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11Mar

Business Finance Assignment Help

This is a solution of Business Finance Assignment Help in which we discuss financial analysis of Altona Mining Limited which is a mining company having its operations in Australia.

Introduction

This report contains the financial analysis of Altona Mining Limited which is a mining company having its operations in Australia. The financial analysis has been done on the basis of annual reports of the company for the last few years, publications and information about the company from the ASX website and other sources through research via internet. The financial analysis includes calculation of financial ratios, gearing analysis, estimation of cost of capital using CAPM and calculation of WACC for the company. A letter of recommendation has also been provided in this report for assisting in investment decision in the shares of the company.

Company Description

Brief description and History

Altona Mining Limited is a copper company having many significant copper projects in Australia and registered office located in Western Australia. It operates in the mining of copper, zinc, gold and other minerals throughout the country. The company is listed on Australian Stock Exchange as well as Frankfurt Stock Exchange. In October 2014, the company sold its copper-zinc-gold mine and processing plant in Finland after which it focused its operations towards the Cloncurry Project in Queensland. The business and financial performance of the company depends upon the global economy, world markets for copper, gold and other metals and market perception of mining industry in Australia as well as throughout the world. The company is listed therefore it is also affected by the Australian dollar-US Dollar exchange rates. The input costs such as labour and power in Australia also determines the financial performance apart from effect of world markets. During past few years the company has developed good business relationships with the communities of Australia where its operations were conducted such as municipalities of Polvijarvi, Kaavi and Outokumpu in south-eastern Finland and Cloncurry region of Queensland.

Operations

Surface projection of mineralisation and drilling at Little Eva and Turkey Creek

The core asset of the company is the Cloncurry Copper Project established near Mt. Isa in Queensland. It is one of the biggest underdeveloped copper mining projects in Australia. The resource indulged in this project contains around 1.65 million tonnes of copper and 0.41 million ounces of gold. The first reported development of the project is Little Eva open pit copper-gold mine and concentrator with capacity of 7 million tonnes per annum. The proposed annual production of Little Eva is 38,800 tonnes of copper and 17,000 ounces of gold every year for at least 11 years. The Feasibility study of the project was completed in May 2012 which was again revised in March, 2014.

 Ownership-Governance structure

Ownership

The list of substantial shareholders of the company with higher than 5% shareholdings as at 26th August 2015 is presented in the following table:

Holder name Ordinary shares

Number

Ordinary shares

%

RBC Investor Services Australia Nominees Pty Ltd 79,841,324 14.93%
JP Morgan Nominees Australia 59,956,543 11.21%
Citicorp Nominees Pty Ltd 46,071,884 8.61
HSBC Custody Nominees (Australia) Limited 44,479,325 8.32
Tulla Resources Group Limited 35,348,000 6.61
BBY Nominees Limited 28,770,810 5.38

It can be observed none of the shareholders is holding more than 20% shares of the company. However there are 6 shareholders from the list of twenty substantial shareholders who have shareholdings higher than 5%. Out of these the chairman of the company is related to Tulla Resources Group Limited holding 6.61% shareholdings. Thus the company cannot be classified as a family company on the basis of shareholdings. Hence Altona Limited is a non-family company whose shares are held by group of investor companies and general public and not the directors or family members of directors (Halili, 2015).

Governance

Mr. Kevin Maloney – Chairman
Dr Alistair Cowden – Managing Director
Mr. Paul Hallam – Non-Executive Director
Mr. Steve Scudamore – Non-Executive Director

Mr Eric Hughes – Chief Financial Officer/Company Secretary

None of the above holds more than 20% shareholding in the company. Also none of them is with the same surname or interested in the shareholders holding moiré than 20% of shareholding. Thus the governance and management of company is separate from ownership. However, Mr. Kevin Maloney holds more than 5% shareholding in the company indirectly through Tulla Resources Group Limited in which he is interested. The total number of issued shares by the company is 534,800,592 and the number of shares held by the related company of Chairman is 35,348,000 which represent 6.6% of the total share holding. Thus shareholder holding more than 5% shares is included in the governance of the company indirectly as Chairman. Apart from this all the directors are independent.

Calculation of Performance ratios for lat four years

  1. Return on Assets = (NPAT/ Total Assets)

Year 2015

NPAT = ($ 7,716,000)

Total Assets = $ 62,783,000

Thus, Return on Assets = (7,716)/62,783 X 100

= -12.29 %

Year 2014

NPAT = ($ 8,592,000)

Total Assets = $ 139,084,000

Thus, Return on Assets = (8,592)/139,084 X 100

= -6.18 %

Year 2013

NPAT = $ 12,647,000

Total Assets = $ 144,351,000

Thus, Return on Assets = 12,467/144,351 X 100

= 8.64 %

Year 2012

NPAT = ($ 25,046,000)

Total Assets = $ 114,458,000

Thus, Return on Assets = (25,046)/114,458 X 100

= -21.89 %

  1. Return on Owners Equity = (Net Profit after Tax / Owners Equity)

Year 2015

NPAT = ($ 7,716,000)

Owners’ Equity = $61,779,000

Thus, Return on owners’ Equity = (7.716)/61,779 X 100

= -12.49%

Year 2014

NPAT = ($ 8,592,000)

Owners’ Equity = $118,730,000

Thus, Return on owners’ Equity = (8,592)/118,730 X 100

= -7.24%

Year 2013

NPAT = $ 12,647,000

Owners’ Equity = $103,752,000

Thus, Return on owners’ Equity = 12,467/103,752 X 100

= 12.02%

Year 2012

NPAT = ($ 25,046,000)

Owners’ Equity =$ 81,661,000

Thus, Return on owners’ Equity = (25,046)/81,661 X 100

= -30.67%

  1. Gearing Ratio = Total Liabilities / Total Assets

Year 2015

Total Liabilities = $1,004,000

Total Assets = $62,783,000

Thus Gearing Ratio = 1004/62783

= 0.016

Year 2014

Total Liabilities = $20,354,000

Total Assets = $139,084,000

Thus Gearing Ratio = 20,354/139,084

= 0.15

Year 2013

Total Liabilities = $40,599,000

Total Assets = $144,351,000

Thus Gearing Ratio = 40,599/144,351

= 0.28

Year 2012

Total Liabilities = $32,797,000

Total Assets = $114,458,000

Thus Gearing Ratio = 32,797/114,458

= 0.29

To Prove (Year 2015)

EBIT   x          NPAT  x          TA       =          NPAT

TA                   EBIT               OE                     OE

Earnings before Interest and Tax (EBIT) = ($ 7,122,000)

Net profit after tax (NPAT) = ($ 7,716,000)

Total Assets (TA) = $62,783,000

Owners’ Equity (OE) = $61,779,000

EBIT   x          NPAT  x          TA       =          NPAT

TA                   EBIT               OE                     OE

 

7,122   x          7,716   x          62,783 =          7,716

62,783             7,122               61,779             61,779

7,122/62783 X 7,716/7,122 X 62,783/61,779 = 0.1249

0.1249 = 0.1249

Hence, proved.

The variable TA/OE    is the coefficient which determines the relationship between Return on Assets and Return on Equity. The phenomenon captured by these terms is the proportionate relationship between TA/OE and ROA/ROE. The variable representing TA/OE       indicates total assets as part of Owners’ Equity. The return on assets is calculated for net profit as part of Total assets whereas the return on equity indicates net profit as part of Owners Equity. Thus the variable TA/OE directly affects the relationship between Return on assets and Return on Equity.

The Return on Equity in all the four years above is greater than the Return on Assets of the company. The reason behind this is the TA/OE variable. The amount of total assets of the company is always greater than the amount of Owners’ Equity due to the current liabilities and long-term debt. This makes the variable TA/OE greater than one. As a result the return calculated as part of total assets represents less value as compared to the return calculated as part of Total Equity of the company attributable to its owners (Petty, 2012).

Graphs and results

The following is the graph of movement of stock of Altona Mining Limited for the last two years:

(History of ASX, 2016)

The following chart shows the movement in the stock of All Ordinaries Index for the last two years:

The following chart shows the movement of stock of Altona Mining Ltd against the movement of All Ordinaries Index for the last two years:

Analysis – From the above comparison of the movements in the price of shares of company with the movements in the All Ordinaries Index it can be observed that there is a positive correlation between the two variables which are movements in share price of company with respect to movement in the index price of All Ordinaries Index. The two graphs are very close to each other and at some places also overlapping each other. Mostly the line representing the movement in share price of company is above the line of All Ordinaries Index. Thus it can be concluded that the share price of company is less volatile with regards to the index price (Balan, 2011).

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