Hello, everybody.You're listening to Accounting Makes Sense, an MJ the Tutor podcast, and I'm your host, MJ.
In this podcast, we are focused on helping accounting students all over the world by offering a quick warm-up on various accounting and business topics, hoping to generate bigger discussions and conversations around them.
For this episode, I'm going to offer a few tidbits on the Strategic Case Study, SCS, for November 2024.So, these tidbits are like clues into the world of the pre-scene company.All it is are really quick and fast intakes of the pre-scene material.
We've had quite a couple of weeks already to read through it since it's been out for about at least two weeks.These are just the thoughts around it.I always believe that as you read the pre-scene more, you'll get more and more insights into it.
Anyway, let's start off with a background information on this precine.Our precine company is a company called Grotomine.They are a listed company.
They manufacture lithium in the fictitious country called Porland, or sorry, they are based in Porland, but they obviously manufacture lithium everywhere.They are one of the major lithium producers in the world.Big business, big operations.
Our first tidbit to share in this prescene is the lithium market volatility as well as foreign exchange risks associated with it.
We know that Rhodamine is exposed to the volatility of the lithium prices because these prices are set by supply and demand on an observable market.
Rhodamine is also affected by exchange rate risks because we operate in multiple countries and we sell globally. When the price of lithium fluctuates, Rhodamine's revenue can swing dramatically, affecting its profit margins.
We would need to identify this as financial risks and perhaps recommend methods to reduce its impact, maybe using hedging instruments.Now, you can also see from the financials of Rhodamine that they're not really doing so well.
Their revenue has gone down. as well as their profit margins have also gone down.
So that's not really the right way for things to go but there are a couple of things that affect this and hence one of them probably is volatility as well as exchange rate risks.
We know this risk is highlighted on the risk register of the company where we have a treasury team monitoring exchange rate risks. The biggest thing here is that we need to understand that risk cannot be eliminated at all.
If you are in this industry, then you will have to face this risk.Rhodamine would also have to properly account for these fluctuations in its financial statements.Under IFRS, unrealized gains or losses from currency movements need to be disclosed.
because your investors will want to understand how much of the company's revenue and profits are exposed to these markets and currency risk.
Additionally, since Rhodamine has now, you know, gone into politically unstable countries as well, they have their operations there.This could also affect market volatility.And so we just got to watch out for those things.
Now, our second tidbit is on sustainability and environmental regulation. Mining companies, like Rotomine, face strict environmental regulations, and expectations from society are higher than ever when it comes to sustainable practices.
Companies are expected to behave ethically, which includes managing the environmental impact of your operations.
So for Rotomine, this could involve complying with strict laws, reducing its carbon footprint, and contributing to long-term environmental sustainability. There's obviously a balancing act that you need to do here.
Companies need to operate profitably while adhering to ethical standards and avoiding reputational damage.Rhodamine, you know, is not just about showing profits, but also demonstrating how they are handling environmental issues.
We have something called integrated reporting. that ultimately then would require the company to show how their initiatives, like reducing emissions or recycling materials, are part of their overall strategy.
It's not enough just to mine lithium profitably.You also want to show stakeholders that you care about a greener future,
in their missions and objectives, this is actually state that they want a cleaner world, more sustainable world, and that kind of thing.So definitely, this is a focus for Rhodamine.
And we have to actually just make sure that this is on the forefront if you ever get a question about this.The next tidbit is on automation and cybersecurity.Now, Rhodamine relies heavily on automation in its minds.
This automation could involve operational technology, OT, which controls mining equipment and processes.
Now, this is not specifically identified on the pre-scene, but we can likely safely assume that rotor mine plants probably use OT because they do mention that the plants are highly automated.
Now, the other thing here is one of the risks, obviously, if you have an automation process in place is that they use. systems that are connected to the IT network.And this opens you up to cybersecurity issues.You become vulnerable to hacking.
We know that the company embraces innovation.So definitely, Rotamine uses technology for competitive advantage.Rotamine uses automation to reduce costs.Rotamine uses innovation or automation to improve efficiency.
The possibility though of the risk that a cyber attack could happen where it disrupts production or maybe steal sensitive data is possible.The scenario does highlight the need for stronger cybersecurity protocols.
So we just need to kind of make sure that we think about that if we're ever faced with a scenario talking about security and in terms of network security or cybersecurity.The last tidbit on this pre-scene is on the strategy as an overall.
The emergence of alternative battery technologies like sodium ion batteries poses a potential threat for Rhodamine.
If we analyze the external environment to identify opportunities and threats, we can see that the development of cheaper and more sustainable batteries could reduce the demand for lithium, which would be then a threat to Rhodamine's core business.
The other thing here that we have to remember is that we have limited opportunities when it comes to growth because we no longer can find potentially viable mines in the future.
There is a lot of, I'd say, barrier for us to actually find more mines to do our mining with.The company is really now at a crossroad. With limited potential to acquire more mines, Rotomine might need to pivot its growth strategy.
How else do you grow this company if not that way?We might need to shift our strategy towards organic growth by maximizing the productivity of our existing mines.
We may have to look at improving efficiencies, innovating the lithium extraction processes to maintain competitive advantage.
Alternatively, we could also explore diversification, where we invest in other energy-related business, such as renewable energy, battery recycling, that kind of thing.
you know, we may get a question where we have to propose how a roadmine could adapt to this changing environment.
So diversification definitely is a good way to go about it, but you have to look at the suggested proposal in context, just to make sure that you are going in the right way, right?
Investing in research, staying at the forefront of innovation, that kind of thing. Anyway, that is it for me today.
I hope you found this episode helpful, and maybe perhaps you've had the same thoughts too as me when it came to the SES pre-scene of November 2024.That's good, of course, since it confirms your hunches.
And if you had some other thoughts, that's also good, because then you have additional food for thought.As always, thank you for listening to Accounting Makes Sense.I'm your host, MJ the Teeter.
If you're keen to connect to be updated with the arrival of the next episode of this podcast or find SEMA resources online, please head on over to my website www.mjthetutor.com.
You can also hit subscribe on whichever platform you are using to listen to this podcast. You can also connect with me on social media.I'm on Facebook, X, and Instagram under the name MJTheTutor.And I hope to see you again next time.Ciao for now!
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