Total Profits vs. Present Value in Mining

RECOVERY and profits in the mining business do not go hand in hand. Some part of an orebody can usually be recovered at a lower cost per ton than the whole orebody or a higher proportion of it. Similarly, the total of the profits that may be made from mining an orebody is in itself not a true measure of the value of the business. The yardstick for money value should be present worth, and this is particularly so for purposes of com-parison. A simple example, well within the bounds of practicability, illustrates these points: Assume a mine to have known ore reserves of 4,000,000 tons. The ore is of uniform grade but is so situated that 1,000,000 tons could be mined more cheaply than the remainder. Present operations are on the basis of complete recovery of the ores. Output is 100,000 tons per year at a profit of $1 per ton. It is estimated that the 1,000,000 tons of readily accessible ore could be mined at the same production rate but at a profit of $2 per ton. For an output of 100,000 tons each year at a profit of $1.00 per ton, the mine will have a life of 40 years; will produce $4,000,000 of total profit, and, at Hoskold rates of 8 and 4 per cent, will have a present value of $1,104,690. If only the easy one-quarter of the ore is considered, with an output of 100,000 tons each year, at a profit of $2.00 per ton, that part of the mine will have a life of 10 years, will produce total profits of $2,000,000, and at rates of 8 and 4 per cent will have a present value of $1,224,800. . Under conditions such as these, then, one-quarter of the reserve ore promptly mined is worth some 10 per cent more than the entire reserve would be on an average basis extending over the longer period. Assume further that one-half, or 2,000,000 tons, of the reserves could be promptly mined at the same yearly rate of 100,000 tons at a profit of $1.50 per ton. Then this part of the mine would have a life of 20 years, would produce total profits of $3,000,000, and would have a present value of $1,320,630; approximately 20 per cent greater than for the whole ore-body on an average basis for the longer period.