Question

In: Economics

One method of exploitation of an ore mine that contains 1 million metric tons of ore...

One method of exploitation of an ore mine that contains 1 million metric tons of ore will result in a recovery of 70% of the available ore deposit and will cost $25 per ton of material removed. Another method of exploitation will recover 60% and will cost $20 per metric ton of material removed. Subsequent processing of the removed ore recovers 200 kg of metal from each ton of processed ore and cost $50 per metric ton of ore processed. The recovered metal can be sold for $2.0 per kg. Which method for developing the mine is preferred to maximize total profit from the mine?

Solutions

Expert Solution

Available Capacity (in mt tonne)       10,00,000
Particulars Option 1 Option 2
Recovery Rate 70% 60%
Recovered (in mt Tonnes) A          7,00,000          6,00,000
Tonne per Metric Tonne (B)          1.10231          1.10231
Tonnes (C=A*B)          7,71,617          6,61,386
Cost of removal                    25                    20
Total Cost of removal      1,92,90,425    1,20,00,000
Processing Cost (50 per mt tonne) (B*50)    3,50,00,000    3,00,00,000
Metal Recovery (In Kgs) (D=C*200) 15,43,23,400 13,22,77,200
Revenue (E=D*2) 30,86,46,800 26,45,54,400
Profits (E-Proc Cost - Cost of removal) 25,43,56,375 22,25,54,400

Catch in this question in Cost of removal.

For Option 1 it is 25 per tonne (25*771617)

For Option 2 it is 20 per metric tonne (20*600000).

Recommended to go ahead with Option 1.

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