Break Even Analysis of Mining Projects

Abstract

The economics of the resources industry are unique. All mining is subject to uncertainties not applicable to other industries. Every mine is different. Industry economics are difficult to quantify and categorize. Information is very costly.
In major mining countries, there is now a real dichotomy. The products of the minerals industry are essential primary ingredients in almost everything used in an advanced society, yet their availability is often taken for granted. In the developed world, the value of mining is increasingly being called into question. The difficulty in making profits is compounded by political uncertainties and environmental restrictions on top of the uncertainties created by nature.
Costing and evaluation of any mining development are necessarily based on a specific plan, which has to be prepared assuming certain ore body characteristics. However ore bodies are seldom clearly defined, and the effort to find and delineate them is itself an economically significant task. The economics of mining will determine what parts are or are not included in the definition of ore. When mine economics change, the amount of material in the ground does not change, but the amount of economically viable ore does change. The amount of economically viable ore is also dependent on the assumptions used for its calculation and can change with a change in assumptions.
The break-even point for a product is the point where total revenue received equals the total costs associated with the sale of the product. It has certain assumptions such as, selling prices will remain constant at all sales level, there is a linear relationship between sales volume and costs and production and sales quantities are equal. At the same time it suffers from certain limitations as break-even analysis is only a supply side (i.e. costs only) analysis, as it tells you nothing about what sales are actually likely to be for the product at these various prices.