Bidding for Antamina
University of Oregon
Lundquist College of Business
Fin 462 Professor John Chalmers jchalmer@oregon.uoregon.edu Anstett 393F, 346-3337
Case 2: Bidding for Antamina
I want each group to submit a sealed bid for the Antamina project to me at the beginning of class. Make sure that your bid conforms to bidding structure set forth in the case.
Then prepare a memo addressing the following questions: 1) How would we express the right to develop a mine as an option? a. What is the underlying? What is the strike, or exercise price? What is the maturity in this case? b. What if we get 2 years out and we learn that the PV of a developed mine turns out to be 0? What do we do at that point? What is our payoff? c. What if the PV of a developed mine turns out to be exactly equal to the PV of the investments required to develop the mine? d. If we know the cost of developing the mine, where does the uncertainty lie? e. What if you had to develop the mine no matter what? f. What does this look like?
1. Peru has this thing that they are trying to sell, which is the right have two years to see if you want to spend the money to develop the mine. They realize that this is pretty complicated, and there are a lot of objectives that they want to satisfy here in setting up the bidding process. What are these objectives? a. What bidding system do they put into place to meet these objectives? b. Do you think that they were spending a lot of money on advice here?
2. So let's think about how the bidders are going to look at this. a. Draw a tree for the winning bid? b. So what is the premium on this real option? c. And what is the strike price on this real option? d. So let's think about adding another dollar to your the upfront part of your bid. e. And let's think about adding another dollar to the promised investment part of your bid .
Lundquist College of Business
Fin 462 Professor John Chalmers jchalmer@oregon.uoregon.edu Anstett 393F, 346-3337
Case 2: Bidding for Antamina
I want each group to submit a sealed bid for the Antamina project to me at the beginning of class. Make sure that your bid conforms to bidding structure set forth in the case.
Then prepare a memo addressing the following questions: 1) How would we express the right to develop a mine as an option? a. What is the underlying? What is the strike, or exercise price? What is the maturity in this case? b. What if we get 2 years out and we learn that the PV of a developed mine turns out to be 0? What do we do at that point? What is our payoff? c. What if the PV of a developed mine turns out to be exactly equal to the PV of the investments required to develop the mine? d. If we know the cost of developing the mine, where does the uncertainty lie? e. What if you had to develop the mine no matter what? f. What does this look like?
1. Peru has this thing that they are trying to sell, which is the right have two years to see if you want to spend the money to develop the mine. They realize that this is pretty complicated, and there are a lot of objectives that they want to satisfy here in setting up the bidding process. What are these objectives? a. What bidding system do they put into place to meet these objectives? b. Do you think that they were spending a lot of money on advice here?
2. So let's think about how the bidders are going to look at this. a. Draw a tree for the winning bid? b. So what is the premium on this real option? c. And what is the strike price on this real option? d. So let's think about adding another dollar to your the upfront part of your bid. e. And let's think about adding another dollar to the promised investment part of your bid .