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PostPosted: Tue Feb 08, 2011 1:22 pm 

Joined: Nov 6, 2009
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This guide is dedicated to Vaculus, who figured out all the formulas and information used here and developed a nice spreadsheet that included most, but not all, of the factors identified here in this guide. Most of what I know about raw materials pricing has built upon the foundation established by Vaculus.

The information was requested specifically by Winners Save, not just in terms of what the cost is of building a site, but how can he or any player better understand the full and complete costs of producing raw materials.

First, the formulas which are used to calculate costs for any raw materials site in any city:

Raw Site Cost = ( 1 + City Adj ) x ( Land Cost + M1 x ( Build Fee + 750 x ( FT - 100 ) ) + M2 x Total Q x Unit Cost )
For a site of 100 sq ft, this simplifies to (1 + City Adj) x (Land Cost + M1 x (Build Fee) + M2 x Total Q x Unit Cost )
The cost of expansion alone for making a site already built 100 sq ft larger is (1 + City Adj) x ( M1 x 75,000 ) and is the same for all types of raw materials extracted.

The variables used in the above equations are:

Raw Site Cost = only the cost to build the site, not including any value for the capital (cash) used in building/financing the site or the value of the land slot used over time to extract the resources from the site. This is the basic raw site cost.
City Adj = the economic adjustment factor that applies for every city, which changes very often by small amounts and which can shift significantly over time. This factor can be found in Simunomics by looking at the Stats page for each city.
Land Cost = Standard lands are always used, so land cost is always 50,000
M1 = multiplier for the type of mine to be built, with normal =1, large = 10, v. large = 100, huge = 1000, and v. huge = 10,000
M2 = multiplier for the cost of resources to be mined, which increases by 20% for each size larger of mine that is built. normal = 1, large = 1.20, v.large = 1.44, huge = 1.728, v.huge = 2.0736=1.2^4
Total Q = total number of units in mine to be built
Build Fee = 110,000 fixed fee
FT = number of sq ft in the mine to be built
Unit Cost = factor for the cost of materials produced taken from the list below for the type of raw material to be produced, which is raw cost before adjusting for effect of larger mine sizes on costs
Units per Day = factor for basic production of units in a normal mine, per day, shown in the table below for each type of resource

UNIT COST of RAW MATERIAL(BASE COST, NOT INCLUDING PURCHASING FEE OR ANYTHING ELSE) FOR HUGE SITES
Oil - 1.60704 (5,000,000/day)
water - .05184 (125,000,000/day)
wood - 13.5648 (500,000/day)
minerals - 3.23136(2,500,000/day)
iron - 6.44544 (1,250,000/day)
aluminum - 8.05248(1,000,000/day)
silica - 4.0264 (2,000,000/day)
silver - 18.24768 (500,000/day)
gold - 23.3238 (400,000/day)
clay - 1.74528 (5,000,000/day)
Since these costs are for huge sites, divide by 1.728 to get costs for a normal site, and by 1000 for volumes for a normal site.

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This gives you all the information needed to determine what it would cost to build a mine of any type, focus, or size in any city. However, it is not enough to know whether or not you are making money or saving money by producing raw materials yourself to use or sell. Other costs you should consider are:

Size tax (per day) - you may have to pay taxes to build a raw materials site, which otherwise would not need to be paid

Financing costs (percent) - you will have to spend considerable cash to build a raw materials site, and you might be able to get a better return on your cash investing it in expanding other properties instead, or investing in bonds. At a minimum, you should always try to earn at least as much as the lowest possible bond rate would give you for investing your cash, which is at least 0.15% per day. For many players, the value of capital or cash that is being considered for investing in either mines or other investments has an effective cost that is much higher than 0.15%, and can in some cases be as much as 1% per day for some smaller players, who can generate very high returns on modest investments in expanding their stores or factories.

Land costs (per day) - building a mine is a long term commmitment of land to producing the materials from the site, and you won't be able to use that land for anything else while the mine is active. For some players, the cost of using a land slot may be zero, as they have lots of unused spaces available and lose nothing from having one used by a mine, but for others, giving up a land slot means there is one less store or factory that is available to produce profits for their firm. Since for most players, factories and stores earn higher returns per day than do mines, on average, the cost of making a long term committment to using space for mines instead of factories should be considered as part of the cost of building raw materials sites.

Total costs of producing raw materials, including the above costs, then becomes:

Total cost per unit = {Raw Site Cost + [Size tax + Land Cost] x Mine Life (in Days) + Financing Costs (%) x Raw Site Cost x Mine Life (in Days) / 2} / total units produced

Mine Life (in Days) = [Total Q / (Units per day x M1) + FT/300] (time to build plus time to extract)

Financing cost is divided by two, as the amount of resources in the mine over the life of the mine is declining, so is on average half of the starting amount.

________________________________________________


To put this into perspective, for Winners Save, the following numbers could be applied to cost of making Q100 water in a 100 sq ft huge mine:

Size Tax = 6.6 billion total tax per month, divided by 100 land slots, divided by 30 days per month, equals 2.2 million per day (could be higher if you consider the fact that he would not have to pay taxes if he was not making raw materials sites)
Land Cost = lost income from not using the land for a factory or farm or store = conservate estimated at 1 million per day (a low estimate easy to achieve in a 20k sized factory, so quick to build @ 2x speed if one more factory is needed)
Financing Cost = 0.15% (using only the income that could be earned from the lowest rate bond price that is ever offered)
City Adj = assume Canjara, the cheapest city, so -12.66%
M1 = 1000 (huge mine)
M2 = 1.728 (for huge mine)
Total Q = total number of units in mine to be built (assume 30 days x 125,000,000/day)
FT = 100 sq ft
Unit Cost = .05184
Units per Day = 125,000,000/day

Raw Site Cost = ( 1 + City Adj ) x ( Land Cost + M1 x ( Build Fee + 750 x ( FT - 100 ) ) + M2 x Total Q x Unit Cost )
Raw Site Cost = (1 + -12.66%) x (50k + 1000 x (110000 + 750 x (100-100)) + 1.728 x (30x1000x125000k) x .05184/1.728)
Raw Site Cost = 265906630 (the is the same cost any player would have to build this site)

Size Tax plus Land Cost = 3.2 million per day (a low target for earning per day)
Financing Cost = 0.15% (minimum bond rate)

Total cost per unit = { 265,906,630 + 3.2kk x 30.333 days + 0.15% x 265,906,630 x 30.333 days / 2 } / (30 x 125 million)
Total cost per unit = { 265,906,630 + 97,066,656 + 6,049,369 } / 3750 million = 0.098 per unit cost for water

Therefore, the most basis analysis here, using conservative assumptions, indicates that Winners should be charging at least 10 cent per unit for water based on the minimum cost of production of water in a 100 sq ft huge mine.


_________________________________________________________________________


Fortunately, larger mines can produce efficiencies and savings, so cost per unit could be lower if a larger site with longer life was used to calculate unit costs. Without going through the math in detail, step by step, the cost for a mine of 1000 sq ft huge site making water for 150 days, instead of 100 sq ft huge for 30 days, would be only 0.06 per unit. Thus, when mines are built for a very long time, if the cost of capital is low, the cost per unit can be very low. Unfortunately, the cost of capital is often higher than 0.15%, even for someone as large as Winners, and when the cost of capital is 0.5% instead of 0.15%, then the cost of water on average over the life of the mine including interest costs becomes 0.070 per unit, which is exactly the level at which Winners has been pricing his water.

With the economies of scale available from very big mines, it may indeed be possible for Winners to be able to justify the low prices he has been charging and to make enough money from the mines to be able to pay the cost of taxes.
However, the full cost of taxes are not being paid by the mines at this rate, as taxes are split across all 100 sites, but it is only the 10 mines sites that really force Winners to pay taxes. In addition, the land cost of 1 million per day assumed also may be much lower than is reasonable.
If we use 1000 sq ft huge site as the size, but add in cost of all taxes to be paid by only the 10 mines, but only once in five months, due to 150 day mine life, and 4 million per day for the cost of using the land slots for mines, then the cost of water per unit becomes 0.074 per unit. Not bad! Close to the current 0.07 price.
With one final change, the size of the mine could be increased by 10 times, but the type of mine changed to very large instead of huge. This would reduce costs, although building time for the mine would be very long (more than 30 days). However, including this as a cost in the total cost of mining the water, cost per unit becomes 0.065 per unit, or less than the current 0.07 price being charged now.

Thus, with a mine size of 10,000 sq ft, very large, of 150 days duration, the cost per unit for making water can be less than 0.07 per unit while still earning enough profit to pay all taxes that are owed. The key is big scale mines of long, long life to overcome the burden of taxes and benefit from mine economies of scale in production.

By the way, the cost to build ONE MINE of this size will be 13,903,777,171 including value of time and financing, or 9,175,110,670 just for the raw site cost, so it won't be cheap to make a mine of this size. But, if it is made, the cost will be low enough to justify 0.07 price for water IN CANJARA ONLY (plus shipping costs to other cities).

__________________________________________________________________

Winners does need to make some changes in the way he is approaching the raw materials market. Sites need to be build for much longer periods of time, and only in Canjara (ship to other cities) or Bellerive (for products Canjara can not make), as City Adj is not attractive in other cities. The amount of capital required will be very, very large, and it may be difficult to spend the kind of cash that will be required to get costs down to the levels he is targeting in pricing, but it may be possible to justify his current prices if he can dedicate sufficient capital to mines expansions to be able to get costs below his target prices. At the same time, it is not clear that he needs to keep prices as low as they are now, or that he should, but it would be possible to do so and still make a reasonable return on capital and pay taxes (every five months) if he builds large volume mines with 150 durations to meet most of the expected market demand over that period of time for raw materials.

Bottom line from this analysis and modeling activity, using these player guide numbers developed to create these examples of unit costs, Winners can easily justify raising prices, but may not be forced to do so if he can, instead, change the way that he approaches the raw materials business and instead of replacing mines each month, builds only very large mines of large scale which take more than a month to create and which are built with 150 days of production capacity.


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PostPosted: Tue Feb 08, 2011 2:17 pm 

Joined: Dec 12, 2008
Posts: 3558
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User avatarVaculus

Unit cost for normal sites:

Aluminum=4.4736
Clay=0.9696
Gold=12.9600
Iron Ore=3.5808
Minerals=1.7952
Oil=0.8928
Silica=2.2368
Silver=10.1376
Water=0.0288
Wood=7.5360

Also an alternative formula for the building cost, for those who find those M1 and M2 strange:

Raw Site Cost = (1+CA)•(LC+(10^z)•(BF+750•(FT-100))+(1,2^z)•TQ•UC)

CA = City Adjustment (Economic Adjustment)
LC = Land Cost (50.000)
BF = Build Fee (110.000)
z = {0 for normal sites, 1 for large sites, 2 for very large sites, 3 for huge sites}
UC = Unit Cost (applies for q0)
TQ = Total Quantity
FT = feet (ft²)
^ = power


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PostPosted: Tue Feb 08, 2011 7:51 pm 

Joined: Nov 6, 2009
Posts: 4948
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User avatarReal Value
 
That works too. :)


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