Mine Economics Past Paper 2023 PDF

 Mineral Deposit Ore Gangue/Waste Hydrocarbons Reservoirs  Feasibility Exploration Definition Development Extraction Processing Refining Studies ...

 Mineral Deposit Ore Gangue/Waste Hydrocarbons Reservoirs  Feasibility Exploration Definition Development Extraction Processing Refining Studies      INITIAL CAPITAL EQUIPMENT AND OPERATIONAL INVESTMENT TECHNOLOGY EFFICIENCIES PROCUREMENT RESEARCH AND AND SUPPLY DEVELOPMENT CHAIN   01 02 03 A technical component A narrowly-focused A more broadly-based economic component economic component, including financial and business elements that influence mine performance within the industry at large   An expense that does Fixed Cost not vary with the level of output The portion of the fixed cost that is not Sunk Cost recoverable Should not affect subsequent decisions Value of the Opportunity opportunity that is forsaken Cost Opportunity cost is opportunity lost Variable Costs Externality Marginal Costs Costs that change with the Costs that a decision maker Change in total cost level of output does not take into account The cost added by Can be both positive or producing one additional negative unit of product or service     (1 + 𝑖) $2,000,000 1.191 $2,382,000  Present 1⁄(1 + 𝑖) Value Function  $30,000,000     $1,175,300/𝑦𝑒𝑎𝑟 $195.88/ℎ𝑜𝑢𝑟   $170,500 $56.83/ℎ𝑜𝑢𝑟  FINANCIAL CORPORATE FINANCE ACCOUNTING  1. 2. 3. 4. 5. 6. 7. 8. 9. Item Value Initial capital cost $15,000,000 Life of project 5 years Salvage value at end of life At written-down value Production per year Varies as shown in the table Selling price $500/oz Annual operating expenses As shown in the table Depreciation rate for tax purposes 27.5% (declining balance method) Tax rate 35% Discount rate 15%  Year Year 00 11 22 33 44 55 Production, oz Production, 30,000 30,000 50,000 50,000 50,000 50,000 50,000 50,000 45,000 45,000 Operatingrevenue, Operating thousand$$ revenue,thousand 15,000 15,000 25,000 25,000 25,000 25,000 25,000 25,000 22,500 22,500 Operatingexpenses, Operating thousand$$ expenses,thousand 10,598 10,598 17,762 17,762 19,339 19,339 21,073 21,073 20,882 20,882 Operatingprofit, Operating thousand$$ profit, thousand 4,402 4,402 7,238 7,238 5,661 5,661 3,927 3,927 1,618 1,618 Capitalexpenditure, Capital thousand$ $ expenditure,thousand 15,000 15,000 Tax depreciation Tax depreciation––27.5% 27.5%ofofthe the 4,125 4,125 2,991 2,991 2,168 2,168 1,572 1,572 1,140 1,140 start-of-year value start-of-year valueof ofcapital, capital, thousand $$ thousand End-of-yearwritten-down End-of-year written-downvalue valuefor 10,875 10,875 7,884 7,884 5,716 5,716 4,144 4,144 3,004 3,004 for tax tax purposes, purposes, thousand thousand $ $ Salvagevalue, Salvage thousand$$ value,thousand 3,004 3,004 Taxableprofit, Taxable thousand$$ profit, thousand 277 277 4,247 4,247 3,493 3,493 2,355 2,355 478 478 Incometax Income taxpayable payableatat 35%35% tax tax rate, 97 97 1,486 1,486 1,223 1,223 824 824 167 167 rate, thousand thousand $ $ After-tax profit, After-tax thousand $$ profit, thousand 180 180 2,761 2,761 2,270 2,270 1,531 1,531 311 311 Net cash Net cashflow, thousand$$ flow,thousand 15,000 15,000 4,305 4,305 5,752 5,752 4,438 4,438 3,103 3,103 4,455 4,455 Discount factor (at Discount (at 15% 15% ROI) ROI) 1.0000 1.0000 0.8696 0.8696 0.7561 0.7561 0.6575 0.6575 0.5718 0.5718 0.4972 0.4972 Discounted cash Discounted cash flow, thousand$$ flow, thousand 15,000 15,000 3,744 3,744 4,349 4,349 2,918 2,918 1,774 1,774 2,215 2,215 Net present Net present value, value,$$ 00  Year 0 1 2 3 4 5 Production, oz 30,000 50,000 50,000 50,000 45,000 Operating revenue, thousand $ 15,000 25,000 25,000 25,000 22,500 Operating expenses, thousand $ 10,598 17,762 19,339 21,073 20,882 Operating profit, thousand $ 4,402 7,238 5,661 3,927 1,618 Capital expenditure, thousand $ 15,000 Tax depreciation – 27.5% of the 4,125 2,991 2,168 1,572 1,140 start-of-year value of capital, thousand $ End-of-year written-down value 10,875 7,884 5,716 4,144 3,004 for tax purposes, thousand $ Salvage value, thousand $ 3,004 Taxable profit, thousand $ 277 4,247 3,493 2,355 478 Income tax payable at 35% tax 97 1,486 1,223 824 167 rate, thousand $ After-tax profit, thousand $ 180 2,761 2,270 1,531 311 Net cash flow, thousand $ 15,000 4,305 5,752 4,438 3,103 4,455 Discount factor (at 15% ROI) 1.0000 0.8696 0.7561 0.6575 0.5718 0.4972 Discounted cash flow, thousand $ 15,000 3,744 4,349 2,918 1,774 2,215 Net present value, $ 0  Step 1: Calculate the present PV factor for Year 1 = 1 / (1 + discount rate)^1 = 1 / (1 + 0.08)^1 = 0.9259 value for each factor for PV factor for Year 2 = 1 / (1 + discount rate)^2 = 1 / (1 + 0.08)^2 PV factor for Year 3 = 1 / (1 + discount rate)^3 = 1 / (1 + 0.08)^3 = 0.8573 = 0.7938 each year using the discount PV factor for Year 4 = 1 / (1 + discount rate)^4 = 1 / (1 + 0.08)^4 = 0.7350 rate PV factor for Year 5 = 1 / (1 + discount rate)^5 = 1 / (1 + 0.08)^5 = 0.6806 Step 2: Multiply each PV cash flow for Year 1 = $400,000 * 0.9259 = $370,360 projected cash flow by its PV cash flow for Year 2 = $500,000 * 0.8573 = $428,650 PV cash flow for Year 3 = $600,000 * 0.7938 = $476,280 respective present value PV cash flow for Year 4 = $700,000 * 0.7350 = $514,500 factor PV cash flow for Year 5 = $800,000 * 0.6806 = $544,480 NPV = PV cash flow Year 1 + PV cash flow Year 2 + PV cash flow Year 3 + PV cash Step 3: Sum up the present flow Year 4 + PV cash flow Year 5 value of all cash flows NPV = $370,360 + $428,650 + $476,280 + $514,500 + $544,480 NPV = $2,334,270 Since the calculated NPV is positive ($2,234,270), it indicates that the Step 4: Analyze the NPV project is expected to generate value and is potentially profitable.   NPV = 0 = -Initial Investment + (Cash Flow Year 1 / (1 + Step 1: Set up the IRR)^1) + (Cash Flow Year 2 / (1 + IRR)^2) +... + (Cash equation for NPV Flow Year 5 / (1 + IRR)^5) Step 2: Substitute 0 = -$2,000,000 + ($500,000 / (1 + IRR)1) + ($500,000 / (1 the given values + IRR)2) + ($500,000 / (1 + IRR)3) + ($500,000 / (1 + IRR)4) into the equation + ($500,000 / (1 + IRR)5) Trial and error Step 3: Solve for Computational methods the IRR By solving the equation, the IRR for this project is approximately 17.3% Since the calculated IRR is higher than the company’s Step 4: Analyze discount rate of return, the project is considered the IRR economically viable.  Step 1: Divide Payback Period = Initial Investment / Annual Net Cash Flow the initial investment by the annual net Payback Period = $1,500,000 / $400,000 cash flow Step 2: Payback period = 3.75 years Calculate the payback period Step 3: Analyze The calculated Payback Period indicates that it will take approximately the payback 3.75 years for the cumulative cash inflows from the project to recover the period initial investment of $1,500,000. This means that the project is expected to pay back the investment in less than 4 years.   Step 1: Calculate Step 2: Calculate Step 3: Analyze the the contribution the break-even break-even point margin per unit point in terms of units Break-Even Point (in Units) = The calculated break- Contribution Margin per Fixed Costs / Contribution even point is Unit = Selling Price per Unit - Margin per Unit approximately 33,333 Variable Cost per Unit units. This means that the mining company needs to sell at least 33,333 units of Break-Even Point (in Units) = the production to cover its $1,000,000 / $30 total costs (fixed and variable costs) and reach Contribution Margin per break-even point. At this Unit = $80 - $50 = $30 Break-Even Point (in Units) = level of sales, the 33,333.33 units (rounded to company neither incurs a the nearest whole number) profit nor a loss.  Involves assessing the By conducting sensitivity impact of changing key analysis, mining engineers variables, such as can evaluate the project’s commodity prices, robustness to different operating costs, or discount market conditions and rates, on the mine’s identify potential risks profitability measures.  Calculated by dividing the Helps assess the value A profitability index greater present value of future cash created per unit of investment than 1 indicates a potentially flows by the initial investment profitable project Step 1: Calculate the Step 2: Calculate the Step 3: Calculate the present value of each sum of the present profitability index cash flow values Year 1: $181,820 Sum of PV = PV1 + Profitability Index = Year 2: $247,920 PV2 + PV3 + PV4 + (Sum of PV) / Initial Year 3: $300,520 PV5 investment Year 4: $310,450 181,820+247,920+30 1,379,410/1,000,000 0,520+310,450+338,7 = 1.38 Year 5: $338,700 00 = 1,379,410