This report aims at providing an analytical view on GFA’s plan to invest in mineral mining in two West African countries (Mauritania and Senegal) and afterwards give a recommendation on the company’s status on the next move. The report will examine the status of the company, prospects of the proposed investment and finally the conclusion and recommendations for the company partners to undertake.
The company’s plan to carry out an economic feasibility in the area is wise. Since the last exploration was done during the 1950’s. The company requires new figures and up-to-date information on the economic viability of the area. Considering the economic costs that will go into the prior study and exploration of the region, the feasibility study for gold in the two West African regions is advisable with good chances of 30% and 25% likelihood. Taking into account the estimated 30 million AUD from the ore, the company will make profit if it engages in the project. The total exploration costs will be (1500 x 100x3 +20000= 470,000) in Mauritania while (1500x100x2+20,000= 320,000) in Senegal. This cost translates to a 2.63% in the total earnings of the company. The cost is manageable when compared to the magnitude of the benefits from the investment. Investment in uranium is not a viable option in this case. The 10% likelihood of striking Gold in the two West African countries is very low to warrant investment into its study and exploration. The company should therefore concentrate on the exploring other mineral ores in Mauritania and Senegal and limit the investment in Uranium to the Australian region.
A 20% likelihood of striking mineral ore in the new lease is good enough to back a decision to take up the lease. However, considering that the company can only undertake the lease in six months time with no further extension, the company should clarify its capability before going ahead with the project. It should be able to foot the 1m AUD acquisition price and the fixed exploration cost in good time in order to allow maximum time for the company to exploit the lease. Political risks and instability that rocks the West African countries poses a major threat to the investment project. The coup deters that characterizes the region and the inflexible mining policies will make a huge negative impact into the company’s prospects. The company will need to spend more to ensure that they receive favorable terms of trade. The company should analyze the dynamic conditions of the region before deciding to expand its prospects in form of the new lease in the region.
In conclusion, the company can engage in exploiting the new mining prospect, which has a good chance of 20% likelihood and returns of 30M AUD. The fixed costs of one million AUD will prove insignificant if the company manages to strike the returns. The ability of the firm to exploit the new leases should be a priority to consider before engaging the project. If the company does not have, the ability lay down the initial costs and infrastructure in time to exploit the lease, then it is advisable for it not to consider it as an option. Without speed in the initial set up, Investment into the project will prove costly since it has a limited period without any extension. With the ability and speed, the company should carefully plan for contingencies and go ahead with the investment project.
Reference
Thurston, A. (2012, Aug 10). Mauritania: Troubles for Kinross at the Tasiast Gold Mine. Retrieved from Sahel Blog: http://sahelblog.wordpress.com/2012/08/10/mauritania-troubles-for-kinross-at-the-tasiast-gold-mine/
