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.
[This sub-question repeats Question 2.2 above – the paper explicitly notes some questions are duplicated "to maintain the flow of calculations." The full answer is restated here for completeness.]
Depreciation. Recovers the cost of TANGIBLE fixed assets – mill/plant, mobile equipment, buildings – via CRA declining-balance CCA classes (e.g. Class 41/41.1/53), subject to the half-year rule; a non-cash charge whose only cash effect is the tax shield it generates (CCA × tax rate), which is why it must be ADDED BACK to net income to recover true project cash flow.
Depletion. Recovers the cost of the MINERAL RESOURCE itself (exploration/development cost pools, CEE/CDE under Canadian tax law), typically on a units-of-production basis (cost pool × tonnes mined this year ÷ total remaining reserve); like depreciation, purely a tax-shield mechanism with no direct cash effect of its own.
Amortization. Recovers the cost of INTANGIBLE capital – pre-production development/stripping, feasibility and permitting cost, deferred financing cost – usually straight-line or units-of-production over the asset's or mine's useful/reserve life; again a non-cash, tax-shield-only item.
Cash-flow effect, restated. None of the three represents an actual period cash outflow (the cash was already spent when the underlying asset/resource/development cost was originally incurred); all three reduce TAXABLE income and hence cash taxes paid, and so must be added back after computing tax to arrive at true after-tax cash flow (exactly the ATCF construction used in the Question 2.4 cash-flow table, where Depreciation, Amortization and Depletion Taken all appear as explicit add-back lines).
