Question

Should New Earth Mining proceed with the investment?

Answer 1

Q)Should New Earth Mining proceed with the investment?

Answer:

New Earth Mining was presented with a unique opportunity to expand their footprint, as well as venture into an arena that demonstrated strong growth. Not only was growth attractive, but the customers that were willing to take the iron ore that New Earth Mining was exploring to mine. As our society continues to grow and innovations continue to take us by storm, it is no wonder that New Earth Mining was exploring the idea of jumping at an opportunity to add to their portfolio. With that being said there are two very important directions that New Earth Mining had to explore before making their decision qualitative and quantitative approaches. With any new venture, home must be done before determining if this is a power move, or a move that could cost New Earth in a negative way.Exploring the quantitative approach it is easy to see the attractive iron ore price points and potential for New Earth Mining, as well as the quantity that is available for them to source out too. With an increase in demand, and with key transportation points this opportunity appears to be the right one. “Given the high quantity of iron contained in ore mines in South Africa and the easy access to ports from the mine location, the venture was expected to have low production costs” (Wang, 2013).From the qualitative side there are several key topics that stand out in regards to this potential venture such as the geographical location of the iron ore. Being that it is located in South Africa, and the hostile environment surrounding its location can make this venture very dangerous and risky. In addition, one of the most attractive research for this venture would have to be when the outside firm, Dr.Exel Corp. highlighted the potential volumen of iron ore and the payouts. It is attractive, and would get most potential investors heads turning; however, with political and environment risk it can place a large shadow over all the dollars that are available. “The engineering firm found that the field contained 30 million tons of ore...At the projected extraction rate of 2 million tons per year, it would take 15 years to deplete the ore body” (Wang, 2013).

Overall, the risk and interest that New Earth Mining would have to pay out, along with the potential for the government to get involved and begin regulating the situation, I believe it would not be a sound investment if you were to follow Approach Four. This does not seem attractive, nor does it seem condusive to what New Earth Mining is looking for at the end of the pay day.

Reference: Fruhan, W. E., & Wang, W. (2013, October 11). New Earth Mining, Inc. Harvard Business Review.