Essay Pumping Iron at the Cliffs

903 Words Jun 20th, 2014 4 Pages
This report contains an evaluation of the Circored Iron Reduction Plant in Trinidad. An analysis of the current processes and costs are weighed against the reality of unexpected downturn in market prices for DRI. A final proposal and recommendation for the future of the plant will be outlined.
This report contains an evaluation of the Circored Iron Reduction Plant in Trinidad. An analysis of the current processes and costs are weighed against the reality of unexpected downturn in market prices for DRI. A final proposal and recommendation for the future of the plant will be outlined.
The Circored Iron Ore reduction plant in trinidad
The Circored Iron Ore reduction plant in trinidad
Pumping iron at Cliffs & associates
Pumping
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Even with process improvements which will increase the capacity at our bottleneck operation by 12.5% and reduce our process down time from 16% to 5%, our best case projection would be a $9.5M operating loss over the next three years, while the worst case losses could exceed $54M if the price of HBI remains in the $95-$105 range through 2004.
Shuttering the plant would result in an elimination of the risk of these recurring operating losses, but would also prevent us from seizing upon favorable opportunities should the market price rebound. HBI price has seen fairly substantial price volatility from its high of $170 / ton in 1994 to its current state of less than $80 / ton.
The second strategy, referred to as a "Cold Idle Status", would keep the plant on “alert” to ramp-up to full rate production in one month from turn-on only if the market makes a full recovery. This may appear to be an attractive option. However, the market only reaches a full recovery under the most optimistic scenario in 2004. Therefore, the probability of regaining profitability, paired with the annual incremental recurring cost of $6M for payroll and skeletal staff makes this a risky approach. The fixed costs associated with a Cold Idle approach outweigh the probability-discounted revenue. This approach, without an investment to improve our yield, is not recommended.
We recommend making the $2M investment to reduce our process loss from 10% to 2%, which

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