BUSINESS OPPORTUNITY PROFILE Prepared for the Inward Investment Facility Linden Economic Advancement Programme

METAL FABRICATION WORKSHOP

TABLE OF CONTENTS

INTRODUCTION REGION 10 BUSINESS ENVIRONMENT EXECUTIVE SUMMARY THE OPPORTUNITY: METAL FABRICATION WORKS PRODUCTION PROCESS AND TECHNOLOGY REQUIREMENTS FOR FACTORY SETUP ANNUAL FINANCIAL PROJECTIONS FINANCING SOURCES

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Business Opportunity Profile Metal Fabrication

INTRODUCTION
There are numerous exciting business opportunities in Region 10 for investors who wish to invest in agriculture, agro-processing, small-scale mining, manufacturing, logging, sawmilling, tourism, transportation industry, or services to name a few. LEAP Inward Investment Facility (IIF) recognizes that potential investors need information on business opportunities. This series of Business Opportunity Profiles is intended to help investors identify viable opportunities in the various sectors. These profiles address generic issues such as the appropriate technology involved and where possible, potential markets, estimated investment and production costs. However they are not intended to be replacements for project feasibility studies. Selection of technology, financing plans, feasibility studies and other related issues remain the responsibility of the investor.

REGION 10
Region 10 is the logical hub for Guyanas development. With an area of over 16,835sq.km (6,500sq.miles), it is centrally located and contiguous to most other administrative regions. It has abundant land and natural resources, and is the natural gateway into the hinterlands forest and mineral reserves. Boasting excellent river and road transport links out to the coast, it is also the natural choice for Atlanticbound South American trade. Besides the town of Linden there are significant communities in Coomacka, Old England, Great Falls, Rockstone, Anarika, Mabura, Ituni, Aroima and Kwakwani. At present, the main economic activities are mining, logging, agriculture, fishing, transportation and distribution along with manufacturing and construction.

THE TOWN OF LINDEN

Linden, with a population of approximately 30,0001 is the Regions main population centre and is located inland from the coast, 107km (66miles) from the capital city Georgetown. Spread over an area of 142sq.km (55sq.miles), the town is situated on the two banks of the Demerara River. Originally a mining town, whose economy had been based on the bauxite industry, the town is redefining itself as a key port of call in and out of the hinterland. Aware that the time of the Bauxite economy is over, the population is increasingly involved in small business activities like merchandising, furniture manufacture, and construction, thereby transforming the town into a centre for industrial

Census 2000 Statistical Bureau

Business Opportunity Profile Metal Fabrication

and service activities. Linden is also a supply centre for hinterland communities and itinerant miners. Some of its specific strengths are: The size and layout of the town lends itself to easy manageability of its resources. There is a well developed network of utility services including stable electric power, water supply and telecommunication services. The town itself possesses abundant natural potential in mineral and forest resources in its immediate environs, and land is available for potential development. The location of the town on both banks of the Demerara River provides for easy transportation arrangements and lends itself to development of an entrept facility for Atlantic-bound Brazilian goods. Linden has an essentially young population with 85% of its residents under 45 yrs. Linden-based Industries are less prone to natural disasters than those along the coastal areas.

BUSINESS ENVIRONMENT
The Government of Guyana has approved various general and sectoral incentives as part of its comprehensive strategy aimed at reviving the economic fortunes of Region 10. These incentives can be found in: Customs (Amendment) Act No. 6 of 1999, Investment Act No. 1 of 2004 Customs Duties (Amendment) (No.1) Order 2004.

Special Incentives for Region 10 and specifically for Linden, Ituni and Kwakwani are:
Waiver of Customs duties and Consumption taxes on all imported items of plant, machinery, equipment and spare parts. For manufacturing and agricultural investments, waiver of Customs duties and Consumption taxes on vehicles imported exclusively for use in the business.

Business Opportunity Profile Metal Fabrication

EXECUTIVE SUMMARY
Linden offers exciting opportunities for the setup of metal fabricating operations since key production factors such skills, equipment and power supply are available. The increasing importation of pre-owned vehicles drives a demand for after-sales support of fabricated exhaust pipes and mufflers. Simultaneously, the increase in building construction, in Region 10 and nationwide, fuels a demand for gates, fences and the ubiquitous security grillwork fitted to all new buildings. A comprehensive welding / fabricating workshop operation, can be set up here, ideally one that can handle industrial jobs such as factory chimneys, ship equipment repair, vehicular protective bars and substructures and local equivalents of imported playground / gym equipment. In fact, an operation outfitted with the appropriate equipment and operators will handle any job short of full-scale shipbuilding. As Lindens electricity charges are the lowest in the country, operational cost will be significantly lower than elsewhere. The market demand ranges from very large (but occasional) jobs to smaller everyday domestic jobs primarily fences, grillwork and passenger vehicle exhaust systems. Grillwork offers returns of $6,486sq.m. to $8,648sq.m. ($600 to $800sq.ft.) Typically, grillwork for an average size house protecting all external doors and windows amounts to approx 18.5sq.m. (200sq.ft) costing $120,000 to $160,000 installed. Exhaust boxes and systems are a more volatile market, however, increasingly patronage is shifting from bottom house mechanics, body shops, car washes etc to established service shops with more perceived quality, consistency and value. Typically replacement exhaust mufflers cost $10,000 to $15,000 and whole systems as much as $40,000. Advantages to investing in this industry: Good returns on investment are possible once the operation is managed efficiently, coupled with very aggressive marketing. The initial start-up costs are soon recoverable and the machinery is expected to have a 10 to 20 year life. The equipment is available here in Guyana together with requisite spares.

Advantages for investing in Linden/Region 10: The Government of Guyanas support for Region 10s development includes a regime of investment incentives which are provided for in Customs (Amendment) Act No. 6 of 1999, Investment Act No. 1 of 2004 and Customs Duties (Amendment) (No.1) Order 2004. Included in the legislation are Incentives for Communities of Linden, Ituni and Kwakwani: Waiver of Customs Duty and Consumption Tax on all imported plant, machinery, equipment and spare parts.

A fabricating operation can be set up for between $8 to 10 million depending on the mix of used to new equipment acquired. A full feasibility study will be required to determine actual startup costs, working capital and financing requirements but these should not exceed $10 million.

Business Opportunity Profile Metal Fabrication

THE OPPORTUNITY:

METAL FABRICATION WORKS

Linden is the ideal location for setting up a large metal fabricating operation as it has the key production factors like the skills and power supply. A large pool of ancillary skills, many of these superior mechanics, millwrights, welders, and fabricators, has always supported the bauxite mining operations. Dormant and unused since the downturn of the bauxite industry, these talents are still available for employment in new enterprises. The other critical factor is electrical power to operate heavy-duty equipment, and commercial electricity is cheaper here than anywhere else in the country. Increasing importation of pre-owned vehicles drives a demand for aftermarket support of fabricated exhaust pipes and mufflers. Simultaneously, the increase in building constructions, in Region 10 and nationwide, fuels a demand for gates, fences and the ubiquitous security grillwork fitted to all new buildings. In fact, an upsurge in larcenous crime has created a whole new market for add-on grillwork and metal fences to existing buildings. The re-awakening bauxite industry should also form part of this expanding market as traditionally much of the heavy welding work has been contracted out to local captive operations like Kensaco (which understandably declined with the main industry as they had focused strictly on the high volume of industrial work and had never developed a domestic presence.) There are now no large Linden based contracting operators to provide welding /fabricating repairs to the heavy-duty industry and much of this work has begun to go to outfits outside the Region. A local (Linden) operation will have the advantages of proximity offering speed of response and delivery, and significantly lower transportation and energy costs. It is possible to set up an operation capable of handling almost any fabrication or repair, ranging from the largest industrial jobs like factory chimneys, ship equipment repair, vehicular protective bars and substructures, and vehicle exhaust systems to domestic jobs such as fences, grill work, and local equivalents of expensive imported playground and gym equipment sold in department stores. In fact, with the appropriate equipment and operators, anything short of full-scale shipbuilding can be handled. While such an operation can be set up anywhere, a Linden location offers the greatest returns due to the burgeoning industrial and domestic markets and the cheapest commercial electricity supply at $12 kw/hr. This kind of business is energy intensive and located anywhere else will incur electricity charges nearly 8 times the cost in Linden. Market Potential The market will offer work ranging from regular domestic jobs to very large high paying industrial assignments as most other industries will buy fabricating services. But to ensure independent viability, the operation should avoid captive situations i.e. working mainly or strictly for a larger manufacturing operation and consequently vulnerable to uncontrollable factors. For the greater part therefore initial production will be workshop based cutting and welding to fabricate building security grillwork, fences and vehicle exhaust systems including mufflers and tail pipes. Though some amount of prefabrication is possible, both grillwork and exhaust systems will have to be made to order to fit the application.

Business Opportunity Profile Metal Fabrication

The highest likely initial and ongoing demand will be for grillwork as both existing buildings and new constructions are part of this market. Current prices range from $6,486sq.m. to $8,648sq.m. ($600sq.ft to $800sq.ft.) installed, the approximate requirements for protecting an average size house is 18.5sq.m. (200sq.ft.) totaling $120,000 to $160,000. The operation should output one finished house grillwork in 2 days, intricate work requiring 3 days, at appropriate cost. As security grills are lifetime products, new business will have to come from new customers. Material and energy costs for this industry are typically 60% of revenues. Lindens low energy costs will allow for competing in markets outside of the Region. The market for vehicle exhausts will initially be slower as people tend to find their own welders. Increasingly though, patronage is shifting from the bottom house operators to established service providers in Georgetown who appear to offer more quality, consistency and value. The benefits of a well set up Linden operation will become apparent particularly if the business offers a complete exhaust fitting service. With current muffler prices as high as $15,000, a complete system priced between $35,000 to $40,000, fitted, will compare very favorably with operators in Georgetown. As the business grows, the need will arise for more and more off-site field jobs requiring the use of portable sets at rates of $5,000/hr. The impact of this sector of the market will be most likely to occur in the second year of operation. Advantages to investing in this industry: Good returns on investment are possible once the operation is managed efficiently, coupled with aggressive marketing. The operational costs are lower in Linden than anywhere else due to the very low cost of electricity, the primary energy input. The demand for this service keeps increasing as the needs people shift from basic security to quality-of-life products like recreational (playground) equipment. The resuscitated bauxite industry has an insatiable demand for ongoing repairs of its heavy-duty equipment, and other industries needing similar services are beginning to appear in the Region. The materials and equipment used are widely available here in Guyana together with requisite spares, though significant savings can be made from direct importation from abroad and qualification for relief under the Governments regime of waivers.

Any new operation should aim for the highest possible standards to define the market expectations and effectively raise the bar on quality. This will effectively drive out shoddy operators who will not be able to compete on price. The equipment requirement is outlined under Production Process and Technology and detailed under Requirements for Factory Setup.

Business Opportunity Profile Metal Fabrication

PRODUCTION PROCESS AND TECHNOLOGY

The metal fabrication industry is primarily concerned with forming and shaping metals by hot and/or cold processes, essentially heating/welding and shearing/forming operations. In view of the high cost of most new equipment and the relatively long lead-time necessary to bring new equipment into operation, changes in production methods and products are made only gradually; even new process technologies that fundamentally change the industry are only adopted over long periods of time. Shearing operations cut materials into a desired shape and size and include punching, piercing, blanking, cutoff, parting, shearing, and trimming activities. Basically, these produce holes or openings, or produce blanks or parts, the most common hole-making operation being punching. Cutoff, parting, and shearing are similar operations with different applications. Forming operations bend or conform materials into specific shapes by turning, twisting, extruding, drawing, rolling, spinning, coining, and forging metal into a specific configuration. Bending is the simplest forming operation; the part is simply bent to a specific angle or shape. Other types of forming operations produce both two and threedimensional shapes. Machining refines the shape of a work piece when shearing and forming are complete, by removing material from pieces of raw stock with machine tools. The main processes involved are drilling, milling, turning, shaping/planning, broaching, sawing, and grinding. Holding the different pieces together is achieved either by riveting, bolting or more permanently by welding. Welding is the process primarily used to join metals, most welds being achieved by fusion in which the materials being joined are melted at, and around, the joint between them. Most of the welds are done with a rod of filler material with the resultant weld being composed primarily of the filler. Increasingly though autogenous welding is catching on, in which no added material is used. There are also forms of pressure welding rather than fusion and combinations of the two. Welding is an integral part of fabricating metal parts so as to form spheroids, boxes and cylinders. The essential feature of a fusion welding process is a heat source either in the form of a flame from a gas torch (most often oxyacetylene or propane) or an electric arc.

Gas Welding
In oxyacetylene and similar gas welding, the main source of heat is the combustion of the fuel gas with pure oxygen, fed from cylinders through flow regulators into a torch. The oxyacetylene flame can be adjusted by changing the ratio of the volume of oxygen to acetylene and can attain peak temperatures of 3,200 sufficient to weld steels and C, most other metals, (steel melts above 1,500 C.) However, other gases, primarily propane, are used for joining lower melting point non-ferrous metals, and for brazing and silver soldering.

Business Opportunity Profile Metal Fabrication

Arc Welding
An arc is arranged to run between an electrode in a rod holder (torch) and the metals being welded the heat generated being as typically 15,000 to 20,000 C. Some form of C inert gas shielding is usually required to prevent oxidation of the metals in this process either Argon, Helium or Carbon Dioxide is used. Gas shielded welding has many variants and techniques including replacement of the torch-held electrode by wire feeding off a roll. Shielded Metal Arc Welding (SMAW) is the most common arc welding process, and capable of handling the vast majority of jobs. It is frequently called Stick or Covered Electrode welding. The flux covering the electrode melts during welding, forming the gas and slag to shield the arc and molten weld pool. The job must be cleaned up afterwards by chipping slag off the weld bead. Stick welding benefits include: Equipment used is simple, inexpensive, and portable Electrode provides and regulates its own flux Lower sensitivity to wind and drafts than gas shielded welding processes All position capability

Gas Metal Arc Welding (GMAW) is frequently referred to as MIG welding, a high deposition rate welding process. As wire is continuously fed from a spool, MIG welding is a semiautomatic welding process. Some of the benefits of MIG systems are: All position capability Less operator skill required Long welds can be made without starts and stops Minimal post weld cleaning is required

The primary shielding gasses used are Argon, Argon/Helium and CO2 in its pure form. However, in some applications the presence of CO2 in the shielding gas may adversely affect the mechanical properties of the weld. Gas Tungsten Arc Welding (GTAW) is frequently referred to as TIG welding, a high quality welding process. It is a popular choice of welding when high quality, precision welding is required. The benefits include: Superior quality welds Welds can be made with or without filler metal Precise control of welding variables (heat) It is free of spatter and is a low distortion process

Shielding Gases are the usual Argon or Argon + Helium. An Argon Hydrogen mix is also used resulting in cleaner looking welds. Hydrogen may promote porosity or hydrogen cracking. A major limitation is that it requires greater welder dexterity than MIG or Stick Welding.

Business Opportunity Profile Metal Fabrication

For the purposes of this market, much of the work will be simple but will require high levels of precision to achieve the desired high quality. Grillwork involves strictly cutting and (arc) welding steel bars of thicknesses up to 25mm (1) diameter, into various shapes and designs using jigs and templates. Exhaust system production involves using a pipe bender to form the contours and angles of the exhaust pipe itself and shears, punches and sheet benders to form the boxes and internal baffles for the mufflers that are locked sealed by oxy-acetylene gas welding. As metal is unforgiving and wastes can be high this very intricate work requires quality craftsmanship to avoid shoddy results. Much of the other typical fabricating jobs will require cutting plate steel or other metals into various shapes to make tables, side panels, fences and walls of strongboxes etc. Both arc and gas welding will be used for these as the applications demand. The primary raw material for most fabricating jobs will be sheet and bar metal of various thickness and pipe (tubing). Though generally available at retail hardware stores in Linden, the source material is typically 20% cheaper if bought in Georgetown from manufacturers/distributors. Ongoing and increasing competition in trucking services ensures that transportation costs to Linden are affordable.

Business Opportunity Profile Metal Fabrication

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REQUIREMENTS FOR FACTORY SETUP

Some of the critical factors to be taken into account prior to the setting up of a welding and fabricating operation are:

1. Location
Welding / fabricating can go on anyplace, but it is best to find a location in proximity to an emerging housing scheme or wherever significant building construction is being done. Since much of the equipment is electrical, it is important also to locate where electrification is already in place. It may be necessary to rent a premises but a land lease may be required in order to construct a building for this operation. A compound housing the main workshop (production) area, storage bond for raw materials, supplies and finished products with adequate space for any future expansion, will occupy approx acre, though it is possible to get by with much less. Though the end products are not easy to steal, it is recommended that appropriate fencing and security surveillance be implemented.

2. Building
A very simple building may suffice for an initial startup, the main consideration being the security of the equipment and secure connections to electrical supply. The building will have to be designed along factory production lines allowing for smooth transitioning of the raw materials into completed products and optimised for maximum efficiencies.

3. Electrical supply
The building should be wired appropriately to avoid electrical overloads and risk of electrical fire as both 110v and 220v AC equipment is used. Certified electrical contractors should be employed to install appropriate supply wiring based on the needs of the operation. Many qualified, skilled personnel are available in Linden.

4. Ventilation
Good natural ventilation is sufficient though an exhaust fan arrangement will assist in eliminating dangerous buildup of noxious fumes.

5. Equipment
The equipment required for a full scale welding / fabricating shop includes the following, but some items can be considered options to be added as the demand requires: 1. Arc welding machines, 2 fixed and 1 portable all rated at 250A. Ideally, the portable unit should be an AC/DC machine capable of operating as a generator to provide mains level power on location, preferably trailer mounted for easy transportability into rough terrains.

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2.

Comprehensive gas welding equipment including 2 Oxy-Acetylene sets, and 1 Propane gas unit. 3. A complete MIG welding facility to handle both steel and non-ferrous materials including Aluminum, Brass, Bronze, Copper and stainless steels. MIG operation will require supplies of appropriate shielding gases including Argon or Helium and Carbon Dioxide. Initially this is optional. 4. A wide variety of very heavy duty bench and hand tools including grinders, wire brushes, drills and drill presses, cutting shears, hacksaws, tongs, vices and clamps, pliers, and a variety of hammers ranging from sledges to small ball peens. Also required are tape measures and rules, dividers and protractors, calipers. Jigs and templates etc will be fabricated as required. 5. Pipe benders capable of bending pipes from 25mm to 102mm (1 to 4) diameter. 6. Sheet rollers capable of rolling up to 6mm () thick mild steel plate. 7. Finishing equipment: sand blasting machines, and air compressors for protective coating finished jobs by spray-painting. Optional. 8. Safety equipment will include welding aprons, gloves, face shields / helmets and goggles, respirators and fire extinguishers and comprehensive first aid equipment for treating accidental shock, burns or gas inhalation. 9. Hand trucks or trolleys for moving gas equipment, (raw) sheet metal and pipes, and finished goods. 10. A mid size 4x4 vehicle such as a truck capable of transporting men and materials and pulling a trailer full of welding equipment to site. Optional.

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ANNUAL FINANCIAL PROJECTIONS

For the purpose of these projections, a worst-case scenario is assumed: 9.25sq.m (100sq. ft.) of grillwork / day; 2 exhaust systems and 4 mufflers / day Prices: Grillwork $6,486/sq.m ($600/sq. ft.) (priced for market penetration) Exhaust systems @ $30,000, Mufflers (wholesale) @ $8,000. Workweek: 5 days (welder / fabricators typically work 8 to 10 hr/day, 6 day/ week) Work year: 40 weeks, assuming down time due to material shortages, etc. Output: These are baseline levels of operation with the equipment being nowhere near its operating capacity and actual revenues can be as much as 20% higher. The same 60% (Georgetown) margin is assumed in spite of Lindens lower electricity charges. An optimistic but still realistic projection will factor in likely demand of the bauxite and other industries, and other domestic demands for fences, playground equipment and the like.

Investment Year 1 Revenues Expenditure Net Profit

$10,000,000

$30,400,000 $21,970,000 $ 8,430,000

Breakeven Point Breakeven Break even point

Period Percentage Sales

2.4 months 19.94% $ 5,982,054

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The major capital and operational items associated with this level of operation are: Investment items Land and building Plant and machinery Working capital for 2 months Total capital investment Receipts per annum Annual Fixed costs Cost of production per annum Profit per annum Break Even point Net Annual Margin Machinery & Equipment 2 Fixed Arc welding machines 250A AC rating 1 Portable Arc welder/generator unit 250A rating AC/DC. Trailer mounted 2 Oxy-Acetylene sets, gas cylinders and torch sets 1 Propane gas unit, cylinders and torch 1 Pipe bender capable of bending 1 to 4 diameter pipes. 1 Sheet roller capable of rolling mild steel plate up to thick. 2 Hand trucks or trolleys 1 complete set of heavy-duty bench and hand tools (see Factory set up: Equipment) Safety equipment Depending on the sources, the equipment compliment above can cost as much as G$6,000,000 but as second hand equipment is perfectly suitable, vendors of used equipment should be contacted for end-of-project sales, close outs etc. Prices from these sources may be as little as 40% of new equipment costs. Production Items Gas Oxygen Acetylene Propane Metal Electricity $6,000 per 220 cu. ft. $9,500 per 135 cu. ft. $12,000 per 100lb 2,500,000 6,000,000 1,500,000 10,000,000 30,400,000 2,000,000 19,970,000 8,430,000 19.94% 26.77%

Sheet steel upwards of $4,500 per 4 x 8 sheet (32 sq. ft.) Metal bars of varying sizes and prices $12 per kw/hr Other Considerations Rent or Lease options Transportation Insurance Licenses and permits

Labour Manager (Owner/Manager) $60,000/mth 3 skilled welders/ fabricators $2000/day 2 semi-skilled welders $1500/day Estimated Start-up Costs Estimated Fixed Costs max $ 10,000.000 $ 2,000,000

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FINANCING SOURCES
The following are some of the funding sources from which a borrower may access financing for an operation of this nature, either singly or in combination. The Linden Economic Advancement Fund (LEAF) provides financing for Region 10 projects. Small Business Development Trust Institute of Private Enterprise Development National Bank of Industry and Commerce Citizens Bank

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Welding & Fabricating Shop

Break Even Analysis Fixed Costs Production costs: Direct materials Direct labor Indirect production costs electricity, fuel etc Other expenses: Sales and Advertising expenses etc Insurance Miscellaneous operating expenses General expenses: Office salaries Supplies Miscellaneous general office expenses Totals Sales and Income data: Selling price per unit (composited product mix) Expected unit sales Target operating income for the period Cost of Production per annum Variable & Total Results Contribution margin per unit Unit sales at break-even point Dollar sales at break-even point Dollar sales at expected level Net Annual Profit at expected level Unit sales at target operating income Dollar sales at target operating income Break Even Percentage Net Annual Margin at expected level as a %age Break Even Period in months Yields, Costs etc Material and energy costs for this industry are typically 60% of revenues Wages / Salary 3x 2000 day+ 2x 1500 + Mgr 60k/mth Variable Costs $360.00 $36.00 $1.00 $2.00

$300,000 $100,000 $600,000 $200,000 $720,000 $30,000 $50,000 $2,000,000

$0.40 $399.40

19,970,000

$600.00 50,000 10,000,000 21,970,000

$200.60 9,970 $5,982,054 $30,400,000 $8,430,000 59,821 $35,892,323

19.94 26.77
2.4

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