FINAL EXAM

A prestigious international company in the copper sector requires your advice.

expert to analyze the business plan of one of its operations considering the first five years
from a LOM plan. The parameters and mining plan are shown below.

ITEM VALUE UNIT

Mining Cost Reference 1.7 US$/ton
Mining Cost Ore 1.9 US$/ton
Process Cost Cu 10.5 US$/ton
MCAF 1.02 Annual factor
PCAF 1.05 Annual factor
Sell Cost 0.26 USD per pound
Price Cu 2.83 US$/lb
Recovery Cu 80 %
Price Mo 11 US$/lb
Recovery Mo 75 %
1 ton 2204.62 lb
Process Cost Mo 1.2 US$/ton
Discount rate 8 %
Medium Grade Mo 0.06 %

Mine Schedule 1 2 3 4 5
Ore (Mt) 0 30 60 60 60
Waste (Mt) 100 80 80 85 79
Total (Mt) 100 110 140 145 139
Grade Cu (%) 0.00 1.12 1.13 1.10 1.12
Grade Mo (%) 0.00 0.80 0.75 0.90 0.60

A) Project cutoff law

El mineral por definición paga los costos del estéril asociados a él. Por lo tanto, para el cálculo de
the cutoff law, it is enough to use the difference between the reference mine cost and the mine cost of
mineral. This differentiation in costs is mainly due to the management that is done both
for the waste as well as for the ore, for example, consider larger trucks for the waste
that have lower operating costs compared to those used for the mineral.

( − + )
=
2204.62 * ∗( − )
 (1.9 ;1.7:10.5)
= 2204.62∗0.8∗(2.83 ;0.26) 0.24%

Therefore, the cutoff law of the project is 0.24%

Equivalent Law

To determine the equivalent law, it is first necessary to calculate the factor of

equivalence as shown below:

∗
Factor equivalence=
∗

0.75 ∗11
Factor equivalence= = 3.64
0.8 *2.83

Then Law Eq = Lcu + FE * Law Mo which corresponds to the Mo mean law

Thus, Eq Law of Cu = LCu + 3.64 * 0.06%

Finally, then the law Eq of Cu = Lcu + 0.002

In the same way as the previous case, it is necessary to use the differential of both mine costs.
In addition, the cost of processing molybdenum must be added to the copper processing cost.

Thus, the cutoff law is given by:

( ; : : )
= 2204.62∗ ∗( ;
-0.002
)

(1.9;1.7:10.5:1.2)
= 2204.62∗0.8*( 2.83 ;0.26) -0.002 = 0.04%from Cu

Finally, due to the inclusion of Molybdenum into the main product transforming into
equivalent, the law drops to 0.04%. The significant difference compared to the cutoff law of
Cobre se debe principalmente a las altas leyes de molibdeno presentes en el plan (ley media de
600 ppm) which raises the equivalent cutoff law.
b) Determine Cost C0 and C1

For the calculation of C0 and C1, all direct costs for one unit must be determined.
product, for the case of C1, the credits for molybdenum must be deducted. There is also a
cost escalation due to the deepening of the pit (MCaf and PCaf) which were
applied from the second year of operation both for the mine cost and for the cost of
processing.

P1 P2 P3 P4 P5
Mineral
(Mt) 0 30 60 60 60
Sterile (Mt) 100 80 80 85 79
Total (Mt) 100 110 140 145 139
Law Cu (%) 0 1.12 1.13 1.1 1.12
Law Mo (%) 0 0.8 0.75 0.9 0.6

Cu Eq (%) 0.00 4.04 3.86 4.38 3.31

1 2 3 4 5
P1 P2 P3 P4 P5
Fino Cu (Mt) 0.00 0.27 0.54 0.53 0.54
Fino Mo (Mt) 0.00 0.18 0.34 0.41 0.27
Equivalent Fine (Mt) 0.00 0.97 1.85 2.10 1.59
Income by Cu (MUS$) 0 1677 3384 3294 3354
Income by Mo (MUS$) 0 4365 8185 9822 6548
Income per Cu Eq (MUS$) 0 6042 11569 13116 9902
Costs
Waste Mine Cost (US$/t) 1.70 1.73 1.77 1.80 1.84
Mineral Mine Cost (US$/t min) 1.90 1.94 1.98 2.02 2.06
Stripping Cost (MUS$) 170 139 141 153 145
Mineral Mine Cost (MUS$) 0 58 119 121 123
Costo Proceso Cu (US$/t) 10.50 11.03 11.58 12.16 12.76
Cost Process Cu Eq (US$/t) 11.70 12.29 12.90 13.54 14.22
Cost Process Cu (MUS$) 0 331 695 729 766
Cost Process Cu Eq (MUS$) 0 369 774 813 853
Sale Cost Cu (MUS$) 0 154 311 303 308
Cost of Sale with Eq (MUS$) 0 555 1063 1205 910

C0 (US$/lb) 1.15 1.06 1.12 1.13

C1 (US$/lb) 0.52 0.51 0.49 0.58
The cost C0 was calculated by adding the Mine Cost, Processing Cost (only Copper), and Sales Cost.
divided by the amount of fine copper in each period. The C1 was determined by adding the cost of
molybdenum process.

c. Determine the value of the project if it is extracted for copper and for copper-molybdenum. What business
Is it worth it?

To determine the NPV of both options, cash flows for each year must be determined.
of operation. These are calculated from the deduction of costs (in red) from the income (in
blue) for the Cu or Cu/Mo (as appropriate), which must then be updated
to year 1 with a discount rate of 8%.

For the case of the project only with copper, the NPV is 5624 million USD, which was calculated as follows
shape:

1 2 3 4 5
P1 P2 P3 P4 P5
Fine Cu (Mt) 0.00 0.27 0.54 0.53 0.54
Income by Cu (MUS$) 0 1677 3384 3294 3354
Costs
Strip Mine Cost (US$/t) 1.70 1.73 1.77 1.80 1.84
Mineral Mine Cost (US$/t min) 1.90 1.94 1.98 2.02 2.06
Cost of Waste Mining (MUS$) 170 139 141 153 145
Mineral Mine Cost (MUS$) 0 58 119 121 123
Process Cost (US$/t) 10.50 11.03 11.58 12.16 12.76
Process Cost (MUS$/t) 0 331 695 729 766
Selling Price Cu (MUS$) 0 154 311 303 308

Cash Flow (MUS$) -170 995 2118 1988 2011

Cash Flow Desc (MUS$) -170 922 1816 1578 1478
VPN (MUS$) 5624

The cash flow for the Cu/Mo case was carried out in the same way as the previous case, however,
the processing cost of molybdenum had to be added to the copper processing cost
making the respective scalings in each period. The cash flow is shown to
continuation:
 Project with Copper and Molybdenum

1 2 3 4 5
P1 P2 P3 P4 P5
Fine Cu (Mt) 0.00 0.27 0.54 0.53 0.54
Fino Mo (Mt) 0.00 0.18 0.34 0.41 0.27
Revenue per Cu (MUS$) 0 1677 3384 3294 3354
Income by Mo (MUS$) 0 4365 8185 9822 6548
Costs
Sterile Mine Cost (US$/t) 1.70 1.73 1.77 1.80 1.84
Mineral Mine Cost (US$/t min) 1.90 1.94 1.98 2.02 2.06
Cost of Waste Mine (US$) 170 139 141 153 145
Mineral Mine Cost (MUS$) 0 58 119 121 123
Cost Process Cu Mo (US$/t) 11.70 12.29 12.90 13.54 14.22
Cost Process Cu Mo (MUS$) 0 369 774 813 853
Cost of Sale Cu (MUS$) 0 154 311 303 308

Flujo de Caja (MUS$) -170 5323 10224 11726 8472

Cash Flow Desc (MUS$) -170 4928 8765 9309 6227
VPN (USD) 29059

In the case of copper and molybdenum, the project generates much more value than the case.
of copper (29059 MUS$), this is due to the exceptionally large Mo laws (about
the 6000 ppm). Therefore, it is advisable to exploit copper and molybdenum.