An Economic Evaluation of the Loye Quarry of Atiwa Quarries Limited

Abstract

Atiwa Quarries Limited (AQL) is one of the large operating granite quarries in the Central Region of Ghana. AQL’s current production of 24 000 m³ of aggregates per month cannot meet current demand let alone support a new contract to supply 25 000 m³ of aggregates per month for a major road infrastructure project. Fortunately, AQL has another granite concession at Loye, about 3 km from the first concession, with estimated granite reserves of 6 286 208 m³, which can be developed as a new quarry to meet the demand of the new contract. This will require capital to build infrastructure, purchase equipment, recruit labour and provide working capital. The objective of this paper is to evaluate the economic viability of the new quarry, considering it as a stand-alone project. The yearly revenue was estimated based on projected production of 25 000 m³/month and average price of US$ 15.63/m³.  Capital and operating costs were estimated using detailed cost estimation method based on quotations from equipment suppliers and operational unit costs of AQL. It turns out that AQL can generate yearly gross revenue of US 4.69 million but requires total capital of US$ 3.67 million; the yearly operating cost is US$ 1.72 million.  Cash flow and sensitivity analyses using Net Present Value (NPV) and Internal Rate of Return (IRR) as criteria, and risk analysis using Monte Carlo simulation method were carried out. The economic analysis indicates that based on AQL’s preferred capital structure of 80% equity and 20% loan, the NPV is $ 5.17 million and the IRR is 53.01%, showing the new quarry is profitable; the sensitivity analysis indicates that the project can withstand up to 40% drop in revenue, or over 60% increase in capital or operating cost. The risk profile indicates a probability of success of 98.2%. The study therefore recommends that AQL invests in the new quarry as it is economically viable.

Keywords: Granite Quarry, Net Present Value, Internal Rate of Return, Sensitivity Analysis, Risk Analysis