Comprehensive Finance Report: Metallica Minerals Ltd Performance

This finance report provides a comprehensive analysis of Metallica Minerals Ltd's financial performance. It begins with a background of the company, including its business operations in bauxite development and its various projects. The report then delves into the company's ownership and governance structure, identifying main shareholders and key personnel. Key financial ratios, such as return on assets (ROA) and return on equity (ROE), are calculated and analyzed over a four-year period, along with an explanation of the relationship between total assets and owner's equity. The report includes a chart of the monthly share price movement and compares it to the All Ords Index. Significant announcements affecting the share price are discussed, along with calculations of the company's beta and the rate of return using the Capital Asset Pricing Model (CAPM). The Weighted Average Cost of Capital (WACC) is calculated, and its implications are discussed. Finally, the report examines the company's dividend policy and offers a letter of recommendations.

FINANCE
TABLE OF CONTENT

S
Background of Company........................................................................................................1
ONWERSHIP AND GOVERNANCE STRUCTURE..............................................................2
i) Main substantial shareholders.............................................................................................2
20%.........................................................................................................................................3
5%...........................................................................................................................................3
ii) Key people.........................................................................................................................3
Chairman................................................................................................................................3
Board Members......................................................................................................................4
CEO........................................................................................................................................4
3. Calculate Key Ratios..........................................................................................................4
Explain what phenomenon is being “captured” by the variable TA/OE, and how it is
impacting on the relationship between Return on Assets and Return on Owners Equity......5
Explain why the ROE (EBIT) is significantly greater than or less than the ROA (EBIT).....5
4..............................................................................................................................................6
Prepare chart for the monthly share price over the last two years..........................................6
Write a report which compares movements in the companies’ share price index to the All
Ords Index..............................................................................................................................6
5. Discuss significant announcements which affect the share price of the company.............7
6..............................................................................................................................................7
Calculate the beta of company...............................................................................................7
Calculate rate of return using CAPM.....................................................................................7
Is the company is conservative investment? Explain.............................................................8
7..............................................................................................................................................8
Calculate WACC....................................................................................................................8
Explain the implications that a higher WACC has on management’s evaluation on
prospective investment projects.............................................................................................8
8..............................................................................................................................................8
Does it appear to be working towards the maintenance of a preferred optimal capital
structure?................................................................................................................................8
What have they done to adjust/amend their gearing ratio? Increase or repay borrowings?
Issue or buy back shares? Has the Director’s Report given any information as to why they
have made any adjustments?..................................................................................................8
9..............................................................................................................................................9

Discuss what dividend policy of the management of the company appears to be
implemented...........................................................................................................................9
Explain any reason related to that particular dividend policy................................................9
10 Write letter of recommendations.......................................................................................9
REFERENCES.........................................................................................................................10
3

Background of Company
Metallica Minerals Ltd is an Australian based company listed under Australian stock
exchange deals in bauxite developing. A business asset of this company is located in
Queensland’s Cape York Peninsula. This venture has extended its operation from mineral
exploration to its development and production which is also a core part of a business cycle.
The aim of this group is to create a successful venture which has two features such as
sustainable and profitable bauxite producer of 5-7 Mtpa of bauxite for next 5 years.
Achieving this aim, the company applied its efforts from the last 2 years on one of
their project names as Urquhart bauxite project. This project belongs to the joint venture of
Cape York bauxite and heavy minerals sands in Queensland. 50% ownership is held with the
Metallica Minerals Ltd in this joint venture among two operators. This joint venture is
essential to achieve all the desired aims and the objectives which are impossible to
accomplish for a single entity in a limited duration.
Figure 1 Markets of MLM
Different projects of Metallica minerals Ltd are URQUHART BAUXITE
in weipa and URQUAHART POINT, CAPE FLATTERY SILICA
SAND PPROJECT located in cook town and cairns. ESMERALDA GRAPHITE PROJECT
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located in Karumba and Croydon. SCONI PROJECT in nicket refinery and Townsville.
Above mention, map highlights all the current projects of the company in around Australia.
This shows the market capture of an entity in increasing its monopoly in the market to gain
higher returns. The company emphasizes on generating both monetary as well as non-
monetary.
Various products in which the Metallica minerals Ltd deals in include bauxite as the
primary unit of the business along with graphite, silica, sand mines, nickel, and cobalt. All
these things are the products offer by this company are enough to generate higher income for
an entity in a particular financial year. Market segmentation of this company depends on the
desired location of their projects which covers significant market niche. These niches are
located in or around Australia in converting potential customers and business users into
regular and loyal consumers. Products and services offered by this entity are only for the
business customers who further utilize these products in making best out of the raw materials.
For exploring minerals, the company requires permission and licenses and permits to
utilize the natural resources. These licenses show the transparency in the business practices of
the business in producing the better output by following all the rules and policies prescribed
by the government.
The higher market volatility of this company shows its positive or favorable
performance in producing higher returns in a short span of time. Investors are interested in
knowing the financial structure of an entity along with its stock returns before investing in
any product. Higher market volatility is required to increase their returns in a specific time
period as no investors want to invest in a product with little or no volatility. Volatility is
measured by a standard deviation that projects higher return over a particular period.
ONWERSHIP AND GOVERNANCE STRUCTURE
i) Main substantial shareholders
Substantial interest terminology is specially mentioned in the corporation’s act 2001
according to Australian stock exchange council. The aim of this council is to prioritize
companies who have a relative interest in the company. To avoid the biases in the company
among other employees of the business, this guide comes into existence. This guide is helpful
for both the investors as well as legal advisors in applying the principle of relative interest in
securities (Gomez, Padmanabhan, Kamaruddin, Bhalla and Fisal, 2018). Two threshold limits
are set in this guide in whom the substantial interest of the company is judged in two
percentage limit of higher than % and higher than 20% to determine the status of the
company as the family or non-family members working in a similar entity. The relative
interest in the company is ascertained by knowing the influence of a person over other in
terms of the securities used in the company. Relative interest can occur in which situations
2

such as in case of acquisition o the business by their relative whose voting rights in the new
firm is more than 20%. It can occur due to takeovers of the company, security options,
warrants, escrow arrangements and substantial holding notices.
Substantial interest in the company is defined under section 608 and 609, under which
the relative interest of one person in the company other individual is judged by applying
various tests and rules.
20%
General public ownership plays a dominating role in Metallica Minerals Ltd as they
have 59.04% share in the company (Lepetit, Meslier, Strobel and Wardhana, 2018). All the
companies policies and various business decisions is taken by the general public as they are
the true owners of the company due to a higher share of ownership held by them. On the
other hand, private company ownership is higher than the threshold limit of 20% as they have
30.36% share in Metallica Minerals Ltd. Both these individual’s share in the company does
not point out towards the substantial holding in the Metallica Minerals Ltd as this company is
non-family members without any kind of relative interests. Business decisions are taken by
the public in large which is non-biased decisions as all the shareholders have a different
opinion in judging all the situations different with no influence of the top management of the
company. By enjoying a higher share in the business concert, metallic minerals Ltd itself
segmented their sole powers among the major shareholders in the company.
5%
Internal members of the company named Metallica Minerals Ltd has 9.42% share in their
own company which is higher than 5% substantial interest. According to the corporation’s act
2001, of Australian stock exchange council under section 608 and 609. They have 9.42% of
substantial interest in the company which is not enough to dominate all the shareholders of
the company. They can only participate in the group discussion with just some votes as the
final decision will be taken by the general public who have the higher number of shares in the
company dominate among all the members.
ii) Key people
Chairman
Mr. Peter Turnbull is newly appointed the chairman of Metallica mineral Ltd in
supervising the board meeting of the company. The major role played by a chairman of this
company is to handle the domestic as well as global operations of the business entity. Earlier
3

chairman of this company was Mr. Barry Casson who hold their position for a total period of
6 years. New chairman MR turn bull has law and business expertise with 30 years experience
in this field along with sub-specializations in global energy, resources, and asset ownership
sectors. He has corporate working experience of a Business regulator in Australia and Hong
Kong.
Board Members
Non Executive director
Mr. Steve Boulton handles the position of non-executive director of the company. He has 40
years of experience as a fund and asset investment manager. He earlier worked in both
private and governmental organizations for over 15 years in getting knowledge in various
fields such as Australia’s infrastructure, Australian Pacific airports, and national associations.
Mr. Wand Ruobing was worked as a chairman of Jilin Jien Nickel Industry Co. Ltd in
Australian was the largest shareholder of this company. He is connected with his company
since 1996 as he is the qualified internal auditor.
CEO
Chief executive officer of this company is Simon Slesarewich who holds this position
on 13th July 2015. He is a mining engineer by profession registered under Senior Site
Executive in Queensland with 20 years experience in this stream. Prior experience of Simon
in the miming field is required to handle all the business operations of the Metallica. He has a
graduate diploma in Administration with dual specialization in finance and investment to
boost the financial performance of the company by changing the investment structure to avail
the benefit of the market volatility.
3. Calculate Key Ratios
Particular
s Formula 2014 2015 2016 2017
NPAT
1752
5154
7722
353
-
5747
331
-
2559
121
Total assets
1693
0337
9395
752
5275
212
6087
641
Return on
assets NPAT/Total assets
1.035
133
0.821
898
-
1.089
5
-
0.420
38
NPAT
1752
5154
7722
353
-
5747
331
-
2559
121
4

Equity
3013
3461
3060
3461
3220
5513
3565
0900
Return on
equity NPAT/equity
0.581
585
0.252
336
-
0.178
46
-
0.071
78
Total liabilities
8079
72
5001
55
3816
39
2612
99
Total assets
1693
0337
9395
752
5275
212
6087
641
Debt ratio Total liabilities/Total assets
0.047
723
0.053
232
0.072
346
0.042
923
EBIT
1752
5154
7722
353
-
5747
331
-
2559
121
Total assets
1693
0337
9395
752
5275
212
6087
641
NPAT
1752
5154
7722
353
-
5747
331
-
2559
121
Equity
3013
3461
3060
3461
3220
5513
3565
0900
Debt ratio
EBIT/Total asset*NPAT/EBIT*Total
assets/Equity= NPAT/equity
0.581
585
0.252
336
-
0.178
46
-
0.071
78
Explain what phenomenon is being “captured” by the variable TA/OE, and how it is
impacting on the relationship between Return on Assets and Return on Owners Equity.
Total assets to ordinary equity show the relationship between assets and equity in
creating a financial structure of the company. This ratio shows the part of held by all the
shareholders. An entity financed their company through equity in purchasing the business
assets. In another way, it can be understood that an entity generates a return on all the assets
held in a business for a particular span of time. The common element in both the ratio such as
return on asset and return on equity is net profit after tax earned by an enterprise differs from
one period to another. This variable helps in determining the strong component of total assets
and the shareholder’s equity. Higher assets will decrease the return on assets and higher
amount of equity will decrease the returns generated over a particular span of time.
Explain why the ROE (EBIT) is significantly greater than or less than the ROA (EBIT).
Return on equity is less as compared to return on assets from 2014 to 2017 period due
to increase in the amount of equity and decreasing amount of net profit after tax (Payne,
5

Daghestani, Doss and Wong, 2018). NPAT is less as against the ordinary equity which
denotes the issued share capital by an entity.
4.
Prepare chart for the monthly share price over the last two years
Figure 2 Monthly share price movement against all ords index
Write a report which compares movements in the companies’ share price index to the All
Ords Index.
To
Managing director
Sub- Evaluation of share price movement
This is to inform the top management about the market share price comparison of Metallica
minerals Ltd with the all ords index for the two financial years 2014 and 2015. All ords index
is represented by red lines and blue lines and area denote the share price movement of
Metallica minerals Ltd company. The share price returns of All ords index and the Metallica
are parallel to each other.
In terms of the correlation between these two elements, there is no correlation between the
share price returns of these two indexes as both these are showing the different direction.
All ords index’s returns are increasing with increasing rate and on another hand, Metallica
minerals Ltd shows fluctuating returns with both increasing and decreasing return.
Market volatility is important for an entity to stay in the dynamic market in generating higher
returns on their investment products. By showing the above chart, a Metallica minerals Ltd
share price return is highly volatile as compared to the share price index of All Ords index.
Volatility is measured in terms of all the fluctuations takes places in the monthly share price
movement of the company in the last two years.
It is concluded from this report that Metallica minerals ltd return is increasing monthly is due
6

to the image of the business in the external entity. The firm is suggested to increase its market
presence by increasing their market investment to get the desired return within a specific
period of time.
Financial Analyst
5. Discuss significant announcements which affect the share price of the company
Metallica Minerals Ltd intentionally put their trading on the halt of their business
securities till 6 September 2017. This period creates turbulence for all the shareholders who
want to trade online by making changes in their investment portfolio using the website of the
company.
The company has changed their Brisbane address just for the sake of their
shareholders as this change will be helpful for their users to connect with the company. This
particular address gives all the shareholder’s a chance to get inquiries for all their investment
made in the company.
6.
Calculate the beta of company
Calculate rate of return using CAPM
Risk free rate- 6%
Market risk premium (rm-rf)- 4%
Beta- 0.06
CAPM= Rf+ beta (rm-rf)
= 6 %+0.06 (4%)
= 6%+0.0024
= 6.24%
7

Is the company is conservative investment? Explain
Conservative strategy is an investment strategy which couples with lower risks which
hardly fluctuates the overall securities. The Metallica minerals Ltd selected as an investment
for the current investment is not the conservative investment strategy. Metallica Minerals Ltd
is a highly volatile company which has higher risks of the investment securities whose
interest on the same is not fixed as this fluctuates with the passage of time.
7.
Calculate WACC
Particulars Amount Weights Cost WACC
Equity 30133461 0.991 0.0624 0.0618384
Debt 261299 0.009 0.03 0.00027
Total 30394760 1.00 6.21084%
Explain the implications that a higher WACC has on management’s evaluation on
prospective investment projects
Higher weighted average cost of capital denotes the higher risks occur in the business
in dealing with future investment projects. An entity determines WACC to keep track all their
estimate expected costs in financing the upcoming projects.
8.
Does it appear to be working towards the maintenance of a preferred optimal capital
structure?
The debt ratio of Metallica Minerals Ltd for the past two years 2016-2017 is not
stable as the ratio gets decreases from one period to another. The decreasing ratio shows a
large number of total assets as compared to the total amount of liabilities incurred by the
company for the past two years.
What have they done to adjust/amend their gearing ratio? Increase or repay borrowings?
Issue or buy back shares? Has the Director’s Report given any information as to why they
have made any adjustments?
The company has done nothing to amend their gearing ratio as they have increasing
liabilities from one period to another which in turn, increases the debt burden for the
company. The borrowings of the company have increased from one period to another which
shows the debt burden of the company which requires time to compensate the same.
8

9.
Discuss what dividend policy of the management of the company appears to be implemented.
Current dividend policy of the company Metallica Minerals Ltd is hybrid dividend
policy (McClure, Lanis, Wells and Govendir, 2018). This policy of dividend has the
characteristics of both the dividend policies such as residual and stable dividend policy.
Explain any reason related to that particular dividend policy.
Metallica Minerals Ltd has hybrid dividend policy as the debt to equity ratio of the
company has only long-term liability as compared to the short-term goal. Using long-term
goal, the interest rate gets fluctuated with the passage of time.
10 Write letter of recommendations
It is recommended to the Metallica Minerals Ltd to stabilize their debt ratio by
increasing debt in comparison with the amount of equity to create a balance in the financial
structure of the company.
9