Business Analysis Of Resolute Mining Limited

Select an Australian business from the list of ASX Companies - list attached below for perusal before selection.  (The companies to choose from are listed on Learn JCU under the Business Report Company selection tab. Each company can only be used by one student. First in first served. Simply click on the company you wish to report on and the system then assigns you to that company and removes it from the list so no-one else may choose it).

The report needs to contain the following four parts plus a formal introduction to your report and a conclusion.

Provide an overall description of the business and the competitive environment in which it operates. You may provide information about the business as suggested below plus any other information peculiar to the business you choose.

1. Name and location of the business, the type of business (e.g. retail, manufacturing);
2. What the business produces or sells; 
3. Who the main customers are (e.g. other businesses, government departments, young girls, older men);
4. Where most of the customers are located (e.g. in Townsville, Brisbane, or on the internet);
5. Who the main competitors are (i.e. those producing similar products, and selling to similar customer base);
6. Where the competitors are located; and
7. The market share of key competitors including your business.

Given the above information, comment on whether or not you think the competitive environment in which the firm operates is likely to be closer to (a) perfect competition; or (b) monopoly. Comment also on the number of ‘close substitutes’ for the business’ products, and the cost of the product relative to ‘average’ income of its customers. Does this mean that the demand curve facing the firm is likely to be relatively elastic or relatively inelastic? What does this imply about the ability of the firm to ‘mark up’ its price above marginal cost?

Provide a description of the required factors of production, grouping them according to whether the factors of production are:

1. Fixed and hence unlikely to vary much according to the quantity of goods produced or sold; or
2. Variable and hence likely to increase with increased production or sales.

Use the above information to comment on the likely overall cost structure of your business. For example: are fixed costs large or small relative to variable costs?  Does this mean that the firm’s ‘optimal’ size is likely to be small, medium or large?

Provide a description of the macroeconomic environment in which the business operates noting:

1. The overall ‘stability’ of the political system/government of the country in which the business operates.
2. The general level of inflation, unemployment and ‘average’ interest rate of the country in which the business is physically located (and also the countries in which most customers live if different from the location of the firm). Discuss any recent changes in those variables. Does the economy seem to be in a recession, boom or otherwise?
3. If ‘your’ business exports its products to other countries, provide some information about the (currency) exchange rate, discussing its current level, and recent changes in it.

Use the above information to comment on whether or not the overall macroeconomic conditions faced by the firm are likely to become more or less favourable over the coming years. In this part you should consider such things as:

• Whether the main products are likely to be ‘normal’ or ‘inferior’ and hence whether demand is likely to rise or fall during recessions and thus whether the economic climate of the countries in which most of the business’ customers live is likely to reflect well or poorly on the business’ sales.
• Whether the business is likely to face problems getting access to key factors of production (e.g. are there skills shortages?), and whether this is likely to affect the business’ future operating costs.
• If the business exports its products or imports factors of production…whether recent trends in exchange rates are likely to be good or bad for costs and/or revenues.

1. Does the production process of the business generate any positive or negative externalities? If negative, has the government (or anyone else) put in place any measures to mitigate? What is done to mitigate by the business? If positive, what is done to take advantage of it?
2. Does the consumption of the good produced by the business generate any positive or negative externalities? If negative, has the government (or anyone else) put in place any measures to mitigate? What is done to mitigate by the business? If positive, what is done to take advantage of it?

Use the information from above to comment on how the sustainability practice by this business and other businesses in the same industry would affect their long-term business viability.

Introduction to the business and general business environment

This business analysis is aimed at gaining significant information on the level of success of the firm and the presumed level of competition it is facing in the market. It will give substantial information concerning the competitors of this firm. The report will also look at the macroeconomic environment in which the business is based. This data in totality will help in the prediction of future performance of the business. It is also vital for the firm while coming up with its policies. These are policies that may be useful in curbing any form of a decline in their success or production.

Resolute Mining Limited is a foreign-owned organization that is involved with mining of gold and also searching and exploration of minerals. The company has over seven hundred and forty employees and usually operates in Mali, Australia, Cote d'Ivoire, Egypt and Ghana, and the head office is based in Perth. (Avery, 2013) At the moment it operates two main gold mines. The first one is the Ravenswood gold mine located ninety-five kilometers southwest of Townsville in Queensland, Australia. Ravenswood sources its gold ore from the East open pit and Mt Wright mines. The second one is the Syama gold mine located roughly three hundred kilometers southeast of Bamako in Mali, West Africa.

Resolute mining limited has been involved in the production of gold its exploration, innovation, and development. Over the years, the company has operated nine gold mines across Africa and Australia, which has led to the production of more than eight million gold ounces.

The main customers of Resolute Mining Limited are government departments and private firms. Governments use gold as a store of wealth. The private organizations use gold in the production of valuables such as ring chains and other forms of jewelry. Gold can also be used in electronics as well as an ornament to reward those who uplift their country’s flag high. Organizations can use gold as a store of wealth or use it in the production of valuables such as ring chains and other forms of jewelry. 

Their customers are mainly located in India, China, United States, Saudi Arabia, Turkey, and Indonesia.

There exists are a number of firms who undertake the same business course as the resolute company, that is mining and extraction of minerals and distributing them for sale. The number of such company is quite high globally, but there are a few of these firms which are within the range of products with the resolute business company and which acts as a threat to it in economic approach.

Production costs and scale

The main competitors to the resolute organization in the mining industry include the west gold resource-limited, Aurelia metals limited and sand fire among other mining organizations. These are the companies that are seen to be commanding the gold mining business significantly. West Gold Resources Organization is located in Murchison goldfields around the regional town of cue in West Africa. The company's gross income level is estimated to be three hundred and seventy-two million. It has offered jobs to more than eight hundred and twenty-nine persons (Paul Cleary, 2012).

The other company considered as a close contender to the resolute company in the mining industry is Aurelia metals limited. The organization is located in western New South Wales, an estimated distance of 100 kilometers southeast of Cobar. The company involves itself with the exploration and mining of gold, and tin. The company's gross revenue is approximated to be at two hundred at forty-seven million A$. The organization has also provided jobs for over five hundred and seventy people.

Another close rival of resolute mining limited is sand fire resource limited. The company produces and sells gold and copper. This firm is located in Western Australia. It collects a gross revenue level of six hundred and eight million, A$. The firm has also given jobs to around nine hundred people.

These firms have significant market command in the mining and exploration of minerals.  Each holds substantial market share in the mining industry. Resolute Mining Limited commands an approximate fourteen percent holding, while the Sand fire limited is proposed to have a significant share of around twenty percent of the market. On the other hand, Aurelia has an approximate of eight percent share of the market share (Rasmus Ankersen, 2012).

The West gold resources organization commands an estimate of ten percent share in the market and the other mining companies’ shares the remaining forty-eight percent share of the market.

There exist various forms of market structure that can be used to categorize an economy. The most common forms of the market structure include perfect competition, monopoly monopolistic competition and oligopoly (Stackelberg, Bazin, Urch, & Hill, 2011). Putting into Consideration the kind of competition evident in the mining industry, the market environment that these firms operate on is closer to a perfectly competitive market structure than to monopoly. This can be attributed to the fact that in the mining industries, there is a wide range and a large number of buyers and sellers.

Macro business environment

Mining is not controlled by a single seller but there are quite a number of firms undertaking the course of mining and extraction of gold and other major minerals. Again the customers involved in the purchase of gold and other major minerals are well informed about the future, present and past information about the prices in the market. Rarely would a gold consumer make a choice to purchase it without having knowledge on relevant information.

 Similarly, the price of gold in the market is determined by forces of demand and supply (Steven E Landsburg, 2011). Prices are not predetermined by an individual seller or a firm, thus making the firms' price takers. It’s also worth noting that all the firms in the mining industry sell homogeneous products, that is gold and the other minerals. The fact that these firms are competing for the same available resources and market scope is also an aspect that makes the market structure be closer to perfect competition (William A McEachem, 2011).

Gold has a number of close substitutes in the market. These are metals which are considered almost as valuable as gold. Such metals include copper, silver, and platinum. Platinum has properties similar to those of gold, which makes it a close substitute of gold. Such include that is it can be used in industries as a catalytic converter. Platinum is also used in making of luxurious items such as jewelry of different types. The current market price for platinum is around $800. This makes it slightly cheaper than gold while it also has almost similar properties with gold.

Another metal that is a close substitute of gold is palladium. Palladium is among the most precious and rare metals globally. This metal is used in the manufacturing of commodities such as computers, smartphones and many more. Its rare nature and its usefulness in electronics attract a lot of investors due to the good commodity market available. Although it does not have properties similar to those of gold its usefulness and how it attracts investors makes it a close substitute of close. It drains investors out of the gold mining industry. The market price of palladium is $200.

Silver is another close substitute of gold. This is because silver has similar uses to those of gold. Silver can be used in making of jewelry. It provides a diversifying ground for investor protecting them from the risks that may arise in the gold market. The market makes value for silver is $30.

Sustainability practice of the business

The actuality of gold having several close substitutes, and the presence of (Aisen & Jose Veiga, 2011)other firms in the market have a significant impact on the firm’s demand curve. Availability of these substitutes makes the demand curve an elastic demand curve. This implies that the purchase of gold is dependent on the substitutes' availability. A significant increase in gold prices by the firm above the marginal cost will lead to the reduction in the demand for gold. This is because customers will shift to consumption of the other substitutes of gold whose price is relatively lower as long as they serve the same purpose.

Similarly, the presence of several firms in gold mining industries in the market affects the firm’s demand curve and makes it elastic. This is because if the resolute company raises their gold price above marginal cost, it will lead to investors and customers shifting to other firms who are selling it at a price lower or equal to the marginal cost (Felina C Young, 2008).

Additionally, the price level of gold affects its demand, an increase in the price level will lead to reduced customer’s purchasing power. If the firm increases the price level so as to be greater than the marginal cost, this will lead to a great reduction of their customers. Mining industries are price takers and the price of the commodity is always equals marginal cost.

Factors of production

Factors of production refer to inputs used in the process of producing a good or a service by an individual or firm aimed at the generation of profit (Miller, Vandome, & McBrewster, 2009).  In mining, these factors include manpower, management, capital, equipment, and mineralization. They can be further categorized into either fixed or variable factors. Fixed factors of production are those inputs that do not deviate with changing the level of output whereas variable factors of production of production the inputs which certainly change in relation to the total output produced.

Fixed cost does not change with changing the level of output (Arnold, 2007). These may include insurance policies, set up cost, rent and such. Variable cost, on the other hand, is the production cost that changes with deviation in total output. This cost is incorporated in the cost of equipment, raw material cost, and labor cost.

 Resolute Mining Limited production cost has reduced over the years. This can be attributed to general technological advancement in its mining activities. The total cost of production is estimated to be at.A$1280 per ounce. In the financial year 2017, the company's gold mines were approximated at 329,834 OUNCES implying that the total production cost was around A$ 442,187,520. The fixed production cost for the financial year 2017 was A$ 100,000,000. This cost includes payment of executive and non-executive directors of the company, medical and risk insurance policies, rent and many more.

The variable cost for the company for the financial year 2017 was A$ 342,187,520. This includes the cost of raw material, labor workforce, the cost of processing raw material to finished goods and the cost of transportation of gold to customers. The firm’s variable cost is greater than its fixed production cost. (Wellmer, Dalheimer, & Wagner, 2008) This implies that the firm enjoys economies of scale and this could be due to the fact that it operates on large-scale manufacturing.

These are the surrounding uncontrollable conditions or factors that have an influence on the decision making of a firm and impact its performance and plans. These factors may be demographic, economic, political or social conditions (George E Kroon, 2007).

The political stability of a country has a significant impact on the business undertakings of any firm. The resolute mining company is mainly based in Australia .the country enjoys relative economic stability. This political stability means good for the operation of any business activities (Aisen & Jose Veiga, 2011). It transpires to the affluence of undertaking merchandise in the country, with a low level of corruption and very high support from the government.

Inflation refers to the persistent rise in the general price level (Robert E Hall, 2009). Higher inflations rates affect the business activities negatively. Over the years Australia has been operating on low inflation rates, having a range of one to three percent. The current rate of inflation in Australia is 2.20 percent and with the trend, it has been following it is expected to be at around 2.52 percent by the year 2021. The low levels of inflation rates make the business environment conducive for the resolute mining company and could foster its success.

Australia through the intervention of its reserve bank has been able to maintain low-interest rates. The average interest rate level in Australia is currently at 1.5 percent. Lower interest rates could foster the success of the resolute mining business. This is because lower interest rates enhance borrowing for spending or expansion by organizations.

The major customer base for gold is China, Indonesia, Saudi Arabia, and India. The level of inflation and average interest rates significantly impacts the business decision and affects its progress. It is, therefore, necessary to evaluate these factors. In China is at 1.8 percent while the level of unemployment stands at 3.9 percent. The average interest rate is 4.35 percent. India experiences an unemployment rate of 7.8 percent. The current rate of inflation stands at l4.3 percent while the average interest rate is 6 percent.

In Saudi Arabia has inflation levels being negative 1 percent, the unemployment rate is at 5.9 percent while the interest rate is 2 percent. Indonesia has an inflation rate standing at 3.8 percent, the level of unemployment is5.5 percent while as the interest rate levels are4.25 percent (Sylla & Homer, 2013).

The economy of Australia is not necessarily experiencing a boom or a recession. It is undergoing growth even though the growth is at a very low rate. Australia is experiencing population growth and a slight increase in the GDP averaged to be at 2.4 percent a year.

One Australian dollar is equal to 4.85 Chinese Yuan. One Australian dollar is equal to 51.17 Indian rupees, one Australia dollar is equal to2.67 Saudi Arabian riyal and lastly, one Australian dollar is equal to10, 547.49 Indonesian rupees (James, Marsh, & Samo, 2012). High levels of inflation would have a significantly negative impact on the business, this is because it would lead to an increase in the cost of production hence leading to an increasing price of gold. In this case, the inflation rates of involved countries are maintained at very low levels hence cannot have substantial negative impacts on the business.

Gold is a luxurious good, its demand is affected by business cycles and the economic condition of the countries in which its customers reside in reflects in its demand (Krumm, 2011). Even if demand would fall if the economy faces recession the change in demand would not be proportional, that is there will be just a slight change in the quantity demand (Kirst-Ashman, 2010). The current trend of exchange rates are good or the business, they do not show a likelihood of large fluctuations.

In the process of production of final products, there are some residues that are usually emitted by the firms. These residues may consequently impact other outside parties either positively or negatively. When negative it’s a cost to the outside party while in a case where it is positive it incurs a benefit. This type of effect is referred to as an externality and is not reflected in the market price of the final good or product (Surinach, Moreno, & Vaya, 2007).

In the process of mining and extraction of various minerals in Australia, there are some negative externalities are produced which can be explicated in terms of water and air pollution, land degradation vibrations, and solid waste.

The process of mineral extraction is usually linked to the massive generation of solid waste. This could be in form of tailings, slimes and overburden dumps. Residential areas surrounding mining and smelting places are in most cases dirtied by metals. (Bech, Bini, & Pashkevich, 2017)The compact waste which comes from this process at most times leads to soil pollution, significant damage to fertile grounds and erosion.

During mining, rocks require to be fragmented. This, therefore, calls for use of explosives in the mines to blast the huge rocks. Air-blasts and ground vibration cause annoyance to people who reside near the mining areas. These vibrations of also bring about damage to external surface structures.

Human health is usually affected by the dust particles present in the air. Workers may suffer from skin and lung diseases as well as vision and breathing problems. Wrong use of minerals is a threat to human life (Mills, 2010).

Miming activities also violate the value of environmental sustainability through pollution of air. This is mainly brought about by combustion of fossil fuels, fossil fuel like sulfur dioxide, burning of the automobile and industrial fuel. Similarly, refinery operations and combustion of coal pollute the air as they lead to toxic emissions and production of soot and dust respectively. From the mineral treatment plants and concentrators installed in lead, copper, gold, zinc, chromite and iron ore mines usually, produce lots of slimes/ tailings.

Pollution of water bodies is a normal externality linked to mineral production activities. In areas where mining takes place, in event of heavy rains overburden dumps are usually carried away. (Holden & Jacobson, 2013)Chemicals disposal and abandoned mines in mining areas are the major causes of water pollution.

The government intervenes in the correction of externalities by taxing the companies that create the externality and by putting up regulations and laws that give guidelines on the allowed amount of pollution and taking action on violators (Azcue, 2011). Resolute Mining Limited places importance on the responsibility of dealing with negative externalities. The company has engaged in training and mentoring their workforce so as to help maximize the value of sustainability and lower sustainability risks.

In conclusion, therefore Resolute Mining Company is still competitive in the mining industry despite the high level of competition. Being located in Australia has proved to be a vital factor contributing to its success now and in the future. This is because the country enjoys political stability, has low-interest rates and a controlled level of inflation. Even while maintaining its success, the company is also concerned with upholding environmental sustainability.

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