Bidding for Antamina

FNCE 765 Fall 2014

Date: 11/05/2014
Project Background
In June 1996, in the midst of a privatization wave, the Peruvian government decided to put the Antamina mine for sale, hoping to bring in a large amount of capital and the investments needed to proceed with the large scale development. Currently owned by Centromin, the largest state-owned mining company in the country, Antamina is located in a remote site several hundred miles north of Lima. Centromin management boasted of Antamina’s large polymetallic ore reserves, with an estimated range from 127 MT to 913MT. However, due to a lack of geological data on a large portion of the reserve, there is a need for further geological studies in order to better determine the actual amount of reserves. The purchaser of the property would need to conduct their own feasibility studies and bear the approximate $24M cost associated with the exploration.

Bidders
RTZ-CRA: The world’s largest mining group operating globally with a revenues of over $8B and a market capitalization of over $10B. It does not engage in currency or commodity price hedging as it believes that it’s global presence and broad product line diversifies its exposure to currency and commodity price fluctuations.

Noranda Inc. Among the ten largest mining companies in the world and a market capitalization of $4 billion, Noranda’s mining segment is focussed almost all in Canada and the United States.

Joint Venture between Inmet Mining Corporation and Rio Algom. Much smaller than either RTZ or Noranda, the Inmet/Rio joint venture leverages two nimble companies with interests across the world. With a combined market capitalization of $1.6B, its access to the capital needed to finance such a project may be an issue.

Bidding Rules
The bidding procedure includes two parts.
First, companies bid for the right to explore the