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Medium Profitability Operations

African Gold Mines Co.

#Mining #Gold Production
ProHub Comment

This is a profitability case focused on cost reduction in mining operations. The candidate must analyze revenue constraints (commodity prices and geological limitations), identify the primary cost drivers (maintenance and fuel), and evaluate fleet replacement alternatives to achieve an $6m annual cost reduction target within 12-24 months.

Estimated Time 15 minutes
Difficulty Medium
Source IESE
50 / 100
African Gold Mines Co. (AGM) is a junior gold producer with one open-pit mine currently in production in Cameroon. The mine was established 10 years ago, and forecasts predict at least another 10 years of consistent gold production. Last year, AGM produced 250k oz of gold from their mine. They have come to us as their profit level has been slowly decreasing over the past five years. They had numerous operational issues with the mining equipment, problems with the workers’ union and issues with community relations notably. They want us to investigate what is the best course of action for their operation to return to their previous level of profitability within 12 to 24 months. They want us to specifically focus our attention to the mining department of the company.

Clarifying Information

  1. Costs have increased by 20% over the past 5 years
  2. Mining department costs in 2019 were $36m
  3. Revenues for the entire company in 2019 were $375m
  4. Target is to return to profitability level of 5 years ago meaning reducing costs by 6m.
  5. Cost 5 years ago = 36/1.2=30 Cost reduction= 36-30 =6m