Question: Calculate the following based the information that will be provided below: ProfitabilityRatios Calculations (two ratios) 4marks LiquidityRatios Calculations (Two ratios) 4marks Long term solvency/Debt ratios
Calculate the following based the information that will be provided below:
ProfitabilityRatios Calculations (two ratios)
4marks
LiquidityRatios Calculations (Two ratios)
4marks
Long term solvency/Debt ratios (Two ratios)
4marks
Discussion of profitability, liquidity and leverage
10marks
Suggestions on how the company may improveits profitability
4marks
Cost of equity capitalcalculation
3marks
Cost of debtcalculation
3marks
Cost of preference sharescalculation
3marks
WACCcalculation
3marks
Discussion of WACC: (why the companyshould calculate WACC,andlimitations of the models used to calculate it)
COMPANY PROFILE
Deep Yellow Limited (ASX:DYL) is a specialist uranium company implementing a new strategy to grow shareholder wealth.This strategy is founded upon growing the existing uranium resources across the Company's uranium projects in Namibia and the pursuit of accretive, counter-cyclical acquisitions to build a geographically diverse asset portfolio.
In parallel to its expansion objectives, the Company has a cornerstone suite of projects in Namibia, a top-ranked African mining destination with a long, well regarded history of safely and effectively developing and regulating its considerable uranium mining industry.
Deep Yellow holds four contiguous Exclusive Prospecting Licences (EPLs) covering 1,730km2within the heart of what is a world recognised, prospective uranium province of high significance.The tenements are strategically located amongst the major uranium mines of this region - 20km south of theHusab/Rssingdeposits and 40km southwest of the Langer Heinrich deposit.
Previous exploration has delineated a current resource base of 50.1Mlb U308@ 245ppm (palaeochannelrelated/Langer Heinrich style deposits) and 45.1Mlb U308@ 420ppm (alaskiterelatedRssingandHusabstyle deposits). The belief of current management is that these resources can be enhancedsignificantlyand the2018exploration programme has already achieved a new discovery.
CORPORATE STRATEGY
Since the appointment of JohnBorshoffas CEO and Managing Director in October 2016, the Company has set a new direction built around a robust strategy to grow shareholder wealth.This realignment is designed firstly to establish the true potential of its Namibian projects and secondly to take advantage of prevailing depressed uranium market conditions to opportunistically acquire value adding projects and it has already delivered tangible results.
The first pillar of the new strategy is to grow resources across Deep Yellow's existing uranium assets in Namibia anda number ofsignificant achievements have been made in this respect.This includes a landmark $4.5m earn-in joint venture by the Japanese group JOGMEC and importantly, the discovery of a new uranium deposit (Tumas3) in April2018during the early stages of a 10,000m drilling programme on Deep Yellow's 100% owned ground.Numerous new targets remain to be tested along a 100km highly prospectivepalaeochannelsystem that has been identified.
The second pillar of the Company's strategy is to establish a global, multi-project, geographically diverse uranium platform through the pursuit of selective, value accretive acquisitions.The Board believes long-term shareholder value can be created by adopting a counter-cyclical approach in the current low uranium price environment.
INDUSTRY
Mining sector has remained the bedrock of the Namibian economy in all conditions of the economy - in good times and in turbulent times as seen in the last 2 yrs. The mining sector recorded a healthy growth in2018(12.2%) on the back of a combination of a rebound in commodity prices and an increase in production of diamonds,goldand uranium. New mines being developed are smaller in nature. However, their combined contribution will make a positive impact, particularly in spin offs to rest of the economy. There is a major potential for growth of mining input and service industry in the upstream linkages with lucrative local procurement spend. Industry has sustained a local spend in excess of N$ 11. billion/year in the last 3 years. Industry commitment to supporting local suppliers of goods and services and growing the job market.Outlook for commodity prices is extremely positive;2019opened with the gold price breaching US$1,300/oz, copper breaching US$7,000/mtand zinc above US$3,400/mt. Electric motor vehicles and renewable energy storage solutions are driving demand for commodities. The battery component of electric motor vehicles is made from an array of minerals,namely;cobalt, lithium, graphite, rare earths and nickel. Copper requirements in such cars are 20% more than conventional vehicles. This is extremely positive in that it will drive Namibian exploration for years to come.
ANALYSTS OPTIMISTIC ABOUT MINING
The outlook for the mining industry is generally positive, although some downward risks still exists, says the senior manager of research and development at FNB, DanielMotinga.
He says the risk will mainly come from theslow downin the Chinese economy which has a deflationary effect on commodity prices. The second risk will come from domestic sources such as industrial action at some of the major mines.
Independent economist, Klaus Schade said that he expects output from diamond mining to stay the same as last year while copper production will increase after the resumption of copper mining atOjtihaseand Matchless mines last year.Motinga, however believes a significant share of the mining sector's contribution to GDP will probably come from the uranium subsector. He said while it is difficult to quantify the full benefit of uranium to the economy at this stage, he estimates that uranium output will increase by around 10% this year.
Schade, likeMotingais optimistic about the increase in uranium production, compared to last year's low production which was largely as a result of the adverse weather conditions and industrial action. He says uranium production is also expected to increase after the completion of Stage 3 of the expansion of the Langer Heinrich Uranium Mine.Although mining companies have been hit by the fuel increments effected since the beginning of the year,Motingasaid mining companies are taking out fuel hedges to manage this risk.
"On a positive note, we are seeing a decline in international oil prices which bodes well for energy/fuel intensive producers," he saysto ensure that Namibia continues to be globally competitive,the FNB economist suggests that the country needs to provide a conducive and welcoming investment climate. Schade also says that it is important to provide investors with a stable and predictable policy environment."We need therefore to engage the business community through their associations in the development of new policies to maintain a conducive policy environment," he advises.
Schade reasons that macro-economic stability and fiscal discipline remains Namibia's biggest assets despite relatively high budget deficits currently owing to expansionary budgets.
He says the constant upgrades of our infrastructure, transport, communication, energy and water will ensure that we stay competitive."The link to the West African Cable System will improve our communication infrastructure, the planned expansion of the Walvis Bay harbour will ensure that the port can handle all incoming and outgoing shipmentsefficiently."Schadestresses on the need to improve the skills of the local workforce in order to attract more investment and the need to start investing into skills that will be required by offshore gas and oil exploration companies if they discover deposits."We need to look into our labour laws and balance workers protection andworkersrights with the degree of flexibility and labour productivity expected by investors."The figures below are in million of dollars.
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