Mozal Project

PROJECT FINANCE

Financing the Mozal Project SUBMITTED TO: T O: DR. ANUPAM ANUPAM RASTOGI

Submitted By:TEAM 3 - GROUP II

1. Should Alusaf/Gencor invest in the Mozal project? •

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The IRR (Internal Rate of Return) for the Mozal project has been calculated using the  projected cash flows (pre interest) in base case and expected case. The base case has been considered at sales price of $1!" and expected case is at sales  price of $1#"". The IRR calculated using the projected cash flows returns a ield of 1%& in base case and 1!& in expected case. The ' and *I were increasing + the inflation decreased. The Moza,bican 'o-t. ,ade constant efforts to i,pro-e the ,acroecono,ic situation + encourages the pri-ate sector in-est,ent.

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The I'R ris/ rating for the group changed fro, .0 to 1%."

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ttracti-e power tariffs and attracti-e labor cost were a-ailable in Moza,bi2ue

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The alu,ina suppl was contracted for 3! ears fro, 4illitons5 ustralia

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The suppl of electricit was also contracted for 3! ears fro, 6s/o, + Moza,bican 'o-t. The a-erage capital cost for an s,elter was $%#!" per ton but the Mozal roject had an o-erall capital cost of $%!" per ton -erage production cost $1!1" per ton (6xcluding depreciation + financing charges) but Mozal projected brea/e-en price $1%78 per ton (Including depreciation + financing charges) in the %th ear and further declining to $1"" in the 11th ear 

Cost of equity Calculations •

The ris/ free rate has been ta/en as 0.!0& as this was the ield on 1"9ear :; Treasur  bonds

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The ,ar/et return for a period of 17#9177 was 18& ('R)

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The e2uit beta has been calculated as 1.!70

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The countr ris/ pre,iu, is 0.7&

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The total cost to e2uit has been calculated as 31.80&

4ased on just the IRR the co,pan would generall not in-est in such a proposal. 4ut gi-en the other econo,ic benefits and the fact that the ha-e entered into long ter, contracts5 ,a/es the  project see, doable.