NORTHERN DRILLING INC. THE MOND NICKEL CONTRACT DECISION – A TACTIVAL DILEMMA IN A GROWTH STRATEGY
THE PROBLEM Peter Bremner, general manager for Northern Drilling Inc. (Northern) was looking over the RFP for an upcoming exploration contract for one of Canada’s largest mining companies, Mond Nickel Company (Mond). The RFP consisted of 2 projects, a Deep/Complex job (3,000m holes) and an Intermediate/Routine job (1,800m holes). The proposal was due in 3 weeks and Peter had to make a decision whether to send a proposal on either Deep or Intermediate jobs, both jobs, or whether to bid at all.
The Canadian mining exploration industry was extremely competitive and consisted of about 80 drilling contractors, many of which had little
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2. Net Present Value – Secondly, Peter needs to investigate the Net Present Value (NPV) of each project scenario, i.e. job type, gross margin, and # new diamonds drills purchased. The NPV will measure the variance of the present value of cash outflow (drilling equipment investment) versus the future value of cash inflows (future profits), at the benchmark hurdle rate of 20%. A positive NPV associated with the investment means that the investment should be undertaken as it exceeds the minimum rate of return. A higher NPV determines which project scenario will have the highest return on cash flow, hence determining the most profitable investment in terms of present money value. 3. Probabilities of Success – There are several uncertainties that could affect Northern’s ability to execute the contracts successfully, especially for the DEEP project. In addition to the holes to be 3000 meters deep, the problem is multiplied due to the geological conditions, which is expected to be poor in some areas. Given the conditions, it’s necessary to assemble a team of highly capable and experienced employees. Peter is aware that if he choses to send proposals for both projects, he would need to find 24 additional drillers. 4. Future Growth Strategy – Does the job performed align with the future growth? Northern is currently owns 34 drills rigs, of which 12 are deep diamond drills.
There are many competitive forces that are affecting Nucor Corporation. Some of the primary ones are the market size, number of rivals, and pace of technological change.
Choosing the most suitable procurement method for the specified construction project is a long term hard decision; it is a
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Adequate study and analysis of the geography of the drilling location to understand the risks
Between 1982 and the mid-1990's there were a series of exploration programs conducted by Pamour Porcupine Mines Limited, and its successors Pamour Inc. and Royal Oak Mines. Royal Oak Mines continued its involvement in the property and completed a number of engineering studies and environmental baseline investigations between 1995 and 1997.
The Problem with the immense amount of drilling companies in the area, is that land which was once used for agriculture and land which once was home to fields and forests are now being transformed into drilling sights. As of October 2011 the researchers estimated that 276.84 hectares (684.09 acres) of previously unaltered land had been converted to 69 well pads. Agriculture land has taken the biggest hit from the drilling companies, 458.58 acres or 67% of the land had been converted for drilling natural
Nucor achieved its position as one of the largest steel producers in the United States by carefully monitoring costs and paying attention to the needs of its markets. This strategy of providing its customers with a competitive product at competitive prices has brought success and growth to Nucor, in sales, income, and stock price. Recently, however, the control of the organization has been brought into question. The recent announcement of a joint venture between Nucor and U.S. Steel to develop, test, and bring on line a new method for turning iron ore into steel added to the concern over the ability of company management to maintain the entrepreneurial spirit
Exploration drilling is the first step in determining the position of a mine and whether it is a viable business opportunity. Drilling determines the exact positions of ore bodies suitable for mining. This also achieves samples which are tested to find out the quality of the ore body. Drilling is performed within a set area to find the size of the ore body.
They have gone about this in several different steps. One key aspect of their value added service is to focus on a vertical integration system. This way they can provide their offerings and gain a higher profit and lower cost to suppliers. The company has several subsidiaries that enable the company to perform tasks from marketing, to transportation of oil. Chesapeake Energy discusses in such financial statements that the company would rather “capture a portion of this value for our shareholders rather than transfer it to third-party vendors”. Hence, instead of having to hire a contract driller, the company is able to utilize one of their subsidiaries, Nomac Drilling
The process of selecting the contractor for a project like Yad Vashem’s museum was another instance when timely communication became an imperative component of project’s success. Kornfield was worried that due to shortage of financial resources, quality of work will be compromised. At this instance, Kornfield suggested that selectors should adopt a new and different approach when selecting the contractor. The aim of Kornfield here was to select someone who was not very expensive yet the most suitable for this project. For this purpose, proposed a three-stage selection process for his clients. The selected contractor worked in such a way that not only the safety hazards were prevented but saved a great amount of money and endless
Nucor must now consider the need to keep up with the changing dynamics of a globalized corporate world. Nucor already has a business model that proved to be successful in the American markets. Using the same business model, Nucor should now consider penetrating and exploiting other international markets that promise low costs of production and higher revenue generation such as India and China. This could be done by either setting up operations in those countries or getting into
The ore drilling industry is especially competitive comprised of approximately 80 many smaller, more specialized ‘commodity-type’ contractors. They threaten the much larger contractors such as Northern as they are able to accept RFP’s on very thin margins with little to no overhead. With mining companies being very price sensitive, it hurt Northern Drilling as they were
1- Basically we first have to find the incremental cash flows and then calculate the NPV. If the NPV is higher than zero; we are going to accept the Project. In order to find the cash flows we need to do the following steps:
The segment selected are contractors, for the following reasons. First, they own more than 2/3 of the equipment they use, renting 25% of the hammers needed. They also talk freely between each other but never reveal competitive secrets. In order to calculate the cost of the contractors, the company analyzed the
(Lewicki, 2010, p. 585) Fontaine and Gaudin did not prepared to negotiate the full contract. They did not anticipate nor prepare to resolve additional issues. Due to their inexperience, Fontaine and Gaudin were not the correct pairing to conduct the renegotiation, as well, they did not have decision making authority. They had to contact senior level management in order to reach a final agreement. This delay extended the negotiation timeline. Adding to the already stressful situation, the prospect of losing Reliant as a consistent client prosed a potential major issue, especially relating to supply as it would be difficult to identify another client to fill the former demand level. Also, Pacific senior leaders delayed their decision to expand into PVC products, over a year. This delay created uncertainty with the forecast for VCM and derivate products, which had a negative marketing impact for one of the top essential products. Also, contributing to the list of weaknesses, Fontaine’s definition of a successful negotiation differed from the corporate office, in that, he linked a successful negotiation outcome to keeping Reliant as a client by extending the current terms of the contract, solely. However, just as important, Fontaine neglected to take into account all the other potential issues or points of