In: Economics
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?
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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