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Unformatted text preview: Instructions Page 1 OTHERWISE THE MACRO WILL NOT RUN AND EXPLODE ON YOU! OVERVIEW This workbook allows you to construct a decision analysis simulation of the Antamina mine described in the "Bidding for Antamina" case. The simulation consists of a number of "trials". In each trial, a random set of monthly copper and zinc prices and convenience yields is simulated for the first two years of the mine life, during the feasibility study and before the mine begins operations. At the end of two years, a forward copper and zinc price curve is constructed, and used as input to a DCF analysis of the three scenarios described in the case. Summary statistics of the NPV of each of the scenarios and other variables is presented. The workbook consists of nine worksheets. All worksheets except the "Summary" worksheet are locked. You may unlock them by going into the "Tools" menu and choosing "Protection". This will allow you to change variables with abandon. Don’t forget to make a copy of the spreadsheet before doing so. (1) "Summary" -- This worksheet takes as inputs the initial payment, the investment commitment, and the number of trials that the simulation is supposed to run for. Input variables are highlighted in red (if you have a color screen, of course.) This sheet also generates as output (i) the amount of the bid, (ii) the NPV of the mine without the option to abandon (Section A), (iii) the NPV of the mine with the option to abandon after 2 years, without penalty (Section B), and (iv) the NPV of the mine with the option to abandon after paying the penalty described in the case (Section C). This worksheet also shows the penalty to be paid as a function of the investment commitment and the required investment for each of the three scenarios. (2) "Parameters" – This worksheet has all the input parameters required to calculate the WACC, inflation rates, and other capital markets data used by the DCF calculations. It also allows the user to change the probability of each of the three outcomes for the mine ore quantity. The lower portion of the worksheet has all the parameters required to calculate the paths for the copper and zinc prices and convenience yields The drift rates are the long-run trend of copper prices, which are assumed random around the long-run trend. The convenience yields are modeled as mean reverting processes, which tend to oscillate around their means. A measure of how quickly this oscillation happens is given by the mean reversion parameter. The correlations between the commodity prices and convenience yields are also included. For more on the prices and convenience yields of see the "Copper and Zinc Markets: 1996" note for the case. (3) "Simulation Summary" – This worksheet has the summary statistics from each of the runs, which are shown in (4) "Simulation Results"....
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- Spring '11
- Revenue, DCF, millions