Company Background

It was the beginning of 2013. After gold prices experienced an unprecedented boom from $300 per
ounce to $1,700 per ounce in the previous decade, Denver-based New Earth Mining, one of the
largest U.S. precious-metal producers, was enjoying rapid growth in earnings. With the continued
improvement of its operating margins, New Earth had accumulated a large amount of cash on its
balance sheet (Exhibit 1). It had a simple debt structure and a reasonable leverage ratio with no
significant risk of liquidity.

Most of the company’s mines were located in the U.S. and Canada, but like many other firms in
the precious-metals industry, New Earth had made substantial investments in gold exploration
projects in other countries such as Australia and Chile. However, like many industry participants,
New Earth executives worried about the sustainability of gold prices at their current levels. With its
strong financial condition and the desire to diversify its business through new capital investments
rather than acquisition, New Earth felt it was necessary to implement a diversification program that
would reduce its dependence on precious metals. The company started investigating the possibility
of diversification in base metals and other minerals.

New Investment Opportunity in South Africa

A new investment opportunity appeared in early 2012. New Earth was informed of the existence
of a major body of iron ore close to the massive Kalahari manganese field in the Northern Cape of
South Africa by an independent exploration consulting company. New Earth felt an investment in
iron ore provided a strategic fit for its diversification objective.

Since steel represented almost 95% of the metal that was used in the world, iron ore was arguably
more integral to the global economy than any other mineral. The price of iron appreciated more than
five-fold from 2002 to 2012 (see Exhibit 2). Unlike the price of gold, for which there was considerable
speculation, the price of iron ore was not expected to fall dramatically given the strong global
HBS Professor William E. Fruhan and Professor Wei Wang, Queens University, Kingston, Ontario, prepared this case solely as a basis for class
discussion and not as an endorsement, a source of primary data, or an illustration of effective or ineffective management. Although based on
real events and despite occasional references to actual companies, this case is fictitious and any resemblance to actual persons or entities is
coincidental.

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