36109: Digging for Gold – Report Writing – Statistics Assignment Help

Assignment Task

You are Chief Strategy Officer for Indeep, a specialist gold mining start up. The CEO, recognising the challenges the company faces, has asked you to develop a five-year strategy that maximizes the chances of its long-term viability. The current situation is as follows:

• Cash/borrowings available in budget (no overdraft available): $2,200,000
• One newly developed claim that has been legally challenged
• One internal exploration team.
• Multiple freelance exploration teams available, but have to be paid for separately.
• One legal team that can be used to contest or settle legal challenges (separate cost, see below).

The price of gold in Year 1 is $1800 / ounce (assume this is a fixed value over the course of the year). The price changes as follows in subsequent years – one-off change each year.

New claim details

Your resident geologist has predicted that the output of the new claim is likely to be distributed as follows in the first year:

Min: 100 ounces

Most Likely: 1000 ounces

Max: 1,800 ounces

The annual change (on preceding year) if claim is worked in subsequent years is:

Min: -15%

Most Likely: 30%

Max: 70%

These are to be interpreted as percentage increases over the prior year's production (yes, the minimum is a decrease).

The operations people have estimated the fixed cost per year to be:

Min: $500,000

Most Likely: $750,000

Max: $1,000,000

They have also advised that you will need to deduct 32% of the value of gold sold as an expense.

Legal challenge

To complicate matters, the new claim discussed above has been challenged by a rival company. The annual legal costs associated with resolving the case OR delaying it vary as follows:

Min: $500,000

Most Likely: $750,000

Max: $1,000,000

If the case is resolved, there are no legal costs in subsequent years. However, your lawyers have estimated that the probability of that the case will be resolved in your favour is 50%. If you lose, you will be allowed to retain the revenue generated from the mine in that year. However, as the mine is no longer yours, you cannot generate revenue from it in subsequent years.

You can also choose to delay the case (with the same legal cost distribution as above). In this case, you will retain the revenue generated from the mine. Delay or respond is a choice you can make at the start of each year.

Future claim

There is up to one more mining opportunity to be discovered. If discovered, it will start producing the year after discovery. Once producing, it will earn, cost & attract risk in the same manner as the first mine.

You have an in-house exploration team that has already been budgeted for as part of the operational costs. You can also hire additional partner teams at the market rate of $400,000 per team. The chance of a discovery is 15% for each team. Note that you can discover only up to 1 claim in the existing exploration area, regardless of the number of teams you deploy.

Deliverables

1. Working R model showing simulations (and any ancillary files – such as data etc.)
2. A report detailing the approach taken and management recommendations (Max 1500 words). This should be written for a non-technical audience, but the recommendations _must_ be supported by your modelling.

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