QUESTION 1 You are the mine manager of Mine X and you want to expand your operations. The feasibility study shows that you have two options to consider. Option A is to sell your product to a local consumer. Option B is to export your product. The feasibility study yielded the following results for Options A and B. Option A Total reserve base 80 million tons Capital required R1 000 million Mining rate 8 million tons per year Yield 100% Production cost R35,00 ROM per ton Sales price R80,00 per ton Tax rate 30% NPV 47,09 million IRR 22% Option B Total reserve base 80 million tons Capital required R2 000 million Mining rate 8 million tons per year Yield 70% Production cost R35,00 per ROM ton Beneficiation cost R45,00 per ROM ton Transport cost R30,00 per sales ton Sales price US$ 40 per ton Exchange rate R7,00 per US$ Tax rate 30% NPV R192 million IRR 23% 1.1 Which option will you choose? Give reasons for your answer. 1.2 What is the payback period in years for both options?
QUESTION 1
You are the mine manager of Mine X and you want to expand your operations. The feasibility study shows that you have two options to consider.
Option A is to sell your product to a local consumer.
Option B is to export your product. The feasibility study yielded the following results for Options A and B.
Option A
Capital required R1 000 million
Mining rate 8 million tons per year
Yield 100%
Production cost R35,00 ROM per ton
Sales price R80,00 per ton
Tax rate 30%
NPV 47,09 million
IRR 22%
Option B
Total reserve base 80 million tons
Capital required R2 000 million
Mining rate 8 million tons per year
Yield 70%
Production cost R35,00 per ROM ton
Beneficiation cost R45,00 per ROM ton
Transport cost R30,00 per sales ton
Sales price US$ 40 per ton
Exchange rate R7,00 per US$
Tax rate 30%
NPV R192 million
IRR 23%
1.1 Which option will you choose? Give reasons for your answer.
1.2 What is the payback period in years for both options?
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