Bidding for antamina project introduction in the beginning of the 1990’s, the peruvian government wanted to privatize the government owned companies into private companies.
This case introduces the real option valuation methodology by detailing the bidding for a real option (the right to develop the antamina mine in peru) in the natural resources industry the real option was embedded in the bidding rules for antamina as part of the peruvian privatization process. The novel aspect of the transaction was the type of bid requested by the peruvian government, which essentially requested bidders to state both the premium that they would pay and exercise price they would set for this real option.
Bidding for antamina case solution valuation based on decision the npv of antamina was the bidding price that a bidder would pay if the winning bidder would be forced legally to develop antamina by completing the exploration with the amount that would be paid to the peruvian state as an up-front for this mining project. The antamina project is being offered for sale by auction as part of the privatization of peru's state mining company rtz-cra has to determine what the mine is worth and decide whether and how it should bid in the upcoming auction.
The antamina project is being offered for auction as part of the privatization of the state mining company in peru rtz-cra must determine that the mine is interesting and decide whether and how to bid in the upcoming auction. 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.
Bidding for antamina case solution, in june 1996, leaders of the multinational mining company rtz-cra considering a bid to acquire the mine copper and zinc mine in peru the antamina project. In june 1996, executives of the multinational mining company rtz-cra contemplate bidding to acquire the antamina copper and zinc mine in peru the antamina project is being offered for sale by auction as part of the privatization of peru's state mining company. The spreadsheet, bidxls, implements one model of the real options in antamina you should try to “figure out” how it works through reverse engineering according to the workbook intructions. What is unique about bidding for antamina, however, is not the valuation of the project per se, but rather the real option embedded in the bidding rules set up by the peruvian government, and the resultant implications for the behavior of the bidders and the ultimate developer of the deposit.
Case: bidding for antamina questions 1 in what way is the development of a copper mine like antamina a real option in what way is the bidding structure put in place by the peruvian government an option what is the correspondence between these real options and financial options what other real options does the owner of the antamina have 2. Bidding for the antamina mine: valuation and incentives in a real options context this chapter studies the bidding for a copper mine that was offered for sale by the peruvian. Fin 673 corporate valuation and financial strategy professor robert bh hauswald kogod school of business, au case study bidding for antamina in june 1996, the uk based mining company rtz-cra had to decide whether to bid for the. Bidding for antamina prepared by: fiona wang this case introduces us to real option valuation in a bidding context we are helping rtz-cra to determine the value of antamina and to recommend how rtz-cra should bid in the upcoming auction under the non-traditional bidding rules set by the peruvian government.
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. Bidding for antamina case solution the difference is just that in a financial call option, the underlying asset is basically the stock price whereas in this case it is the value of the metal contained in the mine and the overall value of the mine.