6. Given the following information for the Italia open pit gold mine, prepare annual cash flows for the expected life of the project. (10 Points)

Grade of ore: 0.164 (troy) ounce/ ton

Recovery: 92%

Ore reserves: 18,225,000 tons

Price of gold: $1250 /(troy) ounce

Production rate: 10,600 tons per day

Working days/year: 350 days

Capital expenditure: $385,000,000 evenly spent over 2 years

Operating costs: $155.00 /ton (subject to inflation starting at year 1)

Tax rate: 25 %

Depletion: 4 % of revenues

Depreciation method: Declining balance and a rate of 35%

Inflation rate of operating costs: 2.5 % for years 1 and 2, and 3 % thereafter. (To be applied at the end of a year)

Production commences at beginning of year 3