Analysis of New Dawn Drilling Company

Analysis of New Dawn Drilling Company New Dawn Drilling (NDD) is a company focused on identifying, acquiring and exploring gold and platinum deposits. It is also a major player in underground drilling operations on South African land. The company currently has its operation spread over 6 towns in South Africa. This report is produced by carrying out investigative business analysis on NDD and its external environment to determine company position and ability to survive in the competitive mining sector of SA. The analysis will help in developing a long term strategic plan to improve the business of the NDD Company. The good reputation that NDD has developed in the market is used to develop a business strategy to make it a brand for drilling operations and developing a niche market for its drilling operations. The role of an information system in a business and how it can be used to coordinate the paper work, development process and efficient working of the regional offices is evaluated. Use case, activity and class diagrams are techniques used for modeling the information system. The assumptions made can be used to interpret the system in a number of different ways. 1.1 Introduction to Strategic Analysis tools NDD can use several TPI can use several analysis techniques to discover the potency of its business model, while examining the attributes of the business environment in which it operates. The techniques discussed below include SWOT, PESTEL and Porters Five Forces. SWOT (Strengths, weaknesses, opportunities, threats) analysis SWOT analysis is a business tool used to evaluate the companys position in the market and its ability to survive. It helps to predict the capability of the organization. The strengths and weaknesses deal with the internal facts and factors of the business. The opportunities and threats deal with the external factors of the organization. Exploiting the right opportunity and safeguarding against the analyzed threats can set a company apart from their competition. PEST analysis (Political, Economic, Socio-Cultural, and Technological) The PESTEL analyses are used to scan the external environment. The Pestle analysis factors are out of the businesses control as they are always subject to change. Still, they have a significant affect they have on companys performance. They help the businesses to take a pro-active approach and be ahead of these changes instead of hastily changing the products and processes. (Robert Mark Brown) Porters Five forces Porters 5 Forces can be best described by the following figure: Fig: Schematic diagram of Porters 5 forces. (Robert Mark Brown) They are used determine the, expected level of competitive intensity (Grà ¼nig and Kà ¼hn, 2008, chap 11.1). They analysis help to detect which are the dominant forces which can control the business. Using Porters five forces concurrently with SWOT analysis will add more depth to the analysis (Mind tools, 2010) 1.2 PESTle Analysis: PESTLE Analysis factors How does it affect NDD Potential Impact: Importance Political: 1.There is an increasing black unionism which has caused a significant change in South African politics leading to reforms in legislation. 2. The Government has employed policy reforms which allow foreign direct investment in Africa resulting in transfer of new technologies for exploration and drilling services, skills and production methods for efficient use of the mineral resource. 3. The government has introduced ABET (Adult basic education and Training) to improve the skills and literacy of the people. 4.The Management of Health and Safety at Work Regulations (1999) is been continuously updated by implementing more stringent rules making it more difficult for companies to adhere to them. (Rapidbi,2010) Employees of NDD are benefitted. NDD can contact foreign companies for partnerships. More skilled labour to hire from. Additional costs might have to be incurred Medium Medium Low High Important Critical Unknown Critical Economic 1. South Africa is in a recession leading to low long term interest rates. The economic crisis had led to reduced tariff, taxes and fiscal deficit. 2. The production of many big mining companies was halted due to accidents on site owing to reduced activity on the mining front. The gold and other prices also dropped owing to reduced growth. 3.Global recession has weakened the rand has led to South Africa becoming a competitive place to perform drilling operations for mining industry.(Robert Mark Brown) 4.The mining employers are investing and spending less as the banks have reduced the lending tightened their budgets because banks are controlling lending more strictly. 5. Presently, the drilling, exploration and any mining company for that matter has been faced to spend the 5 to 10% of their payroll in the skill and development programmes required for their perspective operations.(Rapidbi.,2010) Capital crunch Less Business to do. Increased rivalry Cant borrow Money for expansion. Reduced profits High High High Medium Medium Important Unknown Critical Important Important Socio-cultural 1.South African mining sector has lower levels of skilled employees than other sectors in the economy. But still they have strong mining culture which helps them produce new ideas. 2. South Africa has a large presence of HIV/Aids epidemic and is high amongst young SA population. The mining sector is the deeply hit industry as the labor required by them is mostly young as the work required is physically taxing and dangerous. 3.NDD has to keep in mind that when they expand their business locally or internationally they have to consider the local preferred way of living and doing things. 4.South Africa has growing ethnic, cultural and gender diversity leading to new opportunities as well as challenges.(Rapidbi,2010) Labour with Strong mining background. Deal with discrimination which is bound to happen. Carrying out extensive research of demographic where they enter. Management Challenges Medium High High Medium Important Critical Important Critical Technological 1. Alternative cheaper and inexpensive sample retrieval techniques other than diamond drilling can be used ex.RVC Drilling 2. The implementation of information systems to the mining companies has helped them to mine site production reporting and accounting. It also helps them to calculate their raw material requirements and helps in creating wok purchase orders. 3. South Africa has a huge science base invested in improving Mining operations. They are continuously pushing the boundaries to automate most of the processes involved. It would help the companies to reduce labor cost. 4. The lack of investment in Research and innovation in the Mining sector has generally contributed to lower levels of operational productivity compared to its strong global competitors like China and Australia.(Robert Mark Brown) Considerably reduce operation costs. Help manage Paper work efficiently. This can help reduce the labour costs Due to this NDD cannot compete with the inter-national local big players High High High Medium Critical Important Unknown Unknown 1.3 Porters Five Forces: Threat of New Entry It is unlikely that there is a threat of new entry as the capital required to set up a business similar to NDD is quite high. This can only be afforded by companies with huge balance sheets and strong set of contacts. The industry is highly regulated which makes it difficult to enter. Few, but not all, exploration and drilling companies have established co-operation with mining companies to remain in business and these contracts are not easily awarded Competitive Rivalry: There are 25 local competitors of which few have thrice the turnover of NDD. This shows that NDD is a small/medium player in a saturated market. As the South African rand has weakened the mining operation have been slowed down resulting in increased competition to land the existing few projects. and will not be able to benefit from the economies of scale of the larger mining sector. Some local rivals have partnerships and acquisitions with the larger mining groups based locally or internationally. The companies cannot win the contracts by keeping their prices low as the cost of materials is going to increase due to recession. Bargaining power of Buyer: The negotiation strength of the customers is high because, for example, a gold mining company will try to merge with its larger counterpart involved in gold, diamond, platinum, etc and this may offer us to have a larger share of the market. Though switching from one buyer to another is difficult NDD can be able to exercise its market power. Threat of Substitution The threat of substitution is a harsh reality NDD has to face. But the organizations out there which might perform operations similar to that of NDD are substantial but limited. There are no new companies entering so the threat of substitution tends to be low. Bargaining power of Supplier: The bargaining power of the supplier will be high. Drilling operations are going to remain consistent and they are going to need materials from suppliers. Due to the current economic conditions it has lead to prices rise and inflation which have made prices of the commodities required a bit unaffordable (oils, grease).This has threatened the supply-chain relationship. 1.4 SWOT Analysis (Intelligence Phase) Strengths 1. NDD is a company targeting copper, gold and platinum metal ores in Orkney, Randoftein, etc which the rich mineral belts of South Africa are. 2. It has a consistent underground drilling business which will continue to be as the companies are obliged to carry out core sampling for safety reasons. (New Dawn Drilling, 2010) 3. Their management team is good competent, experienced and have set of technical expertise. (New Dawn Drilling, 2010) 4. Surface exploration lends itself well to a high degree of automation which can help reduce labor cost and improve production rates. 5. South Africa is a low risk sovereign country.NDD has focused its exploration and drilling operations only in South Africa which is justified by the past economic global events. 6. Amalgamation of the orders at the central offices enables the company to buy at cheaper rates from suppliers. (New Dawn Drilling, 2010) Weaknesses 1 The exploration business is extremely sensitive so it requires a strategic business plan to survive and flourish.NDD does not have any sort of plan if they were going to lose a significant amount of business. 2. In the current situation, NDD cannot track whether excessive replacements of parts are taking place at certain project sites. 3. NDD has poor communication channels. The absence of centralized management system restricts the main office from accessing information in real time. They have to wait for the regional sites to compile the information and mail it to them. 4. NDD is dependent entirely on its underground drilling operations for profit as surface drilling business is merely making a profit. 5. NDD has not yet ventured into the mining sectors internationally. (Helix Resources Limited, 2010) Opportunities 1. South Africa has been long involved in mining and it has a promising geological setting for other minerals. They can start applying for projects which include exploring and drilling for minerals like nickel, Rare earth elements (Rees), etc. 2. To enter into international markets preferably starting from the African neighbors. 3. The current shortage of high quality deposits has caused a huge market interest in new exploration activities. This can be a great opportunity to rope in a few extra projects from companies. 4. Opportunity to merge with other companies in the mining industry, to benefit from shared knowledge, economies of scale and offer more services like competitors. 5. NDDs major chances of success lie in proving a reserve. This can be achieved by implementing latest or alternate drilling and exploration techniques. 7. NDD can use farm-in-opportunities in regions which they think have potential for copper, gold or any other mineral. 8. A new employee shift system can be implanted to ensure drilling operations at non- peak times. (New Dawn Drilling, 2010) Threats 1. Exploration is inherently a risky business as it is very difficult to predict and only handful of exploration operations turn into production. 2. Regulatory risk- If any changes happen to the health and safety rules or environmental laws and regulations, it would result in company bearing additional costs. 3. Challenges from local and foreign companies performing the similar services are high. 4. Over reliance on technology The PCs at the project sites will be linked to the server at Johannesburg for access to the application software and database. So if the system is down it can bring the working of the business to halt. It is critical that the servers are running for the activity based costing system to function efficiently since the business is based in two geographical locations. (New Dawn Drilling, 2010) 1.5 Conclusion of the strategic analysis techniques The strategic analysis from the SWOT, PEST and Porters five forces indicate that the strengths of the company are outweighed by its weaknesses and threats. The business which the company is operating is very sensitive and strategic analysis of NDD helps us to conclude that the existing business policy will not help it to survive in the long term. The opportunities presented to NDD through the SWOT analysis suggest how the business could target a specific segment in the market, rather than the mass market which is saturated as overseas manufacturers enter the industry in the UK. A major strength of NDD is the reputation and a small but strong foothold in the gold and platinum ore bodies of mining industry. This opportunity can be exploited to the fullest by branding itself and using a the existing projects as a leeway to obtain new projects in the other mineral ore bodies like nickel or even the rare earth metals (REEs).NDD has a good working relationship with its mining employers and it is possible that the company can use this strength to carry out Research Development to implement new and latest drilling and exploration technologies. This might also help in finding and serving a gap in the current drilling services provided by the companies if it exists. (Helix Resources Limited, 2010)(Fin Metal Mining Ltd, 2010) The greatest weakness of NDD is a fact that it is a small player in a competitive South African mining industry dominated by larger organizations and also will not be able to compete on cost with their Asian counterparts.NDD needs to implement a management information system and streamline its operations so that it can track the cost of drilling, keep a record of excessive replacement of costly parts and identify operations where costs are exceeding the income. The Management information system being implemented in the form of an activity based costing system can help to carry out the price fixing exercise with the mining companies. 1.6 Five year Business plan: The draft of the five year business plan for NDD is developed on the basis of the conclusion of the strategic analysis of NDD using PESTEL, Porters Five Forces and SWOT. In the current situation NDD does not have any Strategic plan and their business is hugely sensitive depending upon the local and global market events. If NDD were to lose their current share of business they would have no way forward. Therefore, NDD needs to weigh its options locally as well as internationally as there are other countries too those are involved in mining. Branding, though quite rarely used in mining industry it is becoming an upcoming trend for companies to differentiate themselves from their rivals. They can concentrate on a particular market; make changes to their employee work pattern and their business plan for the future 1.6.1 SWOT-Design Phase: Weaknesses 1. They dont have a system in place to estimate correct contract rates. Even if slight changes occur in the contract rates they seriously impact the income stream. 2. NDD is relatively a small/medium player with a turnover of up to 20 million dollars. NDD cannot have the same level of resources that are available to their big competitors Strengths They can keep focusing on gold as it is a flourishing business. 2. The company has a healthy pipeline of projects in hand with in minerals ranging from gold, copper and platinum spread over six geographically different areas. 3. The annual price fixing of the contract enables the company to assess its variable costs in relation to the existing economic conditions. Opportunities NDD can brand itself for operations they are currently performing. They can implement Management information system to track materials and calculate contract pricing. They can enter the stock market making the private business public. . A new employee shift system can be implanted to ensure drilling operations at non- peak times. Threats 1. Economic Factors: interest rates, political decisions, inflation al affect the mining industry very badly. 2. Lack of Skilled workers Although the number of people entering the mining sector is high in SA, many lack the specialist skills required to carry out specific operations. 1.6.2 Using Branding as Business Strategy: NDD already has a reputed name as it is involved in projects spread over six geographically different towns in SA. This means that company can use some form of marketing strategies to establish itself as a brand in the services and operations they are performing. For branding NDD needs to consider two basic strategies. The first is to be different from the others and stress on the distinctive feature that NDD offers when it is employed by the organization. Every employer is willing to consider something different which is profitable for them. This can be a different work roster or an innovative system to perform operations required. The second will be to put through the NDDs vision, values and culture. While doing this if we stumble upon that a certain aspect of the company is not worth publicizing then we can always focus on the strengths we have derived from the SWOT analysis. This is a long term solution which will make the Company competitive as it will take some time for mining employers to develop confidence in them. Also, an important advantage is the fact that the amount of resources required for branding an organization go on decreasing with time as more and more Companies start noticing. (Helix Resources Limited,2010)( Fin Metal Min ing Ltd,2010) 1.6.3 Targeting a Niche Sector in Mining Sector; NDD is currently working on 9 shafts related to gold. This can use as an advantage by NDD by targeting all the gold shaft related projects. Most of the companies are focused on platinum markets which can help NDD reduce some of the perceived threats to its business by targeting the gold market. The mining sector is becoming increasingly competitive and there any many big multi-nationals out there ready to put small/medium industries out of business.NDD can use the contacts from the existing gold mining employers to farther there ambition. They can even enter into partnerships with their current employers and sign future gold shaft contracts and ensuring a stability of income to their business. Due to NDDs previous and present track record the companies might consider entering into partnership. Even though there have been global recession, the gold production and mining hasnt been affected badly. They can also venture into international markets for gold related projects. They can star t with applying for contracts in Zimbabwe and Tanzania which are also rich for gold deposits and less competitive than South Africa.NDD compared to other companies in these countries can be termed as Medium/Big player which help give them an advantage. The labor and operating costs will also be low compared to SA. Thus targeting gold related operations can prove to be a huge safety net in these uncertain times. Though it cant be neglected that the Pestle analysis are going to dictate the income and pricing for the contracts. (Fin Metal Mining Ltd. 2010) (Otjihase and Matchless Mines). 1.6.4 Operating Strategic plan For NDD: NDD can focus their existing strategy on the finding out near surface targets for gold (niche) or the other two minerals they are operating. This will allow them to perform underground drilling operations on surfaces which are suitable for open cut mining operations. This focus on areas which have a rich history for previous success, for example, targeting projects in areas of Kimberley Reef group will keep the income cash flow constant in these current economic conditions. (Otjihase and Matchless Mines). NDD can also enter into drilling projects for minerals other than gold, platinum, copper .NDD can try uranium, nickel or the Rare earth elements (Rees).For uranium they can focus on exploring areas like Gauteng in Witwatersrand basin which are rich in content ensuring underground drilling operations to be performed on them for the mining employers to start their mining production. Similarly for Nickel which is even easier as Phalborawa where they are currently operating are rich in Nickel deposits. They can acquire projects related to them as they are already well-known in that area. They can NDD can prioritize their accepting of surface exploration projects in the following sequence: In areas requiring near surface exploration with mineralization targets not more than 70 m below which are extremely high potential for Mining operations. Targeting areas which have a mining history Areas which have not been mined previously but seem to have potential for underground mining They can also undertake projects from companies which require refurbishment for their shafts. The refurbishment for the shafts will include an underground drill program to take rock sample from the shafts and perform tests on them. This will allow the mining companies to help estimate the amount of mineralization left in the foots or hanging walls of these shafts. These contracts will not require any new technologies and investment from NDD as it is already doing it for its current employers in some way. This can be a way to expand their business. (Exploration Strategy, 2010) (Otjihase and Matchless Mines). 1.6.5 Alternative operating technique: NDD can also try out a different operating strategy for underground Drilling. At present, Diamond drilling is used for retrieving core samples which is expensive and time consuming. Instead of this, NDD can implement RVC drilling which give small rock samples instead of a solid core which are easier to look under microscope. Figure: Rvc Drilliing (Delta Mine training center, 2010) RVC drilling requires a bit larger equipment but it has high rate of penetration and low cost per foot. This makes it faster and inexpensive than diamond drilling. This can help NDD reduce its operational costs. (Trevor Fletcher) (Otjihase and Matchless Mines). 1.6.6 Going Public: The other strategy NDD can adopt is making the private company go public. This will help it enter the South African stock exchange where people can buy NDDs Shares. This will also automatically serve as a purpose of branding as it will help the company get noticed. This will also help them to get international recognizition.They can enter into partnerships with the foreign companies which are looking to invest in Africa due to new FDI Policy implemented by South African government. This can serve as an opportunity for NDD to get projects locally as well as internationally. 1.6.7 Employee shift system: At present the company operations on site are carried out 7 days a week and 3 x 8 hour shift basis. This can be replaced by be 2 x 10 hour shift on a continuous basis. Often the drill started on one shift ends on anothers shift. This can sometimes cause delays. New shifts will minimize these chances and also save time. The overtime will be calculated above the set 10 hours reducing the costs incurred by the company. This will also help in decreasing the non-productive hours. (Shift Schedules, 2010) (Otjihase and Matchless Mines) 1.6.7 Role of the director managing the future: NDD cannot change its operating strategies overnight. It will require a step-by-step process form the management personality (1 director) which is experienced and has a proven field experience. He will also play a major role in evaluating pricing for tenders, contracts and acquiring the projects. The employees are going to face a lot of social difficulties while trying to operate with new information systems at offices and also new operating techniques on site. Therefore, the management has to solve the problems on site or the glitches in the information systems by appointing people for that purposes. Later, when the plans work he has to dedicate funds for their maintenance and continuous improvements. He will have to combine the top officials from NDDs regional offices and work together for better future of the company. 1.6.8 Legal Factors to be considered: The stringent health and safety rules mean that NDD will face legal challenges to make sure the company and staff have been vetted by the government and have obtained a level of safety clearance deemed fit to carry out its drilling operations.. The company must follow The Management of Health and Safety at Work Regulations (1999)which stated that the work equipment should comply with the strict and complex safety control procedures necessary for mine related operations. They must also have evacuation methods in place in case a catastrophe occurs. The business of the NDD is susceptible to a number of risks and hazards which involve labor disputes, on-site accidents, unforeseen geological and environmental conditions, cave-ins or even earthquakes for that matter. This can cause damage to the company equipments, properties or even death of the employees which can get the company into a legal mess. Therefore, NDD must have an insurance policy to cover itself if these calamities were to o ccur.. Companies providing insurances for mining industry generally at high premium costs. Losses from these events might be difficult to recover from for NDD so they need to have them even though it is not on their terms. Chapter 2 2 a) Use case Diagram: 2 b) Class Diagram: Class Diagrams: Activity Diagram: 2 c) Activity Diagram: 2 d) Architecture of the Information System: The Johannesburg office has a server and 2 computers which are connected using a switch. This switch is used to create 2 subnets of which one contains the server while the other contains 2 pcs. This will assist in management and maintenance of the information systems and also help in future expansion. The switch is connected to the router which is in turn connected to the internet through a firewall. This firewall will protect the internal network and also handle the VPN connections from the regional offices.The regional offices will use local internet providers to connect to the internet. This will be much cheaper and flexible than having private dedicated lines from the regional offices to the main office. Network connections: An Ethernet cable is used to connection between the PCs and the router and the router and the server is carried out using an Ethernet cable. All pc at the regional offices will have internet connection so that they are connected to the server in Johannesburg. As a security measure firewall will be placed between the internet connection and the server. Barcode readers will be made mobile by connecting them to the pc using a wireless connection.. Virtual private networks (VPN) will be used over the network connection for the pcs to communicate with the server in Johannesburg (Beynon-Davies) Software required Windows NT is used as the operating system and server software. The software will have applications such as purchasing, word processing, activity based costing system, and stock control .The pcs at regional offices will have installed the windows operating system and must log in to the server to use the applications. Pcs will be equipped with software linked to the server for barcode reading procedures. (Beynon-Davies) Security A firewall is in place to stop any unauthorized access. There is log in system available on each pc to restrict it to only employees of the company.VPNs are used by the regional offices to connect to the Johannesburg server over any other unsecured network connection. (Beynon-Davies) Chapter 3 Conclusion The report gives a wide perspective by carrying out analysis of NDD and how developing and implementing a strategic business plan can help the NDDs business to survive and grow in a competitive environment. It is extremely vital to understand that decisions made using the strategic analysis techniques are based on assumptions for, e.g. will the investment be made by the company venture into international markets, or will they invest in the equipments necessary for exploring minerals ore bodies other than gold, copper and platinum, train its employees for this purpose and also finding and providing drilling services which are yet not out there in the maket.NDD must also be willing to spend to buy new automated drilling machines if they are available or invest in automating their existing machines NDD must understand that the analysis techniques have their limitations and realize that committing itself to sudden change by undertaking projects for different minerals or REEs might be risky, although the risk can be well afforded as it is likely that if the business continues to function as it is of now it would be pushed out of the mining sector by local and overseas competitors entering the South African mining industry. Moving into exploring and drilling for other mineral ores such as nickel,REEs,etc or expanding into foreign markets can have their share of threats as it is likely that there are specific companies who will have built a great deal of experience in the field and have long term strategic contracts with their customers. New players like NDD, may be ignored by customers in the international or local untried mineral markets because they may be perceived to not have the necessary skills to serve the industry