Mine Economics (More advanced)

If exploration costs are $50M and the probability of success is 10%, the minimum project value to break even is:

a. $50M

b. $100M

c. $500M

d. $5M

c. $500M (Calculation: Cost / Probability = $50M / 0.10)

In exploration, which economic tool helps compare different drilling strategies?

a. Payback period

b. Decision tree analysis

c. Cut-off grade optimization

d. Operating cash flow

b. Decision tree analysis

Geological uncertainty increases:

a. Discount rate

b. NPV

c. Ore reserve certainty

d. OPEX

c. Ore reserve certainty

(Note: Increased uncertainty implies the listed parameters are harder to predict, but within mining economics contexts, it directly challenges the confidence level of ore reserves).

Why is exploration usually funded by equity instead of debt?

a. Exploration is risk-free

b. Banks prefer early-stage projects

c. No predictable cash flows for debt repayment

d. Lower interest rates

c. No predictable cash flows for debt repayment

A feasibility study shows NPV = $150M at 10% discount rate. If discount rate increases to 15%, NPV will:

a. Increase

b. Decrease

c. Stay the same

d. Double

b. Decrease

IRR represents:

a. Average return of the project

b. Discount rate where NPV = 0

c. Payback period of investment

d. Maximum CAPEX allowed

b. Discount rate where NPV = 0

If CAPEX is underestimated by 20%, feasibility study results will:

a. Overstate profitability

b. Understate NPV

c. Show no effect on IRR

d. Show lower cut-off grade

a. Overstate profitability

A project has IRR = 12% and cost of capital = 10%. Decision:

a. Reject, IRR < cost of capital

b. Accept, IRR > cost of capital

c. Indifferent

d. Need payback analysis

b. Accept, IRR > cost of capital

Which analysis shows the effect of metal price fluctuations on profitability?

a. Sensitivity analysis

b. Real option valuation

c. Hedging

d. Inflation adjustment

a. Sensitivity analysis

Break-even analysis determines:

a. Time to recover CAPEX

b. Production level where revenues = costs

c. Optimal cut-off grade

d. Probability of success

b. Production level where revenues = costs

Which is NOT a direct output of feasibility studies?

a. Ore reserve estimate

b. Cash flow projections

c. Closure cost bonding

d. CAPEX & OPEX estimation

c. Closure cost bonding

Payback period is criticized because:

a. It ignores cash flows

b. It ignores time value of money

c. It equals NPV

d. It underestimates CAPEX

b. It ignores time value of money

If metal prices drop by 30% during feasibility, the most likely effect is:

a. NPV increases

b. IRR increases

c. Project delay or cancellation

d. Operating cost decreases

c. Project delay or cancellation

Which factor is MOST uncertain in feasibility stage?

a. OPEX

b. CAPEX

c. Market prices

d. Tax rates

c. Market prices

Which financing method reduces ownership but avoids repayment risk?

a. Debt

b. Equity

c. Royalties

d. Project hedging

b. Equity

Inflation impacts construction costs primarily by:

a. Lowering CAPEX

b. Increasing CAPEX

c. Reducing IRR

d. Fixing OPEX

b. Increasing CAPEX

If exchange rate weakens (local currency depreciates), foreign debt repayment:

a. Becomes cheaper

b. Becomes more expensive

c. Stays the same

d. Depends on inflation

b. Becomes more expensive

Risk sharing in construction is often achieved via:

a. IRR analysis

b. Joint ventures / PPPs

c. Hedging

d. NPV adjustment

b. Joint ventures / PPPs

Delays in construction mainly affect:

a. Payback period only

b. NPV and IRR negatively

c. OPEX

d. Tax rates

b. NPV and IRR negatively

Capital budgeting helps:

a. Reduce geological uncertainty

b. Allocate funds to maximize returns

c. Estimate ore grade

d. Monitor cash flow in production

b. Allocate funds to maximize returns

Which is an economic tool for project scheduling optimization?

a. Critical Path Method (CPM)

b. Sensitivity analysis

c. Break-even analysis

d. Hedging

a. Critical Path Method (CPM)

Tax incentives during construction:

a. Increase CAPEX

b. Improve NPV by reducing tax burden

c. Do not affect feasibility

d. Always reduce OPEX

b. Improve NPV by reducing tax burden

If financing is entirely through debt, the biggest risk is:

a. Dilution of ownership

b. Financial distress if revenues delay

c. Lower leverage

d. Higher exploration cost

b. Financial distress if revenues delay

A 2-year delay in construction with no revenue inflow will mainly

a. Increase IRR

b. Reduce IRR

c. Leave IRR unchanged

d. Increase NPV

b. Reduce IRR

Operating cost control directly affects:

a. NPV

b. Ore reserve

c. Geological uncertainty

d. Tax rates

a. NPV

Hedging is used in production to:

a. Increase ore grade

b. Reduce commodity price risk

c. Eliminate geological risk

d. Increase CAPEX

b. Reduce commodity price risk

If cut-off grade is lowered during production:

a. More ore is included ? higher reserves

b. Less ore is mined

c. OPEX decreases

d. NPV decreases

a. More ore is included ? higher reserves

Productivity economics measures:

a. Cost per tonne mined

b. Inflation effect

c. Taxes paid

d. Exploration probability

a. Cost per tonne mined

Revenue management ensures:

a. Stable exploration budgets

b. Optimal sales timing of minerals

c. Higher OPEX

d. Lower discount rate

b. Optimal sales timing of minerals

If gold price spikes by 50%, the immediate impact is:

a. Higher OPEX

b. Increased revenue & project NPV

c. Lower IRR

d. Lower taxes

b. Increased revenue & project NPV

Cash flow tracking in operations is necessary for:

a. Estimating IRR

b. Monitoring liquidity & profitability

c. Exploration decision-making

d. Project scheduling

b. Monitoring liquidity & profitability

Operating cost escalation due to energy price increases leads to:

a. Higher NPV

b. Lower operating margin

c. Higher cut-off grade

d. Both B & C

d. Both B & C

If ore grade drops unexpectedly, the company may:

a. Increase production volume to maintain revenue

b. Reduce hedging

c. Increase CAPEX

d. Lower tax incentives

a. Increase production volume to maintain revenue

Productivity economics mainly aims to:

a. Maximize exploration spending

b. Increase output per unit cost

c. Reduce taxes

d. Lower NPV

b. Increase output per unit cost

Closure cost estimation should be included in:

a. Exploration only

b. Feasibility study

c. After mine shutdown

d. Ignored until post-mining

b. Feasibility study

Reclamation bonding ensures:

a. Company profit

b. Government funds available for rehabilitation

c. Higher NPV

d. Longer mine life

b. Government funds available for rehabilitation

Environmental liability after closure can:

a. Reduce project NPV

b. Increase IRR

c. Improve CAPEX

d. Shorten payback

a. Reduce project NPV

Socio-economic transition involves:

a. Shifting workers & communities to alternative livelihoods

b. Reducing CAPEX

c. Optimizing cut-off grade

d. Hedging commodity prices

a. Shifting workers & communities to alternative livelihoods

If closure costs are underestimated, the main risk is:

a. Higher than expected financial burden at end of mine life

b. Higher ore grades

c. longer payback period

d. Lower exploration cost

a. Higher than expected financial burden at end of mine life

Post-mining land use economics consider:

a. Future value of rehabilitated land

b. Exploration probability

c. IRR calculation

d. Cut-off grade

a. Future value of rehabilitated land

Reclamation bonding is MOST critical in:

a. High-risk environmental areas

b. Early exploration

c. Ore reserve estimation

d. Hedging

a. High-risk environmental areas

If a mine sets aside $5M annually for 10 years in closure fund (discount rate = 10%), this is:

a. Cash flow tracking

b. Present value provisioning

c. CAPEX

d. Hedging

b. Present value provisioning

The key reason closure economics are part of feasibility is:

a. Investors need assurance on long-term liabilities

b. It increases IRR

c. It reduces CAPEX

d. It raises productivity

a. Investors need assurance on long-term liabilities

Ignoring closure costs in feasibility leads to:

a. Overstated NPV and IRR

b. Understated cash flow

c. Increased taxes

d. Lower production cost

a. Overstated NPV and IRR

COMP

Chamber of Mines of the Philippines, Inc.

EBITDA

Earnings Before Interest, Taxes, Depreciation and Amortization

CRIRSCO

Committee for Mineral Reserves International Reporting Standards

SAMCODES

South African Mineral Codes (SAMREC/SAMVAL family)

AACE

Association for the Advancement of Cost Engineers

RPO

Recognized Professional Organization

NRO

National Reporting Organization

ACP

Accredited Competent Person

PMRCC

Philippine Mineral Reporting Code Committee

PABC

Philippines-Australia Business Council, Inc.

CIM

Canadian Institute of Mining, Metallurgy and Petroleum

OPEX

Operating Expenditure / Operating Expenses

EPS

Earnings Per Share

AISC

All-In Sustaining Costs

WACC

Weighted Average Cost of Capital

MCDA

Multi-Criteria Decision Analysis (or Multi-Criteria Decision Aid)

EPC

Engineering, Procurement and Construction

CFR

Cost and Freight (Incoterms)

MCA

Multi-Criteria Analysi