12-23-2009, 01:58 AM
Hi,
I (mine engineer, not accountant) have been helping put together a cash flow budget for a mine operation that has a projected life greater than 20 years but the project is being evaluated financially on a 20 year plan. I am unsure how to incorporate working capital changes into my spreadsheet despite reading probably 30 google search pages by now on this topic. I have working capital to be equal to assets - liabilities, where my assets are the sum of accounts receivable, spare parts and inventory, and liabilities are accounts payable. Accounts receivable are 4 weeks of sales, spare parts are 1 week of operating costs, accounts payable are 2 weeks of operating costs and coal inventory is 4 weeks of sale (suggested by a contractor but I don't know if that is "correct"). I then include this in my operating activities and after 5 years it is steady at about $50M/year (as in general our long term revenue and operating costs are simply constant projections). The problem is, and I'm no expert on working capital, is that I believe the working capital needs to be recovered? But if the project is evaluated for 20 years but the mine is operating longer, how can I show this working capital has been recovered? Furthermore, even if this wasn't the case, how do you show working capital has been recovered (i.e. do you just put in -$50M at year 20, or spread out or what). And to add to this confusion, does working capital indicate we need to raise this money or..?
John
I (mine engineer, not accountant) have been helping put together a cash flow budget for a mine operation that has a projected life greater than 20 years but the project is being evaluated financially on a 20 year plan. I am unsure how to incorporate working capital changes into my spreadsheet despite reading probably 30 google search pages by now on this topic. I have working capital to be equal to assets - liabilities, where my assets are the sum of accounts receivable, spare parts and inventory, and liabilities are accounts payable. Accounts receivable are 4 weeks of sales, spare parts are 1 week of operating costs, accounts payable are 2 weeks of operating costs and coal inventory is 4 weeks of sale (suggested by a contractor but I don't know if that is "correct"). I then include this in my operating activities and after 5 years it is steady at about $50M/year (as in general our long term revenue and operating costs are simply constant projections). The problem is, and I'm no expert on working capital, is that I believe the working capital needs to be recovered? But if the project is evaluated for 20 years but the mine is operating longer, how can I show this working capital has been recovered? Furthermore, even if this wasn't the case, how do you show working capital has been recovered (i.e. do you just put in -$50M at year 20, or spread out or what). And to add to this confusion, does working capital indicate we need to raise this money or..?
John
