M: Today, we, the cpm team, will present our analyses and recommendations for the Zurich enterprise challenge.
As a representative of the Cpm team I will give an introduction of our presentation. Afterwards the other two team representatives will explain the analyses method, main risk and mitigation strategies and the additional risk factors of our Investment attractiveness concept. Finally, I will conclude the presentation.
M: Hematite Capital management based in the USA is looking to take advantage of current global investment trends in the mining sector. To reach a final recommendation, 10 countries will be analysed to identify the 3 most attractive countries and possible mitigation strategies for the risks investors could face.
M: Our concept of investment attractiveness in the mining sector takes into account project and country attractiveness. To develop the recommendation per country we will focus on country attractiveness rather than project attractiveness.
M: To do a thorough analysis a study will be conducted using the data from the Zurich risk room tool.
C: The 18 subfactors that were given in the Zurich Risk Room were divided in 4 levels from low significance to high importance. The medium and high factors are the most important factors contributing to country attractiveness. The risks in red from the country attractiveness concept are included in the risk room analyses.
C: The analysis was developed using 3 different aspects. First an overview of the 10 countries risks using the risk room tool. From this data the 3 countries were identified with overall lower risk: Australia, Chile and Botswana.
C: The second phase of the analysis was made with a weighted risk analysis tool that was developed by our team. The tool is described in this slide. First a scale was developed to measure the risk level on the box and whisker graphs from the Zurich risk room. To assign a quantative value to each risk for analysis, weights was assigned to each level of risk as can be seen on the slide and to each risk group. Finally the risk of each country is calculated and displayed on a histogram.
C: This slide is a representation of the method we used to assign weights to each risk factor from the different countries. As we can see Australia, Chile and Botswana have the lowest risks overall.
C: The histogram on this slide is an enlarged version of the histogram showed in the previous slide, presenting the risk ranking of the 10 countries of the analysis. As shown again, Australia, Chile and Botswana are the 3 countries with the lowest risk.
Compared to Hematite’s country USA we can see that the overall risk in the USA is much lower compared to the other countries.
C: The third part of the analysis shows the percentage growth of the ten countries in the last five years this verifies our conclusion of the rank analysis.
Compared to Hematite’s country USA we can see that the overall growth rate in the USA is ZERO compared to other countries in our opinion and external sources investing in a growing country leads to more opportunities.
P: For each detected risk, our team thought about at least one possible mitigation strategy.
Starting with Australia, in order to reduce the impact of China slowdown, agreements with other countries could be made to secure exportations through future contracts. However, on a long-term approach, “the next China” countries could substitute the future mining exportations from Australia.
Strengthening mining associations in the Country could provide better guidance related to government regulations.
P: The main risks presented by Chile as seen in the Zurich risk room point to china slowdown and inflation. However, it also shows seismic activity with higher levels compared to all the 9 other countries. According to additional research sources, we identified infrastructure conditions as another main risk in Chile. The mitigation plan for the China slowdown is the same as for Australia. Inflation could be faced by keeping track of short-term investments in dollar currency. Related to seismic activities, insurance policies, well-structured contracts and investment in seismic measuring tools could reduce the effects of future earthquakes. The mitigation for the infrastructure risk could first be done by limiting investments by strategic regions of Chile, and in the far future by improving roads.
P: The main risks from Botswana are very similar to Chile, adding only the difficulty in dealing with construction permits. For which a mitigation plan would be related with strengthening mining associations in the Country.
Slide 15 and 16:
P: As can be seen on the slide the influence of the mitigation strategies in the short term.
P: And here the long term.
P: Further studies that we consider relevant before defining the best country to invest in, would be related to environmental regulation, infrastructure and technology, availability of labour with required skills, as well as the quality of the geological database.
M: The final recommendation for the Hematite Capital management firm would consist of a short term and a long term strategy. In the short-term we recommend investing in Australia, as a developed country that has a long history in the mining industry. On the other hand, in the long-term, invest in developing countries: Botswana, if the focus is on the diamond and gold commodities. And as alternative, Chile, if the focus is on copper and coal.
M: To conclude the presentation the following points were addressed:
First, the investment attractiveness concept has been used to identify the factors related to the risk on investing in mining industries.
The analysis method was a 3 part analysis: Zurich Risk Room, weightage calculation and GDP growth.
The 3 countries identified and selected are Australia, Chile and Botswana
Main overall risk and mitigation strategies were identified as dependency of china in most of the countries analysed. For developing countries, in this case Chile and Botswana, inflation and dealing with construction permits were found main risk. In a developed country as Australia burden of government and employment of workers played more risk that requires a mitigation strategy
Our recommendation is investing in Australia for the next 1-3 years, and look into other potential in Botswana and Chile in the long-term.
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- Telegraph.co.uk. 2016. Australia's mining boom turns to dust as commodity prices collapse - Telegraph. [ONLINE] Available at:http://www.telegraph.co.uk/finance/newsbysector/industry/mining/12142813/Australias-mining-boom-turns-to-dust-as-commodity-prices-collapse.html.
- Deloitte. 2016. Tracking the trends. [Online] Available at: https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Energy-and-Resources/gx-er-tracking-the-trends-2016.pdf
- EY. 2015. Business risks facing mining and metals 2015-2016. [Online] Available at: http://www.ey.com/Publication/vwLUAssets/EY-business-risks-in-mining-and-metals-2015-2016/$FILE/EY-business-risks-in-mining-and-metals-2015-2016.pdf
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- KPMG. 2015. KPMG in Africa. [Online] Available at: https://www.kpmg.com/Africa/en/KPMG-in-Africa/Documents/Botswana.pdf
- Fraser Institute. 2016. Annual Survey of Mining Companies: 2015 | Fraser Institute. [ONLINE] Available at: https://www.fraserinstitute.org/studies/annual-survey-of-mining-companies-2015. [Accessed 08 May 2016].
- Ian Roullier. 2016. Botswana tops Africa league for mining investment potential. [ONLINE] Available at: http://www.africanreview.com/construction-a-mining/excavation/botswana-tops-africa-league-for-mining-investment-potential. [Accessed 02 May 2016].
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