Bauxite Terminal Construction Project - Case Study Example

Bauxite Terminal Construction Project Your name Course name Instructor Date of submission Bauxite Terminal Construction Project Bauxite terminal company is an international company that has been given a contract to establish a bauxite plant in town of freedonia in West Africa. The project is expected to cost the government and international sponsors a total of 450 million pounds and take not less than two years to complete. The project aims at construction of river port to handle bauxite production and enhance trade in the area. The project considered all the aspects related to the progress of the project including transportation, mining, metallurgy, engineering, availability of work force and electricity. The firm was based on sequential mining of three bauxite deposits found in the town by using excavator mining, open-pit, and truck with three ore that is mined trucked for processing at a central smelting plant located 50 kilometers downstream. The bauxite terminal company will have to support mine life of two years at an average cash flow operating cost of $120 on each tone of sintered bauxite. The company had a target production of more than 500,000 tones of high quality sintered bauxite per year. Operations of the company are 50 kilometers from town of freedonia. Mineral reserves have been established in the area totaling to 1000, 000 million tones of which around 56%are proven thus producing mine lie of 2.0 years for the project. The resources were drilled with the company’s machinery thus, no other mineral reserves were established since they could have infringed on the budget of the company. The company had to strategize to come up with low mining operation costs at $ 1.23 per tonne of the total raw material mined average over the mine life that reflects to $10 per tone of the final product. There is direct employment of skilled and semi-skilled workers who will do various works at the processing and mining plant. It will be important for the company to establish efficient, low, and simple cost of beneficiation for smelting, sizing, and washing of bauxite ore to a low silica concentrate at a cost of $ 14 per tonne because of inflation rate in the country. State of technology of the company that includes; use of shaft kilns that produce enhanced bulk sintered bauxite with low particulate emissions while absorbing less than 50 % of the energy or power consumed for equivalent output by the rotary kiln technology. The total cost of the project is 450 million pounds for the whole project. Sensitivity analysis of the project suggests that the project that is going to be established is robust and it can withstand any adjustments in most critical parameters of changing global economy and market prices such as fuel prices, operation and capital costs, and product prices. The plant has conducted enough survey and noticed that there are enough raw materials or mineral resources of high quality bauxite, which has not been included in the economic and political evaluation of political instability in the country. Therefore, the project is not going to be influenced by political forces because the world is keenly watching the progress of the project to ensure that work is complete within stipulated time. The project is based on technical information about bauxite production and mining gaining substantial support from personnel and other companies with technical expertise. The managerial department of the company given the contract has to conduct research on which kind of materials are to be used for efficient operation. The mining method used by this project is conventional truck and excavator for both ore mining and overburden stripping. The low production levels, shallow pit depth, and soft grounds conditions are conducive for fleet of backhoe oriented and hydraulic excavators and haul trucks. Mine operations for terminal bauxite are planned for weeks and it is carried in shifts. Mining at each pit is aimed to enhance grade control such that minimum feed grade to the firm is realized via both blending and selective mining at the smelting plant. in order to ensure that mining operation is not disrupted, the project has purchased a number of excavators, trucks and dozers to both strip the ore, waste and supply the ore to the wash plants and smelting plant located in the outskirts of the town. A good number of employees will be needed to operate in the mines and others will be needed on the haulage. The project aims to use materials that are environmental friendly and most of the materials are decomposable. They are made up of clay, unrecovered bauxite, and small amount of iron oxides. These materials are made up of inert components that do not require any treatment before decomposition in the basins. It has established castoffs basins are furnished with geo-textile fabric combined with polishing pond before final disposition have been designed to deal with slimes that will be emitted from the firm once it is in full operation. Terminal Bauxite Company is located in the outskirts of the freedonia near a river. Bauxite produced at freedonia site plant will be loaded on trucks and transported, on unpaved firm build road about 50 kilometers to the site. This project is designed to accommodate changes, perform magnetic separation to reduce iron that contains minerals, grinding, sintering, and smelting bauxite. The flow sheet of the new project had to be based on its target production per day. It consists of retrieval of bauxite from the storage area using a loader to feed bauxite to the drier where bauxite that is washed is dried and smelted. The project is set to employ and train its own workers both local and international employees. The terminal bauxite plant is located in freedonia where infrastructure especially roads and trails are poor. The site is located in densely populated area of freedonia where services such as roads are designed to fit human transport. Electricity and water supply are not in plenty. First, the plant will have to construct a road to service mines and smelting mines located 50 kilometers away from town. It has also constructed an electricity power plant to supply electricity at a cheaper price. Most rivers are navigable. In addition, a power line will be constructed alongside the haul road to provide water supplies and other power supplies to the inhabitants of freedonia and the neighboring community. It has constructed a camp facility that will house its workers for the time it will be running the project and other several ancillary services will be build to ensure smooth operation. The project should be conversant with the environmental and legal framework for operation and construction of this project situated in freedonia. The project should ensure that it operates within the international and national conditions concerning the environment. The cash flow indicates the costs of recruiting supervisory staff and skilled workers. The semi-skilled workers will be provided with training the company. Most of these services will be paid before the project commences on the site. This will total to up to 10 % of the cost for skilled labor and 20 % for the supervisory staff. The company will incur costs of almost 50 % of the temporary work and 10% fee will paid to the contractor upon completion of the project. Production and operation costs of the project estimates take into account many things. For instance, it includes: Electricity generation costs, Costs on fuel based on average crudes oil with reference to the US $ 8.0 per barrel, Total labor during operation time including both skilled and non-skilled, Cost of supervision and managerial staff, Costs on temporary works and sites to be opened in near future, Cost of construction of the plant, cost on imported and local materials, Costs on imported equipments and machineries, Head office overhead costs and Contingencies. The table below represents the projects tender and cash flow. Supervisory staff £ Sterling Skilled staff D Dalasi Unskilled labor D Dalasi Local material D Dalasi Plant from USA $ Dollars Components from France € Euros Equipment South Africa R South Africa 1 Temporary works and site overheads DJ306,,000,000 DJ1,989,000,000 DJ306,000,000 $815,600 €2,958,000 2 Cost of supervisory and managerial staff £30,600,000 3 Construction of quay and jetties DJ982,500,000 DJ7,860,000,000 DJ6,877,500,000 $34,977,000 R70,740,000 4 Construction of rail links DJ642,600,000 DJ2,754,000,000 DJ3,488,400,000 $16,340,400.00 €3,549,600 R39,657,600 5 Construction of roads DJ150,000,000 DJ1,425,000,00 DJ1,312,500,000 $4,450,000.00 €2,175,000 R18,900,000 6 Warehouse DJ112,500,000 DJ281,250,000 DJ506,250,000 $667,500.00 €1,087,500 R4,050,000 7 Storm culverts and River Divisions DJ112,500,000 DJ675,000,000 DJ1,012,500,000 $3,204,0000.00 €1,740,000 8 Landscaping DJ114,750,000 DJ1,262,250,000 DJ459,000,000 $4,085,100.00 €1,109,250 This project is economically viable based on the assumptions used preparing its cash flow which showed the budget for the whole project. The project is expected to be complete in two years time, this includes procurement, construction, and commissioning of facilities, engineering, development of roads, installation of ore processing units, power line to the project site, and the site infrastructure in general is required for the project to be complete. The contractor should be awarded with the main access road and preparation of site design, procurement documents must be finalized on time and successfully given to the contractor to give an okay for subsequent activities to start on time. In addition, haulage should be done early enough to allow easy unload of raw materials for the construction site. Costs estimates for the operation of the project will depend on various elements. Total costs of the project are provided in sterling pound for the managerial or supervisory staff. US dollar will be issued for materials and plants received from United States of America, in terms of south African rand for materials imported from south Africa and in euro for materials and components sourced from France. Skilled and non-skilled labor will be paid in local currency, which is Freedonia Dalasi. The project should have well detailed and qualified engineers to increase operation opportunities and reduce capital costs. It has to conduct further research on hydraulic classification overflows in its established power station and the smelting plant. It have to stir up methods of real mining to analyze the available opportunities in order to increase the life of the projects operation and enhance profits and attain operating efficiencies and flexibilities. During operation of the project in Freedonia, the managerial team has to determine which risks threaten the operation of the project. The project has to manage the constructions’ direct and indirect costs by an experienced team. In addition, it has to establish more continued collaboration with its customers to modify and refine products according to their needs. It has to involve an independent technocrat to carry out an updated refractory bauxite market research to determine the world mark conception to a new form of smelted and sintered bauxite. The local government and private contractors signed a 50-50 deal, which called for cooperation to ensure the success of the project. Since the country had poor road networks system, private contractor managed to build roads that headed to their mines. This led to increased trade in the region because of good roads. It also encouraged production and supply of water and electricity service under the performance based contracts with the local government. The world acted as a watchdog of this project because of the inefficiency and corruption that could make the contractors depart the country. The exchange rate improved temporarily but the inflation rate in the country was at an alarming rate. The local currency was trading at 2,500 to the dollar in the year the project was initiated but it was estimated that it would slow down to 5,000 to the dollar. The World Bank had to launch a poverty reduction program in order to relief the country from heavy debts. The project will reduce unemployment in the country by providing partial jobs to local people in Freedonia. Operating contractors opened new roads but this did not serve them efficiently because majority of the country’s roads are in poor state, which hindered trade thus slowing down on time delivery of goods to the local and regional markets. Water and electricity shortages forced the company to construct its own power plant in order to sustain the business but other businesses were forced to use expensive fuel and generators for them to operate their business. Economic growth and investment slowed down because of the falling commodity prices both on local and international markets, global economic crisis, and country’ economic mismanagement. The local government decided to devalue its currency against other major currencies such as US dollar, Euro, Sterling Pound and South African Rand. This is because it wanted to restructure and improve balance of trade in the country. On commencement of the project, the contractor will get a 20 % mobilization payment of the total sum money of the contract when construction work starts. Then, the contractor will receive another 60 % of the value of work done and completed every month up to half of the contract sum and finally receive 100 % of total value. The contractor will be responsible all insurance bonds approved by any local bank to cover for the client in case poor work by the contractor. Therefore, the contractor will keep no retention. This is expected to cover for almost 10 % of the accepted value of work completed liable to not less than 5 % of the total sum of contract. This implies that the 3% of the contract sum after the project is complete will be eliminated at the end of any defects liable to period of not less than five months after the project is complete. The government provided Local currency to the contractors to purchase imports materials and exporters of some materials get more local currency when they sell their materials (so that the country gets foreign exchange). This move aimed at increasing exports and reducing imports in turn, to reduce deficits in trade. Devaluation of local currency intended to increase competition among companies on foreign markets. It also targeted to reduce prices of exported products on market. This led to massive reduction from windfall returns that the project was to get from devaluation. Devaluation plans intended to improve trade of bauxite to foreign countries. Devaluation is part of financial management where the local government stated how it intended to deal with inflation. The local currency is not hard as international currencies. Due to this characteristics of the currency, the contractor will be subjected to claw back as part of increased costs in purchase of imported materials, wages paid to the employees and supervisory staff due to fluctuations in exchange rate between Euro, Sterling pound, US dollar, South African rand and local currency. The contractor is very sensitive because if fall in US dollar and Euro by more than 6 %, of the major currencies, then the contractor will be forced to incur more expenses up to 50% because of the increased costs in operation due to devaluation of local fund. Interest rates decision will be taken by central bank whereby its monetary policy will be to maintain price stability of bauxite on local and international market. Nominal rates on local currencies are high as compared to hard currencies such as US dollar, Sterling Pound, Euro and South African Rand. Contractors of the project have to forecast in order to enhance exchange rates and improve balance in currency exposure to mitigate unexpected events and costs. Price stability is the year on year increase in the harmonized degree of consumer prices for the country. Interest rates of the company’ refinancing operations are set to increase by 30 points to 1.35 % when the project will be operational. The pace of monetary expansion is still at moderate level this means that price liquidity remain favorable and may promote incorporation of price pressures. The price developments in the country should give result into inflationary pressures. This makes sure that local currency doe not lose value to hard currencies such as sterling pound, US dollar and South African rand. Such monetary move will contribute to economic growth in US dollar, euro, and Sterling pound while on the same note lowering the interest rates thereby the monetary policy will continue to be accommodative and facilitate economic growth and efficient operation of the project. The project is provided with the allotment and liquidity modes of refinancing its operation in the area, which gives it room to adjust its activities during periods of acute financial tensions. Time and cost escalation are determined if the deadline of the project is bound to be extended, the costs of the project is bound to be manifold. If he contractors failed to complete the project on time, escalation of cost and time had started. The government and international sponsors should measures in place to ensure that the project does not incur time and cost escalation. Project engineers have to visit the project and assess the progress of the project and determine whether the project will need some deadline extension or not. However, initially, the government and international sponsors who are the main funder of the project had fixed the deadline for the project to be completed. In any case, the contract encounter time overrun, liquidated damages will be deducted from the final payment when the project will be over. This move aimed at compensating the client for causing inconvenience due to failure to complete the project on time. References Africa News.com, Bauxite production in West Africa. PCH Publications, 2009, Feasibility study preparation and analysis, Prentice Hall, Upper Saddle River, NJ. Jr. Schaeffer, H A 2002, Essentials of cash flow. Wiley, New York. Phalen, W.C 1914, The production of Bauxite and Aluminum, USA Government printing press, Washington, D.C. 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