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. In the 6th year, the company gets approved for a new long-term debt of USD 2,800,000. The company also issues 50,000 shares with price of USD 10 per share. The company uses the funding for renewal of equipments and buildings, also for investing in other companys shares as much as (10% + last digit of student ID in percentage) from the total funding. The renewal of equipments and buildings is paid in installment for three years.