Professional Documents
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FJE Limited
Background
FJE Limited (FJE) is a small public company that is planning to list on the ASX. Prior to listing they need a business plan to help prepare the prospectus. The directors of FJE have come to you for help in preparing it. Prior to your first meeting with them, you and your three partners do some research on FJE and the directors. You find that FJE has just changed from a private to a public company in preparation for the listing. It has uranium exploration leases in two Central African countries Niger (Tahoua region) and Mali (Gao region), as well as a few small uranium prospects in the Wiluna area of Western Australia. These three areas, while looking like very good exploration possibilities, have not yet been explored by modern methods. The last time the African prospects were investigated was in the 1950s by French explorers, who pulled out as the conditions were difficult, even though what they found was promising. The Wiluna properties have only ever been examined for gold and none of that was found. The directors of FJE are all experienced directors of exploration companies, and consist of 2 well known mining entrepreneurs (John Lewis FAICD, Chair, and Richard Adams CPA who is also the company secretary), an experienced uranium geologist (Rebecca Paulka) and a director that knows the African prospects well - Andr Traor. The company is well capitalised, holding approximately $4m (AUD) in the bank and no debt. In line with industry practice for early stage junior explorers no actual work has yet been done on the prospects and the company has no employees other than the accounts clerk, Lynn Hopkins.
FJE Limited
Memorandum
TO: FROM: SUBJECT: DATE: CC: CONSULTING TEAM JOHN LEWIS PROSPECTUS PREPARATIONS 3/8/2011
TO FILE
I attach are a number of serious issues and possibilities relating to FJE that need to be addressed prior to the listing. The operating and strategic situation relating to the business needs to be examined while answering the questions attached. Outlined in the attached document are also a number of opportunities that may enable us to improve our prospects at listing. We need you to perform some analysis on these opportunities and let us know your recommendations. I look forward to reading your analysis and summary. Keep it short but answer the questions we ask and address all the issues you feel important. All amounts in this document are in AUD unless otherwise stated. Please address each of the tasks outlined in the attached document and present your calculations and recommendations. Use an executive summary to make it easy to read and all calculations should be in appendices. I need this to be in report format. You are expected to do research on any items you do not know, and this needs to be correctly referenced, as I need to know where you got your information from. In order to take advantage of these opportunities I must receive your report by 5pm Monday, 5 September. Submissions received after this time will attract a penalty of 10% for each day that they are late. I look forward to reading your report.
John Lewis
Chairman
FJE Limited
FJE Limited
FJE Limited
spent from October onwards. Keep in mind that working in the Sahara might be seasonal, so the costs are likely to be much lower when we cannot work.
Required
Prepare a monthly cash budget, starting in September and going through to the likely listing date, showing expected cash inflows and outflows and, as a separate line item, the amount that can be spent in the month for exploration activities. This should not be a complex budget, but be kept as simple, and short, as possible, while showing what your assumptions are to arrive at these numbers. The results of the other tasks will need to be considered when preparing this budget.
FJE Limited
Required
After performing some quantitative analysis and keeping in mind the risks, recommend whether either or both of these activities should be undertaken. Your recommendation(s) will need to be incorporated in the cash budget.
FJE Limited
Required
1. Make a recommendation, based the likely value of these leases, on whether we should keep these prospects. 2. Whether your answer is yes or no, use a normal method of project evaluation to determine whether the exploration should be undertaken and which option should be taken.
FJE Limited
Task Five
We have been offered some further leases in Niger. Rebecca considers that this new ground is not quite as good as our current holdings, with a 20% chance of holding an ore body worth at around $30m. Having both leases may make some sense, however, as any fixed costs could then be spread over the new area, which would double our current holdings. We would need to do the same survey work on this increased area as we would have on the old area. The new territory is likely to cost us US$1m to acquire and will mean that Andr will need to make one extra trip to Niger. This offer can be taken up at any stage in the next 6 months, but it will not be extended after that.
Required
Based on the costs, the cash budget and the risks associated with this possibility provide us with a recommendation as to whether we should proceed with this.
FJE Limited
Task Six
The directors have also been in discussions with a group looking to sell some mineral prospects in the far south of Algeria, and so would be (relatively) close to the current exploration areas. The area they are looking to sell is very large, in excess of 100,000 km2 and so would look very good when we were writing up our prospectus. Rebecca has also looked at the scanty information on the area and advises that it is likely to prove very interesting, with a more than 40% likelihood of holding good uranium resources. They vendors would be looking to sell this territory to us for US$1.5m in cash plus a 5% royalty on any production from the area.
Required
Please undertake some research, do any quantitative analysis required and advise on whether paying the US$1.5m is advisable. Please also incorporate your recommendation into the budget.
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