Question 3 of 27

Question 1.3 (5 marks)

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.

Cost index. A cost index is a dimensionless, time-referenced ratio (base year = 100) tracking how the price of a defined basket of goods/labour/equipment has changed, letting an old cost estimate be escalated to a current-day figure by simple multiplication: Cost _present = Cost _base × (Index _present/Index _base).

Two indexes. (1) The Marshall & Swift Equipment Cost Index tracks the installed cost of process/mining equipment (steel, fabrication, installation labour) and is widely used to escalate CAPITAL cost estimates. (2) The Canadian Mining Journal / CIM Bulletin mining cost-index series (successor to the O’Hara 1980 update papers) tracks a blended basket of mine OPERATING inputs (labour, diesel, explosives, tyres, power) specific to the mining industry rather than general manufacturing.

Problems applying one index broadly. A single blended index applied uniformly across every cost sector (drilling, blasting, hauling, milling, G&A) masks the fact that these sub-sectors escalate at very different rates — labour-heavy sub-sectors (G&A, maintenance labour) inflate differently from energy-heavy sub-sectors (haulage fuel) or commodity-linked sub-sectors (steel grinding media, tyres tied to rubber/oil prices). Applying ANY index over periods exceeding roughly 5 years compounds this error because the underlying TECHNOLOGY changes (larger, more efficient trucks and shovels; automation) so the basket the index was built from is no longer representative — the index correctly tracks INFLATION of like-for-like items but cannot capture productivity gains or a shift to a different equipment generation, so long-period escalations should be cross-checked against a fresh parametric or vendor quote rather than trusted on index alone.