Southport Minerals, Inc. the Search for Investment Opportunity

Southport Minerals, Inc. The Search for Investment Opportunity

In 1964, after five years of relatively low profitability, the U.S. sulphur industry entered a period of tightening supplies and rising prices. As the largest U.S. sulphur producer, Southport Minerals, Inc., enjoyed sharply increased profitability as this boom progressed (columns 1 and 2, Exhibit 1). During this period a number of firms, including Southport, made substantial investments aimed at increasing their sulphur production in response to rising demand. In addition to its expansion in the sulphur industry, however, Southport also embarked on a major diversification program to reduce the company’s dependence on sulphur, a product that accounted for nearly 90% of Southport’s sales in the mid-1960s.

During that period, Southport was financially well positioned for significant diversification. The company was in a highly liquid position (column 3, Exhibit 1) and had essentially no debt in its capital structure (column 6, Exhibit 1). Its stock price was also rising sharply (columns 13–15, Exhibit 1). While Southport was anxious to capitalize on its strong financial position, the firm hoped to diversify through internal means rather than through acquisitions. Unfortunately, for a number of years the firm had been unable to find attractive investment opportunities that were large enough to absorb even a fraction of its available financial resources. In 1967, however, Southport found an opportunity for a major financial commitment to develop a copper mine in Indonesia.

Investigating the Indonesian Copper Mining Opportunity

Two events combined suddenly to provide the opportunity: First, in 1960 Southport had confirmed the existence of a major body of copper ore at an extremely inaccessible location in the Firstburg, a mountain in Indonesia.1 At that time, however, the political climate in Indonesia was not attractive to foreign investment. By early 1967, the changed climate suggested further investigation of this copper ore body. Second, by 1967, the price of copper in world markets had risen to the point where even very low concentrate copper ores could be mined economically (see Table A).

1 The ore body was actually discovered by a young petroleum geologist on a mountain climbing expedition in 1936. The geologist's findings were published in Holland in 1939, but created no interest until the managing director of the East Borneo Co. received an exploration permit from the Indonesian government in 1959. At that point, Southport was contacted for financial and technical assistance in carrying out the exploration. ________________________________________________________________________________________________________________

This case is a modified and disguised version of an actual situation. It was prepared from publicly available information. HBS cases are developed