Bidding for Antamina Harvard Case Solution & Analysis

ALTERNATIVES AVAILABLE

There are three alternatives that were incorporated in the case because the production capacity of the mine was not realistically determined and this created uncertainty for bidders. Companies that were participating in the auction wanted to know about the exact capacity of the mine, which would help them to bid the appropriate price.

bidding for antamina case solution

bidding for antamina case solution

  • Low Case: In this case, the copper production was estimated to be around 339 million lbs and the charging price was $0.28 per lbs and as far as the zinc production capacity was concerned, it was estimated to be 168 million lbs per year with the charging price of $0.22 lbs.
  • Expected Case: In this case, the copper production was estimated to be around 339 million lbs and the charging price was $0.28 per lbs and as far as the zinc production capacity was concerned, it was estimated to be 168 million lbs per year with the charging price of $0.22 lbs.
  • High Case: In this case, the copper production was estimated to be around 365 million lbs and the charging price was $0.28 per lb and as far as the zinc production capacity was concerned, it was estimated to be 145 million lbs per year with the charging price of $0.22 lbs.

ANALYSIS OF ALTERNATIVES AVAILABLE

Competition in the mining industry was severe. To a great extent, competition was started due to the battle for mineral reserves. If RTZ-CRA anticipated towards maintaining its competitive advantage, than the high quality mineral could be guaranteed.

Lowest Case:

It was estimated that at-least for 12 years, the annual copper production would be around 313 million lbs  and zinc production was estimated to be around 155 million lbs per year. Under this scenario, the operation cost was estimated to be around $131 million and the copper treatment was $0.28 per lb produced and zinc treatment charges was estimated to be $0.22 per lbs produced. This operation cost consisted of the capital expenditure cost for the year 1999, 2000, and 2001 that was around $54 million, $246 million and $281 million respectively.

Expected Case:

It was estimated that at-least for 14 years the annual copper production would be around 339 million lbs and zinc production was estimated to be around 168 million lbs per year. The operations cost under this scenario was estimated to be around $138 million and the copper treatment was $0.28 per lbs produced and zinc treatment charges was estimated to be $0.22 per lb produced. This operation cost consisted of the capital expenditure cost for the year 1999, 2000, and 2001 that was around $55 million, $255 million and $292 million respectively.

High Case:

It was estimated that at least for 18 years the annual copper production would be around 365 million lbs and zinc production was estimated to be around 181 million lbs per year. The operations cost under this scenario was estimated to be around $145 million with the copper treatment was $0.28 per lb produced and zinc treatment charges was estimated to be $0.22 per lbs produced. This operations cost was also includes the capital expenditure cost for the year 1999, 2000, and 2001 that was around $55 million, $264 million and $303 million respectively.

At that time, Antamina mine was very attractive. RTZ-CRA was a multinational company dealing in different currencies. In order to mitigate its currency risks, RTZ-CRA had to create more value by linking its assets, earnings and cash flows dealing in different currencies. In the past years, Peru Sol was appreciated against the US dollar that made the RTZ-CRA to keep this point in mind while making a decision regarding the Antamina Mine.

KEY CONSTRAINTS

The key constraints in this auction of the mining site under the bidding were the following:

Initial Payment:

In the bidding process, the initial payment was set to be $17.5 million, which must be made at the time of closing the sale of the auction................................

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