Roles And Responsibilities Of A Financial Analyst In Mineral Business Exploration Services

Types of Investments in Minerals Companies

Discuss about the Mineral Business Exploration Services Responsebilities.

The report is about the roles and responsibilities of a financial analyst at Antipodes Mineral Resources company. The company has asked all the applicants to answer the key questions related to the job profile so that they know that the applicants have a clear understanding of the role they have applied for.

1. The types of investment that takes place in a minerals company are Greenfield exploration projects, Brownfield exploration projects and Grassroot exploration projects. This kind of classification is based on the fact that there was mining done by any team in the past. In Greenfield projects, there is no exploration done previously and the companies depending on prediction starts mining in a particular territory. In case of Brownfield exploration projects, mining companies start exploration in areas near to already existing mines. They use existing data to collect estimate the deposits. The risk is also lower in this case. In case of Grassroot exploration projects, the geologist spends time and money in finding areas to be suitable for mining and based on the research, the mining companies start exploration.

The major investment by a mining company is in procurement of mining location, infrastructure and mining equipment and Human capital. The mining companies spend huge amount of money to get the sites for exploration and based on the potential of the areas, they make huge investments. Secondly the company has to invest in infrastructure development at the mining sites so that the minerals extracted can be easily stored and transported for processing. The companies also has to invest huge amount of money for heavy machinery and depending up on the capacity of the ores, the company purchases equipment so that they can extract optimally. Also the company has to invest in the human resources and provide them proper trainings to ensure their safety and health. The company has to provide each employee with safety equipment and gears to help them in mining. (Snoeks, 2009)

2. CFO or Chief Financial Officer of the company is responsible for financial planning of the company and managing the financial risk of the company due to various changes in the environment the company is operating in. He is a very important entity in the organization and helps the company in taking major financial decisions which can impact the organization and the investments of the shareholders.

The major activities undertaken in the office of the CFO are

Responsibilities of CFO in Mineral Business

Preparing of the financial statements, business reports and forecasts for the next financial year: The CFO’s office is responsible for preparing the income statement, balance sheet and cash flow statement for the shareholders so that they can understand the financial health of the company and compare them with industry average to understand the performance of the company with respect to its competitors. This helps the investors to understand the risk the company is involved in and help them and deciding if they want to continue with their investment or reduce their investment. The financial statement also helps the company’s management them to understand the impact of the decisions they took in the last financial year and if the decisions results were as expected. It help them in planning their future activities with better clarity about the market and their products.

The CFO’s office is responsible for preparing the forecasts for the next year and help the company’s owners understand the planning for the next year. It also helps them take different possibilities in to account and be prepared for each case.

Dedicate resources and help in decision making: The CFO’s office is responsible for dedicating the funds to various departments and help hem set their targets and objectives for the next financial year. The team takes in to account the priorities of each department and collates all the data and then distributes the resources to maximize the profits for the company and help each department meet its goals and targets.

Managing the Financial risk: The CFO’s office is also responsible for managing the financial risk the company has and try to reduce it. They can make changes in the debt to equity ratio of the company to reduce the risk and make changes as per the industry trends to maximize benefits for the company. The office can also dispose off any asset which is not performing well and invest in modern technologies which can help the company grow faster. The office also analyses the risk involved in each of the project and decides whether they should go ahead with the project or drop it based on the risk assessed. (Biery, 2015)

Thus it can be seen that the activities undertaken in the office of the CFO are very important and without proper functioning of CFO’s office it will be difficult for the company to run smoothly.

3. While managing the finances of a publically listed company, the financial managers must be very cautious about the effect of their decisions on the returns of the shareholders. In a publically listed company, the public has invested in a company and are owners of the company who have given the managers to work for their interests. Thus it is the role of every manager to ensure that the return to the investment made by the people is not affected in any sort of negative manner and work for the betterment of the company and its stakeholders at large.

Managing Finances of a Publically Listed Company

The management should keep the public informed of the various activities they are planning to conduct and the possible risk involved in every decision they take and must have a consent of the people before making any major changes in the company. The shareholders can be informed via annual meetings or annual reports and must be continuously involved in the decision making process. Also the management should be accountable for all the decisions and they must avoid any personal interest or conflict while taking decisions for the company. The management should work with the objective of maximizing the profit for shareholders while keeping in consideration all the stakeholders and then taking the decisions for the company. (Grimsley, 2001)

4. Apart from the responsibilities towards the shareholders, the Antipodes Mineral Resources Company (AMR) is also responsible towards all the stakeholders of the company. According to stakeholders’ theory, all people who are affected by the presence of the organization are the stakeholders of the company. The stakeholders can be classified in to internal stakeholders and external stakeholders. The employees, managers and owners of the company form a part of the internal stakeholders whereas the customers, suppliers, society, government and creditors form a part of the external stakeholders. The company is responsible to all of these people because due to the presence of the company each of them ae affected in one way or the other and it is the responsibility of the company to take them in to account while taking any decision.

The Antipodes Mineral Resources Company (AMR) is responsible for maximizing the profits of the shareholders. But if the company does not take in to account all stakeholders it will not be possible for them to earn profit in the long run. The company must also try to minimize the wastes and reduce pollution due to its presence to help in prosperity of the society otherwise the people of the society will have to force shut down the company for making the society uninhabitable. The company must earn customer loyalty by providing the quality and affordable price of the product and must work in favors of the suppliers to have continuous supply of raw materials and labor whenever it needs. This will also help company in having a competitive edge over the others and sustain in this competitive world. (Jensen, 2001)

Thus being responsible to all the stakeholders, the company can help the shareholders maximize their profits and help in the development of the society.

Responsibility of Antipodes Mineral Resources Company Towards Stakeholders

A. Given,

The cash flow of the company RWE for the next 10 years is given below

Year	Cash flow
0	-3000000
1	700000
2	700000
3	700000
4	700000
5	-1300000
6	700000
7	700000
8	700000
9	700000
10	900000

 

The discount rate is 10%

We know, NPV or net present value of a project is defined as the present value of the future cash flow which is discounted using the discount rate.

NPV =

FV is the future cash flow, n is the number of years, r is the discount rate and F0 is the initial investment made.

Calculating the present value of each year, we get

Year	Cash flow	Present Value
0	-3000000	-3000000
1	700000	636363.6364
2	700000	578512.3967
3	700000	525920.3606
4	700000	478109.4188
5	-1300000	-807197.72
6	700000	395131.751
7	700000	359210.6828
8	700000	326555.1661
9	700000	296868.3329
10	900000	346988.9605

Thus NPV = sum of all the present value = 136462.99

B) Internal defined as the discount rate at which the net present value of all the future cash flow for a project becomes zero. Internal rate of return r then

NPV =  = 0

Thus calculating we get r = 11.06%

Profitability index is defined as the ratio of the present value of all the future cash flow and the investment made initially in the project. Profitability index = Sum of the present value of all the free cash flows / Initial Investment = 1.045

C) Payback period is defined as the time period after which the investment made by the company can be recovered i.e. time after which Investment = Revenue generated. (Investopedia, 2011)

In this case, the cash flow and cumulated cash flow is given below

Year	Cash flow	Cumulated cash flow
0	-3000000	-3000000
1	700000	-2300000
2	700000	-1600000
3	700000	-900000
4	700000	-200000
5	-1300000	-1500000
6	700000	-800000
7	700000	-100000
8	700000	600000
9	700000	1300000
10	900000	2200000

The cumulated cash flow is positive in the 8^th year. Thus Payback period = 7 +  = 7.14 years

Discounted payback period is defined as the time period after which the investment made by the company can be recovered after discounting the cash flow to present value i.e. time after which Investment = Revenue generated after discounting cash flow.

The cash flow, present value and the cumulative value of the present value is given below.

Year	Cash flow	Present Value	Cumulative Value
0	-3000000	-3000000	-3000000
1	700000	636363.6	-2363636
2	700000	578512.4	-1785124
3	700000	525920.4	-1259204
4	700000	478109.4	-781094
5	-1300000	-807198	-1588292
6	700000	395131.8	-1193160
7	700000	359210.7	-833949
8	700000	326555.2	-507394
9	700000	296868.3	-210526
10	900000	346989	136463

The cumulated cash flow is positive in the 10^th year. Thus Payback period = 9 +  = 9.606 years.

Conclusion:

Thus the report helps in understanding the roles and responsibilities of a financial analyst at Antipodes Mineral Resources company. It discusses the key questions related to the job profile and the responsibilities if a financial analyst. It also discusses whether or not RWE should invest in the project. From the calculations, it was found that the rate of return is low and the payback period is high. Thus the company can look at other alternatives to invest in.

References

Snoeks, J. (2009). Mineral Exploration Companies – Greenfield Exploration vs. Brownfield Exploration. Retrieved from https://www.undervaluedequity.com/Mineral-Exploration-Companies-Greenfield-Exploration-vs.-Brownfield-Exploration.html

Caldwell, J. (2013). Valuation in Mining. Retrieved from https://technology.infomine.com/reviews/Valuation/welcome.asp?view=full

Investopedia. (2011). Payback Period. Retrieved on September 16, 2016 from https://www.investopedia.com/terms/p/paybackperiod.asp

Chew, A. (2012). Investing in mining related infrastructure – what investors and contractors should know. Retrieved from https://www.corrs.com.au/thinking/insights/investing-in-mining-related-infrastructure-what-investors-contractors-should-know/

Grimsley,S. (2001). What is Stakeholder Theory? – Definition & Ethics. Retrieved from https://study.com/academy/lesson/what-is-stakeholder-theory-definition-ethics-quiz.html

Investopedia. (2011). Net Present Value – NPV. Retrieved from https://www.investopedia.com/terms/n/npv.asp

Biery, M. E. (2015). 4 Key Functions of a Chief Financial Officer. Retrieved from https://www.entrepreneur.com/article/242001