American Barrick Case Study Group 3 SECOND EDITION
1. Explain the value chain for gold mining firms, i.e., what activities the firm must perform, and, for each, how a mine can create a competitive advantage relative to its rivals.
A value chain is a chain of activities that a firm operating in a specific industry performs in order to deliver a valuable product or service for the market1.
A miming firm basically must:
1. Finding the ore.
2. Valuating the profitability of the ore.
3. Financing for the project.
4. Building infrastructure for the mining.
5. Process the ore: crush the ore, heat it, sort it by density, treat the ore chemically and refine it.
6. Maintain the equipment, facilities and access roads.
7. Selling and delivering the gold.
Competitive advantages:
1. A mining firm can create competitive advantage by choosing a mine with specific physical features or increasing the efficiency of its operations. First, choosing the location and the kind of place to mine is crucial. In an open pit mine the ore can be stockpiled while in an underground mine the grade/density of the ore can be selected more flexibly. On the other hand, the efficiency to process the ore is reflected when a firm does less mining and obtains more gold. In the short term a mining firm can adjust the quantity and the quality of the gold. In the long run the company can reduce the costs and increase the production using economies of scale.
2. A mining firm can also create competitive advantage by selling the gold with hedging the risk of gold price. When a mine is discovered, specialists make estimations on the quantity that the mine will be able to deliver and while the gold production is being take care off, the finance team of the company have to make sure they can sell the gold to a reasonable price higher than mining cost .This price depends on the market and therefore present a major risk for mining firms that can be hedge. Hedging is part American Barrick program and is the primary reason why it outperformed rivals in the
A value chain is a chain of activities that a firm operating in a specific industry performs in order to deliver a valuable product or service for the market1.
A miming firm basically must:
1. Finding the ore.
2. Valuating the profitability of the ore.
3. Financing for the project.
4. Building infrastructure for the mining.
5. Process the ore: crush the ore, heat it, sort it by density, treat the ore chemically and refine it.
6. Maintain the equipment, facilities and access roads.
7. Selling and delivering the gold.
Competitive advantages:
1. A mining firm can create competitive advantage by choosing a mine with specific physical features or increasing the efficiency of its operations. First, choosing the location and the kind of place to mine is crucial. In an open pit mine the ore can be stockpiled while in an underground mine the grade/density of the ore can be selected more flexibly. On the other hand, the efficiency to process the ore is reflected when a firm does less mining and obtains more gold. In the short term a mining firm can adjust the quantity and the quality of the gold. In the long run the company can reduce the costs and increase the production using economies of scale.
2. A mining firm can also create competitive advantage by selling the gold with hedging the risk of gold price. When a mine is discovered, specialists make estimations on the quantity that the mine will be able to deliver and while the gold production is being take care off, the finance team of the company have to make sure they can sell the gold to a reasonable price higher than mining cost .This price depends on the market and therefore present a major risk for mining firms that can be hedge. Hedging is part American Barrick program and is the primary reason why it outperformed rivals in the