Depreciation is the allocation of the cost of a long-term asset across the periods in which the asset is used. In mining economics, it helps reflect the fact that equipment has a limited useful life and may lose economic value over time.

Depreciation does not necessarily represent a cash payment at the moment it is recorded. This distinguishes it from direct cash expenses such as electricity payments.

Depreciation in mining models

The cost of equipment can be allocated over an estimated useful life. The resulting amount depends on the original cost, useful life, residual value, and depreciation method.

For mining equipment, economic useful life may be shorter than physical operating life because newer generations can provide substantially better efficiency and network conditions can change.

Depreciation is closely related to equipment depreciation, while the broader term can also apply to other long-term infrastructure assets.