Twin Lakes Mining Negotiation _reflection Paper

NEGOTIATION #3: Twin Lakes Mining

REFLECTION PAPER

        This is the write up on the negotiation practice around the case Island Cruise performed during class on May 30 2015, I’m documenting the analysis and reflection of the negotiating event and the justification of the results achieved.

Preparation and planning process

In team we made a list of the points to be negotiated, these were: Filtration plant financing, Road’s paving financing, Road’s yearly maintenance and Taxes reduction. Our BATNA was to find a solution that does not exceed the 16 million capital cost and the yearly 2.6 million for improvements, both limits set by the top management.  We identified that our main strength in the negotiation was the community’s economy dependency on mining operation; our weakness was that due to the legal requirement we had to do the cleanup whether we stay or leave the site. We also knew the filtration plant and paved roads would bring benefits to the tourism activity and to the growing population. We identified as the main strength of the town representative the possibility of getting a loan with an acceptable interest that can be used to finance the required improvements, we were aware their income was low, but they might get extra benefits from tourism and population’s growth after the improvements, also, they could make adjustments in their expenditure budget. Our strategy was to find a win to win solution, exploit the common interest in maintaining the operation and do the environment clean up, we defined as priority  to keep the operation in this allocation,  and keep the capital expenditure at the lowest level possible, to make it possible it was necessary to convince them to issue a bond for financing, the second priority was to keep the yearly improvements costs below the ceiling set by the top management, and the third priority was the tax reduction, our tactics were to prepare ahead some packages of solutions addressing all points with a different combination of  capital expenditure, yearly payments and taxes fees, and  use logrolling to make the concession in the different points along we are understanding their interest and possibilities during the negotiation, in summary we were ready to increase our capital expenditure up to our limit if  yearly costs and taxes decrease, or increase yearly costs and taxes to the limit if capital expenditure decreases.

Actual Progression of events

We negotiated in pairs, We started the negotiation with a rapport initiated by the other team, we were talking about some non-business stuff, this start created a better atmosphere to dialogue, and sent us the message that they wanted to have a win to win solution too, once we started the negotiation, they began asking how much pressure we had from the federal entities to solve the environmental issue, we ignored a little the question saying that we want to make the cleanup required and keep the operation, but the fact is that the financial situation did not allowed us to do it by ourselves, and that the intention of the dialogue was to find together a solution, we identified as common interests to keep the operation, thus jobs, and solve the environmental problems. Then they said that one of their main interest is to have all the roads paved and that they were willing to pay for the common roads if we do it for our own, and each one should take care of their road’s maintenance, we said we can accept that but since our capital is limited we needed them to issue the bond to get the funds to finance the roads and the filtration plant, since both were infrastructure for the city as well, we also proposed to share 50-50 the yearly interest payments, then they stated that they did not have enough money to do so, and also that  in spite that they were not closed to issue the bond, they didn’t want it because of the high interest for such long period. In that moment they showed they were willing to pay for the 50% interest, so then, we insisted that the bond issue was the only way to complete the funds since we didn’t have all the capital, by then they  started pushing to know our resistance point in capital expenditure, and insisted that their main concern was the 1 million usd they might pay per year, we were stuck for a while in this discussion, but since they opened the door to pay 50 % of the interest, then we logroll and used some of our visualized solutions, we decided to declare our resistance point for capital, the 16 million, we shared that 8 million were already invested in the plant, that we would invest 2.4 million in paving our roads, so we could invest the 5.6 million in the filtration plant, so the bond could be issued for only 14.4 million to complete the 20 million required for it, that would also lower the interest from 1 million to 0.7 million for each party, benefiting both!. They accepted, in that point we declared we wanted a tax reduction of 600,000 for the concepts of land property and right of way, with the reduction we could manage  the new costs due to the cleanup, we offered the sweetener of they owning the revenue from the ore recovered from the filtration plant, they said they  didn’t have more incomes and that now that they would invest 2.4 million in paving their roads and pay 300 thousand dollar for their maintenance, plus the 700 thousand in interest for the bond, it was impossible for them to make tax reductions, they say we can keep the revenue on the ore recovered, that made sense to us and since we were quite below our ceiling for yearly payments,  we accepted the deal.