🎓 Lesson 3
D2
Calculating Depreciation Per Machine Hour
Depreciation per machine hour is how much a piece of mining equipment loses in value each hour it runs.
🎯 Learning Objectives
- ✓ Calculate depreciation per machine hour using original cost, salvage value, and estimated total machine hours
- ✓ Explain how changes in estimated useful life or salvage value impact hourly depreciation cost
- ✓ Apply depreciation per machine hour to compute total equipment operating cost per blast cycle
- ✓ Compare machine-hour depreciation with straight-line and units-of-production alternatives for mining assets
📖 Why This Matters
In blasting and mining operations, accurate costing determines profitability, bid competitiveness, and fleet optimization. A $3.2M hydraulic drill depreciates faster when running 4,500 hours/year in abrasive quartzite than 2,200 hours/year in softer sedimentary rock—but straight-line depreciation ignores this. Using machine-hour depreciation ensures your blast design, contract pricing, and maintenance scheduling reflect *actual* asset consumption—not just calendar time.
📘 Core Principles
Depreciation per machine hour rests on three pillars: (1) Depreciable base = acquisition cost minus salvage value; (2) Total productive life measured in verified machine hours—not years—validated by OEM specs, fleet telemetry, and historical teardown data; (3) Uniform allocation assumes consistent wear per hour, adjusted only for major rebuilds or technology obsolescence. Unlike accounting depreciation, engineering depreciation prioritizes operational relevance: idle time, standby hours, and non-productive cycles (e.g., positioning, refueling) are excluded from the denominator unless they cause measurable wear. Modern telematics (e.g., CAT MineStar, Komatsu Haul Cycle) now auto-log productive engine hours—enabling dynamic recalibration of depreciation rates quarterly.
📐 Key Calculation
The formula allocates depreciable cost evenly across all estimated productive machine hours. It is deterministic, auditable, and integrates directly into machine hour rate models used in mine planning software (e.g., Deswik.Cost, MineSight).
Depreciation per Machine Hour
Dₕ = (C − S) / HₜCalculates the depreciation expense allocated to each productive machine hour.
Variables:
| Symbol | Name | Unit | Description |
|---|---|---|---|
| Dₕ | Depreciation per machine hour | USD/hr | Hourly depreciation cost assigned to equipment usage |
| C | Acquisition cost | USD | Total capitalized cost including purchase price, taxes, freight, and commissioning |
| S | Estimated salvage value | USD | Net realizable value at end of productive life, based on market data and condition assessment |
| Hₜ | Total estimated productive machine hours | hr | Lifetime hours of primary function operation, validated by OEM, fleet history, and failure analysis |
Typical Ranges:
Large hydraulic drill (e.g., Sandvik DR442): 180 – 240 USD/hr
250-ton off-highway haul truck (e.g., CAT 789D): 85 – 130 USD/hr
Electric rope shovel (e.g., P&H 4100XPC): 140 – 195 USD/hr
💡 Worked Example
Problem: A Sandvik DR442 rotary blasthole drill was purchased for $2,850,000. Estimated salvage value after full service life is $320,000. Based on OEM guidance and fleet history, its total productive machine hours before major overhaul or retirement is 12,500 hours.
1.
Step 1: Calculate depreciable base = $2,850,000 − $320,000 = $2,530,000
2.
Step 2: Divide by total estimated machine hours: $2,530,000 ÷ 12,500 hrs = $202.40/hr
3.
Step 3: Verify against typical range: $180–$240/hr for large rotary drills in hard-rock open-pit operations — result falls within expected band.
Answer:
The depreciation per machine hour is $202.40/hr, which falls within the safe and typical range of $180–$240/hr for this equipment class.
🏗️ Real-World Application
At Newmont’s Boddington Mine (Western Australia), the maintenance team recalculates depreciation per machine hour quarterly using actual telemetry data from 32 Sandvik DR445 drills. In Q3 2023, observed average productive hours dropped 14% due to increased clay content in the ore zone—causing higher bit wear and more frequent non-cutting downtime. The team revised the remaining depreciable base and updated the hourly rate from $211.60 to $228.30/hr to maintain cost accuracy in their blast-cost-per-ton model—directly informing the decision to accelerate bit material upgrades.