Case study

Mining Acquisition Analysis

Industrial, Mining

A precise financial model enables a forward-looking mining industry player to assess an mining explosives plant acquisition, incorporating operational dynamics, varied contract scenarios, and essential financial insights, ultimately leading to a well-informed investment verdict.

Tara Lahooti

Lead Finance Analyst

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Client

Our client is an innovative services provider for the global mining industry and offer a variety of bespoke solutions and equipment.

Purpose

Our client required a financial model to support the due diligence for a potential acquisition of an mining explosives plant and the supporting business.

The key requirements included:

  • Operational Assumptions & Calculations – including the consideration of costs and synergies resulting from the acquisition, modelling of 3 types of sale agreements (tolling arrangement, services contracts and initiating systems), detailed Bill of Materials build-up for emulsion and bulk explosives products and integration of formulaic rise and fall provisions to project margins.
  • Scenario Analysis – the inclusion of a comprehensive scenario analysis, capture and compare tool which allowed detailed scenarios to be developed by combining several combinations of contracts and volume changes.
  • Export tool – the model required a sheet which could export a number of captured scenarios to the corporate model where the impact on financing requirements and investor metrics would be calculated.
  • Financial Dashboard & Statements – the financial dashboard contained investment and operating metrics, as well as key graphs and charts relating to the 3-way integrated financial statements.
  • Operational Dashboard – this output sheet detailed the operational aspects of the emulsion plant, including manufactured tonnes, bulk sales volume and revenue, operating costs, plant capacity and FTEs.
  • Customer Dashboard – this output sheet provided contract analysis such as volume, revenue, gross margin and profitability per customer, and key contract details and terms.

Approach

An in-person discussion between the CEO and Forecast initiated the project, and following this, regular meetings were scheduled between the project teams. Forecast worked closely with the client to develop a model that would provide the level of analysis required to give the client confidence in their investment decision. A critical part of the model was to ensure that the client’s margin was protected under a range of scenarios relating to freight costs, volume and input prices.

Outcome

Forecast delivered a detailed operational & financial model which calculated operating and investing cashflows of the emulsion plant and integrated seamlessly into the corporate model for analysis on earnings per share, share price, and other key valuation metrics.