Bidding for Antamina Project
Bidding for antaminA
This case introduces us to real option valuation in a bidding context. We are helping RTZ-CRA to determine the value of Antamina and to recommend how RTZ-CRA should bid in the upcoming auction under the non-traditional bidding rules set by the Peruvian government.
Contents Executive Summary 1 Introduction 1 External Environmental Analysis 1 Internal Situation Analysis 2 Reasons to Bid 3 Valuation 3 Recommendations of the Bidding. 4 A Simulation Model 4 How to Set the Bidding Price 5 How Much Should RTZ-CRT Place on the Bid 5
This case introduces the real option valuation methodology by detailing
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The operational size and scope of RTZ-CRA significantly exceeded that of its competitors in relation to mining; specifically copper mining– about 7% of global output. RTZ-CRA was one of the few mining concerns that could boast an AA bond rating, which was an anomaly in the mining industry. This high bond rating was supported by the company’s strong operating cash flows and low debt to capital ratio of 15%. RTZ-CRA’s business model focused on mining copper, aluminum, coal, iron ore, and gold. The company also had global geographic diversification with assets in South America, Asia, Europe, and Southern Africa. Though it had a global footprint, its assets and debt were, by and large, dollar denominated and were thus able to provide less currency volatility than many of its competitors. SWOT Analysis | Strengths * Strong balance sheet and debt rating * Attractive long-term partner, relative to the competitors * Largest copper producer with high relevant expertise | Weaknesses * May not be an accretive long-term investment * No physical asset synergy across production geographies | Opportunities * Investment may be accretive as a standalone operation * Potential to gain an ever larger share of the global copper production * Additional benefits from ancillary production of zinc resources * Underlying deposits could be