INDIAN INSTITUTE OF TECHNOLOGY, KHARAGPUR

Department of Mining Engineering

Economics of Mining Enterprises (MI31004)
Spring 2018
End-semester Examination
Total Points - 80 Number of Students - 73
Rules:
• The exam is designed for 180 minutes.
• This exam is closed book.
• Provide clear details of your assumptions and calculations.
• Iff cannot understand your logic, I cannotgive you credit.
• Equations you may need
1. PV = FV I (1 +r)n
2. NPV = L (present value of cash benefits) - L (present value of cash costs)
3. IRR = r when NPV = 0
4. T = (AI + A2)*Ll2
5. G = (AI*gl + A2*g2)/(AI + A2)
6. Ko = ke*WI + kr*w2 + kp*w3 + kJ*W4
7. Ke=O/P+g
8. K, = Oil
9. Kd = CII * (1-t)
10. B/C = (Present Value of Net Cash Inflows)/(present Value of Net Cash Outflows)

GOOD LUCK

1. Safety and Commodity Prices

a. List five safety issues noticed by you on your way to today's exam. - 02
b. Write a brief note about the different markets for trading coal worldwide. How would
you use the information from the markets to decide on the sale point for the coal
produced at a mine? - 05
c. Why is the ratio of gold to silver important in the assessment of a gold project? - 03

2. Project Evaluation
a. What are the different criteria used for the evaluation of projects? -03
b. Th e D0 II owmg cas h fl ow tab I e h as b een did
eve ope fior a projec t :
Year I 2 3 4 5 6 7 8
Expenditure 400 200 50 50 50 150 45 40
Income 0 120 240 300 300 300 200 120
Estimate the benefit/cost ratio and the accountmg rate of return for the project. Explam
the difference between the two methods of calculation. - 07

3. Mine Sampling
a. Explain the difference between chip sampling and channel sampling in an underground
mining project? - 03
b. How would you assure an investor about the security of samples received from an
exploration project? - 03
c. What is the main difference in sampling for a coal project and for a gold project? - 04

Mid-Sem Spring 2018 MI31004 Economics of Mining Enterprises Page 1 of 2

 4. Mineral Resources
a. What are the uses of a block model in mineral economics? - 03
b. A flat lying limestone deposit has been identified within a project area through drilling.
The grade of the limestone is uniform, but the thickness is variable. The table below
shows the variation of thickness of the limestone and the area of influence of each drill
hole where the limestone is intercepted.

Hole Thickness Area

Number (m) (sq.m.)
1 35 2467
2 60 2812
3 82 2346
4 48 2873
5 86 2917
6 54 2664

Estimate the total volume of limestone in the project area. -12

5. Mineral Taxes and Royalties

a. What are the main types of taxes applied to the Indian mining projects? -03
b. What is the role played by the District Mineral Foundation important in the
development of a project area? -04
c. What are the main objectives of taxation on minerals? -03

6. Material Balancing
a. Explain the concept of material balancing in a mining project, listing the places where
mineral recovery reduce the value of a project. - 02
b. A multi-metal orebody is known to have an average of 180 g/tonne of silver, 8 ppm of
gold and 2% Copper. The mines manager is assuring 95% ore recovery in the mine
with 10% dilution and the mill manager has estimated that the process plant will
recover 87% of the gold and silver and 92% of copper from the ore provided by the
mine. Using today's metal prices, calculate the Copper equivalent grade of the
orebody? - 08

7. Mining Finance
a. What are the different sources of financing for mining projects? - 03
b. A large coal mining project in central India is seeking financing of a new project value
ofRs 100 crores through internal and external financing. The following finance options
are available:
J. 40,00,000 preference shares of Rs 100 of 10% preference issued each at a
premium of 5%
II. 20,00,000 number of 13% debentures ofRs 100 each at an annual compounded
interest rate of 10% payable at par after 10 years. Assume tax rate of 40%
JlI. Retained earnings of Rs 40 crores invested in the company at 5% simple
interest.
Estimate the Weighted Average Cost of Capital for the project finance. If the risk
premium is 3%, what is the Internal Rate of Return for the project - 12

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