Page 4 - AMANGO MODEL ANSWER 1

P a g e | 4

should focus on 4 key segments –PGMs, Diamonds, Copper, Iron and Coal; we must divest from 2
of our current 8 business segments -Nickel as well as Nobium and Phosphates must go!

rd
3 Priority: Balance sheet deleverage or share repurchase

Our largest investor –PIC, is threatening to dump our shares if we dispose our iron ore and coal

businesses in South Africa –this country contributes 25% of our group earnings. There is also
heightened political risks with the mooted mining regulations threatening a 10% royalty tax on
turnover and 26% ownership to Black Empowerment. An opportunity has arisen to meet these

demands by instead unbundling our property portfolio and selling it to a black-owned company and
rd
using the proceeds to pay down debt or execute a share repurchase. This issue is 3 priority
because its magnitude (US$ 6.4 billion) can almost immediately meet our 2017 balance sheet
deleverage and cost reduction targets. We however, advise the board to pass up this opportunity.

th
4 Priority: Strategic disposal in Brazil

We have received a US$1.5 billion offer to acquire AMA-NP (our Nobium and Phosphates business)
in Brazil. A valuation is needed to ensure our desperation to sell and pay down debt does not unduly
override our duty to extract the best value in a buyers’ market. Even so, our decision has

implications for the sum total of our strategic interests in Brazil -contributing 19% of group earnings -
in the wake of mooted toughening of its dividend repatriation laws. Although more urgent with 7 days
th
to decide, this issue is 4 priority because the impact of US$1.5 billion is less than the US$6.4 billion
in priority 3. This report recommends we accept the US$1.5 billion offer for AMA-NP.

th
5 Priority: Strategic joint venture (JV) decision in Canada

A recent 50-50 JV agreement entered in Canada to restart coal mining in the wake of resurgent
prices is about to commence its first project. The demand and price volatilities necessitate the best

design choice for the mining infrastructure required -given the varying fixed and variable cost
configurations involved. There is potential for major disagreements arising from the differing risk
appetites of the parties, impacting on the project. This issue is less urgent than the 7 days in priority
th
4 and as such, it is our 5 priority. Our recommendation is to accept the smallest design (Design 1)
and that the Board takes steps to ensure a proper JV agreement is in place to resolve any disputes

before embarking!

Some of the above issues are embedded with ethical dilemmas (see section 5 of this

report) whilst other issues were considered neither significant nor worthy of the Board’s
attention.

Developed by The CharterQuest Institute for 'The CFO Business Case Study Competition 2017'
www.charterquest.co.za | Email: thecfo@charterquest.co.za