economics of mining

When you hear “mining economics,” the first thing that comes to mind is tons of ore, cost charts, and macroeconomic reports. But in reality, this is primarily about the people at the machine, about the wear and tear of the conveyor belt at three in the morning, and about how the price of electricity in the region can “eat up” the entire profitability of planned production. Many managers, especially from financial departments, still believe that the main thing is to optimize the numbers in the tables. And then they wonder why, with an ideal plan, the quarry is stopped due to the breakdown of the only excavator, spare parts for which have been waiting for the third week. It is at these junctions - between the planned economy and the harsh reality of the open pit or mine - that the real economics of mining lives.

Cost: where the real losses are hidden

In theory, everything is simple: the cost of a ton of coal or iron ore concentrate is the sum of all costs. In practice, the main losses are often not in the production itself, but in logistics, storage and “trifles”. I remember an audit was conducted at one of the open-pit mines in Kuzbass. According to the papers, everything is normal. But in fact - constant downtime of heavy trucks due to poor loading organization, excessive fuel consumption of auxiliary equipment, which was attributed to “difficult conditions”. When they began to analyze every hour of downtime, it turned out that the lion's share of the costs was not the price of explosives or wages, but the inefficient use of the fleet. The economics of the mining industry begins with accounting for every pump, every hour of operation of the drilling rig.

Here, by the way, equipment reliability plays a huge role. You can buy the cheapest separator or crusher, but if it breaks down once a month, all the money saved will be spent on repairs and downtime of the entire process chain. Therefore, many economically savvy directors prefer to work with trusted manufacturers who provide not just hardware, but a comprehensive solution with service. For example, the LONJI corporation (https://www.ljmagnet.ru). They have been in the industry since 1993, and their approach is precisely about economics through reliability. It’s not just to sell a magnetic separator, but to ensure that it operates for years without failure in the conditions of Siberia or the Urals, saving on repairs and concentrate losses.

Their Fushun plant is more than just a production facility. This is, in fact, an engineering hub, where more than 60% of the employees are engineers and technologists. When such an enterprise develops equipment, it includes not only technical parameters, but also economic ones: maintainability, energy efficiency, unification of components. For a mine economist, this means predictable costs. You know exactly how much maintenance will cost, what spare parts need to be kept in stock. And this is the basis for accurate calculation.

Investment in equipment: a double-edged sword

The topic of investment is an eternal headache. Management demands that costs be reduced, but at the same time the fleet needs to be updated. Old equipment ?eats? a lot of energy and often breaks, but it is already cushioned. New things require huge one-time investments. Where is the balance? Experience shows that spot modernization is often more profitable than completely replacing a line. Sometimes it is enough to replace one key component - for example, install a more modern and powerful magnetic separator at a factory - to increase the recovery of a useful component by 10-15%. And this percentage increase gives an economic effect that pays for the modernization in a year or two.

We once tried to save money at one enrichment plant by using “analogs”? on important components for imported equipment. It seems that according to the passport the characteristics matched. But in real conditions, with constant vibration and dust, these analogues did not last even three months. Downtime of the factory, disruption of the concentrate production plan - the losses exceeded the imaginary savings many times over. After this, we developed a rule: at critical processing stages - only equipment from reputable manufacturers who understand the specifics of mining production. The same LONGI, which produces up to 4,000 units of equipment per year, is just one of these. Their products are initially designed for harsh conditions, which means their economic life cycle is longer.

Another nuance is staff training. You can install the most modern flotation machine or control system, but if the mechanics and operators are not trained to work with it, the economic miracle will not happen. Part of the investment should always go to people. Otherwise, the new equipment will work at half capacity or, worse, will quickly fail due to operational errors.

Logistics and warehousing: the invisible budget eater

This is rarely discussed in textbooks on the economics of the mining industry, but at some enterprises up to 30% of costs are logistics within the industrial site itself and delivery to the consumer. Non-optimal dump truck routes, improperly organized warehouses for intermediate products, idle time of wagons during loading. Seems like a small thing? Multiply by thousands of tons per day.

I had experience at a large iron ore deposit. The crushing and screening plant worked perfectly, but the concentrate storage facility was poorly designed. Loading into wagons took twice as long as planned. We brought in logisticians, restructured the shipping scheme - and freed up an entire fleet of wagons and reduced downtime. The economic effect was comparable to installing an additional crusher. Therefore, now, when assessing the economics of the project, we are sure to look not only at the quarry and the factory, but also at the entire chain “from mine to wagon”.

This also includes inventory management. Spare parts or materials frozen in the form of huge stocks in a warehouse are also losses. The modern approach is to work with reliable suppliers who can provide prompt deliveries. The presence of a reliable partner, the same LONGI, with its large production facilities and proven logistics, allows you to reduce safety stocks in the warehouse without fear of stopping production. Money not invested in a stale warehouse reserve can be used for something more useful.

Human factor and motivation

The economy is often reduced to cars and tons, but people are forgotten. But it depends on the shift foreman, on the BelAZ driver, on the enricher whether the plan will be fulfilled and whether the standards for material consumption will be met. The most advanced accounting system is dead without proper staff motivation. We implemented a system where part of the workshop bonus depended on the specific consumption of electricity or flotation reagents. And do you know what happened? The workers themselves began to look for where they could save money: turn off non-working lighting, and dose reagents more accurately. The effect was noticeable.

But here it is important not to go too far. If the motivation is based only on saving at any cost, this will compromise quality or safety. Therefore, the system must be balanced. Savings - yes, but not at the expense of scheduled repairs or labor safety requirements. Otherwise ?saved? Replacing the filter in a timely manner will result in an accident and millions in losses.

Personnel training is also part of the economy. A company that invests in training its engineers and technicians ultimately ends up with specialists who are able to make smarter, and therefore more cost-effective, decisions on the spot. This is not a short-term benefit, but a long-term investment in business sustainability.

Ecology and ESG: from costs to investments

Previously, ecology was considered exclusively as an expense item: wastewater treatment plants, reclamation - all this was expensive. Now the approach is changing. Modern mining economics cannot ignore the ESG agenda. And here lies not only a risk (fines, license suspension), but also an opportunity.

For example, the use of more efficient and selective enrichment equipment allows not only to increase recovery, but also to reduce the volume of waste tailings, and therefore the load on tailings storage facilities. This is a direct saving on their maintenance and subsequent reclamation. Equipment that is less noisy or dusty means the ability to work closer to populated areas without conflict, which simplifies logistics and reduces social risks.

Major equipment manufacturers understand this. Developments aimed at reducing energy consumption, water consumption, and increasing the degree of extraction are no longer just “technical improvements”, but a direct contribution to the economic and environmental efficiency of the entire enterprise. Choosing such a technology partnership becomes a strategic decision.

As a result, the economics of the mining industry is a living organism. This is not a summary of numbers once a quarter, but a daily work to find a balance between plan and reality, between investment and operation, between technology and the human factor. And the most important resource here is not in the depths, but in the heads of those who make decisions every day at the quarry or in the machine room of the processing plant.