paifa assignment

8/12/2019 Paifa Assignment

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Project and

Innovation Finance &Accounting

Assignment 3

A1202465

Date Due: 15/10/2010


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Branden 0xford A1202465


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Introduction

Surface Course Gravel for Haul Road MaintenanceTruck haulage costs can account for 10%-15% of the total costs incurred by an open

cut mining operation. Therefore there is a need for improved design technologies

encompassing the management techniques of mining haul roads appropriate for the

wheel loads of the vehicles currently in use on site. The maintenance of these haul

roads is a must to keep operations continuing economically and safely, so the best

means of obtaining the gravel for haul road maintenance needs to be evaluated.

The uppermost layer of the haul road that comes directly in contact with tires is

known as the surface course. A haul road surface is generally constructed with fine

gravel with closely controlled grading to avoid dust problems while maintaining

proper binding characteristic of the material. Apart from providing a smooth ridingsurface, it also distributes the load over a larger area thus reducing stresses

experienced by the base course. When a selected waste rock layer is located under

the wearing course, road performance is significantly improved, primarily due to the

load carrying capacity of the waste rock layer which reduces the susceptibility of the

soft sub-grade and in-situ to the effects of high axle loads. It also has the added

advantage of reduced construction costs (by virtue of reduced volumetric and

compaction requirements), compared with the CBR cover-curve design approach. As

with structural designs, if local mine material can be used for construction, the costs

are all the more favourable.

The advantages haul road maintenance includes:

smooth haul roads

safer haul roads

less tyre wear

less water required on the haul road

more traction

less dust

more access time to the haul road after heavy rains and flooding less wear and tear to suspension systems on trucks and light vehicles

haul roads can be reshaped to maintain a cross-fall for water run off

less fatigue for truck drivers

no dips, no bumps, therefore - no spillage

Project ObjectiveEvaluate three types of gravel crushing/screening facilities to be located on site to

provide gravel from blast waste rock. This gravel will be sold to recoup the projects

capital outlay and also be used on Bramoni EDIS own haul roads which willeliminate current supply issues being experienced from third party contractors.


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Evaluation of Crushing/Screening Plants

Smith Permanent In-line Gravel Crusher/ProcessorAn old erection site which has easy access to power and water has be chosen next

to the eastern blue pit dam for this module to be built. The complete crushingprocess plant consists of the vibrating feeder, jaw crusher (coarse crushing), Impact

Crusher (secondary crushing), vibrating screen, belt conveyor etc. The Smith

production line is highly automated, large capacity, and high-yielding. The final size

has even particle size and grain shape that will meet the requirement of all mine

sites.

Base data for Discounted Cash Flow (DCF) Calculation

Item ValueInitial capital cost $2,200,000

Life of project 5 yearsSalvage value at end of life $300,808Production per year See table 1

Selling price $55/tonAnnual operating expenses See table 2

Depreciation rate for tax purposes 27.5%Tax rate 35%Discount rate 15%

Table1: Discounted Cash Flow

0 1 2 3 4 5

Production,ton 30,000 50,000 50,000 50,000 45,000

Operating revenue at $55/ton 1,650,000 2,750,000 2,750,000 2,750,000 2,475,000

Operating expenses 742,500 1,320,000 1,430,000 1,595,000 1,930,500

Operating profit 907,500 1,430,000 1,320,000 1,155,000 544,500

Capital Expenditure 2,200,000

Tax depreciation- 27.5% of the

start-of-year value of capital 453,750 328,969 238,502 172,914 125,363

End of year written-down valuefor tax purposes 1,196,250 867,281 628,779 455,865 330,502

Salvage value 300,808

Taxable profit 453,750 1,101,031 1,081,498 982,086 419,137

Income tax payable at 35% tax

rate 158,813 385,361 378,524 343,730 146,698

After tax profit 294,938 715,670 702,973 638,356 272,439

Net cash flow -2,200,000 748,688 1,044,639 941,476 811,270 698,610

Discount factor(at 15% return

on investment) 1.000 0.8696 0.7561 0.6575 0.5718 0.4972

Discounted cash flow -2,200,000 651,059 789,852 619,020 463,884 347,349

Year


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Net Present Value and Internal Rate of Return Calculation

Net Present Value (NPV) = -$191,683

Internal Rate of Return (IRR) = 10.84%

Graph 1 NPV Profile

Sensitivity Analysis

An evaluation was made checking sensitivity of the base-case NPV relative to

variations +/-10% of the selling price selling price of the gravel. This was based on

previous market data history and future forecasts.

Base-caseSelling price

$55/ton

Increase 10%Selling price

$60.5/ton

Decrease 10%Selling price

$49.5/tonNPV -189,488 4,085 -383,061

-$800,000

-$600,000

-$400,000

-$200,000

$-

$200,000

$400,000

$600,000

$800,000

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Discount Rate

NPV


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SBM Mobile Jaw Crusher Unit

The SBM mobile jaw crusher unit doesnt require a specific site it can be moved from

location to location which may be a benefit. The unit consists of vibrating feeder,

motor feeder, hopper feeder, jaw crusher, motor of jaw crusher, standard belt

conveyor and extended belt conveyor. SBM mobile crushing plant has high chassis

and small turning radius, which is suitable for most transportation conditions,

especially for driving to crushing sites that are difficult to access. The preparation

time of the mobile crushing plant is greatly reduced, compared with the fixed one and

reduced material transportation cost can also be achieved.


Item ValueInitial capital cost $2,100,000

Life of project 5 yearsSalvage value at end of life $300,502

Production per year See table 2Selling price $55/tonAnnual operating expenses See table 2Depreciation rate for tax purposes 27.5%Tax rate 35%Discount rate 15%

Table 2: Discounted Cash Flow Summary

0 1 2 3 4 5

Production, ton 30,000 50,000 50,000 50,000 45,000



Operating profit 990,000 1,512,500 1,320,000 1,182,500 816,750




End of year written-down value

for tax purposes 1,196,250 867,281 628,779 455,865 330,502


Taxable profit 536,250 1,183,531 1,081,498 1,009,586 691,387


rate 187,688 414,236 378,524 353,355 241,986

After tax profit 348,563 769,295 702,973 656,231 449,402

Net cash flow -2,100,000 802,313 1,098,264 941,476 829,145 875,266

Discount factor(at 15% return on

investment) 1.000 0.8696 0.7561 0.6575 0.5718 0.4972

Discounted cash flow -2,100,000 697,691 830,397 619,020 474,105 435,182

Year


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Net Present Value (NPV) = $29,036


Graph 2: NPV Profile



variations +/-10% of the selling price of the gravel. This was based on previous

market data history and future forecasts.


$55/ton


$60.5/ton


$49.5/tonNPV 31,577 237,219 -174,148

-$800,000

-$600,000

-$400,000

-$200,000

$-

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$600,000

$800,000

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Discount Rate

NPV


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PFW Hydraulic Impact Crusher

An old dragline erection site which has easy access to power and water has been

chosen next to the eastern blue pit dam. PFW series impact crushers have thefeatures of heavy duty rotor design, unique hammer locking system, interchangeable

wearing parts, and easy maintenance. This series hydraulic impact crushers provide

low capital cost solutions, outstanding performance, good cubical shape, lowest

operation cost per ton, and wide materials applications. Due to the cubicle shape

and sizing a greater selling price is achievable.


Item ValueInitial capital cost $2, 500,000

Life of project 5 yearsSalvage value at end of life $300,456Production per year See table 3Selling price (per ton) $70/tonAnnual operating expenses See table 3Depreciation rate for tax purposes 27.5%Tax rate 35%Discount rate 15%

Table 3: Discounted Cash Flow Summary

0 1 2 3 4 5

Production, ton 30,000 50,000 50,000 50,000 45,000



Operating profit 1,323,000 2,100,000 2,030,000 1,925,000 1,354,500




End of year written-down value

for tax purposes 1,522,500 1,103,813 800,264 580,191 420,639


Taxable profit 745,500 1,681,313 1,726,452 1,704,927 1,194,947


rate 260,925 588,459 604,258 596,725 418,232

After tax profit 484,575 1,092,853 1,122,194 1,108,203 776,716

Net cash flow -2,500,000 1,062,075 1,511,541 1,425,742 1,328,275 1,236,724

Discount factor(at 15% return on

investment) 1.000 0.8696 0.7561 0.6575 0.5718 0.4972

Discounted cash flow -2,500,000 923,580 1,142,876 937,425 759,508 614,899

Year


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Net Present Value (NPV) = $523,688


Graph 3: NPV Profile



variations +/-10% of the selling price selling price of the gravel. This was based on

previous market data history and future forecasts.


$70/ton


$77/ton


$63/tonNPV 527,107 822,351 231,868

-$800,000

-$600,000

-$400,000

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$800,000

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Discount Rate

NPV


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RecommendationAfter reviewing the three available gravel crushing/screening plants it is

recommended that Bramoni EDI installs the PFW Hydraulic crusher. The PFW

model had the best NPV value proving that with this project there will be more than

enough revenue generated to cover costs at the minimum rate of return. This modelalso provided the best IRR which is crucial when looking at multiple investment

possibilities like on this occasion. One possible risk was the pricing of the gravel, the

resulting gravel product is high grade with a selling price some $15/ton above the

Smith and SBM plants but the sensitivity analysis showed even with a price

decrease of 10% a positive NPV can still be achieved.

Water and power issues can be eliminated by building the plant at the old dragline

erection site, power is already installed and water can be utilised from the nearby

eastern blue pit dam.

The importance of maintenance to haul roads to reduce hauling costs, provide safer

working conditions and less environmental impact is crucial to Bramoni EDIs

success. And due to the lack of availability of third party contractors to supply the

gravel needed to do this, installing the PFW crushing/screening plant on site will

eliminate this problem and as this report shows the revenue generated makes the

project worthwhile.

References

Atrill & Mclaney, 2008, Accounting An Introduction 4/E, Pearson Education Australia,ISBN 978-0733990588

Ian C. Runge 1998 Mining Economics and Strategy Society for Mining, Metallurgy,

and Exploration, IncISBN 0-87335-165-7 P50-59

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