Frieda River copper and gold project is located at the border of East and West Sepik. The holder of the exploration license EL58 lodged an application for a Special Mining Lease on 24th june 2016. This date is the date at which the application was registered by the Registrar of Mineral Tenements. This process is pretty much similar to that of land lease process.
As per the process, the Registrar upon registration gives notice to the Chief Mining Warden and other officers for technical appraisal. This triggers the next procedure which is the Warden Hearing Process. the Chief Warden together with the registrar fixes a date and time and venue and notify impacted stakes holders regarding the hearing. This is a public forum for the impacted stake holders where the views of the impacted people are gauged.
As such, the above process were followed and Mining Warden hearing was conducted at several venues. The Application was not only the SML application but some other auxiliary leases as well such as lease for mining purposes (LMP), Mining Lease, Mining Easements (ME). To cater for all these leases, there were several venues fixed for hearing. the impacted communities of the Frieda River Project include but not limited to the following:
* Wabia village
*Ok Isai Air strip
*Kubkain village
*Iniok Village
*Aum 3 Village
*Wemimin 1 & 2
* Hotmine Mission Station
The Views of the people were gauged and report compiled for further deliberation. The views of the people were either supportive or objective. The the job of the mining warden is the record all good or bad comments and compile report and also give his/her view.
The other part of the technical assessment is another process which is dealt with by the technical assessment team.
 |
| Chief Mining Warden, Andrew Gunua was Conducting Mining Warden Hearing at Ok Isai, for the Frieda River SML 9 Application in the West Sepik Province |
Thursday, 2 January 2020
Frieda River (SMLA9) Mining Warden Hearing
Monday, 16 December 2019
Introduction to Mineral Processing- Questions and Answers
S
1.
Write
down the main objective and technological summary of mineral processing on
mining industries.
The main objective of mineral processing in
mining industries is to separate the gangue minerals from the valuable or
target minerals or the desired minerals. The desired or valuable minerals are
fixed within the ore. The target minerals are to be liberated from the ore and
gangue minerals are disposed of.
The summary of the mineral processing
technology is in the following sequence:
·
Rock drill & blasting of Ore
·
Crushing &
Grinding (Liberation)
·
Sieving &
Classification
·
Separation, Extraction,
Concentration
·
Concentrate &
Metallurgical Treatment
The crushing and grinding technology is
very important in securing resources because without crushing or grinding you
cannot go further. Crushing and grinding are the only primary actions for
further downstream processing. After crushing and grinding you can look for
other alternatives of screening and separation and further downstream
processing techniques that suites the recovery of target mineral.
For example, you can’t recover in-situ or ROM
gold by leaching if there is no fracture to expose gold surface interaction
with cyanide solution. You cannot
proceed with flotation if you have not crushed and ground the materials to
expose the surface of mineral particles
3. It is required to process a low grade ore
in which the primary mineral is chalcopyrite associated pyrite. Suggest a
process flowsheet, a reagent scheme and a set of operating conditions that may
optimize the recovery of copper while minimizing the recovery of pyrite. Explain
the reason that led to your decisions.
Froth Flotation process is best for
recovering Chalcopyrite. Both Chalcopyrite and pyrite are in pregnant solution
at lower pH value. In order for us to separate Chalcopyrite from pyrite, we
need to regulate the pH value in the flotation. This can be done by introducing
lime and alkaline reagents into floatation thank so that the pH is increased
above 6. The pyrite will then precipitate at pH above 6 and the chalcopyrite floats
as bubble which is separated from pyrite.
Describe with your idea.
The development of processing technology would be a
challenge to recover very low grade ore which is regarded as waste materials or
tailings. It is assume that the tailings at least contain some valuable
minerals but are hardly recoverable using the metal recovery techniques. It is
normally allowed to pass through as tailings into the tailings dams or discharged into the river or on to the seafloor.
Some researchers have come up with proposals to recover low
grade ore with a concept of near zero
waste through bio-leaching processing techniques but it will be a challenge
whether such technology will truly help to recover very low grade ore mixed
with silts and fine particles of rocks and soil.
Thursday, 24 October 2019
Nature of Geothermal Resources- The Earth's Thermal Engine
Nature of geothermal resources are explained by many researchers from all works of lives. Most of the information provided in this articles is purely educational information and not intended to propose or produce as a research paper. This article was produced as part of published journal research presentation for graduate school of engineering at Kyushu University. Some of the information provided in this article may relate to an original journal or research papers.
Saturday, 12 October 2019
Thyphoon Hagibis Hitting Japan and Many Lives are in Danger 12th October 2019
Typhoon Hagibis is strongly hitting the Tokyo Metropolitan area and Shizuoka Prefecture and many lives and properties in danger and some have already being affected by the most dangerous typhoon. This Typhoon Hagibis has caused catastrophic damage to the people and the properties and infrastructures.
The typhoon has already started and will continue for the next two to three days.
According to the NHK live news, the Japan's Meteorological Agency has issued heavy rain emergency warnings for Tokyo and Shizuoka, Kanagawa, Saitama, Gunma, Yamanashi, Nagano, Ibaraki, Tochigi, Fukushima, Miyagi and Niigata prefectures. It is the highest level of warning in the JMA's five-level warning scale.
Live news on latest updates regarding typhoon hagibis refer to the link below;
https://www3.nhk.or.jp/nhkworld/en/live/
The typhoon has already started and will continue for the next two to three days.
According to the NHK live news, the Japan's Meteorological Agency has issued heavy rain emergency warnings for Tokyo and Shizuoka, Kanagawa, Saitama, Gunma, Yamanashi, Nagano, Ibaraki, Tochigi, Fukushima, Miyagi and Niigata prefectures. It is the highest level of warning in the JMA's five-level warning scale.
 |
| Photo taken from Youtube live stream |
Live news on latest updates regarding typhoon hagibis refer to the link below;
https://www3.nhk.or.jp/nhkworld/en/live/
Tuesday, 8 October 2019
Small Scale Mining in Papua New Guinea (PNG)
Small-scale mining in Papua New Guinea was practiced for more than a century when the first ever gold discovery was done in the Sudest Island in in the Milne Bay Province in 1888. The small-scale mining operation then extended to other neighbouring islands of Missima and Woodlark and further to the other parts of Papua New Guinea.
It is also known that about 100 years ago there were also miners mining on the Yodda and Gira fields in Oro Province and 10 years later at Lakekamu in Gulf Province in 1920s. These discoveries led to the development of major mining operations in Papua new Guinea.
Gold is still actively produced in Bulolo Wau area as well as other areas in PNG today.
The early miners were able to open up the Highlands in the 1930's and located gold at Kainantu, Kuta and Porgera. Others discovered the Sepik areas and found gold at Maprik and Amanab. The early miners also mined at Kupai on Bougainville near the closed Panguna Mine.
Gold remains an integral part of the cash economy in areas where gold has been traditionally mined. The local landowners are testing their own land and finding new gold anomalies throughout PNG.
today we have more than 50,000 to 60,000 small scale gold miners working at various alluvial gold districts throughout he country using various mining methods.
The most commonly known basic mining methods are sluicing and panning. The miners sometimes use water pump and other motor powered machines in their operation to either go semi-mechanised or fully mechanised.
Note:
The this article is an extract from a publication by Department of Mining Papua New Guinea,2001.
It is also known that about 100 years ago there were also miners mining on the Yodda and Gira fields in Oro Province and 10 years later at Lakekamu in Gulf Province in 1920s. These discoveries led to the development of major mining operations in Papua new Guinea.
Gold is still actively produced in Bulolo Wau area as well as other areas in PNG today.
The early miners were able to open up the Highlands in the 1930's and located gold at Kainantu, Kuta and Porgera. Others discovered the Sepik areas and found gold at Maprik and Amanab. The early miners also mined at Kupai on Bougainville near the closed Panguna Mine.
Gold remains an integral part of the cash economy in areas where gold has been traditionally mined. The local landowners are testing their own land and finding new gold anomalies throughout PNG.
today we have more than 50,000 to 60,000 small scale gold miners working at various alluvial gold districts throughout he country using various mining methods.
The most commonly known basic mining methods are sluicing and panning. The miners sometimes use water pump and other motor powered machines in their operation to either go semi-mechanised or fully mechanised.
 |
| Abandoned Trommel at Tuguba River Mine Site in Tamo, East Sepik Province |
 |
| Mechanized Mining Equipment Parked at an alluvial mine site at Tuguba River, Tamo in the East Sepik Province |
Note:
The this article is an extract from a publication by Department of Mining Papua New Guinea,2001.
Wednesday, 2 October 2019
Stability Analysis of Tailings Dam - Brief
Stability of Tailings Dam describes the tendency of a dam to resist failure. Failure encompasses both mass movements in which large volumes of rock/soil or dam embankment materials slip and smaller-scale displacements such as minor tension cracks on surface, rock falls etc. All types of rock-slope failures are important as they can have a significant impact on Tailings dam, mines, properties and lives either on the slope or at its base. Instability cause by mass movement of rocks along a plane occurs in four ways: plane failure, wedge failure, toppling failure and circular failure.
Sunday, 29 September 2019
Tailings Dam Construction in Papua New Guinea a Challenge
Tailings dam constructions in Papua New Guinea (PNG) are faced with natural factors such as high altitude with high rainfall (2000-5000mm), active seismic zone and other geotechnical structural factors which pose threat to the stability of tailings
dam and potential failure. As such, the
PNG government has allowed mining companies to discharge tailings into the river
systems over the last 30 to 40 years which pollutes the riverine and ecology within the vicinity of the mine
impacted communities downstream. However,
the PNG Government intend to discourage riverine tailings disposal and
encourage tailings dam construction in PNG.
The current tailings dams in PNG include Hidden Valley Tailings Storage Facility(TSF) and K92 Mine Tailings Dam.
The Porgera Gold Mine discharges its tailings into the Strickland River in the Enga Province. The Ok Tedi Copper and Gold Mine at the Mt.Fubilan, Tabubil in the Western Province discharges its tailings into the Ok Tedi River System.
The Lihir Gold Mine in the Luise Caldera of New Ireland Province places its tailings onto the deep sea floor (DSTP).
The Ramu Nickel and Cobalt Mine at Kurumbukari in the Madang Province also practice the deep sea tailings placement (DSTP).
The Wafi Golpu project is an advanced project with the Special Mining Lease Application lodged with the Mineral Resources Authority and is under technical appraisal by government at its engaged independent consultants. This project proposed for a DSTP.
The Frider River Project proposed for an Integrated Storage Facility which will contain waste rock and tailings at the same time. The dam will also but used as hydro-dam to generate electricity.
The government of Papua New Guinea will never or might not allow riverine tailings discharge for all future mines in the country. It would be either by practice of building of Tailings Storage Facilities of place them one deep seafloor.
Thursday, 15 November 2018
Mineral Resources Authority Office Closed for APEC Public Holiday
The Mineral Resources Authority(MRA) is closed today 16th of November 2018 for the Asia Pacific Economic Cooperation (APEC). Normal Businesses will be running on Monday the 19th of November 2018.
It is advised by MRA that all clients of the Mining Industry of PNG will not be attended during this Public Holiday. Meanwhile, other Government Departments and Authorities remain closed for this day.
It would be a good opportunity for staff to have this free time to witness the World Leaders especially within the Asia Pacific Corridors flooding into Port Moresby, the Capital City of Papua New Guinea.
However, online PNG Mining Cadastre Portal is expected to be operational according to the MRA.
It is advised by MRA that all clients of the Mining Industry of PNG will not be attended during this Public Holiday. Meanwhile, other Government Departments and Authorities remain closed for this day.
Monday, 13 August 2018
Thursday, 9 August 2018
Financial Performance Analysis of a Mining Company (Simple Example) - Mineral Economics
1. Analyze the financial performance of the Lihir Gold Limited for 2006. Given the Balance Sheet and Income Statement, calculating the following ratios and interpret the results.
i. Analyze the Liquidity/Solvency
This measures the firm’s ability to meet short term obligations i.e. debt payment.
a) Net Working Capital
Net Working Capital = Current Assets – Current Liability
= U$ 132,700, 000 –US$ 207,300, 000
= – US$ 74,600, 000
Net Working Capital shows that Lihir is not capable of meeting its short term obligation. The current assets could not meet the current Liability.
b) Current Ratio
Current Ratio= Current Assets/ Current Liability = U$132 700 000/ U$207 300 000= 0.64
Mining’s CF is highly predictable so current ratio of over 1 or 2 is acceptable. Thus Lihir has no short term debt paying ability because current ratio is less than 1.
c) Quick Ratio
Quick Ratio = Current Asset – Inventory/ Current Liability
= U$ 132,700, 000 –U$75300 000/U$ 207300 000
= 0.277
Quick ratio> 1 is desired, so Lihir has no immediate ability to meet current debts.
ii. Analyzing Activity
Activity ratios are used to measure the speed at which various accounts are converted into sales or cash.
a) Inventory Turnover – shows how soon the inventory will be converted to cash.
Inventory Turnover = Cost of goods sold / Inventory = U$ 268100 000 / U$ 75300 000= 3.56
Exploration expenses = US$ 6000 000 is an expense
Therefore; Inventory Turnover = Cost of goods sold / Inventory
= US$ 262100000 / US$75300 000 = 3.48
Inventory turnover is useful only when compared with that of other firms with same industry. For Mining and Petroleum inventory turnover is between 5- 10. However, Lihir has less than that (i.e.3.48) so inventory turnover is very poor. And the number of days required to convert inventory into cash is 360days/3.48 = 103.45 days.
b)Average Collection – average amount time required to collect accounts receivables
Average Collection Period = Accounts receivables /Average Sales/day
= U$4600 000 /U$ 310400 000/360 = 5.3 days
The average collection period of 5.3 is indicative of good managed credit collection or credit department.
c) Average payment period – average amount of time needed to pay accounts payable.
Average Payment period = Accounts payable/ Av. Purchases/day*% of goods sold
US$ (268.1M – 6M (Exploration expense)) = US$ 262.1 M Cost of goods sold;
Average Payment period = US$ 46 600 000 /US$ 262100 000/360 * 0.84 = 76.2
= 76.2 days to pay for credit purchases
If the credit purchase term is 30 days, financial analysts could give Lihir low credit rating because 76.2 days to payback credit purchases is unacceptable.
d) Fixed asset turn over – measures the efficiency with which bthe firm has been using its fixed, or earnings, assets to generate sales.
Fixed assets Turnover = Sales /Net fixed assets
= US$ 310 400 000 / US$ 86200 000 = 3.6
This means Lihir Mine Ltd’s turnover on its fixed assets is 3.6 times a year. It indicates fixed assets are efficiently used to generate cash flow.
e) Total asset turnover – indicates the efficiency with which the firm uses all its assets to generate sales.
Total assets turnover = Sales /Total assets = US$ 310 400 000 / US$ 1 496 000 000 = 0.21
The overall efficiency of using assets to generate sales is 0.21 which is not a good reflection. It could mean assets are old and need replacement.
iii)Analyzing Debt
a) Debt ratio- measures the proportion of total assets financed by the firm’s creditors.(the higher the ratio reflects greater amount of other people’s money used in an attempt to generate profit)
Debt ratio = Total liabilities / Total Assets = US$ 684 100 000 /US$ 1 496 000 000
= 0.457 = 45.7%
This indicates Lihir has financed 45.7% of its assets with debt which is good.
b) Debt equity ratio – measures the ratios or long-term debt to stockholders equity. It generally measures the degree of financial leverage of the firm.
Debt Equity Ratio = long term debt /Stockholders equity = US$188 600 000 /US$ 811 900000 =3.23%
It means Lihir applied 23.23 % debt to procure long – term assets which is lower debt – equity ratio. This indicates that it has a stable cash flow debt that can be paid at a shorter period of time.
c) Times interest earned ratio – measures the firm’s ability to make contractual interest payments.
Time interest earned = earnings before interest & taxes (EBIT)/ Interest Expense
= US$ 80 700 000 / US$(1 400 000 + 6 200 000) = 10.2
Lihir time interest earned is 10.2. As a rule, a value of 3 to 5 is a good margin for safety from shrinking and liquidation. However Lihir has exceeded that margin and indicates that Lihir is able to fulfill its interest servicing.
d) Fixed payment coverage ratio – measures the firm’s ability to meet all fixed – payment obligations such as loan interest ,principal, lease payments and preferred stock dividends
Fixed payment coverage ratio
= EBIT + Lease payments / ( Interest + lease pmt + { ( prin.pmt + preferred stock div) x (1/(1-T))})
= *(US$ 80 700 000 + 0 )/ ( US$ 1 400 000 + 0 +{( 30 600 000 + 0) x (1/(1 – 0.3))}) = 1.7
Note: Principle payment is obtain from year 2005 and PNG Income tax is 30%. No lease payment and no preferred stock dividend for year 2006.
iv. Analyzing profitability
a) Gross profit margin – indicates the efficiency of management in turning over company’s goods into profit.
Gross profit Margin = (Sales - Cost of Goods sold)/Sales
= (US$ 310 400 000 – US$ 268 100 000 )/ US$ 310 400 000 = 13.6 %
Exploration expenses = US$ 6000 000 is an expense
Therefore Gross profit Margin= US$310.4M – US$(268.1 - 6)M/ US$ 310.4= 15.56 %
The gross profit margin in 2005 is -4.57% or the company has received less revenue. However it has improved in 2006 with gross profit margin of 15.56%.
b) Net profit margin – measures the profit produced by each dollar of sales.
Net Profit Margin = Net profit after taxes/ Sales = US$ 53 800 000 / US$ 310 400 000 = 17.35 %
In 2005, the company has net profit margin of 19.0 % and in 2006 with the net profit margin of 17.35%. So in 2005 there is slightly improvement in profit produce by each dollar of sales.
c) Return on assets (ROA) – measures the overall effectiveness of management in generating profits with its available assets.
Return on Assets = (Net profit (before extraordinary items) + income tax + Interest )/Average total assets
= (US$ 53 800 000 + US$ 22 100 000 + US$ 1400 000 )/((US$ 1496 000 000 + US$ 1319 400 000)/2)
= 5.5 % Return of assets
This shows that company has profit earning power using its limited available assets.
d) Return on equity
Return on equity = net profit – preference dividend /Average stockholders’ equity
= ( US$ 53800 000 - 0 ) / (US$1496 000 000 + US$ 1319 400 000)/2 = 3.8%
For every dollar of strockholders’ equity, there is 3.8% return accruing to the stock holder.
e) Earnings per share – use by stock investor to compare different companies on the basis of earning power of the firm’s each outstanding share on common stock.
Earnings per share = net profit (before extraordinary items) – preference dividend
Number of ordinary shares issued (outstanding)
= (US$ 53 000 000 – 0 )/1284 049000
=US$ 0.041
The EPS of US$0.04 represent dollar amount earned on behalf of each shareholder by the company using each shareholder’s equity.
f) Price/earnings (P/E) Ratio – is the ratio use to assess the future financial performance of the firm.
Price / earnings = market price per share of common stock earnings per share.
= Selling Price / EPS
Note: The Selling price was hardly found in the given data (may be not given in the data) so the Ratio was not calculated.
SUMMARY STATEMENT OF LIHIR GOLD MINE
A) Liquidity
Liquidity or Lihir’s ability to meet short term obligations is reasonably not stable and unsecure and there is a short term liquidation problem as observed from liquidity/solvency analysis. It is seen that it will take a long time for Lihir to pay its debt. This is shown by current ratio 0.64 and quick ratio 0.277. Mining’s CF is highly predictable so current ratio of over 1 or 2 is acceptable. Thus Lihir has no short term debt paying ability because current ratio is less than 1. Quick ratio> 1 is desired, so Lihir has no immediate ability to meet current debts.
B) Activity
Lihir’s inventory appears to be in bad shape and the firm faced problems with account receivables of 103.45 days. Average payment is unacceptable and total assets turnover is not good. However, the average collection period of 5.3 is indicative of good managed credit collection or credit department.
C) Financial Terms
Lihir Mine’s indebtness increase over the year 2005 to 2006. It has no lease payments and the amount of debt is small and can be paid within a short period of time.
D) Profitability
Compared to year 2005, Lihir has made great improvement and its net profit was greater than previous year.
i. Analyze the Liquidity/Solvency
This measures the firm’s ability to meet short term obligations i.e. debt payment.
a) Net Working Capital
Net Working Capital = Current Assets – Current Liability
= U$ 132,700, 000 –US$ 207,300, 000
= – US$ 74,600, 000
Net Working Capital shows that Lihir is not capable of meeting its short term obligation. The current assets could not meet the current Liability.
b) Current Ratio
Current Ratio= Current Assets/ Current Liability = U$132 700 000/ U$207 300 000= 0.64
Mining’s CF is highly predictable so current ratio of over 1 or 2 is acceptable. Thus Lihir has no short term debt paying ability because current ratio is less than 1.
c) Quick Ratio
Quick Ratio = Current Asset – Inventory/ Current Liability
= U$ 132,700, 000 –U$75300 000/U$ 207300 000
= 0.277
Quick ratio> 1 is desired, so Lihir has no immediate ability to meet current debts.
ii. Analyzing Activity
Activity ratios are used to measure the speed at which various accounts are converted into sales or cash.
a) Inventory Turnover – shows how soon the inventory will be converted to cash.
Inventory Turnover = Cost of goods sold / Inventory = U$ 268100 000 / U$ 75300 000= 3.56
Exploration expenses = US$ 6000 000 is an expense
Therefore; Inventory Turnover = Cost of goods sold / Inventory
= US$ 262100000 / US$75300 000 = 3.48
Inventory turnover is useful only when compared with that of other firms with same industry. For Mining and Petroleum inventory turnover is between 5- 10. However, Lihir has less than that (i.e.3.48) so inventory turnover is very poor. And the number of days required to convert inventory into cash is 360days/3.48 = 103.45 days.
b)Average Collection – average amount time required to collect accounts receivables
Average Collection Period = Accounts receivables /Average Sales/day
= U$4600 000 /U$ 310400 000/360 = 5.3 days
The average collection period of 5.3 is indicative of good managed credit collection or credit department.
c) Average payment period – average amount of time needed to pay accounts payable.
Average Payment period = Accounts payable/ Av. Purchases/day*% of goods sold
US$ (268.1M – 6M (Exploration expense)) = US$ 262.1 M Cost of goods sold;
Average Payment period = US$ 46 600 000 /US$ 262100 000/360 * 0.84 = 76.2
= 76.2 days to pay for credit purchases
If the credit purchase term is 30 days, financial analysts could give Lihir low credit rating because 76.2 days to payback credit purchases is unacceptable.
d) Fixed asset turn over – measures the efficiency with which bthe firm has been using its fixed, or earnings, assets to generate sales.
Fixed assets Turnover = Sales /Net fixed assets
= US$ 310 400 000 / US$ 86200 000 = 3.6
This means Lihir Mine Ltd’s turnover on its fixed assets is 3.6 times a year. It indicates fixed assets are efficiently used to generate cash flow.
e) Total asset turnover – indicates the efficiency with which the firm uses all its assets to generate sales.
Total assets turnover = Sales /Total assets = US$ 310 400 000 / US$ 1 496 000 000 = 0.21
The overall efficiency of using assets to generate sales is 0.21 which is not a good reflection. It could mean assets are old and need replacement.
iii)Analyzing Debt
a) Debt ratio- measures the proportion of total assets financed by the firm’s creditors.(the higher the ratio reflects greater amount of other people’s money used in an attempt to generate profit)
Debt ratio = Total liabilities / Total Assets = US$ 684 100 000 /US$ 1 496 000 000
= 0.457 = 45.7%
This indicates Lihir has financed 45.7% of its assets with debt which is good.
b) Debt equity ratio – measures the ratios or long-term debt to stockholders equity. It generally measures the degree of financial leverage of the firm.
Debt Equity Ratio = long term debt /Stockholders equity = US$188 600 000 /US$ 811 900000 =3.23%
It means Lihir applied 23.23 % debt to procure long – term assets which is lower debt – equity ratio. This indicates that it has a stable cash flow debt that can be paid at a shorter period of time.
c) Times interest earned ratio – measures the firm’s ability to make contractual interest payments.
Time interest earned = earnings before interest & taxes (EBIT)/ Interest Expense
= US$ 80 700 000 / US$(1 400 000 + 6 200 000) = 10.2
Lihir time interest earned is 10.2. As a rule, a value of 3 to 5 is a good margin for safety from shrinking and liquidation. However Lihir has exceeded that margin and indicates that Lihir is able to fulfill its interest servicing.
d) Fixed payment coverage ratio – measures the firm’s ability to meet all fixed – payment obligations such as loan interest ,principal, lease payments and preferred stock dividends
Fixed payment coverage ratio
= EBIT + Lease payments / ( Interest + lease pmt + { ( prin.pmt + preferred stock div) x (1/(1-T))})
= *(US$ 80 700 000 + 0 )/ ( US$ 1 400 000 + 0 +{( 30 600 000 + 0) x (1/(1 – 0.3))}) = 1.7
Note: Principle payment is obtain from year 2005 and PNG Income tax is 30%. No lease payment and no preferred stock dividend for year 2006.
iv. Analyzing profitability
a) Gross profit margin – indicates the efficiency of management in turning over company’s goods into profit.
Gross profit Margin = (Sales - Cost of Goods sold)/Sales
= (US$ 310 400 000 – US$ 268 100 000 )/ US$ 310 400 000 = 13.6 %
Exploration expenses = US$ 6000 000 is an expense
Therefore Gross profit Margin= US$310.4M – US$(268.1 - 6)M/ US$ 310.4= 15.56 %
The gross profit margin in 2005 is -4.57% or the company has received less revenue. However it has improved in 2006 with gross profit margin of 15.56%.
b) Net profit margin – measures the profit produced by each dollar of sales.
Net Profit Margin = Net profit after taxes/ Sales = US$ 53 800 000 / US$ 310 400 000 = 17.35 %
In 2005, the company has net profit margin of 19.0 % and in 2006 with the net profit margin of 17.35%. So in 2005 there is slightly improvement in profit produce by each dollar of sales.
c) Return on assets (ROA) – measures the overall effectiveness of management in generating profits with its available assets.
Return on Assets = (Net profit (before extraordinary items) + income tax + Interest )/Average total assets
= (US$ 53 800 000 + US$ 22 100 000 + US$ 1400 000 )/((US$ 1496 000 000 + US$ 1319 400 000)/2)
= 5.5 % Return of assets
This shows that company has profit earning power using its limited available assets.
d) Return on equity
Return on equity = net profit – preference dividend /Average stockholders’ equity
= ( US$ 53800 000 - 0 ) / (US$1496 000 000 + US$ 1319 400 000)/2 = 3.8%
For every dollar of strockholders’ equity, there is 3.8% return accruing to the stock holder.
e) Earnings per share – use by stock investor to compare different companies on the basis of earning power of the firm’s each outstanding share on common stock.
Earnings per share = net profit (before extraordinary items) – preference dividend
Number of ordinary shares issued (outstanding)
= (US$ 53 000 000 – 0 )/1284 049000
=US$ 0.041
The EPS of US$0.04 represent dollar amount earned on behalf of each shareholder by the company using each shareholder’s equity.
f) Price/earnings (P/E) Ratio – is the ratio use to assess the future financial performance of the firm.
Price / earnings = market price per share of common stock earnings per share.
= Selling Price / EPS
Note: The Selling price was hardly found in the given data (may be not given in the data) so the Ratio was not calculated.
SUMMARY STATEMENT OF LIHIR GOLD MINE
A) Liquidity
Liquidity or Lihir’s ability to meet short term obligations is reasonably not stable and unsecure and there is a short term liquidation problem as observed from liquidity/solvency analysis. It is seen that it will take a long time for Lihir to pay its debt. This is shown by current ratio 0.64 and quick ratio 0.277. Mining’s CF is highly predictable so current ratio of over 1 or 2 is acceptable. Thus Lihir has no short term debt paying ability because current ratio is less than 1. Quick ratio> 1 is desired, so Lihir has no immediate ability to meet current debts.
B) Activity
Lihir’s inventory appears to be in bad shape and the firm faced problems with account receivables of 103.45 days. Average payment is unacceptable and total assets turnover is not good. However, the average collection period of 5.3 is indicative of good managed credit collection or credit department.
C) Financial Terms
Lihir Mine’s indebtness increase over the year 2005 to 2006. It has no lease payments and the amount of debt is small and can be paid within a short period of time.
D) Profitability
Compared to year 2005, Lihir has made great improvement and its net profit was greater than previous year.
