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Fortune Minerals – The Nico Project Case Solution & Answer

Fortune Minerals – The Nico Project Case Solution 

Introduction

Fortune Minerals, a public company, was considering to construct a mine with gold, bismuth and cobalt extracts in the North-west territories of Canada. The Chief Executive Officer of the Fortune: Mr. Robin Goad, wanted to analyze the financial feasibility of the project (Chris Sturby, 2011). By doing so, the company would be able to attract the potential stakeholders as well the shareholders to support the mining project. The mining project’s net present value was to be analyzed among different uncertain factors of the environment, which included the variation in commodity as well as the variation in the exchange rates. The CEO also wanted to analyze the qualitative facts, which tended to lasta possible effect over the NICO project, such as: the impact of Tlicho first nations.

Company Background

Robin Goad: the CEO of Fortune Minerals, founded the company in 1988.  Just after the first year of its incorporation; the company went public. Goad had a vast experience of mining and exploration industries, as he was a geologist, which led to the initiation of the company. The Head Quarter of the company was located in Ontario, London. In addition to the NICO project; Fortune minerals had two other fully-owned projects, which included: the Mount Klappan coal project in Columbia and the Sue Dianne project of silver, gold and copper in Canadian North-West territories.

NICO Project

The NICO project included the mining of deposits, including: copper, bismuth and gold. The location of the NICO belonged to the Tlicho First Nations land, in the north-western territories of Canada. The company had been paying a total of $100,000, annually, to the federal government in order preserve the mining rights of the land.

The site could be accessed through a government maintained road during winter or through a helicopter or a float plane. A 150 km road from all weather conditions, was required to connect the project site with highway, and the plans were carried out between the federal government, the Tlicho government and the private industry for upgrading the road, which had remained isolated for so long, due to the poor infrastructure systems. After applying different feasibility measures; the company finalized the capital costs of the NICO project to be around $215.2 million.

Metals’ Industry of NICO Project

Among the huge deposits gold, copper and bismuth, NICO site contained the largest level of bismuth deposits in the whole world. By value, Cobalt was the dominant deposit and gold was its key co-product. The consumption of bismuth and cobalt were growing at a very fastest rate, due to its increased consumption in technologies and tradition applications, which presented an opportunity for Fortune Minerals to participate in an outgrowing market.

The world market for Cobalt was expected to grow at a CAGR of 85, with the consumption of 65000 tons in 2008. The consumption was assumed to be double in the next five years. The current market price for the Cobalt was $40 per pound. The bismuth had a forecasted annual growth rate of 10% with the world consumption of 15000 tons in 2002. There were concerns about toxicity in bismuth, which led to the scarce supply and a lower price of $ 15 per pound. The gold had been the currency of choice, but it had lot of economic uncertainty due to the 2008’s financial crisis. The gold prices had a larger variation from $850 to $920 per ounce.

Qualitative Analysis – NICO Project

The qualitative analysis was performed on the project using the costs and benefits analysis technique. The benefits and costs from the project, are given as below:

Benefits

  • The NICO project had created a market opportunity for Fortune Minerals to perform in the cobalt and bismuth markets specially, as these both markets were growing at a very fastest rate.
  • It would lead the company toward shaving more profitable business, and it would give a competitive edge to the company as the Fortune minerals had been paying for maintaining the mining rights of the area, so that no other competitor could reach to the site……………………..
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