Blue Mountain Mining Ltd is evaluating its proposed iron ore mine for the Pilbara region of West Australia. The mine’s primary operations are the extraction of iron ore and its transportation to port. Given that the mine is 240 kilometres to the nearest port, ore will be transported using three (3) heavy haul trains where each train comprises two (2) locomotives and 208 ore carriages. It is anticipated that it will take one day for each train to complete the return trip from the mine to the port; including loading and unloading.
As part of the investment proposal, Blue Mountain Mining is considering whether it should invest in autonomous trains (do not require drivers). The key advantages of autonomous trains over standard non-autonomous trains (require drivers) include:
Reduced wages expense as there are no train drivers
Reduced fuel and maintenance costs as the autonomous system operates trains more efficiently.
However, disadvantages include:
Additional capital outlay on rail line and trains
Requires additional technicians trained in autonomous technologies for rail line and train maintenance.
The company has provided detailed information related to the autonomous and non-autonomous options in the ‘Train Information’ spreadsheet.
The management of Blue Mountain Mining Ltd have requested that you provide a detailed financial analysis of each train option and prepare a report that recommends a preferred option. The following requests have been made about the analysis and report:
1) The financial analysis is to be completed in Excel. The file is to be easily adjustable for different scenarios and all inputs must be in the one sheet called ‘Assumptions’ with the analysis of each train type conducted on a separate sheet.
2) The report is to be short (600 words + 20% tolerance) and written in a manner that can be understood by a person with a basic understanding of financial analytical tools.
The report sections to include: Summary, Methodology, Recommendations and Limitations.
Summary: outlines the task and advises of the recommendation.
Methodology: must explain and justify the methodology employed.
Recommendations: recommends a preferred option. In addition, includes analysis on the sensitivity of the decision to the discount rate (e.g. try between 5% and 15%).
Limitations: must identify key limitations with the analysisSo you have to do a financial analysis on the drivers and automation information to determine which one is more beneficial then write a report recommending an option based on the financial analysis findings