IE 7720Decision & Risk Analysisfor Technical ManagersFall 2017 In-classHomeworkAssignment No.8 (Case Study)1.
(ENG/GEO) In-Situ: in millions of metric tons(1000 kg). This metric was viewed asclearly probabilistic. Is FRC’s 50%discount approach to treating Inferred a better, more conservative metric?- OreIn-situ verification is the main foundation to very enterprise book value.
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Also, it is considered as a leading metric Investor. The total quantity of orein Mt. in In-situ can fluctuate considerably while going from Inferred toM.
The extraction cost of the ore is directly impacted by the Physicalpositioning and quantity of the ore along with the richness percentage of theore. The immediate and long-term schedule of the in-situ analysis is governedby the technical requirements to extract ore and disposal of the leavings. Toreduce the impact there has been a planning for additional drill testing. Thiswill help in shifting the ore valuation from Inferred to more thorough Mvaluation category. Along with this, completion of PEA followed by drilltesting provides the actual economic assessment which are demanded by theinvestors.
Also, Stan modified the metric by adding uncertainties to the Inferred,but he kept the mean value unaffected as FRC chose to do.- Accordingto my opinion, FRC’s 50% discount approach to treat Inferred a better is moreconservative metric, will result in two differentiations: extraction processand grade type. This discount factor can be given importance as the investor willbe analyzing the company depending upon its metric. So, after considering allthese factors, I feel that the mitigation factor considered in the article canbe considered as appropriate option for the Graphite One to fall under Measuredand Indicated Category. 2. (BIZ) Location – Distance toMarket: this is an added metric torepresent transportation costs associated with moving the ore itself. Given that sea, rail and truck costs are dramaticallydifferent, is this metric too simplistic?- Thephysical location of the port itself has a major impact on cost and schedule.
Movement of ore by sea is a Rough Order of Magnitude (ROM) easier and cheaperthan rail which is a ROM easier and cheaper than truck. Every location in theU.S. Coast Guard Study had different associated cost, schedule and technicalfeasibility for Graphite One. This can be reduced by studies carried by UnitedStates Government which approved the optimal location for Graphite One. Thisincludes the sealifting of the Ore at the mine location itself. Also, in otherscenario if the port development is delayed, Graphite One will first move theore via truck to other medium lift seaports of the region.
This leading idea isto use ice roads during winter towards to seaports and then wait till thespring ice breakup. If we considered all the above factors I don’t feel thatthis metric is too simplistic.- Ifeel all the transportation factors are equally important even if we considerthe cost involved. This transportation can vary depending upon its location andclimatic change. As, in summer when there are no issues of snow one can stickwith sea transport while when winter comes in freezing all the modes of seatransport one has to consider road or rail transport.
Also, even though the ROMof sea transport is less than road and rail but if its location is far thenagain ROM cannot be considered. 3. (BIZ) Regulatory Ease for Supply –this factor is added as each mid-market junior mining enterprise must pass U.S.regulations, particularly with the EPA and U.
S. corporate desires to move to agreener, sustainable supply chain. Whatwould be your case to ignore this metric?- FRC(Fundamental Research Corporation) does not consider two metrics which areessential to US investors they are: Distance to Market and Regulatory Ease forSupply. Stan believed that that these two metrics could have significant impactto supply chain decision makers at say a GM or a Tesla/Solar City. He alsobelieved that the perspective of US investors will focus on how much graphiteis there (In Situ Value) and will the mine get its needed approval (RegulatoryEase) as his top 2 metrics.
– Accordingto me, if you are considering supply chain decision maker, regulatory ease forsupply can be neglected. 4. (RMP) Share Risk – Dean, Anthony and Stan decided to keep this metriceven though it does not represent the enterprise risks accurately.
Would you get rid of it?- ShareRisk was transferred directly from the FRC analysis. Anthony Huston,President/CEO and Dean Besserer the VP of Exploration, agreed that theevaluating scale of Graphite One is accurate. They both were however confidentof their process and activities to move forward and felt that rating by the FRCwas not able to reduce the risk reflected by the potential investors. Theratings given by the FRC to Graphite One in their report was 5 i.e. Highly Speculative share which indicates thecompany is new to the market, it has no previous history related to generatingearnings or cash flow have products which are new and unproven. These productscan be still in the stage of development, testing or seeking approval. Thesecompanies mainly rely on external funding’s and may issues related toliquidity.
Which did impact the investor’s confidence. Dean, Stan and Anthonydecided to consider Share Risk as it was highly important metric and theinvestors were keen about their returns. To clear the picture with respect toGraphite One Stan had some ideas, He brought up improvement of Share risk withthe idea that it will help in improving completion of PEA and ore verification.- Accordingto what I have learned in this article, I think this metric should be given thehighest importance. As, whoever invests while be looking aggressively towardsits return. So, I will wish to modify the share risk factors mentioned in thearticle.
5. (ENG/RMP) The data in Appendix B issufficient to conduct sensitivity analysis. This is the modified, post riskmitigation utility analysis. Key differencesare reduced risk with in-situ and large flake numbers. The improved distributions shown in page 2 ofAppendix B reflect the mitigation of Risks 2 and 3. Risk 4 is addressed with a Stage Maturitydatum improvement for Graphite One.
Also, the Share Risk is modified with the assumed, improved Share Riskvalue for Graphite One in 2015. The teamassumed that significant, solid investment will come from completing the riskmitigation process. Is that a fairextrapolation in your opinion?- In-situand large flake numbers where modeled probabilistic instead of discrete by Stanas in the pre-risk. About the risk 2 and 3 Stan assumed that its iron ore claimwill be proofed and less risky with the completion of 2014 ores. Investorsperception will be improved with the completion of PEA. Stan believed that Risk4 is highly correlated with Risk 2 and Risk 3. – Accordingto me, optimization of plan will be beneficial for Graphite One. This will helpin improving and falling in M category.
Compared to other ores, SUF valueof Graphite one is 0.74 which is acceptable as observed from the table. Basedto the condition of post reduction, SUF value of In-situ ie. 0.9532 is the bestSUF as mentioned in Appendix B.
So, according to me it is a fair extrapolation.