Mining companies frequently have to decide whether to continue to use apiece of equipment or to replace it. Criteria on which these decisions are made include the level of deterioration, technological change, environmental demands, financial opportunities and changes in requirements resulting from new operating conditions. A systematic approach to making such replacement decisions is not normally taken, however. From an economic optimisation perspective, industry best practice should be applied: equipment should be replaced at a time which minimises the Life Cycle Cost. The traditional methodology used is minimisation of the Equivalent Annual Cost (EAC). Today, application of EAC methodology in the minerals industry is generally restricted to major mining companies, but the methodology has never been fully adopted and consequently companies sometimes make erroneous decisions in the determination of optimal economic equipment life. In traditional theory EAC is divided into two parts: the EA C of capital and the EAC of operations and maintenance. The former recognises that as a machine or vehicle gets older its value depreciates, suggesting a downward sloping EAC capital curve over its life. The latter identifies that as equipment deteriorates with age it becomes more difficult and costly to operate and maintain, resulting in an upward sloping EAC operations and maintenance curve. The sum of both cost schedules produces a U-shaped curve which, at its minimum point, indicates the time of optimal replacement. CRU Strategies has identified two limitations in the way that mining companies typically apply this theory. Firstly, in most cases there are inconsistencies and it is often not clear which costs should be included in either cost curve. Secondly, calculations rarely consider costs associated with losses in service capacity. In general, as equipment ages its availability decreases and alternative equipment -purchased or leased- must be brought in at additional cost. This paper describes a development of the traditional EAC theory in which these problems are addressed. Using illustrative data, CRU Strategies' model and its successful implementation at several mines are explained. The aim is to offer an alternative methodology for the implementation of optimal equipment replacement standards. This methodology should aid mine management's operational planning and budgeting processes.
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