CHAMEL J.

RUPEREZ BSEM-V MNG 107-D1

PROBLEM SET MINE ECON

1. A Nickel Laterite Mining Project in Dinagat has the following data:

a) Find the NPV
b) IRR
c) Payback Period Years
(Show the detailed cashflows from the excel file)

NICKEL LATERITE FINANCIAL MODEL

Technical Parameters In Situ Ore Reserves 32,000,000 wmt
Nickel Grade 1.6 %
Mine Recovery 90%
Dilution 3%
Mine Life 10 yrs
Waste: Ore Ratio 0.40
Nickel Spot Price 35 US$/wmt ore(cfr)
Operating Expenses Direct Mining and Processing 7 US$/wmt ore
Waste Mining 75 PhP/wmt waste
G&A Expenses 45 PhP/wmt ore
Excise Tax 2% of Gross Revenue
IP Royalty 1% of Gross Revenue
Business Tax 1% of Gross Revenue
Mineral Reservation Royalty 5% of Gross Revenue
Mine Safety and Health 3 PhP/wmt ore
Environmental Management 5% Direct Mining and Processing Cost (DMPC)
Decommissioning 12,000,000 PhP/year
CSR 5 PhP/wmt ore
Makati Overhead 1 US$/wmt ore
Social Development 1.5% Total Operating Cost
Cost of Freight (cfr) 15.0 US$/wmt Ore
Pre-Operating Expenses Initial Investment 50,000,000 US$
Pre-Operating Environmental Cost 10% of Initial Investment
Working Capital 100,000,000 PhP
Exploration Cost 150,000,000 PhP
CDP Cost 10% Exploration Cost
Permitting 25,000,000 PhP
Others Forex 47 PhP/US$
Discount Factor 12%

Income Tax 30%

ANSWER:

a. NPV: 37,858,786 US$

b. IRR: 26%

5.Payback: 5.80 Yrs

 Period 0 1 2 3 4 5 6 7 8 9 10 Total Unit Cost
Year Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 US$ US$/wmt ore
Recoverable Ore Reserves 28,800,000 wmt
Ni Grade 1.55 %
Ore Production wmt 2,880,000 2,880,000 2,880,000 2,880,000 2,880,000 2,880,000 2,880,000 2,880,000 2,880,000 2,880,000 28,800,000
Waste Stripping wmt 1,152,000 1,152,000 1,152,000 1,152,000 1,152,000 1,152,000 1,152,000 1,152,000 1,152,000 1,152,000 11,520,000

57,600,000 57,600,000 57,600,000 57,600,000 57,600,000 57,600,000 57,600,000 57,600,000 57,600,000 57,600,000 576,000,000
SOLUTION:

Gross Revenue US$

Selling Price 20.0 US$/wmt FOB

Less:
Direct Mining and Processing 7 US$/wmt ore US$ 20,160,000 20,160,000 20,160,000 20,160,000 20,160,000 20,160,000 20,160,000 20,160,000 20,160,000 20,160,000 201,600,000 7.00 49%
Waste Mining 1.60 US$/wmt waste US$ 1,838,298 1,838,298 1,838,298 1,838,298 1,838,298 1,838,298 1,838,298 1,838,298 1,838,298 1,838,298 18,382,979 0.64 4%
G&A Expenses 0.96 US$/wmt ore US$ 2,757,447 2,757,447 2,757,447 2,757,447 2,757,447 2,757,447 2,757,447 2,757,447 2,757,447 2,757,447 27,574,468 0.96 7%
Excise Tax 2% of Gross Revenue US$ 1,152,000 1,152,000 1,152,000 1,152,000 1,152,000 1,152,000 1,152,000 1,152,000 1,152,000 1,152,000 11,520,000 0.40 3%
IP Royalty 1% of Gross Revenue US$ 576,000 576,000 576,000 576,000 576,000 576,000 576,000 576,000 576,000 576,000 5,760,000 0.20 1%
Business Tax 1% of Gross Revenue US$ 576,000 576,000 576,000 576,000 576,000 576,000 576,000 576,000 576,000 576,000 5,760,000 0.20 1%
Mineral Reservation Royalty 5% of Gross Revenue US$ 2,880,000 2,880,000 2,880,000 2,880,000 2,880,000 2,880,000 2,880,000 2,880,000 2,880,000 2,880,000 28,800,000 1.00 7%
Mine Safety and Health 0.06 US$/wmt ore US$ 183,830 183,830 183,830 183,830 183,830 183,830 183,830 183,830 183,830 183,830 1,838,298 0.06 0%
Environmental Management 5% DMPC US$ 1,008,000 1,008,000 1,008,000 1,008,000 1,008,000 1,008,000 1,008,000 1,008,000 1,008,000 1,008,000 10,080,000 0.35 2%
Decommissioning 255,319 US$/year US$ 255,319 255,319 255,319 255,319 255,319 255,319 255,319 255,319 255,319 255,319 2,553,191 0.09 1%
CSR 0.11 US$/wmt ore US$ 306,383 306,383 306,383 306,383 306,383 306,383 306,383 306,383 306,383 306,383 3,063,830 0.11 1%
Makati Overhead 1 US$/wmt ore US$ 2,880,000 2,880,000 2,880,000 2,880,000 2,880,000 2,880,000 2,880,000 2,880,000 2,880,000 2,880,000 28,800,000 1.00 7%
Depreciation 57,127,660 US$ US$ 5,712,766 5,712,766 5,712,766 5,712,766 5,712,766 5,712,766 5,712,766 5,712,766 5,712,766 5,712,766 57,127,660 1.98 14%
Depletion 4,042,553 US$ US$ 404,255 404,255 404,255 404,255 404,255 404,255 404,255 404,255 404,255 404,255 4,042,553 0.14 1%
Social Development 1.5% Total Operating Cost US$ 610,354 610,354 610,354 610,354 610,354 610,354 610,354 610,354 610,354 610,354 6,103,545 0.21 1%
Total Operating Cost US$ 41,300,652 41,300,652 41,300,652 41,300,652 41,300,652 41,300,652 41,300,652 41,300,652 41,300,652 41,300,652 413,006,523 14.34 100%
14.34 14.34 14.34 14.34 14.34 14.34 14.34 14.34 14.34 14.34 14.34
EBIT US$ 16,299,348 16,299,348 16,299,348 16,299,348 16,299,348 16,299,348 16,299,348 16,299,348 16,299,348 16,299,348 162,993,477 5.66
Less:
Income Tax 30% 4,889,804 4,889,804 4,889,804 4,889,804 4,889,804 4,889,804 4,889,804 4,889,804 4,889,804 4,889,804 48,898,043 1.70
NPAT 11,409,543 11,409,543 11,409,543 11,409,543 11,409,543 11,409,543 11,409,543 11,409,543 11,409,543 11,409,543 114,095,434 3.96
Add Back:
Depreciation 5,712,766 5,712,766 5,712,766 5,712,766 5,712,766 5,712,766 5,712,766 5,712,766 5,712,766 5,712,766 57,127,660 1.98
Depletion 404,255 404,255 404,255 404,255 404,255 404,255 404,255 404,255 404,255 404,255 4,042,553 0.14
Less:
Initial Investment 50,000,000 US$ 50,000,000
Pre-Operating Environmental Cost 10% of Initial Investment 5,000,000
Working Capital 2,127,660 US$ 2,127,660
Exploration Cost 3,191,489 US$ 3,191,489
CDP Cost 10% Exploration Cost 319,149
Permitting 531,915 US$ 531,915
Net Operating Cashflow -61,170,213 17,526,565 17,526,565 17,526,565 17,526,565 17,526,565 17,526,565 17,526,565 17,526,565 17,526,565 17,526,565 114,095,434 3.96

Discount Factor 12% 1.00 0.89 0.80 0.71 0.64 0.57 0.51 0.45 0.40 0.36 0.32

Present Value -61,170,213 15,648,718 13,972,070 12,475,063 11,138,449 9,945,043 8,879,503 7,928,128 7,078,686 6,320,255 5,643,085
Cumulative PV -61,170,213 -45,521,494 -31,549,424 -19,074,362 -7,935,913 2,009,130 10,888,633 18,816,761 25,895,447 32,215,702 37,858,786
 2. A Nickel Laterite Mining Project in Claver, Surigao del Norte has the following data:
d) Find the NPV
e) IRR
f) Payback Period Years
(Show the detailed cashflows from the excel file)

In Situ Ore Reserves 70,000,000 wmt

Nickel Grade 1.3 %
Mine Recovery 90%
Dilution 3%
Mine Life 10 yrs
Waste: Ore Ratio 0.40
Nickel Spot Price 35 US$/wmt ore(cfr)
Direct Mining and Processing 7 US$/wmt ore
Waste Mining 75 PhP/wmt waste
G&A Expenses 45 PhP/wmt ore
Excise Tax 4% of Gross Revenue
IP Royalty 1% of Gross Revenue
Business Tax 1% of Gross Revenue
Mineral Reservation Royalty 5% of Gross Revenue
Mine Safety and Health 3 PhP/wmt ore
Environmental Management 5% Direct Mining and Processing Cost (DMPC)
Decommissioning 12,000,000 PhP/year
CSR 5 PhP/wmt ore
Makati Overhead 1 US$/wmt ore
Social Development 1.5% Total Operating Cost
Cost of Freight (cfr) 14.0 US$/wmt Ore
Initial Investment 50,000,000 US$
Pre-Operating Environmental Cost 10% of Initial Investment
Working Capital 100,000,000 PhP
Exploration Cost 150,000,000 PhP
CDP Cost 10% Exploration Cost
Permitting 25,000,000 PhP
Forex 50 PhP/US$
Discount Factor 15%

Income Tax 30%

ANSWER:
a. 135,200,340 US$
b. 64%
c. 2.91 yrs
 Period 0 1 2 3 4 5 6 7 8 9 10 Total Unit Cost
Year Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 US$ US$/wmt ore
Recoverable Ore Reserves 63,000,000 wmt
Ni Grade 1.26 %
Ore Production wmt 6,300,000 6,300,000 6,300,000 6,300,000 6,300,000 6,300,000 6,300,000 6,300,000 6,300,000 6,300,000 63,000,000
Waste Stripping wmt 2,520,000 2,520,000 2,520,000 2,520,000 2,520,000 2,520,000 2,520,000 2,520,000 2,520,000 2,520,000 25,200,000

Gross Revenue US$ 132,300,000 132,300,000 132,300,000 132,300,000 132,300,000 132,300,000 132,300,000 132,300,000 132,300,000 132,300,000 1,323,000,000
Selling Price 21.0 US$/wmt FOB

Less:
SOLUTION:

Direct Mining and Processing 7 US$/wmt ore US$ 44,100,000 44,100,000 44,100,000 44,100,000 44,100,000 44,100,000 44,100,000 44,100,000 44,100,000 44,100,000 441,000,000 7.00 52%
Waste Mining 1.50 US$/wmt waste US$ 3,780,000 3,780,000 3,780,000 3,780,000 3,780,000 3,780,000 3,780,000 3,780,000 3,780,000 3,780,000 37,800,000 0.60 4%
G&A Expenses 0.90 US$/wmt ore US$ 5,670,000 5,670,000 5,670,000 5,670,000 5,670,000 5,670,000 5,670,000 5,670,000 5,670,000 5,670,000 56,700,000 0.90 7%
Excise Tax 4% of Gross Revenue US$ 5,292,000 5,292,000 5,292,000 5,292,000 5,292,000 5,292,000 5,292,000 5,292,000 5,292,000 5,292,000 52,920,000 0.84 6%
IP Royalty 1% of Gross Revenue US$ 1,323,000 1,323,000 1,323,000 1,323,000 1,323,000 1,323,000 1,323,000 1,323,000 1,323,000 1,323,000 13,230,000 0.21 2%
Business Tax 1% of Gross Revenue US$ 1,323,000 1,323,000 1,323,000 1,323,000 1,323,000 1,323,000 1,323,000 1,323,000 1,323,000 1,323,000 13,230,000 0.21 2%
Mineral Reservation Royalty 5% of Gross Revenue US$ 6,615,000 6,615,000 6,615,000 6,615,000 6,615,000 6,615,000 6,615,000 6,615,000 6,615,000 6,615,000 66,150,000 1.05 8%
Mine Safety and Health 0.06 US$/wmt ore US$ 378,000 378,000 378,000 378,000 378,000 378,000 378,000 378,000 378,000 378,000 3,780,000 0.06 0%
Environmental Management 5% DMPC US$ 2,205,000 2,205,000 2,205,000 2,205,000 2,205,000 2,205,000 2,205,000 2,205,000 2,205,000 2,205,000 22,050,000 0.35 3%
Decommissioning 240,000 US$/year US$ 240,000 240,000 240,000 240,000 240,000 240,000 240,000 240,000 240,000 240,000 2,400,000 0.04 0%
CSR 0.10 US$/wmt ore US$ 630,000 630,000 630,000 630,000 630,000 630,000 630,000 630,000 630,000 630,000 6,300,000 0.10 1%
Makati Overhead 1 US$/wmt ore US$ 6,300,000 6,300,000 6,300,000 6,300,000 6,300,000 6,300,000 6,300,000 6,300,000 6,300,000 6,300,000 63,000,000 1.00 7%
Depreciation 57,000,000 US$ US$ 5,700,000 5,700,000 5,700,000 5,700,000 5,700,000 5,700,000 5,700,000 5,700,000 5,700,000 5,700,000 57,000,000 0.90 7%
Depletion 3,800,000 US$ US$ 380,000 380,000 380,000 380,000 380,000 380,000 380,000 380,000 380,000 380,000 3,800,000 0.06 0%
Social Development 1.5% Total Operating Cost US$ 1,259,040 1,259,040 1,259,040 1,259,040 1,259,040 1,259,040 1,259,040 1,259,040 1,259,040 1,259,040 12,590,400 0.20 1%
Total Operating Cost US$ 85,195,040 85,195,040 85,195,040 85,195,040 85,195,040 85,195,040 85,195,040 85,195,040 85,195,040 85,195,040 851,950,400 13.52 100%
13.52 13.52 13.52 13.52 13.52 13.52 13.52 13.52 13.52 13.52 13.52
EBIT US$ 47,104,960 47,104,960 47,104,960 47,104,960 47,104,960 47,104,960 47,104,960 47,104,960 47,104,960 47,104,960 471,049,600 7.48
Less:
Income Tax 30% 14,131,488 14,131,488 14,131,488 14,131,488 14,131,488 14,131,488 14,131,488 14,131,488 14,131,488 14,131,488 141,314,880 2.24
NPAT 32,973,472 32,973,472 32,973,472 32,973,472 32,973,472 32,973,472 32,973,472 32,973,472 32,973,472 32,973,472 329,734,720 5.23
Add Back:
Depreciation 5,700,000 5,700,000 5,700,000 5,700,000 5,700,000 5,700,000 5,700,000 5,700,000 5,700,000 5,700,000 57,000,000 0.90
Depletion 380,000 380,000 380,000 380,000 380,000 380,000 380,000 380,000 380,000 380,000 3,800,000 0.06
Less:
Initial Investment 50,000,000 US$ 50,000,000
Pre-Operating Environmental Cost 10% of Initial Investment 5,000,000
Working Capital 2,000,000 US$ 2,000,000
Exploration Cost 3,000,000 US$ 3,000,000
CDP Cost 10% Exploration Cost 300,000
Permitting 500,000 US$ 500,000
Net Operating Cashflow -60,800,000 39,053,472 39,053,472 39,053,472 39,053,472 39,053,472 39,053,472 39,053,472 39,053,472 39,053,472 39,053,472 329,734,720 5.23

Discount Factor 15% 1.00 0.87 0.76 0.66 0.57 0.50 0.43 0.38 0.33 0.28 0.25

Present Value -60,800,000 33,959,541 29,530,036 25,678,292 22,328,949 19,416,478 16,883,894 14,681,647 12,766,649 11,101,434 9,653,421
Cumulative PV -60,800,000 -26,840,459 2,689,576 28,367,868 50,696,818 70,113,295 86,997,189 101,678,836 114,445,485 125,546,919 135,200,340