Management Consulting Case Study-Gold Mine

A significant financial organisation called MyBank is buying an undeveloped gold mine in Peru. The mine would generate 150,000 ounces of gold per year if it was built. For around $50 million, the mine could be constructed within a year.

MyBank has considered two possibilities. The first entails permanently increasing its fixed expenses by $25 million in order to give its personnel very high salaries. In the second scenario, a 40% interest would be sold to local investors for $100 million, which would bring the seizure risk down to 10%.

The significant risks in this investment include Political and Regulatory Risks. Peru already seized this mine. There are chances they can do that again. There are also chances of Brand Risk. MyBank is leveraging a foreign government's weaknesses in a way that might lead to criticism. If the price of gold falls by half, MyBank's investment becomes unprofitable.  El Nio might devastate the mine.

MyBank should consider whether they have a suitable personnel pipeline in place to reach annual output targets or not. There is also a risk with Infrastructure and Location. MyBank has to think if they are able to move the gold out of Peru.

This Peruvian gold mine presents significant potential for MyBank because its estimated return will be much higher than the portfolio average of 10%. The mine may generate $500 million in earnings every four years once it is running. To prevent the mine from being taken soon, it will be essential to build contacts with the Peruvian administration.

By  Vandana Gaur