New Earth Mining, Inc.
Autor: carlos textbook • March 15, 2015 • Case Study • 2,620 Words (11 Pages) • 3,113 Views
TABLE OF CONTENTS:
Executive summary | p.3 |
Introduction | p.3 |
Approaches valuation:
| p.3 p.3 p.3 p.4 |
Risk assessment of projects:
| p.4 p.5 |
Risk management (negotiations with solutions for risks)
| p.5 p.6 |
Conclusion and recommendations | p.6 |
EXECUTIVE SUMMARY:
This report analyses and evaluates New Earth South Africa’s (NESA, which is subsidiary of New Earth Mining - NEM) financial capital structure, its risks and risk management. The report’s aim is to discover the way NEM can achieve its diversifying investment opportunities in which, can achieve shareholder value’s maximisation.
Only one approach (approach 4) will be selected as the most valid to apply for NESA to achieve its optimal capital structure. Charts and tables will be shown for 4 approaches’ analysis and company’s risk elements including: sensitivity and multiple scenarios. In this case, indicators in sensitivity test with what if questions such as price, discount rate, initial cost, etc. are adjusted to reach positive NPV for investing purpose. Likewise, higher risks can be seen when changing both iron ore prices and the discount rate. Then, break-even analysis is used to illustrate the inputs will derive NPV= 0. Displaying other 2 cases apart from base case in scenario analysis to figure out which factors can cause negative NPV. Then, a list of risk elements as well as potential financial strategies to reduce these risks will be discussed.
INTRODUCTION:
NEM wants to diversify its operation (iron ore) by investing in NESA. NESA will run its business in South Africa (SA). NESA has $40 Million equity and $160 Mil debts capital structure, funding is from 2 sides: NE (equity holders), both overseas banks (China, Japan and Korean-) and local bank (US) – detbholders. There are 4 approaches to choose from: Vice president of operations, Accounting officer, external consulting firm and internal analyst but not all of them are suitable for investment project. Thus, NESA opts to pick the best approach for its capital structure. Besides, NEW intends to figure out whether the project is profitable as well as what risks they face and how to minimise them.
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