University : Kaplan Business School UniLearnO is not sponsored or endorsed by this college or university.
Subject Code : FIN101
Country : Australia
Assignment Task:

Task:

Company background

James Skater is the managing director and chief executive officer of East Coast Coal Ltd (ECC). James was elected to these positions on the retirement of ECC’s founder two years ago. ECC is a public unlisted company limited by shares, with $300 million issued share capital. The majority of these shares are held by institutional investors, the board, and some private investors. ECC had a humble beginning, with a solitary underground mining license in the Hunter Valley region of NSW. Following its initial success in extraction and sale of black coal to regional NSW electricity plants, ECC was granted two additional mineral development licenses from the NSW Government, where it began to extract via the open cut method in the 1980s. Seeking expansion into other regions, it purchased a further two mines in the Bowen Basin region in Queensland over the next decade, giving it a total of five currently operating coal mine sites. Its current production across the five sites is approximately 12 million saleable tons per annum. ECC also has interests in a coal processing and transport facility in the Newcastle region, which allows it to oversee the process of getting its coal onto coal ships for international delivery.

To assist this expansion, it expanded its engineering department significantly in the early 2000s, hiring local and international staff. FIN101_CS_v14 2 © Kaplan Higher Education Recent performance of ECC The progressive purchasing of Australian coal mines has contributed to the growth of the company from a minor supplier of coal to NSW electricity generators with some limited exports, to a supplier of coal electricity generators in NSW, Queensland and Asia. Its primary export targets to date have been China, Taiwan and Korea. Over the past five years, ECC has weathered the uncertainty of fluctuating commodity prices and demand by investing in technologies to increase efficiency in its mining operations, as well as using its interest in the processing facility to reduce its Free On Board (FOB) costs in NSW; that is, the costs of getting coal onto ships. Its engineering team has won awards for some of its process enhancements, and ECC has found a niche market for its consultancy services. The company has total assets of A$1.2 billion, with long-term debt of A$500 million and short-term debt of A$150 million. ECC is profitable and has been paying its shareholders regular dividends. In the last 12 months, ECC had coal and services sales approaching A$800 million (up from A$500 million four years ago due to export expansion), with a net profit of A$15 million. ECC’s average net profit over the past four years was a steady A$12 million. ECC has made a strategic decision not to list on the ASX, but this has meant it has had to turn to a syndicate of both Australian and overseas financial institutions to finance its operations at a higher cost than a capital raising from investors. Nonetheless, existing long-term contracts with its customers, means that ECC can service and progressively repay its debt. The extension of long-term contracts by existing long-term customers, as well as potential new customers, some of whom are located in India, means that ECC is considering expanding its operations. All overseas contracts with its customers are denominated in US dollars (USD). The contracts allow ECC’s customers to renegotiate both price and tonnage on an annual basis, within limits. Areas of concern Profitability is expected to improve strongly in the current financial year (20XX/XY) to close to A$20 million as ECC has secured substantial price and tonnage upgrades in its latest round of negotiations with its existing coal customers. However, James has some doubts as to whether ECC will be able to meet its contracted tonnages in the coming year. Penalties will apply if tonnages are not met due to factors within the control of ECC (these factors are set out in ECC’s contracts with its customers). James is also concerned that the Australian dollar may fluctuate in the coming year, especially with political uncertainty in the US, and ongoing European turmoil.

The company operates a relatively sophisticated in-house financial risk management operation to minimise exchange rate and commodity price risks. This operation generally works well but errors have occurred in the past. There are intractable labour and union problems that affect both the Hunter Valley and the Bowen Basin coal mines. The geological features of the underground mine make its operation more expensive than the open-cut mines and potentially more dangerous. Some existing mines have a strong union presence, and work practices at these mines lead to overmanning and inflexible work practices that have a substantial negative impact on productivity. ECC considers that at their peak its five mining operations should be able to yield greater than the current 12 million tons per annum. Two of ECC’s Hunter Valley mines are also nearing the end of their economic lives in their current configuration. While there are substantial coal reserves nearby, mostly on ECC’s current leases, a substantial investment in machinery would be required to continue to extract coal. The existing continuous mining machinery would have to be replaced with newer technology to improve the technical efficiency and scale of the mines.

The above Accounting Assignment has been solved by our  Accounting Assignment  Experts at UniLearnO. Our Assignment Writing Experts are efficient to provide a fresh solution to this question. We are serving more than 10000+ Students in Australia, UK & US by helping them to score HD in their academics. Our experts are well trained to follow all marking rubrics & referencing style.

Be it a used or new solution, the quality of the work submitted by our assignment experts remains unhampered. You may continue to expect the same or even better quality with the used and new assignment solution files respectively. There’s one thing to be noticed that you could choose one between the two and acquire considered worthy of the highest distinction.

  • Uploaded By : Pearl
  • Posted on : September 15th, 2019
  • Downloads : 340

Whatsapp Tap to ChatGet instant assistance