Case ID: 297054     Solution ID: 37103     Words: 946 Price $ 75

Bidding for Antamina Case Solution


The establishment of Peru has taken up an activity of privatizing the national firms and establishments. Regarding this privatization administration, the legislature has offered offers for a copper mine venture in Peru. There is a key pre-imperative for the imminent offering firms. The fruitful bidder ought to have a total assets in abundance of $100 million. I am satisfied to educate you that our organization satisfies this rule. Moreover, the offering method began by the administration is not totally straight forward and contains some implanted choices.

The real option was embedded in the bidding rules for Antamina as part of the Peruvian privatization process. The government motivated more bidders to propose higher substantial investments in developing the Antamina property by allowing companies to submit two elements of the bid (the initial cash payment and initial investment commitment). However, the government made the bidding more complicated by giving the purchaser the option of either returning the property back to them or re-negotiating a deal.

This created value of delay for this real option, which deviated from the goals of the Peruvian government. In this paper, we will begin by introducing the background of the Antamina mine and the bidding process set up by the government. Next, we will provide internal and external analysis. Third, we will present the valuation process we conducted to come up with the value of this real option. The summary valuation is disclosed in Exhibit 1, and the basic DCF and Black Scholes models were established to determine the bidding price for RTZ-CRA. The final section of the paper revisits the valuation and provides recommendations for placing the proper bid. Introduction

 There was large uncertainty as to what the actual amount and quality of ore reserve was in the Antamina property. A two year feasibility study, costing approximately $24 million, would more precisely establish the amount and quality of ore in the Antamina property. The auction rules required bidders to submit an initial payment (minimum of $17.5 million, which along with the $24 million to conduct the feasibility study would make up the option premium), as well as an initial investment commitment (which would make up the exercise price). This bidding process created a real option. The winning bidder would have two years to explore the property before deciding whether or not to develop the site. By early June, only three competitors were in the running: RTZ-CRA, Noranda, and a joint venture of Inment Mining and Rio Alogom. We are taking on the role of the business development team for RTZ-CRA to help them determine how much the mine was worth and to recommend how they should bid in the upcoming auction. External Environmental Analysis

During the mid-1990s, certain countries were holding a vast number of state-owned real assets (such as mining/metals, timber, oil and gas, etc.) and were seeking entry into the global free market economy with privatization programs underway. Further privatization was viewed as a more attractive ownership structure and would perhaps yield ancillary investments into these countries from more developed free-market economies and multinational companies. These privatizations were not always successful, but could result in substantial cash flows, more efficient resource extraction, and potential income growth for their citizens. Peru was one such country that was looking to further its privatization programs, including the sale of its largest state-owned mining company, Centromin. 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. 

RTZ-CRA was the largest mining group in the world whose business model focused on large, long-run mines that could provide them the ability to maintain competitive advantage and generate attractive return performance. 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

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Excel Calculations

NPV Comparision Chart


 NPV of Project (Section A)

 NPV of Project (Section B)

 NPV of Project (Section C)

Raw Input Data 





Simulation summary





Simulation results

  No Options PV at Year 2 

  Commodity Prices and Yields 

  Option  I  (No penalty) PV at year 2

  Option  II  (With Penalty) PV at year 2

2-yr prices 

 Correlation Table

 Mean Reversion Parameters




Questions Covered

Bid Proposal on the Antamina polymetalic prospect in Peru.