24-MMP-A4 Mine Valuation and Mineral Resource Estimation · May 2016
Nivaar worked solution (AI-drafted; not reviewed by a licensed engineer)
EGBC National Exam — Mining and Mineral Processing Engineering, 09-Mmp-A4 Mine Valuation and Mineral Resource Estimation, 2016-May. 3 hours duration; one handwritten 8.5×11 in reference sheet permitted (not an open-book exam); only approved Sharp or Casio calculators allowed. Question 1 is compulsory (40 marks, parts 1.1–1.6); candidates then select THREE of the six optional Questions 2–7 (20 marks each) to complete the paper.
Reference texts: Isaaks & Srivastava, An Introduction to Applied Geostatistics (variogram modelling, kriging estimators, volume–variance relations); Hustrulid, Kuchta & Martin, Open Pit Mine Planning and Design (mine valuation, NPV and cut-off grade methodology, mineable reserves); Gentry & O'Neil, Mine Investment Analysis (Canadian mining taxation, inflation and financing effects on DCF yield, smelter/refining contract terms, net smelter return); SME Mining Engineering Handbook, 3rd ed. (mineral exploration/evaluation stages, ore reserve classification, ore deposit models); CIM Best Practice Guidelines and NI 43-101 (Canadian Securities Administrators).
Question text not reproduced: the examination questions are © Engineers and Geoscientists BC. Open the official past paper (linked at the top of this page) to read the question, then follow the worked solution below.
5.5.a) Constant (real) money throughout. Simplest to build and communicate (no inflation forecast needed for any line item), and appropriate when cost and revenue categories are expected to inflate at roughly the SAME rate (so relative prices, and hence project economics, are largely inflation-neutral) and when the project is 100% equity financed (no fixed-nominal debt to distort). It becomes inappropriate once debt financing or differential (cost vs. revenue) inflation rates are material, since it silently assumes both away.
5.5.b) Current (nominal) money throughout. Most accurate in principle – captures actual nominal interest rates, actual tax timing on nominal (not real) income, and differential escalation by cost category – and is MANDATORY once the project carries debt financing with nominal interest rates, since real-terms modelling cannot correctly capture nominal interest tax deductibility. The cost is data intensity: every line item needs its own inflation forecast, and the model itself becomes harder to audit/communicate.
5.5.c) Hybrid – current money to start-up, then constant money. A practical compromise widely used in bankable feasibility studies: near-term capital cost, financing and construction-period figures (where nominal escalation genuinely matters for financing/drawdown schedules and is reasonably forecastable over a 2–4-year build) are modelled in current money, while the long operating life (often 10–30+ years, where inflation forecasts become essentially unreliable that far out) reverts to simplified constant-money terms. This captures the financing-critical near-term detail without pretending to forecast inflation accurately decades into the future.
In practice (c) is the most commonly used approach for bankable feasibility studies precisely because it is honest about where inflation forecasting is and is not reliable, while (b) is reserved for detailed near-term financing models and (a) for early-stage scoping/PEA-level screening where the simplification is acceptable given the estimate's own low precision.
