THE COST OF METAL AS THE MAIN INDICATOR OF THE ECONOMIC EFFICIENCY OF DEVELOPING ORE DEPOSITS

G. E. BAKANOV

(Presented by the theoretical conference of the Mining Faculty)

During the years of Soviet power, the ore industry of our country, from a backward branch of the industrial economy of tsarist Russia, has turned into a powerful branch of the national economy of the Soviet Union, equipped with advanced technology. Before the October Socialist Revolution, almost all the mineral wealth of our country was in the hands of foreign capitalists. Thus, in 1913 the share of foreign capital was: in ferrous metallurgy—80%, in the gold-platinum industry—58%, in copper—76%, and in lead-zinc—87%. The development of ore deposits was carried out by predatory methods, and their exploration proceeded extremely slowly.

Under Soviet power the raw-material base of the metallurgical industry grew immeasurably. In explored reserves of iron, aluminum, molybdenum, manganese, and chromium, the USSR occupies first place. Over the years of Soviet power, the explored reserves of copper, lead, and zinc increased many times over. In 1913 the total recorded reserves of iron ore in Russia did not exceed 2 billion tons, of which a little more than one billion tons had been explored. By 1957 the explored reserves of iron ore in the USSR had increased 34-fold and reached 35.9 billion tons. The distribution of explored reserves of iron ore among the various regions of the Soviet Union is shown in Table 1 \[4, 24\].

During the years of Soviet power, the scale of work in extracting mineral raw materials for the production of metals changed sharply. By 1957, iron-ore production in the USSR had increased 15.7 times compared with 1917, and almost 340 times compared with 1920. In the Soviet Union the production of gold, silver, copper, lead, zinc, and manganese increased many times over. Ores of tin, nickel, cobalt, tungsten, molybdenum, aluminum, magnesium, and various rare metals, which had not been mined in pre-revolutionary Russia, began to be extracted in large quantities. The following data are a vivid indicator of the enormous successes achieved by Soviet metallurgy. Of the 101 elements of D. I. Mendeleev’s periodic system, the nonferrous metallurgy of Russia produced 16 elements. The nonferrous metallurgy of the USSR produced from this system: in 1940—38 elements, in 1950—43, and in 1956—63 elements, four times more than in 1913.

The ore industry of the USSR—the basic raw-material base of ferrous and nonferrous metallurgy—had reached such a level of development by the forti-

anniversary of the Great October Socialist Revolution. Still more grandiose rates of development of the Soviet ore-mining industry are planned for the coming period. According to the plan adopted by the XX Congress of the CPSU, the volume of mining work for the extraction of ore and fluxes by the end of the sixth five-year plan will amount to about 1.5 billion \(m\) of rock mass. According to the fifteen-year plan for communist construction in the Soviet Union, reported by Comrade N. S. Khrushchev at the jubilee session of the Supreme Soviet of the USSR devoted to the fortieth anniversary of the Soviet state, the annual extraction of iron ore in our country is to be increased by 3–3.5 times compared with 1957 and brought up to 250–300 million \(t\).

Table 1

Along with the growth of iron-ore extraction in the USSR, the extraction of ores of nonferrous and rare metals, which are of great importance for the national economy and defense of the Soviet Union, will be continuously increased.

The problems posed in the USSR for increasing the extraction of mineral raw materials to meet the growing needs of ferrous and nonferrous metallurgy are being solved on the basis of the introduction of new equipment, advanced technology, comprehensive mechanization of work, the use of automation, and a clearer organization of production processes at ore mines, mines, and open pits. In solving the problems connected with the further development of the socialist ore-mining industry, which supplies ores and fluxes for metallurgical plants, questions of economics are of great importance. The order in which new ore basins and new districts are developed, the sequence and methods of mining deposits, the comprehensive utilization of mineral raw materials, the scale of enterprises and the production technology, the parameters of the spatial elements of mines and open pits—all these are important problems of the domestic ore-mining industry, the foundation of the industrial might of the Soviet Union. In our country these problems are worked out with due regard for the achievement of the state’s high defense power, the satisfaction of the needs of the national economy, the creation of safe working conditions at enterprises, and the obtaining of the best economic indicators in the mining of ore deposits.

The principal indicators characterizing the economy of mining ore deposits are:

a) the cost of the ore extracted;
b) the labor productivity of mine workers;
c) the completeness of ore extraction from the subsurface in mining deposits;
d) the value and quality of the ore extracted;

d) the intensity of development of deposits and the time required to bring production into operation;

e) the amount and efficiency of capital investments.

The cost of ore depends on a number of factors. A major influence on the cost of ore is exerted by the size, geological structure and occurrence conditions of the deposit, the geographical and economic features of the area in which it is located, the equipment and organization of work at the enterprise, and the scale of production. Under favorable mining-geological and economic conditions for developing deposits, with large ore reserves, and with a high level of equipment and organization of work at an enterprise having a large production capacity (corresponding to the reserves of the deposit), as a rule, the cost of ore proves to be the lowest. As development becomes more complicated, the cost of ore usually rises, unless the difficulties that arise are fully compensated by the use of more advanced equipment and by an expansion of the scale of production. The cost of iron ore in underground mining at various mines of the USSR in 1956 fluctuated as follows: Krivoi Rog, 14.40–23.68; the Urals, 20.95–36.95; and Gornaya Shoriya, 24.56–26.68 rubles/t. The shop cost of ore at some mines of nonferrous metallurgy in 1955 varied from 26.60 (Tikhvin Mine) to 137.02 rubles/t (Dzhidinskoye Mine Administration).

The cost of ore, taken separately, does not give a complete idea of the economic efficiency of developing a deposit. It does not determine the value, quality, or technological properties of the ore; the labor productivity of mine workers, the qualitative and quantitative losses of ore in the subsurface, and the intensity of development of deposits are not fully reflected in the cost of ore. The value of ore—defined as the total value, at state wholesale prices, of the products of production or useful components obtained from one ton of ore during its processing—does not depend on the cost of the ore. Therefore ores of different value may have the same cost. Sometimes mining a less valuable ore may even prove far more expensive than mining richer ores. Everything depends on the mining-geological and economic conditions of developing the deposits. Therefore, by the cost of ore one can judge the economic efficiency of development only for those deposits which, in their mining-geological and economic conditions and in the value and quality of their ore, differ little from one another.

Labor productivity is of great importance in resolving questions concerning the economic efficiency of developing ore deposits. On labor productivity V. I. Lenin, in his work “A Great Beginning,” wrote: “Labor productivity is, in the last analysis, the most important, the principal thing for the victory of the new social system” (vol. 29, p. 394). With an increase in labor productivity, the expenditures made in the USSR on working people in excess of wages (housing and communal services for workers, schools, courses, medical institutions, resorts, etc.) are sharply reduced. These expenditures are not included in the cost of ore and must necessarily be taken into account in the economic analysis of deposit development. The influence of labor productivity on the use of fixed productive assets is reflected in the cost of ore.

Losses of valuable ore during mining have a substantial influence on the economic efficiency of developing deposits. In determining the cost of ore, its losses are taken into account only partially, in calculating the rate of amortization of capital expenditures. The economic

damage arising from losses and dilution of ore must be taken into account additionally in the economic substantiation of variants.

The value and quality of the ore are the principal factors taken into account in determining the economic efficiency of developing ore deposits. Final decisions connected with the development of a deposit (the sequence of development, scale of production, completeness of extraction, etc.) are ultimately made depending on the value and quality of the ore that will be mined at the given deposit.

The intensity of deposit development has a great influence on the economic efficiency of exploitation. With a high intensity of extracting ore from the subsurface, the state’s requirements for raw material for the metallurgical industry are met more quickly and at lower cost; expenditures invested in the mining industry are recovered more rapidly; and accumulations obtained as a result of using the country’s mineral wealth in the national economy are created more quickly. Therefore questions of the intensity of development cannot be disregarded in solving economic problems of the mining industry. In resolving questions concerning the economic efficiency of developing ore deposits, the periods required for bringing production into operation, as well as the size and effectiveness of capital investments, are also of great importance.

All the elements under consideration must be taken into account in combination. Unfortunately, not all these elements can be expressed in the same units of measurement so as to sum them and find a resultant indicator. Sometimes it is simply difficult to obtain the necessary data in order fully to take into account the influence of one element or another (labor productivity, ore losses, and others). In this connection, in many cases it is expedient to determine the economic efficiency of developing ore deposits by the cost of the metals that will be extracted from the ores of these deposits.

The cost of the metal obtained from the ore of the deposit under consideration [7, 75—80] is

\[ C=\frac{100}{\gamma}(c+f_p+t_p)+\frac{100}{\gamma_m}(f_m+t_k), \tag{1} \]

where \(\gamma\) is the yield of metal from the ore, %;
\(\gamma_m\) is the yield of metal from the concentrate, %;
\(c\) is the cost of the ore, rub/t;
\(f_p\) is the cost of processing the ore at the concentration plant, rub/t;
\(t_p\) is the cost of transporting the ore to the concentration plant, rub/t;
\(f_m\) is the cost of the metallurgical treatment of concentrates, rub/t;
\(t_k\) is the cost of transporting the concentrate to the plant, rub/t.

Since

\[ \gamma=\frac{\alpha e\varepsilon}{100\delta} \quad\text{and}\quad \gamma_m=\frac{\beta\varepsilon_m}{\delta}, \]

the cost of the metal is

\[ C=\frac{100^2\delta}{\alpha e\varepsilon}(c+f_p+t_p)+\frac{100\delta}{\beta\varepsilon_m}(f_m+t_k); \tag{2} \]

here \(\alpha\) is the content of the useful component in the ore, %;
\(e\) is the quality extraction in ore mining, %;
\(\varepsilon\) is the extraction of the useful component from the ore into the final product (metal), %;
\(\varepsilon_m\) is the extraction of the component from the concentrate into metal, %;
\(\beta\) is the content of the component in the concentrate, %;
\(\delta\) is the content of the component in the metal, %.

If the ore is delivered to the metallurgical plant directly from the mine, bypassing the concentrating mill, then the cost of the metal can be determined from the equation

\[ C=\frac{100^{2}\delta}{a e \varepsilon}\left(c+f'_{\mathrm{m}}+t'_{\mathrm{p}}\right). \tag{3} \]

The quantity \(f'_{\mathrm{m}}\) is the cost of processing the ore at the metallurgical plant (rubles/t), and \(t'_{\mathrm{p}}\) is the cost of transporting one ton of ore from the mine to the plant, in rubles.

In the equations for the cost of metal (2) and (3), the labor and material costs of mining and processing the ore are most fully reflected, depending on its properties, the conditions of occurrence of the ore bodies, and the production technology. Therefore, in our opinion, the cost of the metal obtained from a given ore should be regarded as the principal indicator in resolving questions concerning the economic viability of developing deposits. At the same time, it is necessary to take into account the costs of transporting the metal to places of consumption, the interests of the national economy, and the tasks of national defense.

LITERATURE

1. Lenin V. I. The Great Initiative, vol. 29, 1950.
2. Khrushchev N. S. Forty Years of the Great October Socialist Revolution, Pravda, 7 November 1957.
3. Ore Industry of the USSR on the 40th Anniversary of the Great October, Mining Journal, No. 12, 1957.
4. Skobnikov M. L. The Iron-Ore Base of the USSR at a Historic Date, Mining Journal, No. 11, 1957.
5. Kravtsov D. S. Persistently Increase Labor Productivity at the Mines of Nonferrous Metallurgy, Mining Journal, No. 9, 1956.
6. Rachkovsky S. Ya. Economics of the Mining Industry, Metallurgizdat, 1955.
7. Gorodetsky P. I. Fundamentals of Designing Mining Enterprises, Metallurgizdat, 1955.

Noted Misprints