KANYIKA MINE REVENUE

FORECASTING
PRESENTED BY

TEAM MAYWEATHER

25 MARCH 2015
Objectives
1. To explain Globe’s proposal

2. To assess Globe’s assumptions

3. To recommend alternatives (counter

offers) to Globe’s proposal
Outline of Presentation
1. Explain criteria (NPV) used for investment
decision making
2. Explain how the model calculates NPV
3. Identify appropriate investment decisions for
Globe and Govt under current fiscal regime
4. Explain Globe’s request/proposal
5. Assess assumptions made
6. Provide/assess alternatives to Globe’s proposal
7. Recommend alternative proposals for Govt
1.0 Investment Decision
Criteria

Criteria used to assess investment

viability in this analysis are Net
Present Value (NPV)

NPV refers to the sum of a project’s

cash flows when expressed in
present value terms
Investment Decision Criteria
Cont...

NPV decision rule:

- Accept a project if NPV is greater than

zero

- Choose projects with highest NPV

2.0 Calculating NPV in model
 See example in model:

 model NFR 2, 5, 6 Current Regime.xlsx

Current Regime & Inv.
Decisions
GVT IMPORT ROYAL COST PRICE DISCOUNT
EQUIT DUTY, TY S RATE
Y EXCISE,
VAT
CONDI 10% 12.90%, 5% 100% NB: 35 6%
TION NO TA:
EXEMPTI 235
ON
NPV DECISION

GOVT US$ 474 Million ACCEPT

GLOBE -US$ 352 Million REJECT

Globe’s Proposal & Inv.
Decisions
GVT IMPORT ROYAL COST PRICE DISCOUNT
EQUIT DUTY, TY S RATE
Y EXCISE,
VAT
CONDI 0% 12.9%, 3% 100% NB: 35 6%
TION FROM TA:
YEAR 9 235

NPV DECISION

GOVT US$ 288 Million ACCEPT

GLOBE -US$ 165 Million REJECT

Globe’s Proposal & Inv. Decisions
Cont…

Possible reasons for Globe’s decision:

i. They are confident prices will rise

high enough to result in positive NPV

ii. They know that they have inflated the

costs such that the true costs result in
positive NPVs
Globe’s Proposal & Inv. Decisions
Cont…
 Reasons to believe Globe is banking on low
costs rather than high prices

1. Mineral prices are already high compared to

past 10 years
2. Software will be purchased every year when
normally in subsequent years they only pay
maintenance fees
3. Transport costs include suspicious marketing
component
Alternative proposals
1. We considered 22 alternatives as follows:

a) NOTES.docx
Results:

b) Summary Tables.xlsx
Viable Alternatives
1. Current regime with costs deflated by 30%, Govt
equity 0% and royalty 3%

2. Current regime with costs deflated by 30%, and

royalty 3%

3. Current regime with costs deflated by 30%, royalty

3% and assuming prices will rise to Nb ($37,000/t),
Ta ($292,000/t) but use discount rate of 10%
Alternative (1)
GVT IMPORT ROYAL COST PRICE DISCOUNT
EQUIT DUTY, TY S RATE
Y EXCISE,
VAT
CONDI 0% 12.90%, 3% 70% NB: 35 6%
TION NO TA:
EXEMPTI 235
ON

NPV DECISION

GOVT US$ 437 Million ACCEPT

GLOBE US$ 202 Million ACCEPT

Alternative (2)
GVT IMPORT ROYAL COST PRICE DISCOUNT
EQUIT DUTY, TY S RATE
Y EXCISE,
VAT
CONDI 10% 12.90%, 3% 70% NB: 35 6%
TION NO TA:
EXEMPTI 235
ON

NPV DECISION

GOVT US$ 482 Million ACCEPT

GLOBE US$ 157 Million ACCEPT

Alternative (3)
GVT IMPORT ROYAL COST PRICE DISCOUNT
EQUIT DUTY, TY S RATE
Y EXCISE,
VAT
CONDI 10% 12.90%, 3% 70% NB: 37 10%
TION NO TA:
EXEMPTI 292
ON

NPV DECISION

GOVT US$ 381 Million ACCEPT

GLOBE US$ 161 Million ACCEPT

5.0 Conclusions
Globe’s proposal is undesirable since
it is based on inflated costs

There are alternatives which are better:

A2 (npv: $482m) > A1 (npv: $437m) >

A3 (npv: $381m) > Globe’s proposal (npv:

$288m)
5.0 Recommendations
1. Govt must reject Globe’s proposal

2. Govt must offer alternative

proposals starting with A2 then A1
followed by A3
END OF PRESENTATION

THANK
YOU
FOR YOUR
ATTENTION