3210AFE STUDY FOR MINING COMPANY
3210AFE
Advanced Corporate Finance
Cost and Feasibility study for
New Earth Mining, Inc.
Student Name: Zekui Wang
Student Number: S293105
Executive summary:
Recently there has been wide speculation and interest placed on the iron ore project in the
Kalahari in South Africa, and it is deemed as being a very attractive investment for New
Earth Mining, Inc. (NEM). First of all, under normal condition, this project could contribute around $73 million to the shareholder. The return will be more than 85% over the entire period. Furthermore, this project is quite stable because it can deliver a positive NPV for
NEM when the iron ore price above $65.83 which is around 17% lower than basic price and more than 50% lower than the current price, smelting, refining and freight cost below $76.3 just below 60% higher than basic condition, the EBIT has to drop by more than 40% and the discount rate smaller than 35% which is 46% higher than current discount rate. The situation may go worst but in the future but not to these amount.
According to the sensitivity analysis which is conducted in this report, this project has a much higher sensitivity with iron ore price than with the interest rate, discount rate and other type of costs. The supply and demand of iron ore determine the index-based quarterly pricing in the global seaborne market. In term of demand, on average there is a 4.4% constant growth market in the global seaborne iron ore trade especially in China, South
Korea and Japan. For this project, all the iron ore which are produced will shift to Chinese,
Korean and Japanese steel manufactures. Although there is a slowdown in Chinese economy, the price of iron ore may not trop below $80 per ton. Therefore, due to short supply and growth demand in the global iron ore market the price plunge of iron ore is very unlikely to repeat in the future.
There are some systematic risks involved in this project. For example, the great level of
Advanced Corporate Finance
Cost and Feasibility study for
New Earth Mining, Inc.
Student Name: Zekui Wang
Student Number: S293105
Executive summary:
Recently there has been wide speculation and interest placed on the iron ore project in the
Kalahari in South Africa, and it is deemed as being a very attractive investment for New
Earth Mining, Inc. (NEM). First of all, under normal condition, this project could contribute around $73 million to the shareholder. The return will be more than 85% over the entire period. Furthermore, this project is quite stable because it can deliver a positive NPV for
NEM when the iron ore price above $65.83 which is around 17% lower than basic price and more than 50% lower than the current price, smelting, refining and freight cost below $76.3 just below 60% higher than basic condition, the EBIT has to drop by more than 40% and the discount rate smaller than 35% which is 46% higher than current discount rate. The situation may go worst but in the future but not to these amount.
According to the sensitivity analysis which is conducted in this report, this project has a much higher sensitivity with iron ore price than with the interest rate, discount rate and other type of costs. The supply and demand of iron ore determine the index-based quarterly pricing in the global seaborne market. In term of demand, on average there is a 4.4% constant growth market in the global seaborne iron ore trade especially in China, South
Korea and Japan. For this project, all the iron ore which are produced will shift to Chinese,
Korean and Japanese steel manufactures. Although there is a slowdown in Chinese economy, the price of iron ore may not trop below $80 per ton. Therefore, due to short supply and growth demand in the global iron ore market the price plunge of iron ore is very unlikely to repeat in the future.
There are some systematic risks involved in this project. For example, the great level of