Antamina Case

Topics: Discounted cash flow, Scenario, Scenario planning Pages: 16 (1003 words) Published: April 25, 2015
Professor: José Tudela Martins
Students: João Pedro Jesus, Maria Kostyunina & Marta Gonçalves 

Agenda







Problem Statement
Antamina Project Overview
Assumptions
Prices Forecast
DCF Valuation: 3 Scenarios
Options Valuation
 Real Options
 Option to Abandon

• Re‐valuation according to changes
 Expropriation
 Block Funds

• Main Conclusions

Location of Antamina

Problem Statement

How much is 
Antamina worth?

Impact of a 5% per 
year risk of 
expropriation or a 
possibility of a two 
years block funds?

Antamina Project Overview
Antamina Mine
Project:
• Peru government wanted to develop a mine
• Antamina project : offered for sale by auction 
as part of the privatization of Peru state 
mining company, Centromin
• Mine, located 482 km North of Lima, Peru
• Copper and Zinc
• Large uncertainty about the size of the reserve  Feasibility Study required:
• Allow to establish quality and amount of ore 
• Cost= $24 million and lasts for 2 Years
Property development for extraction:
• Requires: Construction of road, Mining rigs, 
Crushing Plants, Other ancillary facilities
• Expected Cost ≈ 581$million‐622$million 
• Time required: 3 Years

Bidding Process‐ Real Option
Public Sealed Bid Auction
12 July 1996
Each bidder:          
•Specify initial payment+ investment 
commitment to be completed within 5 
years
•Min initial payment: 17,5 million $ 
•Min investment: 135 million $
Winner
End of 2 Years (Exploration complete)
Return Antamina
Min investment of
13.5 $ mil

Develop Antamina
Potential penalty if 
Act.Inv‐t ˂ Pot. Inv‐t

Assumptions
Variable

Value

Working Capital

25% of Net Revenue

Tax Rate

30%

Depreciation

5 years; Straight line starting from 2001

Inflation

2.6%

Inflation
Operating Costs, Feasibility Study, Capex, 
Closure Costs)

3.5%

Estimated Total Ore reserve 

126,8 million metric tons 

Estimated Copper reserve

2,041 million metric tons (1,61%)

Estimated Zinc reserve

1,686 million metric tons (1,33%)

1996 Spot Price of Copper

0,95 $/Ib

1996 Spot Price of Zinc

0,46 $/Ib

Source: Data given in the case

Assumptions
Debt

Equity

Nominal cost of debt
(Case: 10Y AA bond yield)

7,17% 

Rf
(Case: T‐Bond Yields 10y)

Debt
(Case: Long Term Debt 95)

2.205

Beta 
(Case: Market Beta vs. S&P500)

MV of the firm
(Case:  Market Cap. 95)

15.535

Peru Risk Premium 
(Damodaran Peru 2014)

7,85%

Cost of Equity

17,40% 

Equity

13.330

USA Market Risk Premium
(Damodaran)

5,00%

Tax  rate (Case)
Cost of Debt

30% 
5,019% 

WACC

15,429%

6,90% 
0,53 

3 Scenarios
Parameters

Units

Low Case 

$

12

14

18

Copper Production

Ibs

313

339

365

Zinc Production

Ibs

155

168

181

Operating Costs

$

131

138

145

Copper Treatment Charges

$

0,28

0,28

0,28

Zinc Treatment Charges

$

0,22

0,22

0,22

1996

$

6

6

6

1997

$

18

18

18

1998

$

54

55

56

1999

$

246

255

264

2000

$

281

292

303

Per Year after 2000

$

8,7

9

9,3

Closure Costs

$

45

45

45

Mine Life

Expected Case  High Case

Feasibility Study

Capital Expenditure

Prices Forecast
Step 1:
Cooper/Zinc 1996 Spot 
prices provided ($/lbs)

Year

Copper Spot Price

Zinc Spot Price

1996

0,95

0,46

Step 2:
2014‐2025 Cooper/Zinc
Spot prices forcasted

Year

2014
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