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General Review

The Mining industry is involved in the extraction of precious minerals and other geological materials. Extracted materials are transformed into a mineralized form that serves an economic benefit to the prospector or miner. The typical activities in the Mining industry include metals production, metals investing, and metals trading.

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The Mining industry is one of the most prominent earning sources of many different countries since the growth of the Mining industries often regulates the resource acquisition potential and local economic growth.

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Ores recovered by mining include metals, coal, oil shale, gemstones, limestone, chalk, dimension stone, rock salt, potash, gravel, and clay

The metal industry is the leading and most familiar in the Mining industry around the world:  Gold (Au), Copper (Cu), Silver, (Ag), Iron (Fe), Aluminum (Al), Uranium (U), Platinum (Pt), Zinc (Zn), etc.
Common Mining Methods: Surface Mining (Strip Mining, Open Pit Mining, Mountaintop Removal), Underground Mining (Room & Pillar Mining, Block Caving Mining, Longwall Mining), Pacer Mining, In-Situ Mining.

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Two types of Mining Industry Assets :

1. Projects

Projects in the mining industry can be broken down into the exploration and feasibility stage, and the planning and construction phase.

  • Exploration and Feasibility: The purpose of exploration is to find ores that are economically viable to mine: locating mineral anomalies -> discovering & sampling (confirm/deny) -> drilling programs& resource definition.

  • Planning and Construction: Once a potential mine is proven to be viable, the planning and construction phase begins with applying for and obtaining permits, continuing economic studies, refining mine plans, and Infrastructure development.

2. Operating Mines

  • Once the operation is ready to begin, the asset officially becomes an operating mine.

  • The ore is extracted, processed, and refined to produce metal.

  • This section forms the bulk of the focus of the financial model for an operating mine.

  • ​Once all the ore has been extracted, the mine decommissioning process begins (may take several years).

Key Terms & Key Financial Concepts in the Mining Industry :

Key Terms:

  • Ore: Rock containing metal that is economic to mine (measured in m/tons).

  • Grade: The amount of metal contained per unit of ore (grams/ton or %).

  • Recovery: The percentage of metal that is recoverable from ore after the extraction process (%).

  • Production: The amount of metal produced (oz/year).

  • Payability: Based on smelter terms, refers to the amount of money that is paid or the percentage of the metal that is paid full price for.

  • Cash costs: Mine site operating costs include Mining, milling, labor, energy, and consumables (measured in cost per ton of material).

  • ​All-in sustaining costs: Mine site costs + corporate G&A + sustaining capital to maintain the mine + capitalized exploration to continue to explore for reserves and resources (exclude interest or taxes).

Key Financial Concepts:

  • Revenue: Ore (tons) x Grade (g/t) x Recovery x Payability x Metal Price.

  • Royalties: Properties often have royalties on them (2% Net Smelter Return).

  • Operating costs: Per ton basis (e.g., $x/ton for Mining)

  • Capital costs: Includes initial capital (construction of mine) and sustaining capital (ongoing equipment, etc.).

  • Reclamation costs: Takes place at the end of a mine’s life; accrued for accounting purposes but not accrued in a cash flow model

  • Depreciation: A percentage of production based over the entire life of the mine.

  • ​Taxes: This can often be complicated with Mining companies operating in several countries; Mining specific taxes and royalty agreements need to be considered.

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