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LEGACY Iron Ore Ltd

GCSA Report Contemporary Management Accounting (200108) Sunday, 29 September 2013

Prepared by: Fred Nissan Gourav Kumar Melchor Cabilin Elias Raad

1735 8154 1744 7515 1751 4590 1577 3597

Executive Summary

This report investigates the mineral exploration industry with great emphasis on Legacy Iron Ore Ltd and suggested contemporary accounting tools to help it achieve its objectives and strategic plans……..

Table of Contents

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1.Introduction 1. Scope of Report This report is about analysing Legacy Iron Ore Ltd internal and external environments. It will also cover findings and recommend Critical success factors and the performance measures to enable Legacy to achieve its strategic goals and objectives.

2. Purpose The purpose is to enhance the information to management towards achieving its objectives and goals. It is also To make recommendations on how Legacy can achieve its objectives designing a balance score card from the objectives and performance measures. In addition, the recommendation will explain in details the contemporary accountings techniques used to make sure legacy is aligned with it is its Mission, Vision Statements and Strategic plans

3. Background Legacy Iron Ore is a vibrant Perth-based Australian exploration company, focussed on the development of iron ore, coal and gold deposits. With a mission to increase shareholder wealth through capital growth, Legacy Iron has a commitment to discovering viable mineral deposits and developing them into profitable mining operations. The company was listed on the ASX in Western Australia on 8 July 2008. Legacy now has the backing of major shareholder NMDC - India's largest iron ore producer with over US$4 billion in cash reserves (ASX 2012). The report begins with an explanation of the research process undertaken to establish the internal situation and external environment of Legacy Iron Ore Limited. Research finding are presented in a SWOT and PEST format, which is then analyse further to Legacy Iron Ore Ltd LCY

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determine the critical success factors (CSFs) and to establish specific objectives. These objectives will reinforce the Balance Scorecard (BSC) design and direct further research into a choice of contemporary techniques. The recommendations achieve through BSC and the implementation of the contemporary techniques will be highlighted and hopefully give the company direction in fulfilling its mission and vision (Langfield-Smith, Thorne & Hilton 2012)

2.Research and Investigation Process 1. Pest Analysis The outcome of PEST analysis is shown below and the further explanation is explained in the Appendices. Political

Economic

P1). Fiscal policies and Federal budgets (Trade & Investment 2013).

E1). The big fall in commodity prices causes lower profitability (News.com.au).

P2). Sustainable environment laws (DPI 2011).

E2). The fall in demand for mineral resources causes slowdown in production (Investec, 12 August 2013).

P3). Tax policies affecting Legacy Iron ore (Argus et al. 2010). P4). Improving exploration due to allowances from government.

E3). Weak share prices was the result of flat revenue in mining sector, the fall in commodity prices and decrease in profitability (ASX). E4). Australian resources has become less competitive due to strong Australian dollar (News.com.au).

Social S1). Environmental regulation to reduce pollution (Legacy Iron Ore report 2012).

Technological T1). the development of green/clean mining technologies. T2).

S2). Australian Mining Industry Framework (Minerals.org.au). S3). Reducing workplace hazards Legacy Iron Ore Ltd LCY

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(Legacy Iron Ore). ` S4). Following the policy of minerals council of Australia for the effective implementation of managing safety (Minerals.org.au).

2. SWOT Analysis The outcome of SWOT analysis is shown below and the full explanation is provided in the Appendices.

Strength ST1). High market demand from Asia (Proactive investors Australia 2013). ST2). Operating in a well position comparing to the rest of the world (Latimer 2012). ST3). Experienced Managers helping the company to manage the projects (Legacy LTD 2008).

Weakness W1). Raising fresh capital (ASX). W2). The Return of Investment may not be so soon (ASX). W3). Recent legislation has not been favourable. (Australian Mining). W4). Mining skills shortage poses a real challenge. (Australian Mining).

ST4). Solid results from drilling in Mt Bevan (RM research 2012). ST5). Quality of the coal exporting (Legacy, 2012).

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Opportunity O1). Joint venture partnering with Hawthorn resources ( Legacy iron ore.com.au).

Threats TH1). Greens party policy for taxes stating. TH2). Shortages of skilled labour.

O2). Opportunity to participate in the reenergised mining industry ( Legacy Iron Ore). O3). Potentially increasing exports at Esperance port (Proactive investors).

TH3). Price fluctuation determined by world supply and demand. TH4). Worsening financial crises. TH5). Lower world growth.

O4). Early cash flow from DSO operation (Legacy, 2012). O5). Low grinding and operating costs (Legacy, 2012).

3. Strategic Objectives Protect and enhance of long-term shareholders value

Complete and Sell their last phase projects to create revenues to offset previous loses against and distribute dividends from revenues. Increase their range of mineral exploration

Currently, Legacy is strong in Iron Ore exploration with a presence in Gold and Coal exploration. Their objective is to increase their range to cover Nickel, Manganese and Bauxite and double up their Gold exploration projects. Mine their own completed exploration projects

Selling completed project put an end to the high revenues expected from the mining of the mineral. The Strength of the Their financial backing of NDMC, help them achieve their objective to jointly venture into mining their own completed projected to have a full benefit and leverage on their effort in exploring the project sites. Expand their projects to cover all Australia Legacy has started expanding outside Western Australia by buying a $6m exploration sites in QLD (Business News 2012). Its objective is founded in South Australia, Victoria and New South Wealth. Increase exploration in rare and high potential minerals Legacy aims to increase its gold exploration from current 10% to 40% by end of 2015. New technological scanners and investments deep drilling equipment to be able to reach the gold reserves (Mining Australia 2013).

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3.Findings and Recommendations 1. Linkage of PEST and SWOT to Objectives and CSFs

CSF 1

Finan cial

CSF 2

CSF 3

CSF 4

Consum ers CSF 5

Legacy Iron Ore Ltd LCY

Cost efficiency and effectiveness:- Legacy has administered profit making experience to bring advance technology experience with effective cost-efficiency. Sales expansion and ability to earn profit:- Legacy is considered to be the one of the strongest mineral exploration company in Australia but the major problem Legacy is facing is relying heavily on other foreign countries for the purpose of funding. Legacy have to minimise taking debt, which will help in the success of the company. Liquidity:- Good cash flow management helps Legacy to go according to plans to test higher grade southern hematite section.

Sell it all and Start new one:- Legacy have to concentrate on the operation, that they are good on. Complete all final phase projects and buy new one . Customer satisfaction:-  Six tenements highly prospective for quality coking and thermal coal in the Mulgildie, Surat, etc,.

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ST 3

TH 5, TH 3

O4

ST2

ST5

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CSF 6

Internal Busines s Process es

Learni ng and Growt h

CSF 7

CSF 8

CSF 9

CSF 10

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Safety at work:- The most important matter at work place is to reduce workplace injuries. By having a proper HR management, the Legacy Iron ore will be able to create good image in appraising the safety and responsibility. Expenses cutback:- The new technology has not only reduces the operating and drilling expenses which were considered to be over expenses.

Education:- One of the key program of the legacy is to deliver development studies such as Energy, etc, to reduce over usage.

Retaining employees:Providing extra benefits and encouraging will help Legacy to retain existing experienced employee.

ST3

O5

TH2, W4, ST3

ST3

Corporate governance:Legacy's Corporate ethical code of conduct encouraged management and employees to comply with organisation's rules and regulation and this helps company to achieve its objective smoothly.

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The technological environments lead to expand their range of mineral exploration from 3 to 7 mineral which is linked to CSF 8 and 9. The Objective to Increase exploration in high potential minerals is linked to their opportunities to re-energise the Gold industry which has led to CSF2 and CSF3. Mining their completed projects has come about from the strength of the baking of NMDC. The extra funds and skills they enjoy from their largest shareholder will support their strategic move into mining while maintaining the exploration of other projects which is linked to CSF5 and CSF6

2. Critical Success Factors and performance measures CSF1 linked from first objective, is to complete their final phase projects to start paying dividends to increase their shareholders wealth. The lead measure of this objective is complete three projects in the next twelve months. The lag measure is number of completed projects. CSF2 and CSF3 are linked to increase in Rare and high potential minerals. CSF2 is to invest in new scanners using Helicopter PD in conjunction with the use of PLC and automation in Drilling, blasting and transportation (Mining Australia 2013). The lag measure for CSF2 number of PLCs installed, the Lead measure is complete drilling automation. CSF4 is linked to their objectives to expand their operation to cover all Australia. Lead measure is to have presence in every states, the lag measure is number of projects per state. CSF5 and CSF6 are linked to their objectives to mine their own completed projects. CSF5 Lead measure is to start mining as soon as projects completed. Measure is the time it takes to start mining from project completion date. CSF6 is to complete Mt Bevan project and start mining the project before end of 2014. CSF7 linked to increase shareholder wealth, to start paying dividends from completed and sold projects. Measure is amount of dividends paid per six months. CSF8 and CSF9 are linked to the objectives of increasing the range of mineral exploration from 3 main minerals to 7 minerals by mid-2015. Measures are number of training hours for their managers and employees in the new minerals detections and number of new scanners to search for new minerals. Legacy Iron Ore Ltd LCY

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3. Balanced Scorecard BSC Design and Strategy Map

(People Streme 2007) Just an example for now, still in progress.

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4. Explanation of BSC and Strategy Map

4.Contemporary Accounting Technique 1. Recommended Technique ABC Cost Allocation

2. Reason for Recommendation of Technique Various activities and very high overhead cost is the ideal situation for using the ABC costing system

3. Contemporary Accounting Technique

5.Conclusion

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6.Reference List Australian Institute of Geoscientists AIG 2009, Viewed 6 Sep 2013, http://smedg.org.au/Sym09Abs.pdf Australian Stock Exchange ASX, 2012, Viewed 15 Aug 2013, http://www.asx.com.au Business News, 2012, Viewed 7 Sep 2013 http://www.legacyiron.com.au/media/42976/wabn_qld_acquisitions.pdf Department of Environment regulation DER, 2012, Viewed 1 Sep 2013, http://www.der.wa.gov.au/your-environment/native-vegetation Department of Industry, Tourism and Resources DITR, 2013, Viewed 1 Sep 2013 http://www.ret.gov.au/resources/Documents/Minerals%20and%20Petroleum %20Exploration/Guide_for_%20Investors_9OnshoreLegislation.pdf Department of Natural resources and Mines DNRM 2012, Viewed 26 Aug 2013, http://mines.industry.qld.gov.au/assets/land-tenure-pdf/factsheet-mineral-exploration-laws -explained.pdf Langfield-Smith, K, Thorne & Hilton, R 2012, Management accounting, 6th edn, McGraw-Hill Australia. Legacy Iron Ore Ltd, 2012, Viewed 15 Aug 2013, ‘Letter from MD’ http://www.legacyiron.com.au/about-us/

Legacy Iron Ore Ltd, 2012a, Viewed 26 Aug-2013, http://www.legacyiron.com.au/media/50183/lcy12-043_annual_report_to_shar eholders_-_2012.pdf

Mining Australia, 2013, Viewed 15 Aug 2013, http://www.miningaustralia.com.au/features/top-10-minng-trends-for-2013 News.com.au, 2013, viewed 15 Aug 2013,http://www.news.com.au/money/federal-budget/budget-2013-carbon-tax -and-mining-tax-take-14bn-hit/story-fn84fgcm-1226642456680 People Streme, 2007, Viewed 7-Sep 2013, http://www.peoplestreme.com/strategy-mapping-alignment.shtml

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7.Appendices

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