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.
When mutually-exclusive projects differ in LIFE, CAPITAL COST or the applicable hurdle rate, IRR and NPV can rank them DIFFERENTLY, and NPV is the theoretically correct criterion to follow. A short-life, small-capital project can show a very high IRR while creating little absolute value, while a longer-life, larger-capital project can show a lower IRR yet create far more absolute NPV — IRR also implicitly assumes interim cash flows are reinvested at the project's OWN IRR (an unrealistic assumption for a high-IRR project), whereas NPV's discounting assumes reinvestment at the more defensible hurdle rate. Where lives genuinely differ, a valid comparison also requires either an equivalent-annual-value/annuity conversion or explicitly modelling reinvestment of the shorter project's freed-up capital in a follow-on project, rather than comparing raw NPVs of unequal-length streams directly. In practice the eventual investment decision should be driven by NPV (or equivalent annual value, for unequal lives) at the CORRECT project-specific discount rate, using IRR only as a supplementary robustness/sensitivity check rather than the primary ranking criterion.
