MOZAL

PROJECT

Group: 1 Team: 5
Gilles Vernooij 5791154
Marin Zhelyazkov 5976936
Konstantinos Tolias 6032486
Junfu Liu 3887537
Prince Raindy 5661331

ABOUT THE PROJECT

$1.4 bill Aluminum
smelter project in
Mozambique

Major input factors

Who is involved?

Why Mozambique?

IFC AND THE PROJECT

o

Appraise the project

Structure legal documents

Provide long-term capital

Deter sovereign interference

Resolving costly market imperfections

MORE ABOUT IFC

Diagnos
e
Identify
needs
and
niches

Undertake
policy
dialogues/provid
e technical
assistance
Determine
fiscal and
regulatory
issues

Conduct
feasibilit
y study
Undertake
Market
assessme
nt
Sound out
potential
Investor
Interest

Identify
Sponsor
Identify
managers
both
foreign/local
Find
core
investor
s

Structure
Fund
Define
Investmen
t Strategy
Determin
e
exposure
guideline
s
Set
Manageme
nt fee and
incentives
Determine
funds
legal form
and
domicile

Mobilizin
g
Funding
IFC direct
investme
nt in fund
Place with
institutiona
l investors
Underwrit
e
Advice and
Govern

Advice
and
Govern
(Sit on
Board) or
investment
committee of
fund
Advice on
Environme
nt Impact
and
Assessme
nt
Participate in
Portfolio
Supervision

IMPACT ON THE ECONOMY

Share

of GDP +9% 157 million

Doubled
Impact
Job

Mozambiques export by 430 million

on external trade

increase +5000 construction jobs and +873 permanent jobs

Increased
Aids

infrastructure

awareness program

Additional
Boost

housing

in local business

FINANCING

VALUE OF PROJECT $1.4billion

Debt
Senior - $680mln

Equity
Subordinate $150mill

$500mill

INCENTIVES & CONCERNS

Low labor costs

Attractive power tariffs

Return on Investment

Political risk

Government support

Economy risk

Competitive production cost

Financial risk

Natural hedge

Bureaucracy

POTENTIAL POST-COMPLETION RISKS

Technology risk

Supply risk

Price volatility risk

Expropriation risk

RISK MITIGATION STRATEGIES

Rely on international commercial
partners
Involvement of ECA
Foreign trustee to keep sales proceeds
Government commitment
Using high leverage
Insurance

PROJECT VALUATION

Assumptions

Risk free rate is 3.5% according to the Inflation

indexed 10-year US Treasury Bonds in 1997
Cost of debt is taken as 6.56% - the interest rate on
10-year US Treasury bonds in 1997
Industry beta asset of aluminum is 0,8
Equity risk premium is assumed to be 5%
Country risk premium is assumed to be 4%
Cash Flow to be discounted at the real cost of capital
Life time of project is 25 years
After 2012 free cash flows are assumed to be steady

PROJECT VALUATION CONTD

RECOMMENDATION

IFC should immediately seize the

opportunity according to the returns
Investment in Mozal Project on the part
of the IFC would generate valuable
social, financial and economic benefits
Excellent ways to alleviate risks
Small chance of default

MOZALS UPS AND DOWNS

Industrial deal of the year 1998

Workers strike caused by low wages and poor

working conditions

Project of the year award 2001

Growth option doubling capacity in 2003

(completed 26 months before go-ahead)