& Risk Analysis for Technical Managers
No. 8 (Case study)
In-Situ: in millions of metric tons (1000 kg).
This metric was viewed as clearly probabilistic. Is FRC’s 50% discount approach to treating
Inferred a better, more conservative metric?
The metric was clearly probilistic because after the
modification in the metrics that is by adding uncertainty variables to the
inferred value did not decrease the mean value as in case of FRC. Ore in-situ
verification is the leading investor metric. Total ore quantity discovered in
the in-situ analysis may fluctuate significantly going from Inferred to
M. On the contrary, Physical positioning and quantity of the ore itself
with the actual ore richness percentage is the reason that directly impact
extraction cost. To reduce the severity of this action drill testing has been
planned such that it will move the ore valuation from inferred to more
reasonable M Valuation category to bring changes in current operational planning.
Secondly, based on the demands of investors PEA follows drill testing and
provide actual economic assessment.
The FRC 50% discount approach contrast its distinction in
two types that is extraction process and grade type. Also, due to the discount
offer, FRC has attracted many investors which is the important factor consider
the company. Thus, I feel that treating inferred with the discounted approach
is more conservative metric. From the case study, we can relate that the
approach of mitigating is a better option so that it will fall into Measured
and indicated category.
Location – Distance to Market: this is
an added metric to represent transportation costs associated with moving the
ore itself. Given that sea, rail and
truck costs are dramatically different, is this metric too simplistic?
Location – Distance to Market. This is an added metric to
represent transportation costs associated with moving the ore itself. As Graphite-one
will be the US based supplier then we need to consider the impacts of cost,
scheduling and alternative approach. Usually there are three means for the
movement of the ore that is by transportation of sea, transportation by rail
and transportation by truck. According to me the metric is not too simplistic
as it has various challenges. One such challenge is the cost, if we look at the
cost perspective than we say that movement by sea is a Rough Order of Magnitude
(ROM) which is cheaper than both rails and truck. On the contrary, it is also
easier by sea than compared to other means. But the other challenge that does
not make it simplistic is that if the port development is delayed than in that
case we need to move the ore via truck to other port in the region. In winters,
the lakes are frozen so the idea is that they need to move the ore via truck
and keep it stored in the nearby seaport and wait for spring to clear the ice
then we can again resume our shipment.
Finally, in my opinion I will add up by saying that we can
use sea as transport as it cheaper, we can also dispatch extra load before the
winter so that it does not hinder the demand in winter. Also, we can consider
dispatch by rail as other option.
Regulatory Ease for Supply – this factor is added as each mid-market junior
mining enterprise must pass U.S. regulations, particularly with the EPA and
U.S. corporate desires to move to a greener, sustainable supply chain. What would be your case to ignore this
analysis of FRC (Fundamental research corporation) Regulatory ease for supply
is not considered. Stan believed that this factor/metric could lead to
significant impact on supply chain decision makers for Example: GM or
TESLA/solar city as stated in case study.
FRC is a mid-tier junior mining firm which in its embryotic stage is
hoping to reach eventual mining operations but might be hampered if we consider
the metric in this case.
So, according to me we can ignore the metrics
if it has an impact on supply chain and risk management.
Share Risk – Dean, Anthony and Stan decided to keep this metric even though it
does not represent the enterprise risks accurately. Would you get rid of it?
and Dean felt that FRC was stable and has a positive future based on the rating
scale in evaluating graphite one. They were both extremely confident of their
process and activities to move forward and felt the FRC scale did not reflect
potential investor risk that could be mitigated. In the case study, the share
risk rating for Graphite one was 5, which indicates that there is a high
speculative risk involved. This tells us that the company is still on the early
stages of development and are still on testing stage or waiting for the
approval from regulatory advisory. Also, the company has no history of
generating earnings or cash flow and possibly depends on external funding’s.
Dean, Stan considered the metric to be important and the investors are waiting
for their return. To bring improvement in the share risk for Graphite-one ,
Stan reviewed the FRC report to deepen his own stock commitment .Based on a
flexible plan , he was counting on his
investor for expanding their own portfolios. Stan had some ideas on how
to build a fuller picture of Graphite One’s position while providing a more
flexible plan. Stan assumed that with an improvement in PEA and ore
verification can bring improvement in share risk.
according to my view I won’t get rid of this factor as the ideas demonstrated
in the case study will make the investors less aggressive towards the
The data in Appendix B is sufficient to conduct sensitivity analysis. This is
the modified, post risk mitigation utility analysis. Key differences are reduced risk with in-situ
and large flake numbers. The improved
distributions shown in page 2 of Appendix B reflect the mitigation of Risks 2
and 3. Risk 4 is addressed with a Stage
Maturity datum improvement for Graphite One.
Also, the Share Risk is modified with the assumed, improved Share Risk
value for Graphite One in 2015. The team
assumed that significant, solid investment will come from completing the risk
mitigation process. Is that a fair
extrapolation in your opinion?
according to me its sounds a reasonable extrapolation as Stan modeled the
in-situ and large flake numbers as probabilistic instead of discrete numbers
just as in the pre-risk reduction model. He also modified the Share Risk,
assuming that the Share Risk value for Graphite One will significantly improve
if the ore verification and PEA completion verifies Graphite One’s current
inferred ore valuation. Also, Graphite One risk mitigation improves score by
improving maturity and risk while reducing variance. From the table SUF value
we get the SUF value of graphite -one as 0.774 which is an acceptable value
when compared with other companies. Appendix B also make analysis for post
reduction model where in-situ has the best conditions on post reduction
strategy with SUF of 0.9532.