The question involves the examination of a possible change in operating conditions that does not involve a change in capital outlay. Hint first determine is this an annual cost only or does the present value need to be accounted for.
A concentrator with a nominal $12,000 tonne per day capacity operated 360 days a year. The grinding circuit consists of three parallel circuits. Each circuit needs o be shut down for relining at 4 month's intervals. The current method of relining takes five days to complete and cost $30,000 in consumable supplies. A proposed alternative method is under investigation and would involve a 2 day shut down and cost $190,000 in consumable supplies.
Should the alternative method be used if the following conditions apply:
1. Milling reserve, a minimum of 9 years supply at a head grade of 1.2%
2. Performance of the concentrator at 1.2% head grade is 92%, with the concentrate grading at 28% of the mineral (on a dry basis) and 10% moisture
3. The selling price is not likely to go below $1.5 per kg
4. The operating costs below are applicable
General overheads fixed $12,000 per day
Mining fixed costs $40,000 per day
Mining variable costs $2.00 per tonne milled
Milling Fixed costs $24,000 per day
Milling variable costs (grinding media and power) $1.00 per tonne milled
It is a cost & profitability driven decision making problem on ore processing.