5. You have been asked to prepare cash flow projections for the Macebo Coal Mine with recoverable reserves of 411500 tonnes of coal. The current price of coal of that quality is $98 per tonne. The estimated capital expenditure of $4,900,000 is to be invested in year 0. You estimate the annual coal production as follows:

Year 1 : 19,500 tonnes

Year 2: 40,700 tonnes

Year 3 and onwards: 58,550 tonnes (i.e. until the end of the mine life)

You also estimate the cost of materials at $13.05 per tonne of coal and the cost of energy at $5.05 per tonne of coal. Further, you calculate the manpower costs as follows:

Year 1 Year 2 Year 3 and onwards

Labour ($) 175000 600,500 800,900

Administrative ($) 20,000 135,000 195,000

You also determine that a royalty of 3.9% of revenues, depletion allowance of 2.7% of revenues and a tax rate of 25% will be applicable. In addition, you confirm the straight line depreciation method will be used for the project.

Prepare an annual cash flow projection for the life of the mining project. (10 points)