In the mining sector, there is a need for proper planning to ensure continuity and efficiency in the business processes that require proper capital management. Some of the essential elements in this field are LOM and sustaining capital expenditure. LOM is the period when mining will be able to economically process ore reserves. On the contrary, sustaining capital expenditure refers to the continuous flow of money invested in the maintenance of existing production capability and machine reliability within the LOM period as opposed to growing the mine (Suárez Nieto et al., 2024).
Reliability of mining equipment can only be achieved through maintaining the intended production capacity of the mine. The drilling machines, loading machines, and mining trucks used in mining work in conditions where abrasion and degradation processes are very fast. With degradation comes increased cost of operation and reduced production capacity of the equipment. This would make the mining company lose money on operations. This makes the need for linking maintenance activities with facility management and life cycle costing to be crucial in order to maintain the reliability of the equipment (Cigolini et al., 2008).
The calculation of sustaining capital expenditure is through life cycle costing technique. The process is aimed at analyzing all the costs involved in purchasing and operating mining equipment, taking into account the first cost, finance costs, operation, and maintenance cost as well as final resale or salvage value (Al-Chalabi et al., 2014). To ensure that there is no undercapitalization of resources, most managers adopt depreciation-replacement mathematical models. Economic life of productive equipment is analyzed and the point at which increasing maintenance cost becomes higher than the cost of replacement equipment is determined (Sahu et al., 2016).
Once estimates have been made, careful planning as to when these costs will occur within the life of mine is essential. There needs to be a determination as to when the best time is not only physically but also economically and from a cash flow perspective. For example, models have been built based on information and optimization that will help determine precisely which month an individual piece of mining equipment becomes optimal for replacement because the money should be spent at the time when the asset no longer has an economic advantage (Al-Chalabi et al., 2014).
Even with precise forecasting, there are a number of economic risks associated with forecasting and scheduling of sustaining capital. Mining projects have a reputation of having cost overruns that could be very harmful to cash flow and profitability (Suárez Nieto et al., 2024). There are a number of factors that make predicting of sustaining capital difficult like the changes in price of spare parts, labor and even technology obsolescence where new technology makes other technologies unviable economically (Sahu et al., 2016).
To sum up, the effective estimation and scheduling of capital expenses is a crucial and ongoing task that greatly influences the long-term success of a mining operation. By consistently applying life cycle cost analyses and models for depreciation and replacement, mining operators can accurately determine the most cost-effective lifespan for their essential equipment. This approach helps ensure that their gear remains reliable and production levels stay steady, even in tough conditions and economic uncertainties. In the end, strong capital planning turns a static Life of Mine (LOM) plan into a flexible and resilient strategy, ensuring ongoing profitability from the first ton of ore extracted to the time the mine closes.
References
Al-Chalabi, H., Lundberg, J., Ahmadi, A., & Jonsson, A. (2014). Case Study: Model for Economic Lifetime of Drilling Machines in the Swedish Mining Industry. The Engineering Economist, 60, 138–154. https://doi.org/10.1080/0013791x.2014.952466
Cigolini, R., Fedele, L., Garetti, M., & Macchi, M. (2008). Recent advances in maintenance and facility management. Production Planning & Control, 19, 279–286. https://doi.org/10.1080/09537280802034034
Sahu, A. K., Narang, H. K., Sahu, A. K., & Sahu, N. K. (2016). Machine economic life estimation based on depreciation-replacement model. Cogent Engineering, 3, 1249225. https://doi.org/10.1080/23311916.2016.1249225
Suárez Nieto, L., Fidalgo Valverde, G., Krzemień, A., Riesgo Fernández, P., & Iglesias Rodríguez, F. J. (2024). Economic risks in mining investments: A prospective analysis of capital cost estimation in copper mining projects. Resources Policy, 99, 105427. https://doi.org/10.1016/j.resourpol.2024.105427
