24-MMP-A4 Mine Valuation and Mineral Resource Estimation · December 2018
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, 2018-Dec. 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 1.1–1.8); candidates then select THREE of the five optional Questions 2–6 (20 marks each) to complete the paper.
Reference texts: Isaaks & Srivastava, An Introduction to Applied Geostatistics (variogram modelling, kriging, anisotropy); Hustrulid, Kuchta & Martin, Open Pit Mine Planning and Design (mine valuation, NPV/IRR and cut-off grade methodology); Gentry & O'Neil, Mine Investment Analysis (smelter/refining contract terms, net smelter return, taxation and risk); Guilbert & Park, The Geology of Ore Deposits, and Evans, Ore Geology and Industrial Minerals (VMS/SEDEX and porphyry deposit models); SME Mining Engineering Handbook, 3rd ed. (mineral exploration/evaluation stages, ore reserve classification); 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.
6.1.1 Internal Rate of Return (IRR) is the discount rate at which a project's net present value equals exactly zero — the break-even return the project itself generates on its invested capital, independent of any external hurdle rate.
6.1.2 Net Present Value (NPV) is the sum of all future net cash flows, each discounted back to the present at a chosen (hurdle) discount rate, less the initial investment — a positive NPV means the project creates value above the hurdle return; a negative NPV means it does not clear that bar.
6.1.3 Present value factors are the discount multipliers $1/(1+i)^n$ for a single cash flow occurring n years from now at rate i — multiplying a future cash flow by its PV factor converts it to today's-dollar equivalent.
6.1.4 Cumulative present value factors are the running SUM of individual-year PV factors from year 1 through year n at a given rate — multiplying a LEVEL (constant) annual cash flow by the cumulative factor for n years gives the present value of that whole annuity in one step, without discounting each year separately.
6.1.5 Profitability Index is the ratio of the present value of a project's future net cash inflows to its initial investment (equivalently, $PI=1+NPV/Investment$) — it expresses value created per dollar invested rather than in absolute dollars, making it useful for ranking capital-constrained alternatives of different scale.
