P
ProHub
English 简体中文 繁體中文
BCG Hard Competitive Strategy Investment Analysis Market Sizing Supply & Demand

Mining Competitive Strategy

#Mining #Commodities
ProHub Comment

This case effectively integrates market dynamics for commodities with strategic decision-making under competitive pressure. It requires candidates to interpret a supply cost curve, quantify the impact of increased production on market price, and perform a payback analysis, then consider competitor reactions using a payoff matrix.

Estimated Time 15 minutes
Difficulty Hard
Source Wharton
50 / 100
Our client is an Australian mining company, whose main product is Iron Ore, which it sells exclusively to China. This company is the largest producer in volume in this market with 230 million tons sold each year. It is also the lowest cost producer at 27$ per ton of production costs. We estimate the total Chinese demand for Iron Ore today to be around 980 million tons per year. Our client has won a concession to mine a new site adjacent to its biggest mine, and increases production to 360 million tons per year (i.e. 130 million additional tons per year). Is this worth doing?

Clarifying Information

  1. Board typically approves projects with payback in less than 5 years. You can use payback with no discounting for your math.
  2. Consider that the market will remain flat at 980 million tons per year for the foreseeable future
  3. $ 3 Billion upfront
  4. Consider this new mine to have the same exact cost as its current production (27$/ton)
  5. Show Exhibit A of China’s Cash - Cost curve for iron ore.
  6. For the purposes of this case, let’s limit analysis to iron ore and China.