Toromocho Mining Notes - Toromocho Mining Notes Toromocho Mining a small Peruvian copper mining company by an M&A analyst for acquisition by a US copper

Toromocho Mining Notes - Toromocho Mining Notes Toromocho...

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Toromocho Mining Notes:Toromocho Mining, a small Peruvian copper mining company, by an M&A analyst, for acquisition by a US copper mining company. Both firms are fully equity financed and have unlevered betas equal to the industry average. The analyst has estimated a value of 1billion Peruvian Sol for the equity, based upon the expectation that the firm will generate 50 million Peruvian sol in cash flows next year, growing at 5% (in sol) a year forever; mistakenly, he used the US company’s dollar cost of equity in the valuation. To correct the valuation, you have been provided with the following information:The US T.Bond rate is 3% and Peruvian US$ denominated bond rate is 5%; Peruvian equities are 1.5 times more volatile than the Peruvian $ bond.The Peruvian sol denominated bond has BBB rating and pays 7% interest.The equity risk premium for mature markets is 4%.The typical Peruvian company generates 80% of its revenues in Peru, but Toromocho Mining generates 20% of its revenues in Peru.
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  • Spring '11
  • RichardM.Levine
  • Finance, Depreciation, Valuation, Generally Accepted Accounting Principles, after-tax operating income, copper mining

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