NORTHERN DRILLING INC. THE MOND NICKEL CONTRACT DECISION – A TACTIVAL DILEMMA IN A GROWTH STRATEGY
NORTHERN DRILLING INC. THE MOND NICKEL CONTRACT DECISION – A TACTIVAL DILEMMA IN A GROWTH STRATEGY
THE PROBLEM Peter Bremner, general manager for Northern Drilling Inc. (Northern) was looking over the RFP for an upcoming exploration contract for one of Canada’s largest mining companies, Mond Nickel Company (Mond). The RFP consisted of 2 projects, a Deep/Complex job (3,000m holes) and an Intermediate/Routine job (1,800m holes). The proposal was due in 3 weeks and Peter had to make a decision whether to send a proposal on either Deep or Intermediate jobs, both jobs, or whether to bid at all.
The Canadian mining exploration industry was extremely competitive and consisted of about 80 drilling contractors, many of which had little overhead costs and were driving down industry prices. The total budget allocated by mining companies for the exploration phase was about US$ 2.29B in 2011, or US$ 28.7M, 1.25% per company on average, Northern market share in 2011 was roughly CA$57M, 2.5% (Exhibit 1). Furthermore, the market was very cyclical, although short-term outlooks were promising, nothing was for certain and the industry had recently experienced a shortage of experienced drillers.
Northern was recognized for their superior technical capability, and although they were struggling to be competitive on the routine jobs, they were able to differentiate themselves by completing complex jobs in poor geological condition in a timely fashion, while extracting high-quality core samples.
The deeper the holes, the greater expertise required as there would be sever consequences if mistakes were made, not only financially as Northern would have to cover the additional costs, but also risk the company’s reputation if the project was delayed. The stakes were high, if Northern managed to execute the DEEP job successfully; they would be established as one of Canada’s most technically competent drilling contractors. However, if they failed, they could jeopardize their reputation of
THE PROBLEM Peter Bremner, general manager for Northern Drilling Inc. (Northern) was looking over the RFP for an upcoming exploration contract for one of Canada’s largest mining companies, Mond Nickel Company (Mond). The RFP consisted of 2 projects, a Deep/Complex job (3,000m holes) and an Intermediate/Routine job (1,800m holes). The proposal was due in 3 weeks and Peter had to make a decision whether to send a proposal on either Deep or Intermediate jobs, both jobs, or whether to bid at all.
The Canadian mining exploration industry was extremely competitive and consisted of about 80 drilling contractors, many of which had little overhead costs and were driving down industry prices. The total budget allocated by mining companies for the exploration phase was about US$ 2.29B in 2011, or US$ 28.7M, 1.25% per company on average, Northern market share in 2011 was roughly CA$57M, 2.5% (Exhibit 1). Furthermore, the market was very cyclical, although short-term outlooks were promising, nothing was for certain and the industry had recently experienced a shortage of experienced drillers.
Northern was recognized for their superior technical capability, and although they were struggling to be competitive on the routine jobs, they were able to differentiate themselves by completing complex jobs in poor geological condition in a timely fashion, while extracting high-quality core samples.
The deeper the holes, the greater expertise required as there would be sever consequences if mistakes were made, not only financially as Northern would have to cover the additional costs, but also risk the company’s reputation if the project was delayed. The stakes were high, if Northern managed to execute the DEEP job successfully; they would be established as one of Canada’s most technically competent drilling contractors. However, if they failed, they could jeopardize their reputation of