july 12, 2006: Peter\'s firm acquires the rights to an ore body in the canadian
ID: 1711671 • Letter: J
Question
july 12, 2006: Peter's firm acquires the rights to an ore body in the canadian shield region. The firm is considering developing a new mine tehre, and peter is responsible for proposing a project plan to teh board in september. The mine will take a few years to reach full production, and there is much uncertainity as to the price of gold when that happens. Peter includes in his proposal a history of gold prices (figure 4.11)
August2, 2006: Peter meets with bruce, a mining engineer with two decades of experience in Australian gold mines, and Sam, a geologist who, a few years back, did exploratory work on gold deposits inthe canadian shield region. They discuss known facts about teh ore body, teh likelihood of unforesoon geological phenomena that could jeopardize mine development, production figures that might be achieved, and production cost and technical problems that might be experiencing in extracting gold from the ore. A quick calculation shows that 300,000 ounces of gold per yaer at 700$ per ounce would be very lucrative, but a figure of 150,000 ounces at 400$ per ounce, 3 years from now, would lead to large losses that could ruin the company.CUrrent information about the ore body is inadequate, however ,and it will be necessary to drill exploratorion holes to learn more about the general geology of teh area.
Peter summarises:
To the best of our knowledge, we could produce anywhere between 150,000 and 300000 oumces a year. The capital cost for developing the shaft will be US $150 million to 260$ million, and annual operational costs could be $60 million to 100$ million.exploration to provide information on the ore body would require drilling 200exploration holes at a cost of somewhere between 1.2$ million and 1.6 million. Rock samples from these holes will be analysed in a laboratory to determine the gold content.
Peter instructs sam to review the data his previous exploration work and to prepare a report of his recommendations concerning the future exploration. He is authorized to spend no more than $25000 on this "paper exercise". They agree that, should the exploration holes yield good results,a "demonstration shaft" will be sunk to haul out a sample of 30,000 tons of ore to be processed to extract gold.Results from this demo would increase confidence about the amount of gold present, reduce uncertainity about processing the ore, and provide a good indication of potential yelds. They estimate that the demo shaft and analysis would cost $18 million to $25 million, some of which however, could be deducted from the cost of the full-fledged mine- should it go ahead. Only these results are positve - and the gold price is relatively high and stable as of that stage would the development of a full fledged shaft be authorized.
3. Describe how each of the proposed project phases will help reduce the risk of the project.
(question from case study 4.4 in project management for engineering, bussiness and technology, edition 4th, pg:159)
Explanation / Answer
SOME DATA ARE MISSING OR THIS QUESTION IS INCOMPLETE BECAUSE PREVIOUS YEAR DATA IS NECESSARY TO ANAYSE THE RISK AND OTHER THINGS . SO PLEASE REVIEW THIS QUES IF U HAVE HAVE MISSED SOME GRAPH OR TABLE
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