Reference no: EM133344838
Case Synopsis: Chad Williams, CEO of Red Cloud Mining, a Toronto based consultancy to the mining sector has a challenge to overcome. A client is seeking his company's assistance to place a value on a non-producing gold mine property that it owns in Alaska. In normal times, the challenge would not be a difficult one. However, the commodity market is currently in the midst of a downturn and mining stocks are not that attractive to many traditional investors. He needs to think through how he can place a value on the property.
Decision Maker: Chad Williams, CEO of Red Cloud Mining
Problem Statement: Identify the optimum methodology to value a non-producing Alaskan gold mine property.
Decision Criteria/Goals:
Provide an accurate value assessment.
A. Business Case Segmentation - 20 Marks
A1: Background segmentation (5 marks):
Chad Williams, CEO of Red Cloud Mining, which began three years ago, serves as an advisor to small, high-growth mining firms. Chad is a mining analyst who used to own a mining firm.
Chad must ensure that he oversees, that the firm grows, and that everything functions well.
Alaska Mine Project has 8.5 million ounces of gold in the soil on the land.
Alaska Mine Project has no debt and very little cash
They are 5 years away from making a dollar.
Extremely cheap interest rates.
A typical day is unexpected yet busy.
They do not have a firm that brings them money on a daily basis. They must ensure that they do it themselves.
They provide four services to their target markets. Find money for them, develop a plan, do MNA, and market for them. The company listens to their wants and will meet them.
Below Chad are two senior individuals who are also in control of the operation, and below them are individuals who are more service oriented and react to the new business they bring in.
Their money is generated mostly by making their clients happy and meeting their demands.
A typical customer is a mining firm with a market valuation of $20 million to $500 million that is technically driven by competent individuals but lacks fundamental expertise. The company connects their technological skills with their financial capital suppliers.
Chad founded Red Cloud to stand out from the crowd; they take ideas from other service firms and apply them to their own.
They currently have no competitors and have exceptionally competent personnel with a combined 80 years of expertise, such as two professional mining analysts and one mining portfolio manager.
Very difficult sector; most small mining companies lose 90% of their value and are unable to acquire capital.
This firm produces high-quality goods, but it lacks a global network.
This company is attempting to become an EMD - exempt market dealer - in order to obtain funds on an official basis.
There is very minimal government regulation.
They are establishing an equity crowd funding for mining with a focus on millennials.
Their revenue is less than a million dollars.
They aspire to expand by 50% per year, which they have done for the first three years.
A small workplace in downtown Toronto.
1) SWOT Analysis - Red Cloud Mining Capital:
Analysis:
2) Business Analysis - Red Cloud Mining Capital:
Analysis:
3) Business Analysis - Alaska Mine Project Valuation:
Business Case Information:
8,500,000 ounces of gold in the ground (mine).
Mine project has no cash.
Mine project has no debt.
Project is 5 years away from revenue generation.
Gold Price = US $1,100 per ounce.
CDN $ = US $.85
Effective Interest Rate = 0%
Assumption: The average all-in sustaining cost (AISC) margin (gold price minus the cost of production) is US $750 per ounce. This equates to a Gross Margin of US $750 per ounce.
Analysis (rough analysis only):
Estimated valuation based on Net Asset Value:
Estimated valuation based on future dividends paid:
Estimated valuation based on Comparable Company Analysis:
Estimated valuation based on a per ounce basis: