New Earth Mining Inc. has a new exciting opportunity to invest in a new venture in South Africa. This venture has the potential to turn substantial profits for New Earth if proper financing is used. New Earth should take the opportunity to invest in the iron ore deposits in South Africa due to a number of reasons detailed in this case report. In short, it is a stable investment with long-term prospects of 15 years and a floor price of $80 per metric ton. The iron ore investment satisfies New Earth’s desire to diversity its business from precious metals with this potential investment life of 15 years. Prices are expected to stay over $80 per ton, with ore prices having reached a high of over $100 per metric ton in 2012.
New Earth has great potential for a new investment in South Africa. Not only does South Africa have a strong ranking of 14th in the world of iron ore reserves, but is expected to grow in production by 37%. This presents a great expansion opportunity for the company as reflected by the five-fold appreciation of iron ore in the past ten years. With demand exceeding supply until at least 2016, the new subsidiary NESA has the chance to capitalize on this investment and enter a market with strong potential for a suggested number of 15 years.
The excavation facility will prove to be a great benefit to NESA. The mine location has easy access to Port Elizabeth, which will significantly reduce production costs, as the transportation of the ore will be minimized. Furthermore, seaborne iron ore demand has doubled since 2000 and is projected to grow steadily over the next decade by an annualized rate of 4.4% per year. This is very advantageous for NESA as there will be no obligation to spend money on infrastructure, allowing the company’s profits from the project to be used directly to pay off their outstanding debt.
The partnerships formed with China, Japan, and South Korea through this investment and project will prove to be invaluable and...