Blue Mountain Mining Ltd is evaluating its proposed iron ore mine for the Pilbara region of West Australia. The mine’s

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.

Task

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 analysisBlue Mountain Mining Information Sheet Iron ore reserve (tonnes) Annual Life of mine Distance from mine to Trains in operation Locomotives per traln Carriages per train Fuel Fuel cost iS per litre Effective ocerati Tax rate Discount rate 900,000,000.00 30,000,000.00 production 0.00 240.00 Round trip is 480 kilometres 3.00 Each train comprises locomotives and carriages 2.00 208.00 usage per train (litres per k 8.00 Averaged over round t 1.40 360.00 Used to adjust for maintenance and breakdowns 30.00% Tax is paid in the year of income 10.00% lies to non-automated and automated Information on Locomotives locomotive Initial outlay IS) 2,500,000.00 Mine uses MD4400AC trains Life of locemotive Working capital S Maintenance costs per Depreciation method Salvage value at end of 5.00 Operative life is shorter than average due to continued operation of trains and load requirements 500,000.00 Fuel 200.000.00 and related materials Straight Line Rate 1/Locomotive Life r 15 0.00 Mine location and associated costs make locomotives no s able Information on Drivers required (per train, per Work hours (per driver, per Drivers weekly working hours (a Driver yearly working weeks Drivers unavalability due to iiness Total Driving Hours (per Total drivers requir Drivers average annual 4.00 Two drivers operate each train. 12.00 Each shift covers the trip from the mine to the port or from the p 42.00 Averaged as drivers will work 2 weeks on 2 weeks off 48.00 Net of leave 2.00 27.00 210,000.00 Additional capital outlay to rail line (5 Salvage of additional capital outlay to rail line (S Additional capital outlay to locomotive (S per l Salvage of additional capital o Additional working capital (S) Fuel efficiency usage adjustment Maintenance cost adjustment 50,000,000.00 Sensors and related materials, depreciated straight line over life of mine 0.00 250.000.00 related 0.00 1,000,000.00 Total across rail line and all trains 93.00% Automation reduces fuel usage as locomotives operate more efficiently e.g. reduces cost by 7 95.00% Automation reduces maintenance costs through less wear and tear and breakdowns of locomotives, e. reduces cost by 5% 0.00 No drivers required due to automation 5.00 Additional technicians Total automation technicians required Automation technicians average annual to maintain locomotives and rail Line 130,000.00So 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


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