Business Model Santana Minerals Limited Assignment Sample

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Executive Summary

The following report is a reflection of the Santana Minerals Limited. The business model of the company was analysed and comprehended by making use of nine building blocks. These blocks can help in understanding the business canvas and provide a fast and comprehensive overview of the business model. The customer segment was discussed that comprises electrical appliances, dentistry, water filtration, medicinal uses, and solar panels. In addition to this, the key business partners and value propositions were also elaborated. Furthermore, the revenue generations and cash flow statement were discussed in the context of the given organisation.

Once the discussion on the business model was over, the report discussed the interrelationships of Santana and their effects on the business operation. In the later section, the changes in the business model along with some recommendations were enlisted. The recommendations are as follow:-

  • Research and Development (R&D) should be carried out across the company through internal and external vendors and partners and also by forming mergers and joint ventures.
  • Suppliers, stockholders, partners, and customers should collaborate to curb the risk factors and common issues.
  • Technological advancements should be brought in managing the operations. The firm should employ techniques, such as GPS, RFIDs, etc. to detect and avoid any catastrophes.
  • Technological advancements should be brought in managing the operations. The firm should employ techniques, such as GPS, RFIDs, etc. to detect and avoid any catastrophes.

1. Introduction

This report is on Santana Materials Limited and uses the data collected from ASX. The business aspects, model, financial and economic conditions, customer base, key values, objectives of the company will be analysed and elaborate in here. Furthermore, the revenue generations and cash flow statement will also be discussed in the context of the given organisation. The report will be discussing the interrelationships of Santana and their effects on the business operation along with the changes in the business model. It concluded with some recommendation in the business model.

2. Company’s Background

Santana Minerals Limited is a mining industry based in Mexico. It deals in the extraction of silver and gold. Currently, the company has its exploration site at Cuitaboca Project in Sinaloa state. This area is well-known for its large silver potential in the central and southern sectors. Later on, the company pursued the potential for high-grade gold in the northern part. The organisation is characterised by its strong mining culture and stable political dominion. With an efficient team management and highly advanced technical support, the Santana is the world's number 1 producer of silver. In addition to this, the company is enlisted on the Australian Securities Exchange (ASX).

3. Business Model

The Santana Minerals Limited is focusing on Latin America, especially in Mexico and Chile. The organisation has a right to earn with an interest of 80% in the Cuitaboca Silver-Gold project, whereas in Chile, it acquires 85% interest in Becker Gold project.

A. Building Block

There are nine building blocks to business canvas (Rytkönen & Nenonen, 2014). These provide a fast and comprehensive overview of the business model (see Appendix 1- SML Business Model Canvas).

i. Customer Segment

The company has contracts with a wide range of industries, such as electrical appliances, dentistry, water filtration, medicinal uses, solar panels, etc. In addition to this, the major section of the client base comprises the jewellery industry.

ii. Key Partners

Santana Minerals Limited has a unique ownership structure that affects both long and short-term performance. The SMI’s shareholders details are given below:

Institutional Ownership: These investors can transact in a huge amount that can affect the stock price for short-term. SMI has 2.30% institutional ownership.

Insider Ownership: This can have a negative effect on the organisation having a low PE ratio (underperforming). SMI has 35.48% insider ownership.  

General Public Ownership: SMI's 49.72% shares are held by the general public.

iii. Value Proposition

  • To promote responsible exploration and mining practices.
  • To partner with those mining and extraction operators that share common beliefs and values in responsible mining.
  • To take proactive initiatives evaluated and monitored to regularly improve our mining practices.

iv. Key Activities:

The key activities of Santana Minerals Limited are shown in the industry value chain.

(Figure 1: Industry Value Chain of Santana Minerals Limited)

(Source: Management Review Report, Santana Minerals Limited, 2016)

v. Channels

As already discussed that the company is holding the 80% and 85% interest by the right to earn in its two sites in Mexico and Chile, respectively. Its first-quarter earnings in 2018 from various channels as given in table 1.

Table 1: First Quarter Earnings of Santana Minerals Limited

Channels

Net Cash (in thousands)

Operating Activities

$308

Investing Activities

$42

Financing Activities

$1593

vi. Revenue Streams

The total cash flow from financing activities has increased from $1954946 in 2014 to $2044505 in 2017. In addition to this, the net income of the company has increased by nearly $350000 from 2014 to 2016 (See appendix 2). In addition to this, return on Assets (ttm) is -14.17% and return on Equity (ttm) is -17.43%.

vii. Cost Structure

The cost structure comprises depreciation, investing and financing activities, outstanding loan interest, etc. The stock price is 4.30 AUD.

(Figure 2: Stock price fluctuation of Santana Minerals Limited)

(Source: Yahoo Finance, 2018)

viii. Key Resources

A unique ownership structure with approximately 49% of ownership with the general public. Segmented customers and well-established communication system.

ix. Customer Relationships

The company has segmented its customer on grounds of varying needs and domain of expertise. To attend to their needs, it has classified the gold and silver into different grades (Wang and Feng, 2012).

B. Interrelationships

The Santana Minerals Limited is focusing on improving productivity by making use of the potentials of subsidiary industries. It is making the existing assets sweat. There are 20 shareholders in SMI with varying shareholding. In addition to this, the company can allow 100% foreign-owned subsidiary. The company owns 85% and 80% interest in Chile and Mexico extraction units respectively. Since both sites are located in the remote location, thus it requires special communication.

The communication system is operated and maintained by Optus Satellite. They have provided a wide range of digital solutions to keep the different departments and units of the mining industry in contact. The voice and data solutions assist in the coordination of groups across sites.

Primero Mining Corp providing technical solutions to Santana Minerals Limited are helping the organisation to promote innovating methods to perform mining operations. They help the company to establish a more comprehensive understanding of the equipment flow, optimising the material and resources.

The interrelationship between different subsidiaries has helped in shifting in the value capturing in the mining industry and potential safety outcomes (Ediger, et.al, 2015).

C. Critical Success Factors

 Being a responsible mining organisation, the company fully take care of Due Diligence Process (DDP) as directed by the investment principles. This is done before signing any agreement with other subsidiary businesses. The DDP comprises financial, technical, and economic analysis. In addition to this, an in-depth review of potential social, environmental, and governance (ESG) risks is done. By emphasising on ESG factors in the organisation's investment decisions, Santana Minerals Limited is managing risks and generating long-term sustainable values for every stakeholder. The company takes the whole responsibility for its decisions and actions, thereby promoting accountability for functional excellence. In addition to this, certain features of upfront capital, such as enhanced IRRs, controlled operations, non-delusiveness, and tailored structure help in contributing to the growth of the company.

D. Downside risks

For the top tier companies like Santana Minerals Limited that has a significant contribution in the mining sector, the operational efficiency and market price of the ore that they extract drive the share price (Ediger, et.al, 2015). Since the mining market is volatile, the organisation must emphasise on cash generation and preservation. Many a time, especially when there is a mining boom, cost increases up to 200%. As soon as the prices start falling down, the company should take sustainable cost reduction measures. In addition to this, it should extract more value from the limited existing resources to increase management capability. Another risk is limited capital access. This force the organisation to look for other alternatives to finance. In 2015, there was a major decline in getting a loan from banks. Another risk is productivity as the mining sector is struggling with in managing its productivity. The major issue is rising global criticism of mining activities as they harm the natural resources and local communities as well.

E. Business Model Changes

If Santana Minerals Limited wants to envision itself as an ideal mining firm and curb the present and future issues, then it should focus beyond the entire mining business. The ideal mining company should employ the brightest operations and accept the ideas from the external industries. For this purpose, it should shift its conventional business model. Currently, Santana sees its business operations as digging deep into the Earth in order to extract minerals from it. In addition to this, a strong emphasis is being given by the management to maximise the capacity and reduce cost at each stage of the supply chain.

It is suggested that the business model should be relationship and value-focused and should attend to customer demand. In the conventional model, the operations are locally focused and affected by geography, but the new model should have geography-independent operations. In addition to this, the supply chain should be optimised as an intrinsic process. According to the Argentina Mining Market Outlook to 2017, management should be lean and mean along with a streamlined structure. The company should have a centralised governance. Teams should collaborate and coordinate with other groups downstream and upstream in order to make the supply chain streamlined.

4. Conclusion

The given analysis report of Santana Materials Limited is based on the data collected from ASX. The business aspects, model, financial and economic conditions, customer base, key values, the objectives of the company was analysed and elaborate in here. Furthermore, the revenue generations and cash flow statement were discussed in the context of the given organisation. The report discussed the interrelationships of Santana and their effects on the business operation along with the changes in the business model. It concluded with some recommendation in the business model.

5. Recommendations

  • Research and Development (R&D) should be carried out across the company through internal and external vendors and partners and also by forming mergers and joint ventures.
  • Suppliers, stockholders, partners, and customers should collaborate to curb the risk factors and common issues.
  • Technological advancements should be brought in managing the operations. The firm should employ techniques, such as GPS, RFIDs, etc. to detect and avoid any catastrophes.
  • The company should employ advanced business analytics to formulate smarter plans.
  • Teams should collaborate and coordinate with other groups downstream and upstream in order to make the supply chain streamlined.

Appendix 1 – Santana Minerals Limited Business Model Canvas

Key Partners

· Optus Satellite

· Primero Mining Corp

Key Activities

· Prospect

· Explore

· Establish

Feasibility

· Mine & Move

· Extract

· Market & Sales

Value Proposition

To promote responsible exploration and mining practices.

To partner with those mining and extraction operators that share common beliefs and values in responsible mining.

Customer Relationships

· Direct Meetings

· Mails

Customer Segments

electrical appliances, dentistry, water filtration, medicinal uses, solar panels

Key Resources

Well-established Communication system

Channels

Operating Activities

Investing Activities

Financing Activities

Cost Structure

Operating Cash Flow (ttm) -831.25k AUD

Levered Free Cash Flow (ttm) -2.35M AUD

Revenue Streams

Return on Assets (ttm) is -14.17%

Return on Equity (ttm) is -17.43%.

Appendix 2- Santana Minerals Limited Income Statement

All Numbers in Thousand

 

2017

2016

2015

2014

Operating Expenses

       

Selling General and Administrative

948.421

934.264

858.342

1188.71

Total Operating Expenses

4950.377

1386.715

9009.015

4536.102

Operating Income or Loss

-4950.377

-1386.715

-9009.015

-4536.102

Income from Continuing Operations

       

Total Other Income/Expenses Net

285.244

-1,185.852

-205.396

-146.216

Earnings Before Interest and Taxes

4,950.377

-1,386.715

-9,009.015

-4,536.102

Income Before Tax

-4,665.133

-2,572.567

-9,214.411

-4,682.318

Income Tax Expense

-

-53

-334

387

Net Income From Continuing Ops

-4,665.133

-2,519.567

-8,880.411

-5,069.318

Net Income

       

Net Income

-4,665.133

-2,519.567

-8,880.411

-5,074.687

Net Income Applicable To Common Shares

-4,665.133

-2,519.567

-8,880.411

-5,074.687

Source: ASX

Appendix 3- Santana Minerals Limited Balance Sheet

 

2017

2016

2015

2014

Current Assets

       

Cash And Cash Equivalents

1,215.933

1,321.357

530.006

1,192.233

Net Receivables

93.046

47.95

21.235

13.371

Total Current Assets

1,387.193

1,438.055

616.274

1,255.344

Long-Term Investments

-

96.375

1,243.867

2,040

Property Plant and Equipment

3,503.963

5,740.393

6,027.935

11,588.694

Other Assets

-

-

100.745

475.815

Total Assets

4,891.156

7,274.823

7,988.821

15,359.853

Current Liabilities

       

Accounts Payable

172.416

464.664

146.592

176.226

Total Current Liabilities

200.114

852.58

156.592

180.996

Other Liabilities

-

-

53

387

Total Liabilities

200.114

852.58

209.592

567.996

Stockholders' Equity

       

Common Stock

25,428.387

22,891.133

21,897.205

20,010.005

Retained Earnings

-20,912.545

-16,422.912

-14,115.72

-5,235.309

Treasury Stock

175.2

-45.978

-2.256

17.161

Other Stockholder Equity

175.2

-45.978

-2.256

17.161

Total Stockholder Equity

4,691.042

6,422.243

7,779.229

14,791.857

Net Tangible Assets

4,691.042

6,422.243

7,779.229

14,791.857

Source: ASX

References

  • Argentina Mining Market Outlook to 2017 - Silver Mining Market to Foster the Future Growth. (Industry overview). (2013, October 01). M2 Communications, p. M2 Communications, Oct 1, 2013.
  • Avanti Mining Inc. Updates Kitsault Resource Statement and By-Product Silver Metallurgical Results. (2012, April 30).  Marketwire, p. Marketwire, Apr 30, 2012.
  • Ediger, V., Berk, I., & Ersoy, M. (2015). An assessment of mining efficiency in Turkish lignite industry.  Resources Policy,45, 44.
  • Global Mining Equipment Industry Report 2014. (2014, September 19).  PR Newswire, p. 19
  • McEwen Mining Q2 2014 Financial & Operating Results. (2014, August 07).  Marketwired, p. Marketwired, Aug 7, 2014.
  • Miranda, Brandão, & Lazo Lazo. (2017). A dynamic model for valuing flexible mining exploration projects under uncertainty.  Resources Policy,52, 393-404.
  • Rytkönen, E., & Nenonen, S. (2014). The Business Model Canvas in university campus management.  Intelligent Buildings International,6(3), 138-154.
  • Wang, Y., & Feng, H. (2012). Customer relationship management capabilities.  Management Decision,50(1), 115-129.
  • Yahoo Finance. (2018). Santana Minerals Limited (SMI.AX). Retrieved 08 01, 2018, from Yahoo Finance: https://finance.yahoo.com/quote/SMI.AX/key-statistics?p=SMI.AX.
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