:
• Includes demolishing infrastructure, remediating contaminated land,
revegetation, acid mine drainage measures, …
– Selling cost per unit of valuable product:
• Includes transportation, insurance, marketing, refining, smelting, …

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Introduction
– Time costs (overheads or general & administration):
• The costs that continue during mining regardless of the amount mined,
processed or sold. they would stop if mining stopped.
• Includes accommodation supplies and services, administration salaries and
wages, insurance, safety and training, capital replacement, …
– Other costs:
• Includes incremental costs (proportional to unit of product), wages, fuel,
explosives, …

4
Dollar Value
• Dollar Value (net value) = Revenue - Costs
• Revenues can be calculated from:
– Ore tonnages
– Grades
– Recoveries
– Product price
• Costs can be calculated from:
– Mining cost
– Milling or processing cost
– Selling
– Overheads
– Rehabilitation

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Time Value of Money
• To open a mine and a processing plant (surface or under-
ground) can cost up to $1 billion. It depends on:
– Location,
– Element of interest,
– Ore grade, and
– Other factors;
• Mining projects are long-term projects (between 10 to 30
years or more).
• Revenues are generated from selling 1 unit of the final
product minus all the costs spent in order to extract that unit.

6
Time Value of Money
• Money has a time value.
• A dollar today is worth more than a dollar tomorrow.
• Failure to pay back results in additional charge termed
interest.
– The interest rate is the cost of capital, it is payable at the end of each
period (months, years, …)

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The Interest - Example
• Interest is expressed as a percentage of the amount owed.
• It is due at the end of each period (years, months, …).
• Example:
– If $ 1,000 is borrowed at 15% interest, then interest on the principal of
$1,000 after one year is 0.15 x 1,000, or $150.

– The borrower pays back $1,150 (the total amount owed after one year).

• If the borrower does not pay back the amount owed after one
year, then the interest owed, but not paid, is considered to be
additional principal, and thus the interest is compounded.

• After two years for example, he will owe:

$1,150 + 0.15 1,150 = $1,322.5

8
Equivalency

• The bank dose not care whether the borrower pays back
$1,150 after one year or $1,322.5 after two years.
• That is because the three values ($1,000, $1,150 and
$1,322.5) are equivalent.
– $1,000 today is equivalent to $1,150 one year later.
– $1,000 today is equivalent to $1,322.5 two year later.

• The three values are not equal; they are equivalent for 15%
interest rate and at specified period of time.

– The concept of equivalency involves time and a specified interest rate.

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The Interest

To generalized the concept of interest, the following symbols

are used:

– PV: a single present value of money

– FV: a future value single value of money
– i: interest rate
– t: number of periods (months, years, ..)

10
Future Value
• To calculate the future value (FV) of a single payment
(present value, PV) after (t) periods at an interest rate (i), we
make the following calculation:
• The future single value of a present single value is:

 FV 
FV = PV (1 + i ) FV = PV 
t
or , i, t 
 PV 

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Future Value - Example
• Future Value:
– What is the present value of $1,610 deposited in the bank for 5 years,
assuming an interest rate of 10%.

FV  PV 
PV = or PV = FV  , i, t 
(1 + i )t  FV 

Substituting FV = $1,610, i = 0.10, and t = 5 one finds, as expected, that the

present value is:

FV $1, 610
PV = = = $1, 000
(1 + i ) (1 + 0.1)5
t

12
Future Value - Example
• A revolving line of credit is set up at the bank to handle the
cash-flow during a mining project. The owner of the project
needs to borrow $12,000 to set up the account and he can
obtain the money at 1.45% per month.
• If the owner pays back the loan and accumulated interest after
8 months, how much does he have to pay back in total?

FV = PV (1 + i )t = $12, 000(1 + 0.0145)8

FV = $13, 465
The value of interest = $13, 465 – $12, 000 = $1, 465

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Series of Uniform Payments/Costs
• Present Value - A Series of Uniform Payments:
• Usually, payments occur at regular intervals.
• The end-of-period payments, a uniform amount payments (A) continuing
for a duration of (t) periods.
• If a uniform amount of (A) is invested at the end of each period (t) at an
interest rate (i) per period, then the total equivalent amount (FV) at the end
of period (t) is:
 (1 + i )t − 1   FV 
FV = A   or FV = A  A , i, t 
 i   
 i   A 
A = FV   or A = FV  , i, t 
 (1 + i ) − 1   FV 
t

FV
Knowing that PV =
(1 + i )t
 (1 + i )t − 1   PV 
PV = A  t 
or PV = A  , i, t 
 i (1 + i )   A 

14
Discounted Present Value

• In engineering economic studies, a discounted present value

analysis is made of each alternative under consideration.

• The analysis involves calculating the equivalent present value

of all the dollar amounts involved in the alternative to
determine its present value.

• The present value is discounted at a predetermined interest

rate called the Minimum Attractive Rate of Return
(MARR or i*).

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Discounted Present Value
• MARR is the lowest internal rate of return that is considered
by the company to be a good investment. Or the company is
confident it can achieve at least that rate of return;

• The MARR is usually equal to the current interest rate for

borrowed capital plus an additional rate for such factors as
risk, uncertainty, and contingencies.

MARR = i* = i + irisk

16
Equipment Employment
• There are many different possibilities available to perform
any given task:
– There is no best or standard piece of equipment.
– It is impossible to own all types and sizes of equipment.
• How a machine is employed on the project:
– Purchase:
• Lowest hourly use charge
• Challenge to keep equipment fleet busy
– Lease:
• Higher use charge than owning a piece of equipment
• Lower risk involved than owning
– Rent:
• Highest use charge for relatively short term

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Discounted Present Value - Example
• A mining Company is considering three methods of acquiring a
piece of equipment. The alternatives are:
– Purchase the equipment for $7,200 and sell it after 4 years for an
estimated $1,200.

– Lease the equipment for 4 years for $2,250 per year paid in advance at
the beginning of each year. The contractor pays all operating and
maintenance costs on the equipment and the leasing company retains
ownership.

– Purchase the equipment on special time payments with $750 down now
and $2,700 per year at the end of each year for 3 years. Assume the
equipment will be sold after 4 years for $1,200.

18
Discounted Present Value - Example

– If the company’s MARR is 15%, which alternative should it choose?

– Note: All alternatives should involve equal lives.

– To solve, calculate the net present value (NPV) for each option at
MARR =15% and select the least costly option:

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Discounted Present Value - Example

FV
NPV 1 = − PV +
(1 + i )t
$1, 200
NPV 1 = −$7, 200 + = −$6, 513.9
(1 + 0.15) 4

 (1 + i )t -1 
PV = A  t 
 i (1 + i ) 
 (1 + i )t -1 
NPV 2 = −$2, 250 − A  t 
 i (1 + i ) 
 (1 + 0.15)3 − 1 
NPV 2 = −$2, 250 − $2, 250  3
= −$7,387.26
 0.15(1 + 0.15) 

20
Discounted Present Value - Example
 (1 + i )t -1  FV
PV = A  t 
, PV =
 i (1 + i )  (1 + i )t
 (1 + i )t -1  FV
NPV 3 = −$750 − A  t 
+
 i (1 + i )  (1 + i )
t

 (1 + 0.15)3 − 1  $1, 200

NPV 3 = −$750 − $2, 700  3
+
 0.15(1 + 0.15)  (1 + 0.15) 4
NPV 3 = −$750 − ($2, 700  2.284) + ($1, 200  0.572)
NPV 3 = −$750 − $6,165.55 + $686.10 = −$6, 229.45
==========================
The least cos tly option is 3

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Rate of Return
• The rate of return (ROR) of a proposed investment is that
interest rate which makes the discounted present value of
the investment equals to zero.

• It permits decision makers to have more "perceived"

confidence in their decision!

• To calculate the rate of return, simply set up the equation to

be equal to zero and solve for i.

22
Rate of Return - Example
• A manager of a mining project is considering the purchase of
either a new track-type dozer for $73,570, which has a 6-
year life with an estimated net annual income of $26,000, or
a used track-type dozer for $36,000 with an estimated life of
6 years and no salvage value and an estimated net annual
income of $12,000.

• Which dozer, if any, should be chosen if the manager's

MARR is:
– 10%
– 25%
– 30%

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Rate of Return
• New
NPVnew = Revenue - Cost

 (1 + i )t − 1 
NPVnew = − PV + A  t 
 i (1 + i ) 
 (1 + i )6 − 1 
NPVnew = −$73,570 + $26,000  6 
 i (1 + i ) 
NPVnew = 0
$73,570  (1 + i )6 − 1 
=
$26,000  i (1 + i )6 
(1 + i )6 − 1
2.82962 =
i (1 + i )6
inew = 26.9%

24
Rate of Return
• Used
NPVused = Revenue - Cost
 (1 + i )t − 1 
NPVused = − PV + A  t 
 i (1 + i ) 
 (1 + i )6 − 1 
NPVused = −$36,000 + $12,000  6 
 i (1 + i ) 
NPVused = 0
$36,000  (1 + i )6 − 1 
=
$12,000  i (1 + i )6 
(1 + i )6 − 1
3=
i (1 + i )6
iused = 24.29%

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Binomial Expansions

Approach I: Binominal Expansion Solution

The binomial expansion of (1 + i ) :

t

t t (t − 1) 2 t (t − 1)(t − 2) 3
1+ i+ i + i + ...
1! 2! 3!

26
Rate of Return
Approach II: Iterative Solution

 (1 + i )6 − 1   (1 + i )6 − 1 
NPVnew = −$73,570 + $26,000  6 
NPVused = $12,000  6 
− $34, 000
 i (1 + i )   i (1 + i ) 

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Rate of Return
• If MARR is 10%
– Then, both investments (new %26.9 or used dozers %24.29) are
better than the given MARR; however, we will select the new dozer
as it has the highest ROR.

• If MARR is 25%
– Then, the used dozers with interest rate equals %24.29 is excluded
(less than MARR), we will select the new %26.9 as it has the highest
ROR.

• If MARR is 30%
– Then, both (new %26.9 or used %24.29) dozers are less than MARR
and they are not good investments; we will select the MARR as it has
highest return.
• Some bond or some savings account or anything …

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Information System
• Information System is needed to make a good decision in
selecting the required equipment .
• What is information system?
– Machine identification
– Utilization data
• Utilization is working time duration not calendar duration
• The basis of costing could be hourly, daily, weekly, miles or fuel consumption
– Purchase cost
• Accurate estimation of equipment cost is one of important factors that lead to
successful projects.
– Maintenance cost
– Operating charges (fuel, oil, grease, …)

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Equipment Cost
• The cost of mining equipment includes:
– Ownership cost
• Depreciation
• Insurance
• Taxes
• Salvage value
• Shop expenses
– Operating costs
• Consumables, Fuel, lubricants and filters
• Tires or tracks
• High wear items
• Repairs and Maintenance

Equipment Cost = Ownership Cost + Operating Cost

30
Equipment Cost
• Objectives of Equipment Procurement:
– Minimize ownership and operating costs
– Increase availability and utilization.
• Utilization drives purchase or rent/lease decision.
• Notes:
– Costs associated with major maintenance and modifications are
sometimes considered to be ownership costs; other times they are
considered to be operating costs.
– Ownership and operating costs usually stated in hourly basis ($/hr)
– Mining engineers should have the ability to calculate ownership and
operating costs.

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Equipment Cost
• Depreciation:
– A reduction in the value of an asset over time due to use, wear and
tear.
• Operating:
– How much does it cost to operate a machine on a project?
– What is the optimum economic life of a machine?
– What is the optimum manor to secure a machine?

• Answering these questions is important to machine replacement.

• Identify the optimum point in time to replace a machine and the optimum
way to secure a machine.
• Also, it will help to reduce the operating cost and thereby lower
production expense.

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Ownership Cost - Depreciation
• Two methods can be used to estimate the depreciation
portion of ownership cost:
– Time value of money method
– Average annual investment method

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Ownership Cost - Depreciation
Time value of money method:
– Estimate the purchase price of the equipment;
– Estimate the expected useful life of the equipment;
– Estimate the probable salvage value for the equipment if it is sold at
the end of its useful life;
– Select appropriate internal rate of return (MARR);
– Estimate cost of taxes, insurance and storage;
– Convert cost into equivalent interest rate based on the value of
equipment at any given time;
– Add interest rate;
– Estimate uniform annual cost of ownership using time value of
money method.

Note: deduct tire cost for wheel type machines.

34
Ownership Cost - Example
• A piece of equipment is estimated to cost $67,000 new and to
have a useful life of 7 years with a salvage value of $7,000.
• The company believes that a realistic MARR would be 12%.
Taxes, insurance, and storage should amount to an additional
8%, which results in an overall cost of money of 20%.
• What are the uniform annual equivalents (A) of estimated
ownership costs?

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Ownership Cost

 i (1 + i )t   i 
A = PV   + FV  (1 + i )t − 1 
 (1 + i ) t
− 1   

 0.2(1 + 0.2)7   0.2 

A = −$67,000   + $7,000   = −$18,045 / year
 (1 + 0.2) − 1   (1 + 0.2) − 1 
7 7

A = -18,587.4 + 541.97

36
Ownership Cost - Example
• A company having a cost of capital rate (interest rate) of 8%
purchases a $300,000 dozer with tires. The dozer has a 4-
year expected service life and will be used for 2,500 hour
per year.
• The tires on this machine cost $45,000. The estimated
salvage value at the end of year 4 is $50,000.
• Calculate the depreciation portion of the ownership cost for
this machine using the time value method.

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Ownership Cost - Example
Purchase price (excluding tires) = Initial cost – Tires cost
= $300,000 - $45,000 = $255,000

 i (1 + i )t   0.08(1 + 0.08) 4 
Apurchase = PV   = 255,000   = $76,990 / year
 (1 + i ) − 1   (1 + 0.08) − 1 
t 4

 i   0.08 
Asalvage = FV   = 50,000   = $11,096 / year
 (1 + i ) − 1   (1 + 0.08) − 1 
t 4

$76,990 / yr − $11,096 / yr
Depreciation rate = = $26.354 / hr
2,500hr / yr

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Ownership Cost
The second approach to calculate the depreciation portion of
ownership cost is the Average Annual Investment method (AAI).
PV (t + 1) + S (t − 1)
AAI =
2t
Where:
PV: purchase price (minus the cost of tires).
S: the estimated salvage value.
t: expected service life in years.

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Ownership Cost
• Notes on average annual investment
(AAI):
– The AAI is multiplied by the cost of
capital rate (depreciation rate) to
determine the ownership cost of money
portion.

– The depreciation portion of ownership

cost equals the straight-line depreciation
of the cost of the machine minus the
salvage value minus the cost of tires (if it
is wheeled machine) then added to the
cost of money part. PV (t + 1) + S (t − 1)
AAI =
2t

40
Ownership Cost - Example
• A company having a cost of capital rate (interest rate) of 8%
purchases a $300,000 dozer with tires. The dozer has a 4-
year expected service life and will be used for 2,500 hr per
year.
• The tires on this machine cost $45,000. The estimated
salvage value at the end of year 4 is $50,000.
• Calculate the depreciation portion of the ownership cost for
this machine using the Average Annual Investment method.

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Ownership Cost - Example

PV (t + 1) + S (t − 1) 255,000(4 + 1) + 50,000(4 − 1)
AAI = = = $178,125 / year
2t 2 4

178,125 / yr (0.08)
Intrest cos t part = = $5.70 / hr
2,500hr / yr
Total depreciation = Initial cost – (Tires cost + Salvage value )
= $300, 000 – ( 45,000 + 50,000 ) = $205,000
$205,000
Straight − line depreciation rate = = $20.50 / hr
4 yr (2,500hr / yr )
Depreciation = Intrest cos t part + Straight line depreciation rate
Depreciation = 5.70 + 20.50 = $26.2 / hr

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Ownership Cost
• Comparison between the two methods
– Depreciation using Time Value = $26.354/hr
– Depreciation using Average Annual Investment = $26.20/hr

– Difference between the methods = $0.154/hr

– The mining company decides which method to use;
– Either method is satisfactory, especially considering the effect of
unknowns such as service life, operating hours per year, estimating
future salvage.

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Operating Cost
• Operating costs are those costs associated with the
operation of a piece of equipment.
• Operating costs usually occur when the equipment is being
used.

44
Operating Cost
• Operating Cost:
– Consumables:
• Fuel, lubricants (oil and grease) and filters
• Based on type of equipment, size of engine, work condition and location
– Tires or tracks:
• Tire expenses include both tire repair and tire replacement
• Tire hourly cost can be derived simply by dividing the cost of a set of tires
by their expected life.
– High wear items:
• Cutting edges, bucket teeth, truck body liners, ripper tips, …
– Repairs and maintenance.
– Operator wages
• Sometimes included under operating cost. However, because of wage
variance between jobs, the general practice is to keep operator wages as
a separate cost category.

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Operating Cost
• Fuel consumption is a function of:
– Type of equipment.
– Conditions under which the equipment is used.
– Location where the equipment is used.
• Fuel consumption cost calculations:
– Using Tables:
• Fuel consumption cost = consumption rate(from tables) × the unit price of fuel
– Using Formulas:
• Fuel consumption formulas have been published for both gasoline and
diesel engines.
• Values from these formulas must be adjusted by:
– Time Factor: Percentage of an hour that the machine is actually working (e.g,
50/60, 40/60).
– Load Factor: Percentage of rated horsepower.

46
Operating Cost
Table 1: Average fuel consumption – Wheel Loaders

Table 2: Fuel consumption under standard conditions

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Operating Cost - Example
• A 220-fwhp wheel-loader will be used to move material from
stockpile to the hopper. This loader is diesel powered. It is
estimated that the work will be steady at an efficiency equal
to a 50-min hour. The engine will work at full throttle during
the loading bucket (represents 30% of the time) and at three-
quarter throttle to travel and dump.

• Calculate the fuel consumption using the engine consumption

averages and compare the result to a medium rating in Table
1. If diesel costs $1.07 gal, what is the expected fuel
expense?

48
Operating Cost - Example
Fuel consumption diesel engine 0.04 gal / fwhp-hr.
Loader Factor:

Loading bucket : 1.00  30% = 0.30 ( full throttle)

Travel and dump : 0.70  75% = 0.53 (three − quarter throttle)
LoaderFactor = 0.30 + 0.53 = 0.83
Time Factor (50 − min hr ) = 50 / 60 = 0.83
Combined Factor = 0.83 * 0.83 = 0.69
 0.04 gal 
Fuel consumption = 0.69   ( 220 fwhp ) = 6.1gal / hr
 fwhp − hr 
Table1 medium rating 220 fwhp loader = 6.8 gal / hr

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Operating Cost - Example
• There is considerable difference in the calculated results
and those found in Table 1.
• It is recommended that each company should establish its
historical data.

Cost:

Using the formula 6.1 gal / hr  $1.07 / gal = $6.53 / hr

Table 1 6.8 gal / hr  $1.07 / gal = $7.28 / hr

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Operating Cost
• Lubricants
– The quantity of lubricants used by an engine will vary based on:
• The size of the engine;
• The capacity of the crankcase;
• The condition of the piston rings;
• The number of hours between lubricant changes (usually 100-200 hrs).
– For extremely dusty operations it may be desirable to change lubricants
every 50 hours, but this is an unusual condition.
– There is a specific formula used to calculate the oil required for each
machine.

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Operating Cost
• Tires
– Tire expenses include both tire repair and replacement;
– Tire repair is commonly handled as a percentage of straight-line tire
depreciation;
– Tire hourly cost can be derived by:
• Not considering the time value of money
– Dividing the cost of a set of tires by their expected life.
• Considering the time value of money
– Tire replacement expenses are single-point-in time outlays that take place
over the life of a wheel-type machine.

52
Operating Cost - Example
• Tires cost $38,580 per a set of four. Tire repair cost is
estimated to average 16% of the straight-line tire depreciation.
• The machine has a service life of 4 years and operates 2,500
hr/yr. The company’s cost of capital rate (interest rate) is 8%.

• Calculate the hourly tire cost that should be part of machine

operating cost if a set of tires can be expected to last 5,000 hr
using the two different approaches and compare results.

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Operating Cost - Example
Approach I: Not considering the time value of money:

Tire cos t per a set

Straight - line tire depreciation cos t (Tire use cos t ) =
Expected life
$38,580
= = $7.716 / hr
5, 000hr
$38,580
Tire repair cos t = (0.16) = $1.235 / hr
5, 000hr
The operating cos t = Tire repair cos t + Tire use cos t
The operating cos t = $1.235 / hr + $7.716 / hr = $8.95 / hr

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Operating Cost – Example
• Approach II: Considering the time value of money:
– Assume that tires have same price after 2 years

Machine service life = 4 yr = 4 yr  2,500hr / yr = 10, 000hr

Tire life = 5, 000hr
A second set of tires will be purchased at the end of :10, 000hr / 5, 000hr = 2 years
$38,580
The repair cost is the same = (0.16) = $1.235 / hr
5, 000hr
 i (1 + i )t   0.08(1 + 0.08) 4 
A1st Set = PV   = 38,580   = $11, 648 / yr
 (1 + i ) − 1   (1 + 0.08) − 1 
t 4

$11, 648
First year cost / hr = = $4.659 / hr
2,500

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Operating Cost – Example

 i (1 + i )t  FV
A2nd Set = PV   & PV =
 (1 + i ) − 1  (1 + i )t
t

 i (1 + i )t  $38,580  0.08(1 + 0.08) 4 

FV
A2nd Set =  (1 + i )t − 1  = (1 + 0.08) 2  (1 + 0.08) 4 − 1  = $9,986 / yr
(1 + i )t
   
$9,986
Second year cost / hr = = $3.995 / hr
2,500hr
Therefore, considering the time value of money, tire operation cost is calculated as follows:
The operating cost = Repair + First Set +Second Set
The operating cost = $1.235 / hr + $4.659 / hr + $3.995 / hr = $9.89 / hr
Comparison
Stright − line value = $7.72 / hr
Time − value = $9.89 / hr

56
Equipment Cost

The money a company spends for equipment

is an investment, which must be recovered as
the machine is utilized on projects.

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Practical Exercise
• This exercise illustrates how to calculate the a machine cost
using the methods and approaches discussed in this lecture.

• Determine the probable cost per hour of owning and

operating a scraper given the following conditions:
– Engine 350HP diesel
– Overall cost of money (Interest rate) 10%
– Useful life 5 years
– Hours used per year 2,000
– Initial cost $470,000
– Cost of tires $30,000
– Estimated salvage value $60,000

58
Practical Exercise - Time Value Method
• Depreciation portion ownership cost
– Deduct tire cost from the ownership price for large machines.
• Tires are considered a wear item and are treated as an operating cost.

Purchase price = Initial cost – Cost of tire

= $470,000 − $30,000 = $440,000
– Need to calculate the uniform series required to replace a present value of $440,000
– Uniform series capital recovery factor ( A )
 i (1 + i )t   0.1(1 + 0.1)5 
Apurchase = PV   = $440,000   = $116, 071 / yr
 (1 + i ) − 1   (1 + 0.1) − 1 
t 5

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Practical Exercise - Time Value Method

– Estimated salvage value $60,000

– Need to calculate the uniform series required to replace an end-of-
period value of $60,000
– Uniform series salvage value

 i   0.1 
Asalvage = FV   = $60,000  (1 + 0.1)5 − 1  = $9,828 / yr
 (1 + i ) t
− 1   

$116,071 − $9,828
Depreciation rate = $53.12 / hr
2,000hr / yr

Practical Exercise - Average Annual Investment60

PV (t + 1) + S (t − 1) $440,000(5 + 1) + $60,000(5 − 1)
AAI = = = $288,000 / yr
2t 25
– Investment Cost (overall cost of money) 10%
$288,000 / yr  10%
Intrest cos t part = = $14.40 / hr
2, 000hr / yr
Total depreciation= Initial cost – (Cost of tire+Salvage value)
Total Depreciation = $470,000 − ($30,000 + $60,000) = $380,000
$380,000
Straight − line Depreciation rate = = $38.00 / hr
5 yr  2,000hr / yr
Depreciation rate = 14.4 + 38.0 = $52.40 / hr

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Practical Exercise
• Comparison
– Time Value Method $53.12/hr
– Average Annual Investment Method $52.40/hr
– Difference between the methods $0.72/hr

62
Practical Exercise
• Operating Cost
– Annual cost of repairs equals 70% of straight-line depreciation
– Operating factor, 0.5
– Cost of fuel $1.02 / gal.
– Oil and grease cost $0.98/hr
– Repairs to tires 14% of tire depreciation
– Tire depreciation = $9.93/hr

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Practical Exercise

Operating Cost – Annual cost of repairs

– Straight-line depreciation = $38.00 ( previous calculations )
Annual cost of repairs = $38.00 X 70% = $26.60 / hr
Operating Cost – Fuel
Fuel consumption = 0.04  350hp  0.5 = 7 gal / hr
Fuel consumption cos t = 7 gal  $1.02 / gal = $7.14 / hr
Operating Cost – Oil and grease
Oil and grease cost = $0.98 / hr
Operating Cost – Tires
Tire repair = 14%  $9.93 / hr = $1.39 / hr

64
Practical Exercise

Total Operating Cost

Annual cos t of repairs = $26.60 / hr
Fuel cos t = $7.14 / hr
Oil and grease = $0.98 / hr
Tire repairs and replacement = $1.39 / hr
Tire depreciation = $9.93 / hr
Total Operating Cos t = $46.04 / hr

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Practical Exercise

Scraper cost
Total scraper cost = Ownership cost + Operating cost
Total scraper cost = $53.12 / hr + $46.04 / hr = $99.16 / hr
or
Total scraper cost = $52.4 / hr + $46.04 / hr = $98.44 / hr

– The mining company decides which method to use;

– Either method is satisfactory, especially considering the effect of
unknowns such as service life, operating hours per year, estimating
future salvage.
– There is no single solution to calculate ownership cost.

66
Summary & Presentation

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Summary & Presentation

68
Summary & Presentation

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Summary & Presentation

• 12 groups will present on march 28th

• 12 groups will present on April 4th

70
Don’t Forget!

• Assignment will be uploaded tomorrow on D2L

• Check your LU email and D2L regularly.
• Review additional resources available on D2L
• Final Exam April 13 @ 9:00 AM B-GYM
• The course evaluations link on your D2L to be completed
some time between March 22nd to March 28th.

Ahlam Maremi