The Anatomy of a Mine - Mining and the Environment: From Ore to Metal - page 193

time) the money invested in the mine. It is the job of mining engineers to estimate the
'payback period' as well as the Net Present Value of a mining project. While i nancial
benei ts are of prime concern, non-i nancial benei ts i nd equal consideration in decision-
making. Costs represent all of the negative factors, primarily investment and operational
costs, but also political, environmental, and social costs. At the pre-feasibility stage, costs
are often based on comparative costs of similar operations, and on rules of thumb. Cost
estimates are unlikely to be more than 30 to 40 percent accurate, and of course this accu-
racy is insufi cient to secure project i nancing and commence mine development. The cost/
benei t analysis in a feasibility study is more detailed, reducing the margin of error in cost
estimates to less than 15 percent. The most important factor affecting costs is the size of
the mine in terms of ore mined and milled per day of operation. The mine size in turn
depends on the geological resource estimates. Consequently, the cost estimates for mine
development are sensitive to the accuracy of the resource estimates.
Each cost/benei t analysis, even when based on sophisticated i nancial models, includes
uncertainties. Assumptions must be made, but the cost/benei t analysis can only provide
indicative answers, together with an estimated degree of uncertainty. Mining ventures
may be the subject of distorted cost/benei t analyses from both their proponents and oppo-
nents. A mining proponent may downplay the external environmental costs of the mine
development to encourage better i nancing arrangements. Opponents on the other hand
may exaggerate the magnitude of the social costs in attempts to kill a mine proposal before
it gets off the ground. Regrettably, both kind of distortions do occur.

Cost estimates for mine
development are sensitive to the
accuracy of resource estimates.

Opponents on the other hand
may exaggerate the magnitude of
the social costs in attempts to kill
a mine proposal before it gets off
the ground.

Project Risks
The most serious risks in any mining project are those associated with geology (the actual
size and grade of the mineable portion of the ore body), metallurgy (how much of the metal
can be recovered), and economics (metal markets, interest rates, transportation costs). But
there are many others, such as problems arising from unforeseen political developments,
new restrictive mining regulations or the scarcity of skilled labour, to name a few.
Geological risks always remain. No matter how sophisticated the exploration programme
and subsequent resource modelling, geological risks in terms of uncertainty of the actual
ore body remain. The only way to be certain of the extent and enrichment of an ore body
is by mining the deposit. Other geological risks include the presence of highly permeable
groundwater aquifers, or challenging geotechnical conditions.
Technological risks are in the i rst instance related to estimated recoveries of metal con-
tained in the processed ore. Actual crushing and grinding characteristics, liberation size,
metallurgical recovery, or variability of ore grade may fail to meet expectations. Some por-
tions of the ore body may contain deleterious elements such as arsenic or mercury that make
the concentrate unacceptable to smelters or other downstream processing. There are risks in
other areas as well. For example the tailings disposal pipeline of Bougainville, even though it
was never used, was the i rst slurry pipeline of such length at the time of mine development,
and hence no comparable industry experience could give certainty on its performance.
Political risks are real, particularly as more mines are located in less developed countries
with unstable political regimes or less developed legal investment frameworks. Mining his-
tory is full of examples where political factors have determined the fate of a mine develop-
ment, either for better or worse. The issuance of the Indigeneous Peoples Rights Act in the
Philippines in 1997 almost brought mining activities to an end. A similar effect was felt by
the Indonesian mining industry with the proclamation of Forestry Law 20 of 1999, which
prohibited mining in protected forest areas. Both laws were based on good intentions, but
were detrimental to mining interests in implementation. In many parts of Africa, politi-
cal instability, tribal conl icts, legal uncertainties, and lawlessness have combined to ensure

Mining history is full of examples
where political factors have
determined the fate of a mine
development, either for better
or worse.