Business Analysis Of European Metal Holdings Limited

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European Metal Holdings Limited is an Australian and European listed mining company, which has been working on different mining projects and mineral properties. Based in Perth, Australia, the company is focused on the interests of the stakeholders and is reputed to have provided some of the best dividends in the last few years (Bloomberg.com, 2018). In this business analysis, the discussion focuses on the systematic analysis of the business activities of European Metal Holdings Limited. The analysis discusses the present condition of the company in the market followed by its production costs and investments. This can help in the understanding of the company’s market share capacity. The next part of the discussion focuses on the macro environment in which the business operates for understanding the stability of the company and the value of the revenue generated by the company. The final part of the report highlights the different sustainability practices followed by the company for the understanding of the long-tern business policies and their relevance in the present business scenario. Lastly, the conclusion sums up the key points from the discussion for the better understanding of the business analysis.

European Metal Holdings Limited is an Australia based business organization currently located in Perth, Australia. The organization has been in both Australian and European stock exchanges and has been carrying out business primarily in the Czech Republic for the last few years. European Metal Holdings Limited is primarily a mining company, which explores and develops mining infrastructures.

European Metal Holdings Limited is primarily involved in the Cinovec lithium and tin mines in the Czech Republic where it holds a 100% share of the project. European Metal Holdings Limited purchased the rights for this project in the year 2012. Since then, there have been extensive excavations by the research and development team in the area based on the earlier databases of the excavation site. The successful excavation has led to the mining of lithium and tin, which have provided positive results in the several metallurgical tests that have been conducted by the company to determine the quality of the minerals.

Based on the reports by the Deutsche Bank, the demand of lithium has increased by more than 15% every year based on its high utility aspects (Europeanmet.com, 2018). Lithium’s utility lies in the factor that it has the highest electrochemical property among all other metals and is one of the primary materials used for the manufacturing of Li-ion batteries. Similarly, another product that is mined by the company that is Tin is also of high value, as the resource is depleting with time. According to the International Tin Research Institute (ITRI), the global demand of Tin would reach the highest in 2018 due to the gradual shortages in the global Tin reserves (Europeanmet.com, 2018). The uncertainty of the Tin has increased its value in the market, which has led the company to increase interests to the buyers.

The primary customers of Lithium include the car manufacturers and electronic vehicle manufacturers who buy the product for the manufacture of the Li-ion batteries for their products (Speirs, Contestabile, Houari & Gross, 2014). Lithium is the primary choice for these industries because Li-ion batteries generally weigh much less than the acid batteries and provide better services compared to the other products (Albright, Edie & Al-Hallaj, 2012). The main customers of Tin include the manufacturers of laptops, mobile phones, cars and other utility products.

Introduction to the business

Europe is the second largest importer from European Metal Holdings Limited ranking only after China. Similarly, European Metal Holdings Limited faces no tough competition from local European tin producers other than a few mines, which are located in the Asian countries of China and Indonesia. Moreover, the current regulations and laws regarding the setting up of mines and has posed serious challenges for the new companies. Further, the investment costs including acquisition of land and setting up of the most technologically innovated infrastructure is huge (Prno & Slocombe, 2012). European Metal Holdings Limited holds greater market shares in both Lithium and Tin as there are no significant producers of both the materials in Europe. A smaller Lithium producer in Iberia only caters to the local needs (Europeanmet.com, 2018). As for Tin, the Cinovec mines are one of the prized mines in the world and faces little competition from the Tin mines located in China and Indonesia.

Hence, it can be asserted that the company is primarily operating in a monopoly and is the sole server of the goods to its consumers (Hawley, 2015). Further, careful analysis shows that the companies who are the chief consumers of the good are not affected by the price rise or fall of the product in this case primarily for two reasons. Firstly, the income of the consumers is high enough to afford the price hikes in the product. Secondly, this company is operating under situations of a monopoly and so the consumers do not have much of a choice. This again reflects that the commodity is price inelastic, that is, there will be no or marginal change in the demand of the product with changes in the price of the product. If European Metal Holdings Limited increases the price of the product well above the marginal cost, they will be successful in accruing larger amounts of revenue and profit (Martin, Rentsch, Hoeck & Bertau, 2017). This is buttressed by the lack of cheap and affordable or any substitutes of the product at all.

For every business operation and working, there are two types of production costs, which are fixed costs and variable costs (Shepherd, 2015). As for European Metal Holdings Limited, being a mining company, the fixed costs include the cost of the land and the capital. Land is a natural resource, which is a one-time investment. Similarly, the infrastructure for the mining facility is a capital investment, which is built at the beginning of the operations. It is noteworthy to mention in this regard that the investment in the infrastructure might increase or remain constant every year. 

The variable costs of the company are numerous and include various types of costs depending upon the profits of the business and the time-period for which it has been operating. In this context, it is very important to mention that the costs of innovation and application of improvised forms of technology will lend the maximum amount to variable costs. The other variable costs include the different costs include the miscellaneous expenses which include the office expenses and the yearly maintenance changes for various official procedures as well as the wages of the labourers.

Production costs and scale

From the above table, it can be hypothetically posited that the fixed or capital costs constitute the larger part of the production covering almost 85% of the total expenses. It can also be observed that the variable costs also cover a large number of expenses, which are essential for the purposes. However, it is also true that over time due to economies of scale the total cost for each unit of production will reduce as the firm clearly has the advantages of operating under conditions of monopoly (Noble, 2017). Thus, it will definitely be feasible for the firm to exploit the advantages of expansion of their scale of production.

European Metal Holdings Limited has 100% interest in the Cinovec projects in Czech Republic since 2012.  The political conditions of the European Union has been stable over the years allowing foreign companies to do stable business in the region. There have been occasional financial crisis due to inflation, but those events were insignificant to affect the business of the large companies. European Metal Holdings has also been doing stable business in the area, investing huge amounts of money in the research and development sector to improve the quality of work in the area.

However, there has been recent political tensions in the country due to the resigning of the deal between the Czech government and European Metal Holdings Limited. The Lithium mines deal gave the rights to the company for the next few years. It is unclear whether the political situation is going to develop in the future years but as of now European Metal Holdings Limited still hold the right to the Cinovec mines for the next four years. This might pose some serious threats to the firm as they be subjected to perform new analysis and come up with greater personalisation or diversification of the product, as there will be new competitors in the market. Further, the company might also have to leave the country of operation and situate their manufacturing headquarters in some other part of the world. Further, the firm will also have to change the group of consumers or the target market.

Czech Republic as a country has had an average rate of inflation of around 2.43% and has fluctuated around this mean in the last ten years (Hájek & Horváth, 2016). Currently, the inflation rate in the country is at a level of around 2.6% (Franta, Horvath & Rusnak, 2014). This fluctuation can be a source of serious fluctuations in the operational costs as well as the total revenues generated by the firm. However, European Metal Holdings Limited has a successful business operation in the Czech Republic as the country has a considerable good ranking among the countries with the ease of doing business. The Czech Republic has a GDP of more than $200 billion (Dvouletý & Mareš, 2016). As has been reported in 2017, Czech Republic has the lowest unemployment rate in the European Union, which was calculated to be at 2.3% of the total population. Owing to these figures, it can be determined that the Czech Republic has the second lowest rate of poverty among the countries of the European Union only after Denmark. The economy of the Czech Republic is a developed economy, which is primarily dependent on exports. The average interest rate of the country is at a rate of around 4.92% whereas the interest rates of the major consumers of the good, that is the United States and the Euro Area, has been at a level of around 5.72% and 2% respectively implying that the firm might be facing issues with business expansion in the operating country as well as in the target market countries (Franta, Horvath & Rusnak, 2014). Further, it can also be asserted from these statistical figures that the firm will be more successful in expanding to the US than the Euro region if at all it has to operating in the current location because of the political unrest that might occur after a few years as mentioned in the study before (Drakos, Kouretas & Tsoumas, 2016). Further, it can also be asserted that the US will contribute to greater revenue generation than the other consumer countries. It can also be posited that European Metal Holdings Limited might find it difficult initially to obtain loans from the government.

Again, on comparing the exchange rates for the major consumer countries in comparison to Czech Republic, it is evaluated that 1 USD is equivalent to 22. 19 Czech Republic Koruna and 1 Euro is equivalent to almost 25 Czech Koruna. This again implies that as the exchange rates are low, the firm should increasingly take advantage of the fact that they are operating under a situation of monopoly and that the product being sold is price inelastic and should mark up prices in such a way that the exchange rate differences are accounted for along with the costs of exports.

Moreover, labour issues are not a problem in the Czech Republic and hence the European Metal Holdings Limited has a steady supply of labour in the business operations. Czech Republic has one of the most diverse economy in the Europe and has ranked 7^th among the nations with the diverse work culture (Schneider, 2013). The industrial sector comprises of more than 37.5 % of the economy, which has resulted in the steady development of the industrial sector of the country (Svejnar, 2017). Hence, it can be assumed that over the years if the trend of employment remains the same, there will be no additional cost of hiring labour or importing labour from other countries. In this way, the firm will also be able to avoid the costs of importing factors of production and dealing with trade tariffs.

The price of the product over the years will gradually increase if it is not affected by other variables like political turmoil and if the firm is able to operate under monopoly or even in the face of uprising competition able to diversify products so that there are no perfect substitutes of the good. However, the rates of inflation and exchange rates between the country of manufacturing and the target market countries will cause some amount of alteration and fluctuation of the price of the commodity under question.

It is also the case wherein, the good is a normal good and with increase in the income of the consumer companies, the demand for the good will increases even if there have been substantial fluctuations in the price of the product (Varian, 2014). However, this again is based on the current scenario and unlike the price fluctuations over the years, the nature of the good will not fluctuate enough to turn it into an inferior good.

The sustainability report of the firm suggests that the operations pertaining to the production of the product even though does not cause any major harm for the population of the country as a whole, still has some loopholes which causes effects like increase in population. To check this and stem the amount of pollution being generated by the firm, the government as well as the firm are collectively working towards significant reduction of pollution while maintaining efficient and effective levels of production (Moran, Lodhia, Kunz & Huisingh, 2014). The goal of the firm is to reduce pollution in both forms (air pollution and noise pollution) without compromising the levels of production and the quality of the product being produced by the company. To ensure the same, the Board of Directors of the firm meet with government officials as well as the executives of companies operating in other industries who are associated with European Metal Holdings Limited in some form or the other. The prices of the products will be impacted according to the intensity of negative externalities the production process of the firm is posing (Prior, Wäger, Stamp, Widmer & Giurco, 2013). However, at the same time, the production process also accrues positive externalities in the form of increased amounts of research and development. This product is new and the improvisation, innovation and formulation of better and easier methods of production is leading the industry to come up with new forms of technology. This factor, if dissipated to scholars or researchers working in the fields associated will help to increase the amount of knowledge of some part of the entire population in the country where the production unit is situated which in this case is Czech republic.

The consumption of the product being produced by the firm on the other hand is reported to have major positive impacts which are termed as positive externalities. The positive externalities derived from the consumption is that the adoption of the new forms of batteries are causing the firms to spend less and this amount can be utilised by these firms and be invested in other ventures which will in turn help to increase the gross income of the country where the consumer is located. Further, the weight of these products is way lesser as compared to acid batteries. This can be taken advantage of by applying its usage in products where the weight of the batteries used causes a reduction in productivity.

Conclusion:

In conclusion, it can be asserted that European Metal Holdings Limited primarily run a monopoly market concerning Lithium supply, as there are no other significant Lithium producers in Europe other than a small Iberian supplier, which caters only to the local manufacturers. The firm is subjected to very low competition and high levels of sustainability. The firm faces an inelastic demand curve and so can charge prices at any level deemed to be appropriate by the authorities of the firm. At the macroeconomic level however, the firm is faced with some politically unstable situations and widespread rates of inflation. Thus, for the next few years the workings and the level of revenue generation of the firm will not be affected specifically. Further, the consumers can increasingly benefit out of the products being produced and the firm can expand internationally later due to the existing differences in the exchange and interest rates. In the country of production and operations however, which is Czech Republic, the interest rates are very high causing some difficulties for the firm to be able to borrow enough money in the form of loans. The production process of the firm creates both negative and positive externalities both of which are controlled by the governments of the host country and the target market countries.

References:

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