*' >: ^••^•\/* \j^ f -y [..yv : -->* V4 V St'. ^* V V* *^ -."^^ v « ,-ft.v ^ v « * ' ° k W> MM:* \/ ;flfev %,** :^l&* X/ :afe/. %«** .'^': .*\ o ^ *W r •• ♦♦ v-> . . * .0 o, ** ^ .0-.. % .•- ^o< •• -0 V *' ^- v v ^.*. ^ «1 ^o^ r ^o^ j.0^ V - * 1 ^"-' ^' V «**"' o. *^7i' A " +* * >.' o5 °< t^ 1 ^*rv ' "S 9 * V *^ AtfkX y.-^iiX ,/,>^-.\ /••■^•-^ K ov* :4S|^ ^ :411k-. *b** :^Wm- ^ :41»*. "o>* .v W ....' 0* ^o'-^f'V* V-.m''"/ %'•"????'*, -S* %"'•■..•''/ "\'*^^'\ •+^>' v^v v^v v^> "W «**>, V » ' * °- < > ^ 4> • • * -i y ° ' • • Bureau of Mines Information Circular/1987 Economic Evaluation Methodology By Frank A. Peters UNITED STATES DEPARTMENT OF THE INTERIOR Information Circular 9147 V Economic Evaluation Methodology By Frank A. Peters UNITED STATES DEPARTMENT OF THE INTERIOR Donald Paul Hodel, Secretary BUREAU OF MINES David S. Brown, Acting Director Library of Congress Cataloging in Publication Data: Peters, Frank A.^ 1931- Economic evaluation methodology. (Information circular ; 9147) Supt. of Docs, no.: I 28.27: 9147. 1. Mines and mineral resources- United States-Costs. 2. Engineering economy -United States. 3. Technology transfer- United States. I. Title. II. Series: Information circular (United States. Bureau of Mines) ; 9147. TN295.U4 [TN272] 622 s [622'.068'] 87-600014 CONTENTS Page Abstract 1 Introduction 2 Estimating accuracy 2 Evaluation techniques 4 Flowsheet development 4 Material and heat calculations 5 Equipment sizing 5 Capital costs ,. 5 Fixed capital 6 Working capital 9 Capitalized startup 9 Operating costs 10 Direct 10 Indirect 12 Fixed 12 Profitability 12 Use of economic evaluations 12 References 14 Appendix A. — Heat calculations 15 Appendix B. — Items included in capital cost components 16 Appendix C. — Items included in operating cost components 20 ILLUSTRATIONS 1. Process evaluation steps 4 2. Cost of horizontal vacuum belt filters 6 3. Equipment cost summary table format 7 4. Estimated capital cost table format 8 5. Capital expenditure-time relation curve 9 6. Estimated annual operating cost table format 11 A-l. Example of heat calculation 15 TABLE 1. Multipliers for labor assignments 12 UNIT OF MEASURE ABBREVIATIONS USED IN THIS REPORT Btu British thermal unit h hour cal/g-deg K calorie per gram- degree Kelvin kW«h kilowatt hour lb pound °C degree Celsius Mgal thousand gallons DPW day per week. MMBtu million British d/yr day per year thermal units °F degree Fahrenheit pet percent ft foot St short ton gal gallon yr year ECONOMIC EVALUATION METHODOLOGY By Frank A. Peters 1 ABSTRACT This description of process evaluation techniques used by the Bureau of Mines for studying proposed processing techniques has been prepared to provide those interested in using these studies with an understanding of the methodology. The methods used for preparing both capital and operating cost estimates are described. Each step in preparing the evaluations is described. Types of equipment costs are shown and fac- tors used in the estimates are defined. Uses of the estimates are sug- gested and several examples are included. The accuracy of various types of estimates is discussed, along with an explanation of the reason for selecting the type used in the Bureau's process evaluation studies. 'Chief, Process Evaluation, Bureau of Mines, Washington, DC. INTRODUCTION The role of process evaluation in the Bureau of Mines research is twofold. Its primary function is to provide ad- ditional information for guiding the re- search programs, with a secondary func- tion of aiding technology transfer to industry. This report describes evalua- tion techniques used by the Bureau for those interested in using the studies. Thus, both Bureau researchers and the general public will have an understanding of the estimating accuracy, how to modify the estimated costs, and the use of the evaluations. In conducting research programs, pro- cess evaluations are performed in the early stages of research. Raw data from laboratory and bench-scale research are extrapolated to provide a basis for de- signing industrial-scale operations. Next, preliminary capital and operating costs for each operation are estimated. From this information, specific steps in the operations can be targeted for ad- ditional research, and plans can be modi- fied to examine these areas in greater detail. After additional research is conducted, additional process evaluations are performed to provide further guid- ance. With repeated interaction and feedback between research and pro- cess evaluation personnel, the Bureau's research is focussed on areas criti- cal to development of economically and technically feasible processes. The Process Evaluation group examines the research from a varied and de- tached perspective. Each technology under investigation is projected from a laboratory scale to a commercial-plant scale. Problems and their solutions be- come more apparent from this perspective. In addition, engineers working in process evaluation are familiar with a broad range of technologies spanning the miner- als industry; therefore, modifications or alternate technologies that might have been overlooked are frequently suggested. Various types of information, vital in developing viable solutions to mineral problems, are presented in each evalua- tion. By examining individual process- ing steps, high-cost operations are determined and then investigated by re- search personnel to devise process modi- fications to reduce the cost of these operations. Process evaluation studies also identify and rank in importance areas in which additional research data are needed, both from a technical and a cost standpoint. In addition, performing process evaluations allows process vari- ations to be compared and their relative worth assessed. Both similar and dis- similar operations can be contrasted, using cost as a common denominator. Process costs are the primary means of comparing competitive technologies. Therefore, the availability of this in- formation makes the research accomplish- ments more useful to industry and speeds their adoption. To aid technology trans- fer to industry, economic evaluations are published independently or included in publications describing the research. ESTIMATING ACCURACY The accuracy of cost estimates is dif- ficult to define because there are a large number of unknowns; for example, the accuracy of the laboratory data and of the scale-up techniques. Materials often behave differently on a laboratory scale than they do on a commercial-plant scale, otherwise, pilot plants would not be needed. Thus, the incomplete data from laboratory investigations and the scale-up problems introduce potential errors in the cost analysis. Another important factor is the accuracy of the cost data and the costing techniques used in the studies. Unfortunately, cost estimation is an art, not a science. No two estimators arrive at exactly the same results. The results depend as much on the skill of the estimator as on the technique used. In an effort to define the accuracy of the estimate, many engineers compare their evaluation techniques with pub- lished outlines. Perhaps the most widely used reference is published in the Chemi- cal Engineers' Handbook (_1_).2 The five capital cost estimating types and their accuracy percents are — 1. Firm, ±5% 2. Project control, ±10% 3. Budget, ±20% 4. Study, ±30% 5. Or der-of -magnitude, no assigned accuracy. A firm estimate is the most accurate and is based on final drawings, detailed equipment specifications, price quota- tions, and site surveys. Project control estimates are based on complete equipment lists, engineering flowsheets, and equip- ment layouts. Site-specific information and auxiliary facilities information are required. A budget estimate requires more information than a study estimate and, with sufficient data, its accuracy may approach that of a project control estimate. It requires a carefully evalu- ated flowsheet, a detailed equipment list, and site information. Study esti- mates are prepared from a flowsheet and a minimum of equipment data. Other costs are determined using factors. Order- of-magnitude estimates, the least ac- curate of the five types, are prepared without a flowsheet or a detailed list of equipment. Often, the estimate is pre- pared by comparing the proposed process with a known one. Because Bureau estimates are prepared during laboratory research, insufficient data are available for making the de- tailed calculations necessary for a 2 Underlined numbers in parentheses re- fer to items in the list of references preceding the appendixes. budget-type estimate. Thus, the study- type estimate was selected as the method that could most benefit the Bureau's pro- gram. This estimate can be expected to be within 30 pet of the actual plant cost. However, recent studies on first- of-a-kind plants show that this accuracy prediction is deceptive. Changes in the process, resulting from additional research studies, will probably require that the evaluation be updated as more information becomes available. Cost estimators do not attempt to de- fine the accuracy of operating cost esti- mates on a general basis. However, an inspection of the operating cost items, together with an estimate of the accuracy of each one, permits an estimation of the overall operating cost accuracy. Each raw material, utility, labor, and capital cost item must be considered. Obviously, when working from data reported in the literature, as occurs in many evalua- tions, it is almost impossible to define the accuracy of some of the data and thus is very difficult to determine the ac- curacy of the operating costs. However, if the various utility and labor rates are adjusted for location, it is unlikely that the operating cost will vary by more than 10 or 15 pet. Calculations using data obtained in the laboratory and from the literature are used in the cost studies. Factors de- rived from other cost estimates and rec- ommended values obtained from the litera- ture are also used. In preparing the estimates, plant site or location is not considered; however, considerations such as nearness to raw material supply are included. A general location is often selected so that area-specific air and wet-bulb temperatures can be included in heat calculations. The tables reporting the results are prepared to allow any company or individ- ual interested in the process to easily change factors, utility rates, labor rates, or raw material costs to ob- tain costs for a specific location and company. . EVALUATION TECHNIQUES Because most Bureau of Mines process development is in the early laboratory or bench-scale research stage, a cost- estimating technique that requires little data is needed. Detailed estimates and equipment designs that a company would prepare before building a plant could not be made. Thus, a factoring technique is used. Equipment is sized using a minimum of engineering and cost-capacity data. Installation and other plant costs are developed from factors. An indepth dis- cussion of factored cost-estimation tech- niques is published in the literature (2). This type of capital cost estimate matches that of a study estimate (1_), and is expected to have the same accuracy. The major steps for preparing an evalua- tion are shown in figure 1. Before any calculations are started, it is necessary to determine what data are available from research or pilot-plant operations and from the literature. It must also be determined where a proposed process would fit into present-day practice. A plant size for the proposed process is selected, depending on the size of the industry and present-day commercial plants. More than one plant size may be considered. Also, the raw material de- posit must contain sufficient material to justify the selected plant size. FLOWSHEET DEVELOPMENT The first step in making an evaluation is to prepare a process flowsheet showing each major step. Usually, research per- sonnel provide a flowsheet; however, it often lacks processing steps, such as size reduction of ore, which is neces- sary for a complete plant description. After considering the data available for each step, the necessary assumptions for making material and heat balances are tabulated. Because most evaluations are based on small-scale laboratory work, the best type of equipment is selected for each operation. An example would be the selection of a filter, where the pos- sibilities could include the pressure leaf, rotary vacuum, or plate and frame. Each of these filters would produce cakes with different moisture contents and washing efficiencies. Thus, the type of equipment that would be used in a com- mercial plant is considered before com- pleting the material balance. Develop flowsheet 1 Calculate material balance I Calculate heat requirements I Equipment sizing I Estimate capital cost I Estimate operating cost I Estimate working capital and startup costs 1 Determine potential profitability I Analyze process from economic standpoint FIGURE 1. — Process evaluation steps. MATERIAL AND HEAT CALCULATIONS The material balance is perhaps the most important part of the calculations, because all future calculations are based on flow rates and material requirements from the balance. Information left out of these calculations may have a signifi- cant effect on the process economics. The quantities of all materials entering and exiting each unit operation must be calculated. All components of each stream must be included so they can be accounted for in various chemical reac- tions. Many times, small quantities of impurities are not considered during re- search, but if they build up in recycle streams and are not treated, they may cause unexpected problems in plant-scale operations. Some of the heat calculations must be made while making the material balances, but most are determined after the materi- al balance is complete. Cooling a pro- cess stream by flashing steam or water vapor is an example of a heat calculation that must be made during material balance calculations, because the quantity of water lost would be controlled by the heat content of the process stream. All heat calculations are based on theoreti- cal heats of formation and heat-capacity data. Laboratory heat usage is almost always much higher than plant require- ments, because of the large surface area per unit volume of small equipment. Heat losses are estimated for various types and sizes of equipment. These estimated losses are based on values obtained from the literature and plant experience. Because of the extensive calculations required in making the heat calculations, a computer program is used that utilizes data from a table of heats of formation and heat capacity. An example of a heat calculation is shown in appendix A. As shown on the computer printout, heats of reaction are calculated at 25° C. The heat above or below 25° C entering the system in each stream and the heat leav- ing the system at the reaction tempera- ture are calculated. Heat losses are estimated using experience factors for each type of equipment. The net heat needed or rejected by the system is then determined, and the quantity of fuel, steam, or cooling water is estimated. EQUIPMENT SIZING After completing the heat calculations, a commercial-size plant must be designed. The first step is to size major items of equipment, such as kilns, crushers, re- action vessels, etc. After determining the number and size of each major item, a rough equipment layout is prepared so that equipment for pumping, conveying, feeding etc. , can be sized. Sizing or designing of the major equip- ment items is performed by using tech- niques described in estimating manuals and textbooks, using manufacturers cata- logs, or requesting size and cost quota- tions from manufacturers. When designing special equipment items, codes such as the ASME Boiler and Pressure Vessel Code (3) are used. However, detailed designs are seldom needed for equipment costing; for example, tanks are sized using the flow rate in tons or pounds per day, specific gravity, and retention time. Additional capacity is added when agita- tion is used. Conversely, crushing equipment requires considerable data. The work index, feed size, product size, maximum feed size, feed rate, bulk den- sity, and excess capacity must be speci- fied. Standard sizing techniques have been selected and programmed on personal computers to reduce calculation time for most of the common types of equipment. To size minor equipment items such as surge bins, pumps, feeders, and con- veyors, distances and heights must be estimated from the size and location of each major piece of equipment. Using flow rates from the material balance, together with the distances, heights, and material densities and viscosities, the pump or conveyor size and energy require- ment for transporting the material can be estimated. CAPITAL COSTS Capital costs are divided between fixed capital, working capital, and capitalized startup. Fixed Capital After sizing the equipment, its cost must be estimated. Many types of equip- ment are costed using cost-capacity data shown in graphical form. A typical cost- capacity curve is shown in figure 2. An excellent description of the use of this type data is given by Peters and Timmerhaus (2). Because most textbook cost data are old, new curves or equations must be developed from recent equipment costs. These costs are obtained from price quo- tations and published cost data. If the equipment is to be manufactured of a corrosion-resistant material, its cost must be adjusted using a factor or its cost obtained for the special material of construction. Although the costs of most items are estimated from cost-capacity equations, the costs of unusual or very expensive items of equipment are obtained from ven- dors. Some equipment costs are also ob- tained from cost-estimation services such as Richardson (4) and the Mining Cost Service (5). Because equipment costs change with time, the equipment cost is adjusted to the current date using an inflation index such as the Marshall and Swift (M and S) Equipment Cost index, which is found in alternate issues of Chemical Engineering . Equipment costs are tabulated in a table, such as shown in figure 3. After estimating equipment costs, the next step is to estimate the cost of labor for erecting each piece of equip- ment. This cost includes removing the equipment from a truck, moving it to its plant location, setting it up, and align- ing the item with a crane if necessary. Again, graphs or equations of labor time versus equipment size are used to esti- mate the number of person hours required. The equations have been developed from similar installations and data in the literature. The number of hours is mul- tiplied by the average hourly wage for an erection crew. When equipment quotations are used, the vendor is asked for an estimate of the labor requirement for erection. When equipment is purchased on an erected basis, as with items such as silos and large storage tanks, it is un- necessary to estimate erection labor, because its cost is included in the equipment cost. Equipment and erection labor costs represent less than half the cost of building a plant. Other items include foundations, buildings, structures, insu- lation, instrumentation, electrical in- stallation, piping, and painting. To obtain these costs, the total uninstal- led equipment cost is multiplied by a factor. Factors based on the type of plant or operation, and material of construction, are used for estimating the costs of structures, insulation, instrumentation, piping, and painting for each plant sec- tion. They are obtained from the litera- ture, nonpublished estimates, and through consultations with other engineering cost estimators. When the factors have been selected, they are entered in equipment cost summary tables for use in calculat- ing equipment installation costs, as shown in figure 3. Although most estimators use factors for foundations, electrical installation, and insulation, the Process Evaluation group has developed equations to estimate these costs separately for each piece of equipment. A factor is then calculated for each of these items. Foundation costs are based on equipment weight, vibration effect, and typical soil loadings. For common items of equipment, the costs of concrete, rein- forcing steel, and construction labor have been estimated for a range of 1 2 3 4 5 6 7 8 910 FILTER AREA, 1 2 ft FIGURE 2.— Cost of horizontal vacuum belt filters. 2nd quarter 1986. TABLE _. - Equipment cost summary Item Equipment 1 $ Labor Total Total, Total equipment cost x factor indicated: Foundations, x , Structures , x , Instrumentation, x Electrical, x Piping, x .. . , Painting, x ., Total. Miscellaneous, x Total direct cost , Field indirect, 10 pet of total direct cost, Total construction cost , Engineering, 5 pet of total construction cost, Administration and overhead, 5 pet of total construction cost , Subtotal , Contingency, 10 pet of above subtotal...., Subtotal , Contractor's fee, 5 pet of above subtotal, Section cost , ^asis: M and S equipment cost index of FIGURE 3.— Equipment cost summary table format. equipment sizes. The results of these calculations were used to prepare equations for estimating the cost of foundations for each piece of equipment. For nonstandard items of equipment, the foundations are designed separately, using standard engineering techniques. The costs for installing the electrical work for each motor size have been esti- mated for typical plant conditions and are used in the plant cost estimates. The costs for wire, boxes, switchgear, labor, etc. , were included in these standard designs. Building costs for various types of buildings are estimated from square-foot costs. Design considerations include building height, type of construction, and use. Building sizes are based on the equipment layout prepared for each plant. Depending on plant location, the estima- tor determines which equipment must be housed and which can be erected outside. A miscellaneous factor of 5 to 10 pet, depending on the detail used in itemizing equipment, is added to each plant section to cover the cost of small items not separately listed. Where a tailings pond or other disposal area is needed, its construction cost must be estimated and added to the capital cost. After the direct costs are determined, the field indirect, engineering, admini- stration and overhead, contingency, and contractor's fee are then estimated. Typical percentage values of these costs are shown in figure 3. Each of these components is defined in appendix B. After preparing equipment cost summary tables for each plant section, the total section costs are tabulated in an esti- mated capital cost table, such as figure 4. Several other cost items are included in this table: a steamplant (if needed), plant facilities, plant utilities, and interest during construction. Percentage values used for plant facilities and plant utilities are shown in figure 4. Items included in plant facilities and TABLE - Estimated capital cost 1 Fixed capital: section $ section Tailings pond Steamplant Subtotal Plant facilities, 10 pet of above subtotal Plant utilities, 12 pet of above subtotal Basic plant cost Catalyst Escalation costs during construction Total plant cost Land cost Subtotal Interest during construction period Fixed capital cost Working capital: Raw material and supplies Product and in-process inventory Accounts receivable Available cash Working capital cost Capitalized startup costs Subtotal Total capital cost ^asis: M and S equipment cost index of FIGURE 4.— Estimated capital cost table format. plant utilities are tabulated in appendix B. The steamplant size is based on the process steam requirements (quantities and pressure) plus an allowance for distribution losses. The capital cost of a catalyst must also be included, and it must be depreci- ated in the operating cost if the origi- nal amount cannot be recovered. Many times an extractant or ion-exchange ma- terial must be considered in the same manner. To allow for high inflation rates, such as occurred during the mid 1970's, a fac- tor for inflation during construction may be included in the estimates. The costs of many equipment items are quoted on the basis of an index when delivered. Thus, a firm cost is unknown until the item is shipped. To compensate for this problem, an inflation factor equivalent to the current inflation rate is added to esca- late the basic plant cost. During per- iods of low inflation, this item is not included in the estimates. Although land cost is also included in the plant cost by many evaluators, the Bureau cost estimates do not include it since the plant location is not selected, and its cost can be recovered after clos- ing the plant. To determine the total fixed capital cost, the interest during construction is determined by calculating the interest payment for each month during the con- struction period. Because expenditures are not uniform, a curve (fig. 5) was developed to relate the expenditures to time (6). A value slightly less than the prime rate is normally used as the interest rate in the cost estimates. Working Capital In addition to fixed capital, working capital is estimated and included in the total capital cost. These cost categor- ies are also shown in figure 4. Working capital is defined as the funds in ad- dition to fixed capital, land investment, and startup costs that must be provided to operate the plant. Working capital is normally estimated from the following items: (1) Raw material and supplies inventory, (cost of raw material and 100 100 20 40 60 CONSTRUCTION DURATION, pet FIGURE 5.— Capital expenditure-time relation curve. operating supplies for 30 days), (2) product and in-process inventory, (total operating cost for 30 days), (3) accounts receivable, (total operating cost for 30 days), and (4) available cash (direct expenses for 30 days). Although 30 days is used for calculating each of the pre- vious items, this time period is adjusted when necessary; for example, if the mine that supplies the ore operates 6 months per year, the time period for raw ma- terials and supplies inventory must be adjusted. Capitalized Startup Startup costs are also included in the cost studies. Usually, these are esti- mated as 10 pet of the fixed capital costs, of which 1 pet is capitalized and shown in the capital cost table. The 10 remaining 9 pet are assumed to be first- year operating costs; however, they are not included in the operating cost table, which represents a typical year. These startup costs are considered in the dis- counted cash-flow analysis. A 3-month startup period is usually considered, during which, the production level is assumed to average 50 pet of the design capacity. OPERATING COSTS A factoring technique is also used for estimating operating costs. For plants operating 3 shifts per day, 7 days per week, 330 to 350 d/yr of operation over the life of the plant is used for cost calculations. This allows downtime for inspection, maintenance, and unscheduled interruptions. When operating less than 3 shifts per day, 7 days per week, it is assumed that maintenance is performed outside of the normal operating period. Operating costs are divided into di- rect, indirect, and fixed costs. Items included in operating components are shown in appendix C, and typical cost factors are shown as percentages in figure 6. Direct Direct costs include raw materials, utilities, direct labor, plant and equip- ment maintenance, payroll overhead, and operating supplies. Quantities of raw materials, which include reagents, are taken directly from the material balance. The cost for each raw material is taken from published prices or producer's quo- tations. Freight costs are usually in- cluded as part of each raw material cost when the plant location is specified. Ore cost is based on mining cost and sometimes includes a profit. Concentrate costs or values are based on smelter schedules. Utilities include electricity, water, fuel, and steam. Electric power require- ments are determined by calculating the actual power requirement needed for each piece of equipment before selecting the motor. The length of time each motor operates is included in the calculation. Electric power requirements for electro- lytic cells, etc., are also added. Electric power requirements for lighting and air conditioning In offices, labora- tories, and control rooms are estimated. These requirements are based on building type and size. The total electric power is then multiplied by the rate that would be expected in the area where the plant is built. The demand charge is included in the electric power rate. Water requirements are divided into process and cooling water. The quantity of process water is based on the material balance plus make-up water for cooling towers and the steamplant. Because process water costs are normally small, average water costs are used instead of costs specific to plant location. Cool- ing water requirements are based on ther- modynamic calculations. Depending on plant location, cooling water may be ob- tained from rivers, wells, or cooling towers. If towers are used, make-up water requirements are estimated. Plant location, process requirements, and fuel costs (including freight) are considered when selecting the fuel to be used in each plant. Some operations, such as alumina calcination, require a special fuel such as natural gas or sulfur-free oil, while other operations can use any fuel. If process require- ments do not dictate the choice, a cost comparison including equipment costs is made to select the least expensive fuel. In some plants, several fuels may be selected for different operations. Some- times, it is even possible to use an offgas from a chemical operation as a fuel. Where steam is used for heating, it may be purchased from another opera- tion or produced in a steamplant. Direct labor cost is determined by multiplying the assigned operating posi- tions by multipliers, depending on the days per week and shifts per day of the operation. These multipliers are shown in table 1. Supervision is estimated as 15 pet of the labor cost. Plant maintenance is separately esti- mated for each piece of equipment and for buildings, electrical system, piping, utility-distribution systems, and plant facilities. This cost is divided evenly 11 TABLE . - Estimated annual operating cost Annual cost Cost per pound product Direct cost: Raw materials: at $ /st $ $ at $ /st Chemicals for steamplant water Utilities: Coal at $ /st Direct labor: Plant maintenance: Supervision, 20 pet of maintenance Total Payroll overhead, 35 pet of above Operating supplies, 20 pet of plant Indirect cost, MO pet of direct labor Fixed cost: Insurance, 1 pet of total plant cost... Credit: FIGURE 6.— Estimated annual operating cost table format. 12 between labor and materials, with 20 pet of the labor cost added for supervision. TABLE 1. - Multipliers for labor assignments Days per week Shifts day per Multipliers 7 3 2 1 3 2 1 4.2 7 2.8 7 1.4 5 3.0 5 2.0 1.0 Payroll overhead, estimated as 30 to 35 pet of direct labor and maintenance labor, includes vacation, sick leave, social security, and fringe benefits. The cost of operating supplies is esti- mated as 10 to 20 pet of the cost of plant maintenance. Operating supplies include items such as filter cloth, lubricating oil, gasoline and diesel fuel, instrument charts, etc. The cost of grinding balls and rods are shown separately under raw materials, because they are not considered a supply item and are directly related to the abrasiveness of the ore. Indirect Indirect costs are estimated as 40 pet of the direct labor and maintenance costs. The indirect costs include the expenses of control laboratories, ac- counting, plant protection and safety, plant administration, marketing, and company overhead. Research and overall company administrative costs outside the plant are not included. Fixed Fixed costs include local taxes (ex- cluding income taxes), insurance, and depreciation. Both taxes and insurance are estimated at 1 pet of the fixed capi- tal cost. Depreciation is calculated on a straight-line basis using 10 to 20 yr depending on practice within the individual industry. PROFITABILITY Industry is primarily interested in potential profits in any venture. Thus, one must consider profitability in ad- dition to capital and operating costs. Today, a number of techniques are used for estimating profitability. Many text- books (]_~2) contain discussions of the advantages and disadvantages of each calculation method. Two of the more important techniques are used in the evaluations. The first is a simple payback period, which can be calculated from a selling price. The second is an interest rate of return based on a discounted cash-flow analysis. This technique considers the time-value of money, and compares the profits from a venture with the interest that would be earned if the capital were invested in a bank. The results of this discounted cash-flow analysis are presented as an interest rate of return when the selling price is known or the interest rate of return can be graphically presented to show the profits versus selling price. USE OF ECONOMIC EVALUATIONS Performing an economic evaluation is only the first step in developing a pro- cess evaluation. Economic data must be broken down to show high-cost operations, utilities, raw materials, etc. Ad- ditional data needs are identified, and alternate technologies are often suggested for some of the processing steps. The effect of changing costs must be considered to provide research per- sonnel with information to help in developing a viable process. The estimated capital and operating costs for each section are examined to 13 identify high costs. If a section cost appears high in relation to others and it contains a number of unit operations, the section is divided into two or more sec- tions to identify the unit operation responsible for the high cost. For example, a steam requirement for evaporation may be very high. In this situation, two possible solutions must be considered; (1) could the use of multi- effect evaporators reduce the steam re- quirement, and (2) can the quantity of water added to the process be reduced. Each addition of water must be checked to determine if it could be reduced. This step requires the comparison of each operation with similar commercial prac- tices. If it appears that some of the water requirements could be reduced, it is suggested that research personnel in- vestigate the possibility of using less water and request a new evaluation when minimum water requirements are deter- mined. Sometimes suggestions are made to change a step or group of steps in a pro- cess to reduce costs. Occasionally, us- ing part of an existing process would be more economical. Often, the evaluation may only identify a costly step so that the researcher can replace or improve an operation. Thus, researchers know where to concentrate their efforts. A major advantage of preparing an eval- uation at early stages in a research in- vestigation is to show where additional data are needed. Assumptions are identi- fied in the process description and some- times listed to provide additional guidance to the researchers. Environmental problems are identified and solutions suggested where possible. Most researchers direct their attention to recovering the maximum quantity of the valuable minerals in an ore. They neglect the impurities and often do not obtain analyses for them. Because impur- ity information is needed when making a complete evaluation study, the informa- tion to identify potential environmental problems is available. Often these minor impurities can become a major disposal problem. If technology is available for solving a disposal problem, it is in- corporated into the evaluation. If tech- nology is not available, solutions are suggested where possible. Disposal costs are estimated to deter- mine how much money is available to treat the waste material. Using the cost of disposal as a basis, various techniques proposed by researchers and evaluators can be compared. Putting a lid on pro- cessing costs also helps to predict the overall viability of a proposed process. To aid technology transfer to industry, some of the economic evaluations are pub- lished independently, while others are included in publications describing the research. This availability of process cost information permits industry to com- pare new technologies with those cur- rently in use. These evaluations provide industry with guidance when considering Bureau work; for example, there is a published process evaluation involving a process that re- covers lead from scrap batteries (10). These published cost studies provide basic process requirements and cost data. Because the costs are presented in a for- mat that is easy to revise, changes can be quickly made. Any company can revise the costs with new cost data to fit the company's conditions and modify the studies for its location and policy. Thus, it is very easy for company manage- ment to assess the potential of a Bureau development. 14 REFERENCES 1. Weaver, J. B., and H. C. Bauman. Cost and Profitability Estimation. Sec. 25 in Perry's Chemical Engineer's Hand- book, ed. by R. H. Perry and C. H. Chil- ton. McGraw-Hill, 5th ed. , 1973, p. 12. 2. Peters, M. S., and K. D. Timmer- haus. Plant Design and Economics for Chemical Engineers. McGraw-Hill, 3d ed. , 1980, 973 pp. 3. American Society of Mechanical En- gineers. Rules for Construction of Pres- sure Vessels. Sec. VIII, Div. 1, in ASME Boiler and Pressure Vessel Code. July 1, 1983, 699 pp. 4. Richardson Engineering Service, Inc. (San Marcos, CA). Process Plant Construction Estimating Standards. V. 4, 1986, 1,240 pp. 5. Western Mine Engineering (Spokane, WA). Mining Cost Service, ed. by 0. L. Schumacher, 1984, 263 pp. 6. Bauman, H. C. Fundamentals of Cost Engineering in the Chemical Indus- try. Reinhold, 1964, 364 pp. 7. Stermole, F. J. Economic Evalua- tion and Investment Decision Methods. Investment Evaluation Corp., 4th ed. , 1982, 446 pp. 8. Canada, J. R. , and J. A. White. Capital Investment Decision Analysis for Management and Engineering. Prentice- Hall, 1980, 528 pp. 9. Jelen, F. C. (ed.). Cost and Optimization Engineering. McGraw-Hill, 1970, 490 pp. 10. Phillips, T. A. Economic Evalua- tion of an Electrolytic Process To Re- cover Lead From Scrap Batteries. BuMines IC 9071, 1986, 19 pp. 15 APPENDIX A. --HEAT CALCULATIONS A typical heat calculation output from a line printer is shown in figure A-l. The computer program was originally writ- ten for mainframe computers, but has been adapted for microcomputers. All upper- case letters are used for chemical com- pounds, thus CaC0 3 is shown as CAC03 in the printout. Solids are indicated as -S and liquids as -L to show the standard state of each compound. Heats of reaction are calculated at 25° C using heat of formation data. Heat above 25° C in each entering stream is calculated and credited to the system. Heat leaving the system above 25° C is also calculated, and its requirement added to the system. The net heat is then calculated and shown as the gross heat requirement. Actual cooling water, fuel, or steam requirements are then cal- culated from this gross heat requirement after estimating heat losses for the type of equipment being used for the operation. -IEAT OF REACTIONS OATE: 12/10/1986 TI«E: 11:10:30 FILE: HT8609R MATERIAL GLANCE BASIS: 7 DPc OPERATION! 3 SPD, 7 OP* REFERENCE MATERIAL IS CAS-S 2 CAS-S ♦ 1 CNH4)2C03-*'J 2 CACU3-S t 2 NH4HS-AQ MEAT OF REACTIU.M = 2250.000 X 2000.000 X TOTAL HEA1 OF REACTIONS NO. OF "OLES IS 2 »EIGHT IS 2250.000 TON t 1 "2O3-A0 t * ♦ -375.7484 s -0. I69086797E+10 BTU PER 0AY = -0. 1690867976+10 «TU PER DAY CALCIUK SULPHIDE CAS-S OTHER TOTAL TOTAL HEAT IN HEAT IN 66. PEG C ( 151. DEG F) 2250.000 TON = 128.600 TON = 2678.600 TUfl C ( 151. DEG F) = AMMCNIOK BICAPBONATE IN AT 90. DfcG C ( (NH4J2C03-AW ... 1495.100 TOl. H2C03-A0 ... 967.200 TOt NH40H-AU ... 51.700 TON NH4HS-AG ... 162.000 TON H20-L ... 8068.100 TO?. TOTAL 10750.100 TON TOTAL MEAT In AT 90. DEB C ( 191. DEG F) 0.521553160E+08 BTU PER Oil 0.126760400E+08 »TU PER DAY 0.648313560E*08 BTU PER DAY 191. DEG F) 0.807206640E+08 BTU PER DAY 0.671402800E+08 BTU PER DAY 0.135207610E +08 BTU PER DAY 0.215091360E+08 BTU PER DAY 0.ie8636352E-M0 BTU PER UAY 0.206925440E»10 BTU PER BAY MCP* KCP = MCP= MCP* MCP = VCPs MCP = 0.157 CAL/G-OEG K 0.20C CAL/G-DEG K 0.230 CAL/G-DEG K 0.297 CAL/G-DEG K 1.056 CAL/G-OEG K 0.567 CAL/G-OEG K 0.999 CAL/G-OEG K TOTAL HEAT I\ 0.21340«57oE*10 BTU PER UAY CARBONATED SLJRRY CACU3-S OTHER Nh4HS-AQ NHIOh-AU H20-L TOTAL 100. DEG C 3121.500 TUN 128.600 TON 1756.000 TON 51.700 TON B068.100 TOt 13426.900 TON ( 212. DEB F) TOTAL HEAT UUT AT 100. DEG C ( 212. DE& F) 0.178767200E+09 BTU PER DAY 0.231878780E+08 BTU PER DAY 0.269017408E+09 BTU PER UAY 0.156003780E+0B BTU PER DAY 0.2176573ieE+10 BTU PER DAY 0.266314650E+10 eT'J PER DAY MCP* MCPS MCP* "CP = .*CP* 0.212 CAL/G-DEG K 0.200 CAL/G-DEG K 0.567 CAL/G-DEG * 1.056 CAL/G-DEG K 0.999 CAL/G-DEG K TOTAL HEAT OUT 0.266314650E*10 BTU PER OAY TOTAL QUANTITY IN a TOTAL QUANTITY OUT * GROSS HEAT 13429.000 TON 13128.900 TON BTU PER DAY Abbreviations used: AQ Aqueous L Liquid MCP Mean heat capacity S Solid SPD Shift per day NOTE. --"Ton " indicates short tons. FIGURE A-1.— Example of heat calculation. 16 APPENDIX B. —ITEMS INCLUDED IN CAPITAL COST COMPONENTS Labor — Erection labor cost for setting equipment in place, which includes moving the equipment from its storage location. Foundation — Material and labor cost for equipment or equipment support foundation. Buildings — Process building costs for material and labor includes the following: Stairways Windows Elevators Plumbing Heating Ventilation Dust collection Air conditioning Sprinkler system Lighting Telephones Fire alarm Painting Structures — Material and labor cost for equipment structures includes the following: Equipment supports Platforms Ladders Pipe supports Insulation — Material and labor cost for insulation for equipment and piping. Instrumentation — Instrumentation cost includes instruments, installation labor, and instrument panels. Electrical — Material and labor cost for electrical includes the following: Wire Conduit Switches Panels Piping — Material and labor cost for process piping includes the following: Pipe Pipe hangers Fittings Valves Painting — Material and labor cost for painting equipment, piping, and equipment supports. Miscellaneous — Cost of minor items of equipment not included in the process equipment list. 17 Field indirect — Construction expenses includes the following: Construction, operation, and maintenance of temporary sheds, offices, roads, parking lots, railroads, electrical, piping, communications, and fencing. Construction tools and equipment Warehouse personnel and expense Construction supervision Accounting and timekeeping Purchasing, expediting, and traffic Safety and medical Guards and security personnel Travel and transportation allowance for craft labor Housekeeping Weather protection Equipment rental (construction) Permits, special licenses, field tests Rental of off-site space Fringe benefits Interest Taxes and insurance Engineering — Cost includes the following: Process engineering Project engineering General engineering Drafting Cost engineering Reproductions Scale model Administrative and overhead — Cost includes the following: Administrative Procurement, expediting, and inspection Travel and living expenses Contingency — Compensation for unpredictable events, i.e., Storms Floods Strikes Price changes Small design changes Errors in estimation Unforeseen expenses Contractor's fee — Contractor's home office expenses, fees, and profits. Plant facilities — Material and labor cost includes the following: Auxiliary buildings Administration offices Medical and dispensary 18 Cafeteria Garage Parts or stores warehouse Maintenance shops Electric Piping Sheet metal Machine Welding Carpenters Instrument Guard and safety Hose house Change house Personnel Smoking stations (in hazardous plants) Shipping office and platforms Control laboratories Fire-protection facilities Building services — same as those listed under process buildings Nonprocess equipment Office furniture and equipment Cafeteria equipment Safety and medical equipment Shop equipment Automotive heavy maintenance equipment Yard material-handling equipment Laboratory equipment Lockers and locker-room benches Garage equipment Shelves and bins Housekeeping equipment Fire extinguishers, hoses, fire engines Site development — if not included separately under site preparation Plant utilities — Material and labor cost includes the following: Power-distribution system Water-distribution system Air-distribution system Refrigeration-distribution system Fuel-oil distribution system Gas-distribution system Process sewers Sanitary sewers Storm sewers Fireloops and hydrants Electric substations Compressed air plant — nonprocess Incinerator Ash disposal — if not included in process design Waste disposal — if not included in process design Wells River intake 19 Primary water treatment Filtration Coagulation Aeration Secondary water treatment Deionization De mineralization pH control Hardness control Water storage Escalation — Costs during construction includes the following: Increase in equipment costs between start of construction and equipment delivery Increase in labor rate during construction period Land cost — Includes the following cost: Fees Property Surveys Site preparation — (Included in plant facilities in Bureau evaluations.) Labor and material cost for the following: Site clearing Grading Drainage Excavation Piling Roads Access On-site Walkways Railroads Fences Parking areas Other paved areas Wharves and piers Recreational facilities Landscaping Interest during construction period is as follows: Interest on average amount of borrowed money for total plant cost Working capital — Includes the following cost: Raw materials and supplies Product and in-process inventory Accounts receivable Available cash Capitalized startup cost — Includes the following cost: Plant modifications during startup 20 APPENDIX C. —ITEMS INCLUDED IN OPERATING COST COMPONENTS Maintenance — Maintenance is divided into labor and material components. Labor as follows: Pipe fitters, electricians, welders, etc. Materials are as follows: Replacement parts, nuts, bolts, gaskets, welding rods, oxygen, acetylene, etc., used in repair. Payroll overhead — Includes the following: Federal O.A.S.I. Worker's compensation coverage Contributions to pension, life insurance, etc. Vacation, holidays, sick leave, overtime premium Company contributions of profit sharing Operating supplies — Includes the following cost: Lubricating oil Instrument charts Wiping cloths Filter cloth Gasoline and/or diesel fuel Indirect cost* — Plant overhead which includes the following: Administration (plant supervision) Indirect labor Laboratory Technical service and engineering Shops and repair facilities Shipping departments Purchasing, receiving, and warehousing Personnel and industrial relations Inspection, safety, and fire protection Accounting, clerical, and stenographic Communications Telephone Mail Teletype Plant office custodial and plant protection Medical and dispensary Cafeteria and clubroom Recreational activities Local contributions and memberships Waste disposal Control laboratories Storage facilities Salvage General engineering *Company administrative and research and development costs outside the plant are not included here Taxes — Property taxes 21 Insurance — Includes the following: Liability Property Depreciation — Straight line — average for buildings and equipment U.S. GOVERNMENT PRINTING OFFICE: 1987 605-017/60064 INT.-BU.OF Ml NES ,P6H. ,PA. 28527 10S6 461 U.S. Department of the Interior Bureau of Mine*— Prod, and D«tr. Cochrane Mill Road P.O. Box 18070 Pittsburgh. Pa. 15236 0FRCIALJ3USINESS PENALTY FO« PHIVATE USE. S300 J Do not wi sh to recei ve thi s material, please remove from your mailing list* "2 Address change. Please correct as indicated* AN EQUAL OPPORTUNITY EMPLOYER «5°* A* VJ * • • «* /> •£+ *0 .•iSL?»_ > v .'• • ,55^', O •** *"*' «v * «.* ' ^ c < f * ^ • ^ AV » ' ^fr 0^ ♦■" i* y-snL* **. j* .c^:» -^ \*5S^** o > ***. 0* " » /"} *V tf % V, '. < 4.* %*> ■» ^\^ • .„ kV- v.-. V ''/sab V- ;•• %/ :«» \./ ^^^ # - ^ * .1 r\ ^0^ O V J \J^^^ V'---y \. % ^^\v^ /'s&k-** /.^%% /\c^^\ c°^.^^^ /\^%v