Case study - banking client and mill investment.

Case Study Examples - Consulting Support.

The banker - financing capital investment

• Client: The client for this assignment was a London-based investment bank. The Bank represented a small syndicate of investors who were contemplating investment in a greenfield steel mill in Africa. The client had some previous metal sector experience and other syndicate members specialised in funding capital investment in several countries in ECOWAS and adjacent territories. The plan was for investment of up to $90m in debt and equity in a medium-size long product steel plant ['NewCo'] which would make rebar from locally sourced ferrous scrap.
  
  
• Issue: MCI were asked to address the market, technical and financial issues surrounding this investment. In particular, due diligence assessments had to be prepared of the current and future steel market, of competitor market share and potential NewCo sales volume, of the appropriate facility size and steelmaking technology to serve this market; and of the associated financial returns.
  
  
• Objective: The client's main objective was - through preparation of a financial model of the NewCo business - to ensure that the investment would have appropriate financial returns and show a relatively fast debt payback; and to make sure that all main project risks [especially on the downside] were well understood. It was important to the Bank that independent consultants were used - hence their choice of MCI.
  
  
• Focus: MCI's consulting team supplied market knowledge, competitor understanding, technical skills and financial modelling experience in the evaluation. We visited the proposed greenfield site to review land size and local transport infrastructure. We met with the local steel industry association to confirm market size and competitor issues; with Government (the Ministry of Steel) to confirm planning and permit issues; with customers to confirm steel size, grade and other purchase requirements; and with suppliers to confirm raw material availability.
  
  
• Deliverables: The final deliverables included a written 60 page report covering market, technical and financial issues with conclusions and recommendations; as well as a financial model showing P&L, balance sheet and cash flow projections [incl IRR, NPV analyses etc]. The financial section of the report included up- and down-side scenarios as well as a financial sensitivity analysis; and a commentary on risk management issues. One week after submission of these deliverables, MCI also presented the key findings to the banking syndicate in a slide presentation - with a 30 minute question and answer session.
  
  
• Contract: MCI typically undertake a project such as this based on a written proposal which is sent to the client prior to project commencement. The proposal describes the client's objectives, the project scope, the consulting methodology, the project team [with CVs], the professional fees, the expenses estimate (hotel costs, flights, rail travel etc), the project timing, the form of deliverables and the payment terms. The proposal is therefore an important document which gives much clarity concerning what the consultants plan to do, as well as how the work will be done, when and for what cost. Often, the proposal also lists our expectations of the client. Typically MCI's wish-list includes assistance with matters such as hotel reservations but often also involves guidance concerning tax or interest rate assumptions, local manpower costs etc. We are happy to sign an NDA if required - and if necessary, we can also supply a draft non-disclosure agreement to assist here.
  
  
• Experience: We have undertaken such projects in Europe, in the Middle East and in Africa with reference to flat, long or tubular steel products produced through the BOF, EAF or induction furnace steelmaking route.
  
  
• Other: On assignments such as this, we generally start with a review of existing project documentation [e.g. a concept study or a pre-feasibility study] but in many cases we do commence work with only a blank sheet of paper. Our technical experts do also from time to time suggest different technological solutions and / or variants to optimise capital cost outlays - but all such matters are always discussed with clients as the work proceeds.
  
  

See other case studies, such as the shareholder the sales manager or the viability assessment.

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