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Stretch: Minera Pircahue: where should a copper mine get its water?
You run the case. Read the prompt, answer questions from the notes below, and share data only when the candidate asks for it or gets stuck. Score at the end.
Case timer
00:00
1. Read the prompt aloud
Read it slowly, then pause. Let the candidate ask questions before they structure.
Minera Pircahue runs a copper mine in the Atacama Desert in northern Chile. It must cut its use of local groundwater by half within three years. Should it cut production, build its own desalination plant, or buy desalinated water?
Format note: Difficulty: Stretch. Format: candidate-led, with interviewer dialogue. Industry: Mining. Region: Chile. Interview length: about 40 minutes. The company is fictional and all figures are illustrative. Chilean mining companies usually report in US dollars, so all figures here are in USD.
2. Answers to clarifying questions
Give these answers only if the candidate asks. If they ask something not listed, give a sensible answer or say it does not matter here.
If asked: How much water does the mine use, and what must change?
Answer: It processes 40 million tonnes of ore a year and uses about 0.5 cubic meters of water per tonne. A new permit condition requires it to replace half of that with water that does not come from the local aquifer within three years (illustrative).
If asked: What does the mine earn?
Answer: About 200,000 tonnes of copper a year. Use a copper price of USD 9,000 per tonne and a cash cost of USD 5,000 per tonne (illustrative).
If asked: What are the water options?
Answer: Build its own desalination plant and pipeline for USD 600 million, with running costs of about USD 2 per cubic meter; or buy desalinated water at USD 4.50 per cubic meter, with no upfront cost, from a supplier whose larger plant and pipeline serve several mines. Engineers also say that USD 150 million of water recycling equipment would cut use to 0.4 cubic meters per tonne.
If asked: How should I compare costs over time?
Answer: Use 15 years and 8 percent. At 8 percent, USD 1 a year for 15 years is worth about USD 8.56 today.
3. The hypothesis a strong candidate states
Listen for an early, testable guess like this one. It does not need to match word for word.
Cutting production would be very expensive, so the mine should replace the water. My hypothesis is that buying water is cheaper than building a plant, and that recycling can reduce how much it must buy.
4. A model structure
Compare the candidate's structure with this one. A different split can be just as good if it is clean and fits the problem.
- Compare the cost of each way to meet the water rule over 15 years
- Water to replace
- Option 1: cut production (lost margin)
- Key: Option 2: own plant; option 3: buy water
- Reduce the need first: recycling
- Price risk on bought water
5. The working, step by step
Each step shows how a strong candidate works it out. Share a new fact from it only when the candidate asks or is stuck, and let them do the math: the result in the dark box is what they should reach.
Step 1: Water to replace
What a strong candidate does: Candidate: "40 million tonnes at 0.5 cubic meters is 20 million cubic meters a year, and half must be replaced, in million cubic meters:"
Water to replace (million m3 a year): 40 × 0.5 × 0.5 = 10
Step 2: Cost of cutting production
What a strong candidate does: Candidate: "If water limits output, half the copper goes, at USD 4,000 of margin per tonne, in USD million a year:"
Margin lost (USD million a year): 200,000 × 0.5 × (9,000 - 5,000) ÷ 1,000,000 = 400
Step 3: Own plant over 15 years
What a strong candidate does: Candidate: "USD 600 million, plus 10 million cubic meters a year at USD 2, times 8.56."
Cost of own plant (USD million, today's value): 600 + 40 × 0.5 × 0.5 × 2 × 8.56 = 771
Step 4: Buying water over 15 years
What a strong candidate does: Candidate: "10 million cubic meters a year at USD 4.50, times 8.56."
Cost of buying (USD million, today's value): 40 × 0.5 × 0.5 × 4.5 × 8.56 = 385
Step 5: Water still needed after recycling
What a strong candidate does: Candidate: "Recycling saves 0.1 cubic meters on each of 40 million tonnes, so the mine needs less new water."
New water needed (million m3 a year): 40 × 0.5 × 0.5 - 40 × (0.5 - 0.4) = 6
Step 6: Recycling plus buying over 15 years
What a strong candidate does: Candidate: "USD 150 million, plus 6 million cubic meters a year at USD 4.50, times 8.56."
Cost of recycling and buying (USD million, today's value): 150 + (40 × 0.5 × 0.5 - 40 × (0.5 - 0.4)) × 4.5 × 8.56 = 381
Step 7: Curveball: the water price rises 30 percent
What a strong candidate does: Interviewer: "The supplier's price is linked to power prices. What if it rises 30 percent?" Candidate: "An own plant's running cost is also mostly power, so it would rise too. Buying all the water would cost:"
Cost of buying at the higher price (USD million): 40 × 0.5 × 0.5 × 4.5 × 1.3 × 8.56 = 501
Step 8: Recycling plus buying at the higher price
What a strong candidate does: Candidate: "With recycling, the mine buys less, so the rise hurts less."
Cost of recycling and buying at the higher price (USD million): 150 + (40 × 0.5 × 0.5 - 40 × (0.5 - 0.4)) × 4.5 × 1.3 × 8.56 = 450
The recommendation to listen for
At the end, say: "The CEO walks in. What is your recommendation?"
Do not cut production and do not build a plant; invest in recycling and buy the rest of the water on a long-term contract. First, cutting production by half would cost about USD 400 million of margin every year, far more than any water option. Second, over 15 years buying water costs about USD 385 million in today's money against about USD 771 million for an own plant, about half the cost. Third, recycling plus buying costs about USD 381 million, about the same as buying alone today, but it protects the mine if water prices rise: after a 30 percent rise it costs about USD 450 million, against about USD 501 million for buying only. Negotiate a contract of at least 15 years with a cap on price rises, and start the recycling project now, because it also lowers water use if production grows.
Risks a strong answer names: The supplier may not be able to deliver on time or at full volume; Recycling equipment may not reach 0.4 cubic meters per tonne.
Next steps: Ask two suppliers for 15-year offers with price caps; Run a recycling test on one processing line.
Strong versus weak
A strong answer
Showed early that cutting production is far too costly, compared the water options over the same period, and used recycling to reduce price risk.
A weak answer
Chose to build its own plant because "owning the water is safer," without comparing costs over time.
Score the candidate
Score each criterion from 1 to 5. A 2 or a 4 sits between the descriptions.
This case has no exhibit. Score Exhibit reading on how the candidate used the data you gave them: did they pick out the number that matters and say what it means?
Total
0 out of 25
Score all five criteria to see the band and the feedback template.