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Due Diligence. Project to create a metallurgical plant

Situation

  • A bank required an independent assessment of the risks associated with financing a project to create a metallurgical plant

Goal

  • Independently assess the business plan
  • If needed, to correct the plan’s assumptions and forecasts
  • To provide recommendations to improve the strategy and minimize risks

Our approach

  • Evaluated the target market, the competitiveness of plans, costs, prices, the profitability of operations, investment, and the needed infrastructure
  • To assess market capacity, taking into account the introduction of new offerings from competitors, the availability of raw materials, and possible price increases. Correct pricing policies
  • To improve the calculation methodology for financial indicators in the financial model
  • The metals market is consolidated and controlled by four major players. Identified that in the future, competition will intensify only via the commissioning of new facilities and decreasing the potential market for independent players
  • Prices: the most important factor for consumers: competitors are looking at improving operational efficiency and also transport logistics; thus the importance of focusing on the local market with a small effective delivery radius was identified
  • The relationship between prices and the final product (fixtures) and the cost of raw materials (metals) was identified. Price rises for raw materials will increase the cost of fixtures. Priceswerethus adjustedupwards
  • As metal is a key raw material though has only unstable access, the necessity of obtaining and developing the company’s own access to raw materials was highlighted
  • The proposed factory was of limited power, thus a step-by-step approach was suggested, starting with the launch of renting and buying billets. The second stage in implementing the project was to secure the raw materials and launch smelting operations

Results

  • The majority of the banks questions were answered
  • Financing was granted by the bank

 

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