2.3. Study carefully the following company information and answer the following question.

COMPANY INFORMATION Frontier Bauxite Mining (FBM) is a bauxite mining business in a West African country. It owns and operates three mines. A bauxite mine takes on average two years to develop before it can produce ore and the revenue from the mine is split (25:75) between selling the ore under fixed price contracts over five years and selling on the spot market. The bulk of the businesss production is exported. A bauxite mine has an average working life of about 20 years before all the profitable ore is extracted. It then takes a year to decommission the site and return the land to a useable form for agriculture or other developments.

REQUIRED: A junior management accountant employed as a mining analyst is currently analysing FBMs life cycle. As part of the life cycle analysis, the analyst is contemplating using Altmans Z-score failure prediction model to predict the financial stability of FBM. Using your understanding of life cycle costing and Altmans Z-score failure prediction model, critically discuss the potential effects of a mines lifecycle (i.e., mine development, production and decommission) on FBMs Z-score and FBMs probability of failure.