Coal Reserves of the Matewan
Quadrangle, Kentucky -A Coal Recoverability Study

U.S. Bureau of Mines Circular 9355

APPENDIX C.-COST MODEL EXAMPLE

Once the mining type and the equipment to be used were finalized, the costs and depreciations associated with the equipment were developed. This procedure was done for each mining thickness category using that mining method in order to develop a total cost (f.o.b., rail car) for the coal for each haulage zone. In addition, these models were designed so that they can be updated by entering new information in the assumption list at the front of each model. Only the underground costing model is presented in table C-1, but a costing model was developed for each mining thickness category using each mining method.

The number of calculations involved in doing 21 seams, with as many as 16 haulage zones per seam and 9 types of mining per seam, required that an interactive model be developed. As stated previously, COALVAL accomplished this with Lotus 1-2-3 macros and linkage of spreadsheets. Furthermore, it soon became apparent, as this interactive model was being developed, that the use of the model would be useful and timesaving for the Bureau, the coal industry, and others looking into large resource modeling projects. Therefore, a fully developed and documented model that can be used in a generic situation is in the development stages.

Costing Models Layout

As mentioned before, the productivity of a mine is often directly related to the thickness of the coal seam being mined. This is true for both surface and underground mining operations. After deciding on the ranges of seam thickness that represented logical breaks in the productivity, the authors collected the mine equipment cost, production data for the equipment, and manning information that was based on the seam thickness involved with the model. As much as possible, the model was fashioned after a corporate cost sheet. The major factors were divided into direct and indirect operating costs, overhead, and preparation. The layout of the costing model includes a front page of 32 assumptions used in the cost calculations and a second page summary of the cost involved in operating the particular type of mine. Following that is the heart of the cost modelthe specific information and detailed calculations that are used to develop the summary on page 2 of the cost model. Since the same thinking and assumptions are used in all models, only the values change from model to model. For each mining method, the model takes into account the following:

1. Mining unit: The major equipment required to make up a mining unit is listed. The number of operating units and shifts worked by each piece of equipment are noted. Then the repair and maintenance (R&M) cost per hour, fuel and lubrication (F&L) cost per hour, and depreciation (DEPREC) cost per hour are entered. These values are derived from industry data and manufacturers' specifications and pricing lists. The respective costs for R&M, F&L, and DEPREC are then calculated for the predefined shift and daily totals. This result is then used in the line item, "DEPRECIATION," on page 2 of the cost sheet. Costs for depreciation are on a straightline basis and equipment fife is relative to industry standards.
2. Payroll: Labor costs are made up of three general categories-production staff, auxiliary employees, and mine management and staff. The number of hourly and salaried employees needed to operate a mining unit is determined from Bureau publications, in-house property evaluations, published articles, "Coal Mining Technology" (9), and industry experience. The number of divisional and corporate staff (listed in "OVERHEAD" on page 2) depends on the size and structure of the corporation. Since it has been assumed that one entity owns or manages the entire resource (for maximum recovery), this study assumes that some divisional and corporate staff is needed, but the numbers are minimized to enable minimum effect on the profit. For hourly costs, both nonunion and United Mine Workers of America (UMWA) labor wages and burden must be considered. For this study, a range is used that uses information from the present UMWA contract and the norm for nonunion mines that have been evaluated in each geographical area. For salary costs, a norm between the most recently published "Coalfield Salary Survey' (24) and salaries observed in Bureau mine evaluations has been used. The burden used is from Bureau mine evaluations.
3. Taxes: Tax rates are generally available from each State office of taxation.
4. Development costs: Development costs are the costs associated with developing a property and are amortized on an annual basis.

Other items on the page 2 summary for each model are developed from the original list of assumptions, set out on page 1. and include:

1. Explosives: Drilling and blasting costs applicable to underground mining are not considered due to the exclusive use of continuous miners and longwall mining methods in the study. Surface drilling and blasting costs are derived from industry and Bureau publications.
2. Utilities: Utility costs, such as electricity and water, are public information available from the applicable rate control agency.
3. Auto expense: This cost is incurred for the use of vehicles by the supervisory personnel. Industry contacts and Bureau mine evaluations are the sources for this information.
4. Insurance: Property insurance is based on a percent per $100 property valuation. The sources for this expense are industry contacts and Bureau mine evaluations.
5. Professional services: The costs of professional services address such subjects as engineering and environmental services, coal crushing and processing, accounting, project management, safety, and training. These costs were obtained from industry contacts.
6. Trucking: One of the highest cost items in the mine operating cost is the transportation cost from the mine to the wash plant/loadout facilities served by the railroad. Based on present preparation plant locations within and around the Matewan quadrangle, truck haulage routes and zones were developed so that loaded trucks haul downhill. Although paved roads pass through some gaps, all travel is confined to the same watershed from which the coal is mined. Mileage calculations are made from the estimated geographic center of each zone and the cost-per-ton mile applied to haul distances. Haulage costs vary from $0.65 per ton to more than $3 per ton.
7. Other: Several generalized costs, including road maintenance, roof control material, coal transportation, supplies, licenses, and permits, are accounted for within various other cost categories. These costs were obtained from industry contacts and Bureau mine evaluations.

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