Rotomyne case Study Flashcards
How should I approach question structure ?
Imagine the marking grid ?
Comprehensive answer - addressing all possible relevant details
Define if required
Discuss what we know inc pree seen info (ie risk example) what first steps could we take ?
Evaluate what else could be done (build out discussion with ideas)
Recommend
What should be my process for exam answer technique?
Review verbs
Write out comprehensive headings list to ensure answers flows
Read unseen twice making notes in applicable headings and relating to unseen
Choose paragraph headings based on technical content
Can I remember anything from common practice answers ?
Preparation techniques ..
Go through common questions that have detailed answer steps .. eg
Strategy formulation
Scenario planning steps etc
What are scenario planning steps ?
SDA
Identity scenarios
Identify drivers
Identify actions
Conclude
Monitor and update
What is Rotomynes mission ?
Power consumers lives in a world that is clean, healthy and sustainable
What is Rotomynes beta?
1.63
0.87
What is Rotomynes long term debt?
5 billion
What is lithdigs long term debt?
3 billion
How does ansoff growth strategies relate to Rotomynes?
Market penetration
Product development (mining other materials)
Market development (new uses of lithium)
Diversification (vertical integration)
Ideas for strategic options generation
Ansoff matrix
Product development (sodium mining, potassium)
Diversification (make batteries)
Get onto sales .. market penetration
Long term contracts
R&D
Target growing customer/ economies? Long term get tact
Cost reduction .. margins/ turns
How could we use Forward contracts to hedge ?
Enter into the other side of our existing forward contract ( invoice or contract is a forward) buy forwards for the other side …
Can work with currency and spot price of lithium / commodity
Money market hedge useful for Fx
What model could I use for strategic evaluation ?
SAF
Suitability - missions / objectives
Acceptability - shareholder groups ? Returns etc ..
Feasibility - do we have funds ? Employee resources ?
How many countries does Rotomyne operate in?
6 countries in total
4 stable
2 developing countries
What are the main types of lithium mining extraction?
Traditional brine mines
Traditional Hard rock mining
DLE (Direct Lithium extraction) Not currently adopted by RM
What are currently the main uses of Lithium in Porrland?
Batteries (EV and device)
Ceramic and glass
Lubricants
Pharmaceuticals
What percentage of Lithium can be found in the ore rock spodumene?
Lithium can constitute up to 8% of the content of spodumene.
What are the main environmental impacts of Hard rock mining?
Soil erosion
Destruction of natural habitat
Emissions from operating equipment (could we use EV fleet?)
How large can surface ares of traditional brine mines be?
Up to 25 square kilometres
How long can it take for evaporation ponds to concentrate?
12 to 18 months
Hedging spot prices required
How much water is required for each tone of lithium produced during traditional brine mining?
500,000 litres
What is the main environmental issues associated with traditional brine mining and evaporation ponds?
Polute local water supplies
Whats the carbon dioxide impact of hard rock mining per ton of lithium ?
15,000kg
15 ton?
Whats the carbon dioxide impact of traditional brine mining per ton of lithium ?
5000kg
Whats the carbon dioxide impact of DLE mining per ton of lithium ?
Powered by electricity so this is dependant on the power source (If renewable electricity this could be zero)
How many litres of fresh water is required for hard rock mining per ton of lithium ?
170,000 - why is this?
How many litres of fresh water is required for DLE mining per ton of lithium ?
3000 litres
What is the use of land required for traditional hard rock mining per ton of lithium produced?
460 square metres
What is the use of land required for traditional brine mining per ton of lithium produced?
3,200 m2 per ton of lithium
Or
3.2 square kilometres
What is the use of land required for DLE mining per ton of lithium produced?
1 square meter
Who is the CFO at Rotomyne?
Martin Jacobs
Who is the CEO at Rotomyne?
Shaista Shameem
Qualified chemist, promoted to the board as production director before being appointed as CEO
Whats the make up of the board of directors at Rotomyne?
CEO is Shaista Shameem
CFO is Martin Jacobs
Marketing Director is Onwaba Makanjana
Production director is Andrey Prokhorov (presumably succeeded Shaista)
Who makes up the NEDS at Rotomyne?
Non Executive chair is Professor Iresh Jayawardena
Senior independent director (SID) is Pierre Forcier
Non-Executive Director (NED) is Caroline Nguyen Ngoc
Non-Executive Director (NED) is Professor Lemi Baruh
what do all three lithium mining processes yield?
Lithium carbonate
That can be further process into
lithium hydroxide (used for batteries)
lithium chloride
butylithoium used synthetic rubbers and pharmaceuticals
What futures market exists in Porrland?
lithium hydroxide futures contracts
Whats the make up of Rotomynes mines?
6 hard rock mines
3 Traditional brine mine
What is the make up of Rotomynes revenue?
45% battery grade
26% non battery
23% butylithium
6% other (Alloys used for aircrafts)
What is Rotomynes vission?
meet customer needs for the reliable supply of good quality materials
transform the delivery of power through its support for customers who depend on their lithium products
What are Rotomynes values
Ethical
sustainability
safe working environment
continuous innovation
responsive to customer needs
What material is a key threat to Rotomyne?
Sodium ion
Cheaper as mined from salt extracts and more environmentally friendly to mine
downside is Heavier
What are the key major risks highlighted as principle risks?
Market price volatility of lithium
Currency risk due to exchange rate fluctuations
Constrained production levels due to limited reserves
Strict environmental regulations (could get worse)
Political risk (specifically the 2 mines in developing countries)
Risk of accident at mine or local pollution caused impacting community and reputation (H&S / Environment)
How much did Rotomynes revenue decrease in 24 ?
4.7%
How much did operating profit reduce in 24?
18.5%
What was Rotomynes operating margin in 24?
35%
What was Rotomynes net profit margin in 24?
24%
How much did Rotomynes net profit reduce in 24?
18 percent
What was Rotomynes operating margin in 23?
41%
What was Rotomynes net margin in 23?
29%
What was rotomynes gearing level in 24?
51%
What was rotomynes payout ratio in 24?
90%
What is rotomynes interest cover?
5x
what is Rotomynes ROCE?
28%
where could we spend R&D resources to reduce mining impact?
Recycling batteries and extracting lithium from used batteries
Whats a big driver of efficiency within each mine?
The purity of the ore or brine (Ie how much lithium is in the rock)
whats a big cyber threat to rotomyne?
The security of the ICS
Industrial control systems operated within the mines to improve safety are being integrated with modern IT systems
This leaves them open to possible breaches which would be a threat to confidential data or distrupt manufacturing operations
whats a growing career due to high demand within the mining industry?
Geologist
Measure the lithium content in spodemen and also mine safety / can the earth handle mining in the area?
What is Rotomynes dividend cover ?
1.1x
What is Lithdigs dividend cover ?
2x
What are both Lithdig and Rotomynes cost of debt?
10%
How does Rotomynes mitigate environmental risk? *
Listed on risk register/ mitigated by complying with all relevant regulations and sometimes exceeding local regulations
What is the formula for gearing with Rotomyne example?*
D/(D+E)
5000 / (5000 + 4814)
5000 / 9814
51% however would be preferable to use market values
What’s the lithdig gearing example ?*
$m
3000 / (3000 + 8828)
3000 / 11828
25%
Would be preferable to use market values though
What is Rotomynes debt to PPE ?
68%
This is important as it will be difficult to secure funding using PPE as security
What is Lithdigs debt to PPE ?
34%
What’s the big problem with Lithium brine mining and the potential solution?*
Space, time and water
DLE closed loop potentially solves all three
What commodity is listed and can be used for hedging ?
Lithium Hydroxide
What is Tolling?
Where lithium mining companies hold lithium carbonate and convert it to final product lithium hydroxide
For a benefits and risk question or one demanding lots of points how could I develop the answer ? *
What Is the point ?
Why ?
So what ?
Now what?
What synergies could benefit M&A activity for Rotomyne?
Cost savings from unnecessary Duplication of departments
Particularly relevant for secondary activities such as HR etc
What is the international fisher affect ?
Uses risk free rates to determine Fx risk
What is m&m dividend irrelevance theory?
Modigliani and Miller state that dividends do not impact value
Also state that neither does leverage
What’s the lithium demand forecast is Portland ?
Was 500,000 tones in 2021 and projected to be 4 million by 2030
8x
How many countries does Rotomyne operate in?
Operates in 6 countries but exports from those 6 countries to more than 90 different countries
What are the principle risks in Rotomynes risk report?
- Market price volatility
- Availability of future lithium reserves
- Strict environmental regulations
- Exchange rate fluctuations (90 countries)
- Political risk (2 mines in developing countries)
- Injury to employee / environmental damage caused to local community
What other risk could be included in RM report ?
Use albermarle annual report
Competition
Changes in demand - cyclical industries
Inflationary pressures
Law changes
Natural disasters/ terror related incidents and civil war
Hazards associated with chemical manufacturing
Interest rate risk
Partner performance in JV
Capex requirements could exceed expectations
What are scenario planning steps ?
Define, discuss, evaluate
Think of scenario
Think of driver
Think of impact ?
What is IRP and PPP?
They are tied together via the international fisher effect
PPP parity is inflation
IRP is risk free rate
The international fisher effect assumes that these rates must be the same is one year and are therefore used to predict future currency rates
Need to look at the historical question example
How can Value at risk be useful for Rotomyne ?
Confidence level that markets will be simulate to previous weeks
X
Standard deviation
X
No of time periods
Can be used to determine potential loss over period of time in normal market conditions
Could be used for Fx
Also used for investments and portfolio management
When is Rotomynes year end ?
30 September (accounts up to 2024)
How many mines does Lithdig have ?
10
What is Lithdigs dividend payout ratio ?
50%
How much did Rotomynes Operating profit reduce in 2024 ?
18 %
What is Lithdigs ROCE?
29%
How much more revenue does Lithdig produce compared with rotomyne?
24%
What’s the story of Rotomynes profits?
Revenue down 4.7% due to spot price volatility and downward pressure
Operating costs have risen 4.8 % perhaps due to inflationary reasons
Resulting in reduced operating margin from 41% to 35%
What are the key issues with battery recycling ?
The lack of uniformity in battery design
Te high level of effort that is required in hydro and pyro to convert the batteries to metal feedstock
Battery capacity is not fully restored
How might I structure a question about strategy ?*
Adding value
Value drivers / return on capital / impact on revenue, margins and turns
Negative impacts / reputation
How might I structure a question on share price movement ? *
Again focus on value
Short term market movements may not carry much gravitas
EMH
How could I approach cyber risks ?
Do we need expert advice via consulting? Due to lack of leadership ie no CIO
ERP security features .. 2FA, location logs etc
What is a hot back up ?
It’s an IT system whereby the data can be backed up whilst the system is operational meaning there is no need for downtime or it be turned off to back up
How might a CIO impact RM?
Leadership and expertise
Increased cybersecurity
Responsibility
Career progression for IT staff / motivation
Might be to keen to justify role / controls in place
Confusion over responsibility / needs communicating
How might I structure a question that relates to internal audit ?
What’s the objective? What’s working? What’s not working? What’s needs to be done to fill the gap?
Recommend course of action to management
Review and control
What is Rotomynes current equity book value ?
4814 million
4.8 billion
What is the COSO framework for internal control?
Operations
Reporting
Compliance
Control environment
Risk assessment
Control activities
Information & Communication
Monitoring activities
Entity level
Division level
Operating level
Function / task level
What’s a key KPI for Rotomyne given lack of control around lithium prices ?
Production cost per ton
Full focus of efficient operations and cost control
What’s a downside of high lithium prices ?
Increases cost for end users (EV’s) which reduces sales
What duty do the Rotomyne board have ?
Fiduciary duty to Rotomyne shareholders
What acronym can I use for internal controls ?
Soapspam
- Segregation of duties (reduce fraud & errors) second pair of eyes etc..
- Organisations structure / ie governance
- Authorisation & approval functions (>£10k)
- Physical protection of assets / CCTV?
- Supervisory controls (new employee / dangerous activity)
- Personal (qualified)
- Accounting controls / ERP dashboards etc
- Management review of reports
What ethical code of conduct could Rotomyne use ?
PIPCO / CGMA ethical framework
- Professional behaviour
- Integrity
- Professional competence and due care
- Confidentiality
- Objectivity (non bias)
