Care and maintenance
Valuation & CompsHolding a mine, plant or field idle but preserved, so production can restart when prices recover rather than the asset being abandoned.
Also written: care and maintenance basis, mothballed
Placing an asset on care and maintenance means suspending production while keeping the site safe, dewatered, ventilated, insured and licensed, with a skeleton crew. It is neither operating nor closing, and it is the practical form the option to abandon usually takes.
The cost is real but small relative to running at a loss, which is precisely why the option has value. It is the exercise price of stopping, and it should be modelled explicitly rather than treated as zero.
The decision rule is the cash cost of production against the price, not the full cost including depreciation and past capital. A mine covering cash costs but not its historic investment keeps running, because stopping does not recover the capital already spent.
Two things frequently make it a worse option than it looks. Restart costs can be large, particularly where a shaft floods or a workforce disperses, and decommissioning and rehabilitation obligations do not go away while an asset sits idle. Neither shows up in a cash flow forecast built on production volumes.
Worked example
A mine produces at a cash cost of €7,000 a tonne. The price falls to €5,000, so producing 10,000 tonnes would lose 20 million.
Care and maintenance costs 3 million a year instead, so suspension saves 17 million while the price stays low.
Restarting later costs 6 million and takes two quarters, so a price recovery that is expected to be brief may not be worth chasing, which is why the option is not the same as a free switch.