Discussion 1
New Earth was presented with a unique opportunity to expand their footprint, as well as
venture into an arena that demonstrated strong growth. Not only was growth attractive,
but the customers that were willing to take the iron ore that New Earth was exploring to
mine. As our society continues to grow and innovations continue to take us by storm, it
is no wonder that New Earth was exploring the idea of jumping at an opportunity to add
to their portfolio. With that being said there are two very important directions that New
Earth had to explore before making their decision – qualitative and quantitative
approaches. With any new venture, home must be done before determining if this is a
power move, or a move that could cost New Earth in a negative way.
Exploring the quantitative approach it is easy to see the attractive iron ore price
points and potential for New Earth, as well as the quantity that is available for them to
source out too. With an increase in demand, and with key transportation points this
opportunity appears to be the right one. “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” (Wang, 2013).
From the qualitative side there are several key topics that stand out in regards to
this potential venture such as the geographical location of the iron ore. Being that it is
located in South Africa, and the hostile environment surrounding its location can make
this venture very dangerous and risky. In addition, one of the most attractive research
for this venture would have to be when the outside firm, Drexel Corp. highlighted the
potential volumen of iron ore and the payouts. It is attractive, and would get most
potential investors heads turning; however, with political and environment risk it can
place a large shadow over all the dollars that are available. “The engineering firm found
that the field contained 30 million tons of ore…At the projected extraction rate of 2
million tons per year, it would take 15 years to deplete the ore body” (Wang, 2013).
Overall, the risk and interest that New Earth would have to pay out, along with
the potential for the government to get involved and begin regulating the situation, I
believe it would not be a sound investment if you were to follow Approach Four. This
does not seem attractive, nor does it seem condusive to what New Earth is looking for
at the end of the pay day.
Discussion 2
Upon reading the case study regarding New Earth Mining, Inc. (NE), there is plentiful
amounts of information concerning both quantitative and qualitative measures. I believe
qualitative information is a great place to start as it more often than not it will provide
you with the basis of the matter at hand, and in this case, where NE stands. NE is a
major precious-metal producer who flourished financially during gold’s exponential
increase in value in the first decade of the 2000’s. According to NE’s balance sheet,
they display strong cashflow, earnings, and standard levels of debt giving them great
opportunity for expansion (Fruhan, Wang, 2013). Being worried about the sustainability
of gold’s price levels, NE sought out new investment opportunities to promote expansion
in different venues rather than through acquisition of smaller companies in the same
arena (Fruhan, Wang, 2013). Iron ore bodies in South Africa was what NE chose to
pursue as they saw stability through future demand, and shortage of skilled labor
globally (Fruhan, Wang, 2013). The formation of New Earth South Africa (NESA) was
the end result after securing deals with buyers in China, Japan, and South Korea.
After analyzing the qualitative information, there were a few major quantitative
measures that were crucial. Beginning first with NE’s decision to go with iron ore
production, Drexel Corporation reported 30 million tons of ore with an average iron
content of 60% to NE making South Africa a prime target (Fruhan, Wang, 2013). They
calculated that at 2 million tons of extracted iron ore per year, it would take 15 years to
deplete at a cost of $200 million (Fruhan, Wang, 2013). Securing financing was key in
giving the projects life as a total of $40 million in loans were to be provided in 2013, with
another $120 million at the beginning of 2014 (Fruhan, Wang, 2013). I believe looking
at Exhibit 4 in regards to NPV at various discount rates shows what NESA would need
to be successful. If Iron Ore stays at $80 dollars which they are using for their
estimates, then any discount rate surpassing 20% will send NE in an unprofitable
direction.
Fruhan, W. E., & Wang, W. (2013, October 11). New Earth Mining, Inc. Harvard
Business Review.
answer each discussion separately
-Compare their views with your own in terms of what information is most important. Are there elements your peers have omitted? Provide reasoning to support your views.
-2 Pages( 1 for each discussion)
-APA format and citations
-2 references
