TEAM IRIS
EXAMPLES OF GLOBAL COMPANY CRISIS
AMANGO’S SWOT ANALYSIS & 7 PILLARS OF VALUE PILLAR A: SAFETY AND HEALTH PILLAR B: ENVIRONMENT Strengths Threats PILLAR C: SOCIO‐POLITICAL PILLAR D: PEOPLE PILLAR E: PRODUCTION PILLAR F: COST PILLAR G: FINANCIAL Weaknesses Opportunities
PRIORITISATION OF ISSUES 4 1 2 3 5 6
OPERATIONAL RISK AND INDUSTRIAL ACTION IN AUSTRALIA
OPERATIONAL RISK AND INDUSTRIAL ACTION IN AUSTRALIA CONSTRUCT 1 CONTINUE NEW SHAFT PRODUCTION IN WITH OLD FAULTY REQUIRED SHAFT SAFETY CHECKS ⬆ INCUR NO COST OF NEW US$140 MILLION TO CAPITAL INJECTION CONSTRUCT A NEW SHAFT ⬆ INJURY & LEGAL INJURY & LEGAL CLAIMS CLAIMS ⬆ NPV: US$51.5M FROM US$31M ⬆ > US$250, 000 MILLION PRE‐TAX CASH FLOWS OVER 9 YEARS DAILY LOSSES
OPERATIONAL RISK AND INDUSTRIAL ACTION IN AUSTRALIA OUR RECOMMENDATIONS: • CONSTRUCT A NEW SHAFT • OBTAIN A CONTINGENT BUSINESS INTERRUPTION INSURANCE • RENEGOTIATE EMPLOYEE WORKING CONDITIONS • RESTRUCTURE PUBLIC RELATIONS
STRATEGIC JOINT VENTURE IN CANADA
STRATEGIC JOINT VENTURE IN CANADA US$ ’000,000 400 350 MEDIUM SHAFT 300 REVENUE: 376.8 MILLION 250 200 COST: 285.35 MILLION 150 PROFIT: 91.45 MILLION 100 50 0 PROBABLE REVENUE TOTAL COST PROBABLE PROFIT DESIGN 1 DESIGN 2 DESIGN 3
STRATEGIC JOINT VENTURE IN CANADA OUR RECOMMENDATIONS: • Construct a medium size and depth surface infrastructure • Communicate with representative of the natives • Update management reporting system with GRI sustainability reporting guidelines • A percentage of AMANGO’s workforce should be natives • Channel a percentage of AMANGO’s annual profit into Corporate Social Responsibility (CSR)
MANAGING DIVISIONAL PERFORMANCE GROUP‐WIDE
MANAGING DIVISIONAL PERFORMANCE GROUP‐WIDE MANAGERS ARE: IGNORING EMPLOYEE HEALTH AND SAFETY RAMPING UP CLOSING INVENTORY PERFORMANCE MEASUREMENT TECHNIQUE (EBIT & ROCE) USING EXTERNAL REFINERIES IGNORING GROUP PROFITABILITY
MANAGING DIVISIONAL PERFORMANCE GROUP‐WIDE OUR RECOMMENDATIONS: • Economic Value Added (EVA) measure for performance • Tie managers’ bonuses to pillars of value • Marginal costing • Educate employees on the illegality of ramping up closing stock • Standard transfer prices
BALANCE SHEET DE‐LEVERAGE OR SHARE BUY‐BACK
BALANCE SHEET DE‐LEVERAGE OR SHARE BUY‐BACK BALANCE SHEET DE‐ SHARE BUY‐BACK BEFORE ADJUSTMENT SCHEME LEVERAGE GEARING RATIO 53.74% 46.30% 62.39% COST OF CAPITAL 7.50% 5.14% 5.46% US$ 16.3B US$ 9.9B US$ 16.3B NET DEBT
BALANCE SHEET DE‐LEVERAGE OR SHARE BUY‐BACK OUR RECOMMENDATIONS: • De‐lever balance sheet • Employ chamber of mines
STRATEGIC DISPOSAL IN BRAZIL
STRATEGIC DISPOSAL IN BRAZIL CMOC OFFER BRL 1,452 To settle intra‐ group debt US$1.5 billion Remainder To Buy 100% equity in AMA‐NP
STRATEGIC DISPOSAL IN BRAZIL ANALYSIS OF CMOCs OFFER Brazilian President plan to halt BRICs arrangements.
STRATEGIC DISPOSAL IN BRAZIL OUR RECOMMENDATIONS: • Accept CMOC’s Offer
CORPORATE RECONSTRUCTION AND RE‐ ORGANISATION
CORPORATE RECONSTRUCTION AND REORGANISATION • ASHRIDGEMODEL • BCG MATRIX • GE PRODUCT SCREEN ASHRIDGE MODEL STARS QUESTION MARK DIAMONDS • diamonds • PGMs • Copper Heartland PGMS • Niobium Phosphate • PGM Ballast • Nickel • Diamonds IRON ORE COAL COPPER Alien Business Value ‐Trap • Nickel • Coal • Nobium and • Copper DOG Phosphates • Iron Ore NICKEL • Coal • Iron ore and CASH COW NIOBIUM manganese Benefits Competitive Strength of SBUs Market Share
CORPORATE RECONSTRUCTION AND REORGANISATION OUR RECOMMENDATIONS: • Keep Diamonds, PGM’s, Coal and Copper • Sell Nickel, Niobium, Iron ore and Manganese
ETHICAL ISSUES AND RECOMMENDATIONS HEALTH AND SAFETY INTEREST OF EMPLOYEES: Recruit a Health and Safety Professional (HSP) Organize a forum WRONGFUL LAY‐OFF OF WORKERS: Explain “radically restructuring” to employees Negotiate wage increase calls Develop a scheme to compensate workers with work‐place injuries
ETHICAL ISSUES AND RECOMMENDATIONS WRONG USE OF PUBLIC RELATIONS Maintain individual PR outfit Issue Press Release INVENTORY FRAUD Training and re‐training sessions on ethics Design punitive measures in code of conduct Use marginal costing
CONCLUSION OPERATIONAL RISK AND INDUSTRIAL ACTION CONSTRUCT A NEW AND SAFE SHAFT IN AUSTRALIA MEDIUM SIZE AND DEPTH INFRASTRUCTURE STRATEGIC JOINT VENTURE IN CANADA DESIGN AMANGO MANAGING DIVISIONAL PERFORMANCE EVA, MARGINAL COSTING AND STANDARD GROUP‐WIDE TRANSFER PRICING BALANCE SHEET DELEVERAGE AND SHARE DELEVER BALANCE SHEET BUY‐BACK STRATEGIC DISPOSAL IN BRAZIL ACCEPT CMOC’S OFFER CORPORATE RECONSTRUCTION AND MAINTAIN DIAMONDS, PGMS, COAL AND REORGANISATION COPPER
THANK YOU
APPENDIX APPENDIX 1: SWOT ANALYSIS CRITICAL SUCCESS Managing Strategic JV Strategic Balance Operational risk Corporate FACTORS(weights)/ Mission divisional decision in disposal in sheet de‐ and industrial reconstruction and statement Pillars performance Canada Brazil leverage action in reorganization group wide or share Australia buy‐back (A) Safety and Health (30%) 5 6 (B) Environment(20%) 6 (C) Socio‐political(15%) 5 3 4 6 2 (D) People(13%) 5 6 (E) Production(10%) 5 6 (F) Cost(7%) * * * * * * (G) Financial(5%) * * * * * * TOTAL EFFECT 1.5 2.45 0.45 1.25 4.08 0.3 3 RD 2 ND 5 TH 4 TH 1 ST 6 TH RANK
APPENDIX APPENDIX 2: PESTEL ANALYSIS POLITICAL/LEGAL • Change of presidency in Brazil resulting in changes in fiscal policies and BRICs arrangements • South African government’s black empowerment scheme • New mining charter that requires AMANGO to return mining permits for re-assignment; AMANGO faces a possible revocation of their mining permit in South Africa • Deaths in Australia mines ECONOMIC • Decline in commodity prices due to the shift of China’s economy from infrastructure to consumption • Inability to divest due to lack of market for assets • Downgrade of credit rating status to junk • PIC threat to offload shares • Lack of operational discipline in the organization
APPENDIX APPENDIX 2: PESTEL ANALYSIS SOCIO CULTURAL • Mine crash in Australia • Aboriginal group in Canada • Managers cutting back on health and safety checks TECHNOLOGY • New mine construction in Canada ENVIRONMENTAL • Increased CO2 emissions and new water consumed.
APPENDIX APPENDIX 3: MENDELOW’S STAKEHOLDER MATRIX LOW INTEREST HIGH INTEREST HIGH POWER KEEP SATISFIED KEY PLAYERS, KEEP CLOSE OTHER GOVERNMENT PIC CREDIT RATING AGENCIES SOUTH AFRICAN GOVERNMENT SHAREHOLDERS EMPLOYEES LOW POWER MONITOR KEEP INFORMED GENERAL PUBLIC ABORIGINAL GROUP IN CANADA MINING TOWN POPULATION CMOC MEDIA
APPENDIX APPENDIX 4: COMPUTATION OF NPV • Computation of Weighted Average cost of capital ; ������ ���� ����� ������� ∗ ������ ������ � ����� ������� ∗ 1 � ��� ������ ���� WACC (r)= ����� ����� ����� ∗ 0.1212 � ����� ∗ 1 � 0.31 0.062 WACC (r)= WACC (r)= 0.41032 ∗ 0.1212 � 0.5897 ∗ 0.04278 WACC (r) = 0.07495 • NPV= ∑ ���� ������� � ���� ������� ��� ����� � NPV= �������� ���� ������ – cash outflow � �� ���.��� �� NPV= 30.43� � �.���� NPV= 180.5670 – 129.0642 NPV= US$ 51.5028 million.
APPENDIX APPENDIX 5: DECISION ANALYSIS FOR QUINTA’S PROJECT DESIGN 1 DESIGN 2 DESIGN 3 Probable Demand (5*85%) + (7.5*10%) + (5* 25%) + (7.5* 50%) + (5* 20%) + (7.5*50%) + (10*5%)= 5.5 million (10* 25%)= (10* 25%)= Probable Revenue 5* US$ 50.24 = US$ 276.32 million 7.5* US$ 50.24 = US$ 376.8 million 7.25* US$ 50.24 = US$ 364.24 million Total Cost US$ 75+ (US$ 26.38*5.5) = US$220.09 US$ 87.5 + (US$ 26.38*7.5) = US$ US$ 100 + (US$ 26.38*7.25) = US$ million 285.35 million 291.255million Probable Profit = US$56.23 million = US$91.45 million = US$72.985 million Probable Revenues= (Demand* Selling Price) Total Cost = Fixed Cost+ (Variable Cost*Demand) Probable profit= Probable Revenue‐ Total Cost
APPENDIX APPENDIX 6: BALANCE SHEET DE‐LEVERAGE OR SHARE BUYBACK Total property portfolio 18,030 50% residential apartment 9,015 71% up for sale 6,400.65 29% not up for sale 2,614.35 OPTION 1 Use the total proceeds to reduce medium and long term borrowings. Borrowings and other PPE Sales Proceeds Financial Liabilities USD USD USD Balance at 2016 16,318 29,621 ‐ Sales Proceeds 6,400.65 (6,400.65) 6,400.65 Repayment of liability (6,400.65) Balance after adjustment 9,917.35 23,220.35 Nil Amount relatable to two‐year(medium) term loan 1,758.35
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