A model for determining the minimum price of explosives when erecting and expanding 'explosives sites' throughout South Africa / by Johannes Petrus Joubert Düring.

Düring, Johannes Petrus Joubert (2004-03)

Thesis (MBA)--Stellenbosch University, 2004.

Thesis

ENGLISH ABSTRACT: The aim of the investigation was to supply decision-makers within the explosives industry with a study, outlining all aspects important for the successful completion of a capital project. It also aimed to supply a model to support them in decision-making regarding new capital expansions and to sensitise them to what is necessary for the successful completion of a capital project. This model was developed with the aid of the following equation: Target return = Cost + Desired percentage return x Capital invested In the process of developing the model, it became clear that financial criteria could not be looked at in isolation. The conclusion was reached that, in an attempt to successfully complete a capital project, it becomes important to investigate the whole process, from budgeting to project completion. The capital project at issue takes place against the background of the explosives business in South Africa. It follows that the investigation started off with a study as to where explosives originated from, as this played an important role in the later development of mining techniques and the resulting change in how mine management approached the delivery of service through explosives companies. From the investigation it became clear that large mines, in an increasing way, opt for "one-contract suppliers". It is expected from these suppliers to manage all aspects pertaining to drilling, blasting and the hauling of ore. The study also indicated that there is an oversupply of ammonia, an important ingredient in the manufacturing of explosives, in South Africa. The combined conclusion was that margins in the explosives industry in South Africa were put under pressure. This conclusion underlines the importance of proper capital project management. It was also found that the level of customer service largely contributes towards the determination of the layout, size and quantity of remote sites. It follows that this is also a large cost driver. This cost as well as the costs of erection, purchase of explosives trucks and the "operability enablement" of such a remote site are important in the sense that they form a part of the determination of the initial capital outlay as well as the future cash flow for the calculation of the net present value and the internal rate of return on the project. A large portion of the operations cost is represented by the transportation of raw materials from the manufacturing plants to the different remote sites. This action, in the Sasol Explosives environment, is the only link in the logistics system that has been outsourced. The investigation into the outsourcing showed that there was no clear reason why this function was outsourced and, likewise, no apparent reason why it cannot be "insourced" again. A recommendation has been made that a full-scale investigation into the possible insourcing of the transport function be launched. In the process of establishing the future cash flow, an investigation was launched into the income generated by the project. It was found that the investigation into income could be divided into two parts: the first, the required return, is coupled to risk; and the second is the actual sale of products. Sales volume (tonnage) and the accompanying price per ton "combine" to form sales income. Finally, price per ton, in turn, is used to "balance" the equation that has been investigated. This price is used as the figure quoted to potential customers. This equation, as well as the sum total of the investigation, was used as the basis for the development of a model or Excel spreadsheet.

AFRIKAANSE OPSOMMING: Die doel van die ondersoek was om 'n studie aan besluitnemers binne die springstofbedryf daar te stel wat alle aspekte belangrik vir die suksesvolle voltooiing van 'n kapitaal projek bespreek. Die doel was verder om 'n model ter ondersteuning van nuwe kapitaal-uitbreidings besluitneming daar te stel en besluitnemers ook te sensiteer ten opsigte van wat nodig is om 'n kapitaalprojek suksesvol af te handel. Hierdie model is ontwikkel aan die hand van die volgende vergelyking: Doelopbrengs = Koste + Verlangde persentasie opbrengs x Kapitaal belegging. In die proses om die model te ontwikkel het dit duidelik geword dat daar nie in isolasie na finansiele kriteria gekyk kon word nie. Daar is tot die slotsom gekom dat, in 'n poging om 'n kapitaalprojek suksesvol af te handel, dit nodig was om die hele proses, vanaf begroting tot projek-afhandeling, te ondersoek. Die genoemde kapitaalprojek vind plaas teen die agtergrond van die springstofbedryf in Suid-Afrika. Die ondersoek het derhalwe 'n aanvang geneem met 'n volledige ondersoek na waar springstof vandaan gekom het, aangesien dit 'n belangrike rol gespeel het in die latere ontwikkeling van mynboutegnieke en die gevolglike verandering in hoe mynbestuur dienslewering deur springstofmaatskappye benader. Uit die ondersoek het dit gevolg dat groot mynmaatskappye hulle al meer wend tot "een-kontrak-verskaffers". Daar word van hierdie verskaffers verwag om alle aksies rakende boorwerk, skietwerk en die vervoer van grondstowwe te bestuur. Die ondersoek het ook daarop gewys dat daar 'n oor-aanbod van ammoniak, 'n belangrike onderdeel in die vervaardiging van springstowwe, in Suid-Afrika bestaan. Die gesamentlike gevolg was dat marges in die springstofbedryf in Suid-Afrika onder druk is. Hierdie gevolg het die feit onderstreep dat baie noukeurig na kapitaal projekte gekyk moet word. Daar is bevind dat die vlak van klientediens grootliks die uitleg, grootte en aantal verafgelee aanlegte bepaal. Gevolglik is dit ook 'n baie groot kostedrywer. Hierdie genoemde koste, asook die kostes van die oprigting, aankoop van springstoftrokke en die "bedryfbaar-maak" van so 'n verafgelee aanleg, is belangrik in die sin dat dit deel uitmaak van die nodige vasstelling van die toekomstige aanvanklike kapitaaluitleg, asook die kontantvloei vir die berekening van die huidige nettowaarde en interne opbrengskoers van die beplande projek. 'n Groot deel van die bedryfskoste word verteenwoordig deur die vervoer van grondstowwe vanaf die vervaardigingsaanlegte tot by die verskeie verafgeleë aanlegte. Hierdie aksie is egter, in die Sasol Springstowwe-omgewing, die enigste skakel in die logistieke stelsel wat uit gekontrakteer is. Die ondersoek na hierdie "'uitsondering" het daarop gewys dat daar klaarblyklik geen rede gevind kon word waarom hierdie aksie uitgekontrakteer is nie en dat daar ook geen klaarblyklike rede bestaan waarom dit nie weer ingekontrakteer kan word nie. 'n Aanbeveling is gemaak dat 'n volledige ondersoek gelas word na 'n moontlike inkontraktering van die vervoer-aksie. In die proses om die toekomstige vloei van kontant te bepaal, is ondersoek ingestel na die inkomste wat gegenereer word deur die projek. Daar is gevind dat die ondersoek na inkomste in twee dele verdeel kan word, i.e. die eerste, die verlangde opbrengs, wat gekoppel is aan risiko, en die tweede die werklike verkoop van produkte. Verkopevolume (ton) en die meegaande prys per ton "kombineer" om verkope-inkomste uit te maak. Ten slotte word prys, per ton, gebruik om die vergelyking wat ondersoek is te balanseer. Hierdie prys word gebruik as die syfer wat gekwoteer word aan potensiele kliente. Hierdie vergelyking, asook die som totaal van die ondersoek, is gebruik as basis vir die daarstelling van 'n model of Excel-sigblad.

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