SOLUTION

Subject – MN 311: Mine Planning

Mid Semester Examination

1. (a) The cash flow of two mutually exclusive projects are given below [3]
(Assume cost of capital = 15 %):

Year 0 1 2
Project A (200) 150 150
Duration 2 years

Year 0 1 2 3 4
Project B (200) 150 150 0 0
Duration 4 years
In year 3rd and 4th,
profit is zero

Suggest which project may be considered for implementation with justification based on
calculations.
Sol It is noted that the NPV and IRR is same for both the projects. Thus, in the first instance,
both seem to be equal as per economic analysis based on NPV and IRR. However, duration
of project B is 4 years and the profit is zero in the last 2 years.
If one may get the profit in two years then why one will wait for four years for the same
profit.
To understand this, MIRR is the other approach where duration of the project is also
considered.

Formula for MIRR

Here, reinvestment rate and finance rate is considered same.

MIRR for project A = 27%
MIRR for project B = 21%
MIRR for project A is more than B, thus, project A will be chosen.
(b) The capital requirement of a project (life is 4 years) is 120 Crore. The fund of Rs. 120
Crore will be raised by the equity and debt. The ratio of debt to equity is 1.3. The average
interest rate of debt and expectation of the share holder (financing rate of the equity) is 18
% and 20 % respectively. Calculate the following:
(i) Weighted average cost of capital (WACC) [1]
(ii) Amount of interest in each year considering uniform repayment of principal amount [2]
during the project life.

Sol. Debt/Equity = 1.3 (given)

Total fund = 120 Crore
Thus,
Say Equity = X
Thus, Debt will be = 1.3 X
Total will be X + 1.3X = 120 Crore
Thus, X = 120/2.3 = 52.17
Debt = 120 – 52.17 = 67.83

(a) WACC = [(interest rate)(Debt) + (Share expectation)(Equity)] / total fund

WACC = 19.13 %

(b) Repayment of debt principal as equal value will be = 67.83 / 4 = 16.9575 Crore

0 1 2 3 4
Repayment of principal 16.9575 16.9575 16.9575 16.9575
Outstanding amount = 67.83 – 33.915 16.9575 0
After completion of respective years 67.83 16.9575
= 50.8725
Interest amount in respective years for 12.2094  9.15705  6.1047  3.05235
outstanding amount in the previous year
@ 18%
 (c) The capital expenditure (CAPAX) for a proposed mine is estimated as Rs 850 Crore. The [2]
life of the mine is 24 Years. Capital expenditure in different heads as per their life is given
below.
Sr. No. Expenditure (Rs. Crore) Life Remarks
1 15.0 Mine life Pre-mining expenditure
2 135.0 Mine life For procurement of Land, RR etc
3 100.0 Mine life For mine development
4 550.0 10 years For procurement of machineries
5 50.0 3 years For procurement of machineries

Calculate the value of average depreciation per year.

Sol
Sr. No. Expenditure (Rs. Crore) Life Per year amount
1 15.0 Mine life = 15.0 / mine life
= 15/24 = 0.625
2 135.0 Mine life 5.625
3 100.0 Mine life 4.167
4 550.0 10 years =550/10
=55
5 50.0 3 years =50/3
=16.67
Total =82.087

2. (a) Calculate the overall output per man per shift (OMS) and earning per man per shift (EMS) [2]
of the coal project based on the following data:
Annual production = 0.5 MT
Working days (production days) = 300
Working days for an individual employ = 270
Total manpower = 480
Annual salary with benefits of the employees = 32 Crore
Sol OMS = Annual output / (Manpower X production days) = 0.5 X 106 / (480X300) = 3.47
EMS = total annual wage / total manshift
And total manshift = Manpower X working days of individual)
EMS = 32 X 107 / (480 X 270) = Rs. 2769
 (b) A continuous miner, having a rated capacity of 720 kW, is working in an underground coal [1]
mine. The average availability factor and utilization factor of the machine is 0.67 and 0.55
respectively. Calculate the consumption of the electricity in UNITs of the machine for a
day.
Sol Actual working of the machine in a day = 24 X 0.67 X 0.55 = 8.844 hours
Total kWhr. = 8.844 X 720 = 6367.68 UNITs

(c) A coal block is having a reserve of 34 MT. It has four seams namely I, II, III and IV. This [2]
block is free from any geological disturbance. Thickness of the seams viz. I, II, III and IV
is 5.3 m, 1.8m, 2.8 m and 3.2 m respectively with parting of 20.0 m, 30.0 m and 40.0 m.
The minimum and maximum depth of the seam is about 150.0 m and 278.0 m respectively.
The conventional bord and pillar system (using drilling and blasting operation) is being
proposed to extract the coal from the block with a target production of 0.27 MTPA.
Calculate the life of the mine.
Sol Generally, the maximum height of the extraction for conventional bord and pillar method is
3.0 m (4.5 m can also be extracted during the depillaring operation depending upon nature
of roof/floor etc.). The minimum height of extraction is considered as 1.5 m.
Thus, the total reserve with in this limits is =
34 X (3.0 + 1.8 + 2.8 + 3.0)/(5.3 + 1.8 + 2.8 + 3.2) = 27.5 MT
Generally, overall percentage of extraction is about 50 %. Thus, total extractable reserve
will be = 27.5 X 50/100 = 13.7 MT (Note: for conventional bord and pillar method; actual
extractable reserve can be calculated based on panel configuration, percentage of extraction
during depillaring operation from the panel etc.)
Life of the mine = Extractable reserve / target production = 13.7 / 0.27 = 51 years

3. A coal mine is planned with an average production of 1.2 MTPA (million tonnes per [6]
annum) by using two set of continuous miners. Calculate the followings:
(a) Air quantity (Q) required for proper ventilation
(b) Capacity of the ventilation fan (assume overall resistance of mine equal to 0.15 Ns2/m8)
(c) Annual electricity expenses for ventilation fan (assume electricity bill of Rs 7.8/UNIT)
Sol (a) Air quantity required for a CM is 25 m3 / sec (30 m3/sec may be suggested depending
upon the machine HP). Thus, for two CM 50 m3/sec air is required. Air losses due to
leakages, ect. is 40 %.
Thus, Q = 50 / 0.6 = 84 m3/sec (actually, air is also required for other sections of the mine)
 (b) Pressure, P = RQ2 = 0.15 X 84X84 = 1058.4 Pa (110.68 mm of water)
Capacity or Power of the fan = PQ = 1058.4 X 84 = 88905.6 W = 88.9 kW (considering
there is no loos in power transmission, fan efficiency is 100 %)
(standard rated capacity of the fan has to chosen but not less the above)
(c) Total unit consumed in the year = 88.9 X 24 X 365 = 778813 kw hr. (UNIT)
Expenses = 778813 X 7.8 = Rs. 60.75 lakh

4. Calculate the inflation adjusted price of the Zinc based on historical price data for year [5]
2015.

Year Price index Price of Zinc in US$/tonne

2011 192.4 2195.533
2012 186.3 1950.023
2013 183.3 1910.167
2014 171.8 2160.973
2015 111.2 1931.679

Sol
Year Price Price of Zinc in Inflation adjusted
index US$/tonne Price
for year 2015
=2195.533 X 111.2/192.4
2011 192.4 2195.533 = 1268.935913
2012 186.3 1950.023 1163.943
2013 183.3 1910.167 1158.814
2014 171.8 2160.973 1398.721
2015 111.2 1931.679 1931.679
Average 1384.42

5. A project, having a life of 3 years, is to be commissioned. The cash flow for the project is [6]
estimated in terms of average value and standard deviation as given below. The cost of
capital is considered as 18 %.
Years Average value of standard deviation
cash flow (Rs Lakh) (Rs Lakh)
0 (100)
1 50 12
2 75 18
3 100 24
 Calculate the followings:
(i) average net present value (NPV)
(ii) its standard deviation.
(iii) probability of getting profit (before tax) more than Rs 65 Lakh.
Sol
(i) NPV = Rs. 57.1 lakh
(ii) standard deviation using given below formula:

standard deviation = = Rs. 22 lakh

(iii) probability at Z = (65 – 57.1) / 22 = 0.359 = ~ 0.36

= 0.6406 (profit upto Rs 65 lakh), thus more than this = 1-0.6406 = 35.94 %