WCM: Report on the Risks of the Proposed Kango Joint Venture with ATZ

Executive Summary 

The New Business  department has been asked by the Board to report on the main risks of the
proposed joint venture with ATZ and to recommend  whether it should proceed. 
In summary, we have concluded that even though the situation on the African continent could
be challenging, and given that some conditions are met, we should proceed with the venture. It
could lead us into a very important revenue and the access point to other mining projects in the
region.

Introduction
This report will consider the 5 main risks involved in the project, discuss the damage potential of
each risk, and the degree to which it can be avoided or managed.

Findings

1. The exploration risk - uncertainty about the extent mineral deposits

Various sites near Kango have produced good quantities of copper and basalt. Also previously
there have been extracted large quantities of precious metal coltan and there were found
diamond deposits. At the same time while the sites have potential, there is no guarantee the
deposits will be profitable.
According to our experience, this is an unavoidable risk in all mining operations, so we should
take it and rely on the geologists' reports. Otherwise we will miss the profit and repeat the
Kazakhstan case.
As a recommendation for minimizing the exploitation risk we propose to implement a small
project in Africa where WCM would be able to analyze the market and products gained earlier
by the other companies. 

2. The security risk - instability in the region is a major threat and must be treated
Firstly, there have been plenty of examples regarding civil unrest and disturbances in the region
lately. As a consequence, many marched in the streets in protest to release the rebel leader,
who is currently in jail, and it is safe to assume that there is a sligh chance of finding ourselves
in a civil war. Although the political and social situation in the region is not our concern, and
should be further explored by competent authorities and international organizations, it poses a
major threat to WCM operations and could hinder the effectiveness of the joint venture. What
WCM must demand in order for the joint venture to be successful is diplomatic protection and
constant monitoring and help from local authorities. We cannot take a risk as big as the life of
one of our employees, so all employees must be securely transported to the mining sites and
gangs of robbers must be faced to avoid contact with WCM. In case local authorities are not
competent enough to carry out these duties, the joint venture should not take place.

3. The health risk - The exploitation could lead into some health issues to local population
As the regular outcome of the mining industry and its emissions, workers and inhabitants could
suffer from skin diseases. Moreover, there are problems related to the access of drinkable water
and clean soils to cultivate. We need to carefully consider every possible effect. If the workers
and nearby population get ill, or are unable to carry on their regular activities, our operations
could be affected. A mitigation of this problem could be to give the workers and nearby
population annual health care insurance to regularly monitor their health and give the holders
more confidence about our well-being intentions to them, and in these ways to prevent major
and/or massive later demands.

4. The economic risk- Highly risky as we have to find some alternatives by studying the
economy. But we prefer to move forward.

It is considered to be high risk, as there exists a political instability, along with other problems
that would also be taken into consideration. There is a decreasing trend in stock market prices
of mining companies. Moreover, due to the volatile state of the industrial market, we consider
this falls between the range from high risk  to very high risk. Slowdowns in the Chinese
economy may also contribute to the economic risk as they handle a tremendous volume of
business in the world. Even if these kinds of problems exist, it is necessary to draw attention to
the increased demand for bauxite and cobalt. So we would emphasise our interest on this point
after analysing the economy by a team of experienced economists. We are ready to embark on
a new relationship with the Government of Kango, and thereby with local authorities, which may
reduce the risks of local problems that may arise during the commencement of mining activities.
We are ready to move with mutual concern in order to establish a harmonious environment for
both parties as well as introduce benefits to the local people like investment in the education
and healthcare sector.

5. The financial risk - high costs required

In analysis we can see that at a financial level, it would be necessary for large sums of money
to cover the costs of extraction of the site. First of all with regard to the dutiful purchase of new
and expensive machinery which the company is currently not equipped to exploit the site in
question. Secondly, another important point of the financial question is the fact that transport
services within the country are neither safe nor reliable. This would mean that we would have to
solve the problem ourselves, thereby considerably increasing extraction costs. In the last resort,
even if they were manageable costs, there are the continuous fluctuations in the exchange rate
of the local currency that worsen an already large financial risk. The company will therefore
have to borrow money, as well as use the proceeds of the offer of shares to finance the project.

Recommendations

Taking all the risks into consideration, the Board of directors recommends to continue
negotiations with ATZ and sign the joint venture. But the project should proceed provided that
all recommendations are taken into consideration, in order to minimize and prevent the risks.
Regarding the risk of exploitation, we propose to implement a small project in Africa where
WCM would be able to analyze the market and products gained earlier by the other companies.
Additionally, we also demand diplomatic protection, constant monitoring and help from local
authorities in order to monitor the security risk that represents a major threat. One thing that
could be done to avoid the health risk is to give the workers and nearby population annual
health care insurance to regularly monitor their health, as well as give the holders more
confidence about our well-being intentions to them. Concerning the economic risk, our best
solution would be to appoint a team of economists who could analyse the scenario and find
appropriate solutions to mitigate the risk of the situation. Finally, regarding the financial part,
high costs are required so it is necessary to borrow a large amount of money, either from
governmental authorities or associations.