24-MMP-A4 Mine Valuation and Mineral Resource Estimation · May 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-May. 3 hours duration; closed book, with one handwritten 8.5×11 in. reference sheet (both sides) permitted; only an approved Sharp or Casio calculator allowed. Question 1 is compulsory (40 marks, parts 1.1–1.9); 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 estimators); Hustrulid, Kuchta & Martin, Open Pit Mine Planning and Design (mine valuation, cut-off grade theory, incremental analysis); Gentry & O'Neil, Mine Investment Analysis (Canadian mining taxation, cash flow/risk, smelter contract terms, NSV/NSR); SME Mining Engineering Handbook, 3rd ed. (ore deposit models, mineral exploration/evaluation stages, equipment utilization); O'Hara, T.A., “Quick Guides to the Evaluation of Orebodies,” CIM Bulletin, Feb. 1980 (parametric capital-cost estimating); CIM Definition Standards for Mineral Resources and Mineral Reserves / National Instrument 43-101 (resource/reserve classification and reporting).
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.
Incremental financial analysis asks, for any proposed CHANGE from a defined base case, whether the extra (marginal) revenue generated exceeds the extra (marginal) cost incurred — ignoring costs already committed (sunk) in either case. It differs from an average- or total-cost comparison, which can favour a wrong decision when average cost is dragged down by already-committed capital that is irrelevant to the decision at hand.
(a) Feasibility study. Incremental analysis is the correct tool for choosing among candidate pit designs, mining rates or plant capacities: each larger increment of pit/rate is justified only if its own extra tonnes generate more discounted cash flow than the extra capital and operating cost that increment requires, not by whether the AVERAGE project NPV per tonne looks acceptable. This is exactly how an optimal pit limit or optimal cut-off grade is actually selected — expand the pit/lower the cut-off only while the next increment of material is still cash-positive on its own margin.
(b) Operating mine. The same logic governs day-to-day decisions once capital is sunk: whether to mine and process one more block, stockpile vs. mill a marginal-grade parcel, or push a marginal cut-off lower during a low-price period, should be decided on the INCREMENTAL cost of handling that extra tonne (which, with fixed costs already covered, can be much lower than the mine's average total cost per tonne) against its incremental revenue — not against the full average cost of production that a feasibility-stage decision would have used.
In both settings, incremental analysis prevents two symmetric errors: rejecting a genuinely profitable expansion because it looks unattractive on an AVERAGE-cost basis, and continuing to mine material that is incrementally loss-making merely because the operation as a whole remains profitable.
