We recommend you do not build this new Greenfield primary aluminum smelter in South Africa. In order to achieve a 15% ROI on your investment‚ you require a long-term average price of $1500 for aluminum. We have estimated that demand for primary aluminum in 5 years will be at $20bn‚ which will support a market price of around $1490. This heavily builds on the assumption that aluminum inventories will be zero by that time‚ which depends on a successful implementation of the international Memorandum
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The Aluminum Industry in 19941 and Aluminum Smelting in South Africa: Alusaf’s Hillside Project2 1) Is primary aluminum production an attractive industry? Why or why not? Within the framework of the Structure-Conduct-Performance (SCP) model3‚ the primary aluminum production industry (“the industry”) in 1994 can be described as perfectly competitive. The industry is characterized by a large number of competing firms – the largest of which has only 4.1% of total industry capacity; homogeneous
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............................................................................ 3 2 Project Valuation ............................................................................................................................ 4 2.1 2.2 3 Should Alusaf/Gencor invest in the Mozal Project? ............................................................... 4 What are the greatest risks? Have they been adequately addressed? ...................................... 8 The Role of the IFC ................
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Recommendation Although aluminum prices are at relative historic low today‚ we recommend that Alusaf go ahead with plans to construct the Hillside smelter plant. Based on the following analyses‚ we project the price of aluminum to rise to approximately $1‚590 per ton in 5 years. This price exceeds the minimum required level of $1‚416 per ton to yield Alusaf a positive net present value (NPV) on its initial plant investment of $1.6 billion. Analysis of Hillside plant profitability At a minimum
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not go through with the recommended investment of $120m as the high sovereign risk does not justify making the IFC’s largest investment yet. Summary of facts The Mozal project‚ a $1.4b aluminum smelter in Mozambique‚ is a joint venture between Alusaf‚ the aluminum subsidiary of the Gencor group‚ and the Industrial Development Corporation (IDC) of South-Africa‚ a government owned development bank. Mozambique is one of the poorest countries in the world and only recently emerged from a 17-year civil
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“Marginal Cost” is aggregation of variable costs whose amount varies pertaining to production quantity. The lists of marginal cost are as follows. ◎ The lists of marginal cost Item | Description | TotalElectricity Cost | in the case of new plant of Alusaf‚ it amount of 16% of per ton aluminum price for every ton of produced aluminumthus electricity is bundled with production | Total Alumina Cost | alumina is the raw material of smelter‚ naturally variable cost | Other Raw Materials | the amount
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The IFC should immediately seize the opportunity presented in the financing of Mozal. Investment in the project on the part of the IFC would generate valuable social‚ financial‚ and economic benefits‚ not only for the people and government of Mozambique but on a more global level as well‚ allowing the international investors‚ suppliers‚ distributors‚ and sponsors involved in the deal to enjoy the catalytic effects spurred by the project and the investment itself. The Mozal Project is the perfect
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[pic] IILM Institute for Higher Education Module Manual: Basics of Economics Academic Year: PGP/ 2012-2014 1. Introduction to the Module and Module Objective Executives‚ consultants‚ investment bankers and many other practitioners make daily economic decisions that explicitly or implicitly follow economic laws. ‘Basics of Economics’ give an introduction to the economics of business decision-making. It is
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