Answer Happy

3) Improvement to a mine haul road is being considered to shorten the overall haul distance and reduce tuck cycle time, thereby increasing the total number of cycle per day. The cost of improvements is estimated to be $20,000,000 at time zero. Currently, truck make 16 cycles per day from pit to a crushing facility which, given the truck performance, capacities and haul Page 3 of 5 of pages distance translates into 2,000,0000 tonnes of ore being hauled each year. If the road improvement is made, the number of cycles is anticipated to increase by 25% to 20 cycles per day which translates into an additional 500,000 tonnes of annual production from the mine. Total mine reserves are estimated to be 14,000,000 tonnes. If the haul road improvement is made, the life of the mine will be shortened from seven to six years due to accelerated production schedule. With the modified haul road, total production in years 1 through 5 would be 2,500,000 tonnes per year with year 6 production totalling 1,500,000 at which time reserve will be depleted. For each alternative the average ore grade is 0.09 ounces per tonne with a 0.85 recovery rate. The average selling price $1450 per ounce while the operating costs are $690 per ounce beginning in year 1. The minimum acceptable rate of return is 15%. Use NPV analysis to determine if haul road improvement can economically justifies. Then verify your findings with Rate of Return Analysis (8 points).