Read the HBR case study Evaluating the Organization: New Earth Mining, Inc. This case study can be located in your custom textbook/case study bundle.
In your initial post, describe the most important quantitative and qualitative information for understanding this case, and explain where that information comes from.
New Earth Mining Case Study:
New Earth Mining, Inc.
Company Background It was the beginning of 2013. After gold prices experienced an unprecedented boom from $300 per ounce to $1,700 per ounce in the previous decade, Denver-based New Earth Mining, one of the largest U.S. precious-metal producers, was enjoying rapid growth in earnings. With the continued improvement of its operating margins, New Earth had accumulated a large amount of cash on its balance sheet (Exhibit 1). It had a simple debt structure and a reasonable leverage ratio with no significant risk of liquidity.
Most of the company’s mines were located in the U.S. and Canada, but like many other firms in the precious-metals industry, New Earth had made substantial investments in gold exploration projects in other countries such as Australia and Chile. However, like many industry participants, New Earth executives worried about the sustainability of gold prices at their current levels. With its strong financial condition and the desire to diversify its business through new capital investments rather than acquisition, New Earth felt it was necessary to implement a diversification program that would reduce its dependence on precious metals. The company started investigating the possibility of diversification in base metals and other minerals.
New Investment Opportunity in South Africa A new investment opportunity appeared in early 2012. New Earth was informed of the existence
of a major body of iron ore close to the massive Kalahari manganese field in the Northern Cape of South Africa by an independent exploration consulting company. New Earth felt an investment in iron ore provided a strategic fit for its diversification objective.
Since steel represented almost 95% of the metal that was used in the world, iron ore was arguably more integral to the global economy than any other mineral. The price of iron appreciated more than five-fold from 2002 to 2012 (see Exhibit 2). Unlike the price of gold, for which there was considerable
speculation, the price of iron ore was not expected to fall dramatically given the strong global demand for the commodity. According to a 2012 report by the U.S. Geological Survey, the world iron ore market would continue to be tight, with demand exceeding supply until at least 2016. This was due to the long lead times required to bring mines into production, a world shortage of skilled labor, and growing natural resource nationalism, which reduced exports from some nations. Given that the price of iron ore had appreciated dramatically after 2007 and was expected to stay above $80 per metric ton, New Earth decided to evaluate the feasibility and profitability of developing the Kalahari mine.
New Earth hired Drexel Corporation, an engineering and construction firm, to analyze the extent of the deposit and to determine the cost and feasibility of establishing a mine site close to Kalahari. The engineering firm found that the field contained 30 million tons of ore with an average iron content of 60%. At the projected extraction rate of 2 million tons per year, it would take 15 years to deplete the ore body.
Drawing in part on its earlier evaluation of an iron ore project in Sishen, South Africa, Drexel estimated in October 2012 that the proposed venture in South Africa could be operational by the beginning of 2015. Drexel reported that there was limited need for infrastructure investment to support the development of the mine, and the total investment cost was estimated to be $200 million with 40% of the investment required at the beginning of 2013 and the rest required at the beginning of 2014. This investment amount would include construction costs and related insurance, operational costs, and $20 million in working capital. Ore would be trucked to Durban and railed to Port Elizabeth in the Eastern Cape for export. Given the high quantity of iron contained in ore mines in South Africa and the easy access to ports from the mine location, the venture was expected to have low production costs.
By November 2012, New Earth was able to produce pro forma analysis on the profitability of this new investment (Exhibit 3). The analysis revealed that the investment opportunity had attractive potential. At an assumed price of $80 per ton, the investment opportunity promised strong cash flows. The project would produce even stronger cash flows given an optimistic price forecast of iron ore at $100 per ton. New Earth also performed a sensitivity analysis to analyze the impact of various discount rates and iron ore prices on the net present value of the project’s cash flows (Exhibit 4). Despite its initial attractiveness, the project carried some substantial risks that New Earth needed to consider.
Professional homework help features
Our Experience
However the complexity of your assignment, we have the right professionals to carry out your specific task. ACME homework is a company that does homework help writing services for students who need homework help. We only hire super-skilled academic experts to write your projects. Our years of experience allows us to provide students with homework writing, editing & proofreading services.Free Features
Free revision policy
$10Free bibliography & reference
$8Free title page
$8Free formatting
$8How our professional homework help writing services work
You first have to fill in an order form. In case you need any clarifications regarding the form, feel free to reach out for further guidance. To fill in the form, include basic informaion regarding your order that is topic, subject, number of pages required as well as any other relevant information that will be of help.
Complete the order formOnce we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.
Writer’s assignmentAs soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.
Completing the order and download