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Bidding for Antamina Project Essay

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------------------------------------------------- Bidding for antaminA Prepared By: Fiona Wang 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 Executive Summary This case introduces the real option valuation methodology by detailing…show more content…
The Antamina mine, was the underlying asset of this bidding process which included 40 bidders; though that number was steadily dwindling, and by June of 1996 was down to only a “handful” serious contenders. Within the copper mining industry, there were three dominant players, RTZ-CRA, Noranda, and a joint venture of Inmet Mining and Rio Algom. These three were believed to be the primary bidders. All three had ancillary mineral mining practices aside from copper, as well as other areas of business. RTZ-CRA was the largest of these three, and was believed to be the best positioned to prevail on the bidding. The other bidders were smaller in capital but had the same level of mining experience. The joint venture of Rio Algom and Inmet had only $1.5 billion combined market capitalization, but Inmet had a healthier capital structure and less financial risk which created a lower cost of capital. The bidding rules reduced the sensitivity of capital and created comparative advantages for smaller players. For RTZ-CRA to execute on their bid and acquire Antamina at a strategically economic price, they would have to have made the decision of whether this property would provide long term economic and strategic value. Since their footprint was global, they would be unable to introduce certain synergies based on asset proximity of their other properties. Antamina would most likely have to be acquired and operated as a stand-alone project. Internal
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