Mining Investment Analysis

Mining Corp. is a company that operates several coal mining sites. It has (13,500,000 + (last
3 digits of student ID x 100,000) tones of coal reserves.
Within exploration phase, the company had spent USD 112,000 for detailed exploration
drilling and USD 780 as fee for exploration consultants. For pre-development phase, the
company spent USD 134,000 for the land and USD 4,756 for the buildings around the sites.
The company initially buys USD 3,000,000 worth of equipments that are considered to have
lifetime of 5 years.
Based on the exploration result, the company sets on stripping ratio of 7.1:1. The stripping
cost is USD 0.32 per ton, drilling costs USD 0.57 per ton, blasting cost is USD 0.46 per ton,
loading costs USD 0.17 per ton, and hauling cost is USD 0.15 per ton. The company has FOB
contract with the buyer, and the transportation cost is USD 0.23 per ton. The coal is sold for
USD 56 per ton for the first three years, and the price is escalated by 3% for the fourth and
following years.
For its 12 years of mining life, the company decides to hire (last 2 digits of student ID + 50)
employees. For the top management, the salary is USD 2,500 monthly, while for the middle
management, the salary is USD 1,300. The low management has salary of USD 600, and
operators have salary of USD 350 monthly. The marketing expense is considered to be 5% of
total cost, and general and administrative expense is 3% of total cost. The overhead cost is
USD 500 per month.
Capital structure of the company consists of 60% equity and 40% of long-term debt due
within 7 years. The interest is 6.75% and paid semi-annually.
For the first 5 years, the company uses straight line to calculate the depreciation. Then, by
the 6th year, the company decides to use declining balance switching to straight line method,
with depreciation rate of 200%. Replacing the building and equipments uses mid-year
convention and the buying is on March of current year. Depletion (10% for coal) as tax
deduction is applied since the 1st year.