Mozal Project - Consider the Position of Alusaf and Gencor

Session 10: The Mozal Project

Introduction

Briefly discuss the project, the country its history + economic development

Consider the position of Alusaf and Gencor:

The rate of return is the percentage return received on an investment after accounting for its initial investment. The outcome of a rate of return is dual. Either the rate of return is positive, reflecting a successful investment outcome. On the other hand, it can be either negative or neutral in which one should not participate in the investment since undergoing a zero return operation results in unrewarded risk whilst a negative rate of return reflects a loss.

This measurement can be applied in order to see whether or not the investment might be profitable since it’s being calculated ex-ante. The outcome reflects a straightforward interpretation and therefore has been widely applied. However, one should always take into account alternative investments with the same risk-reward relationship.

However, to calculate the rate of return of the Mozal project, an assumption has been made. Specifically, the rate of return is equivalent to the internal rate of return of the project with constant price projections of pre-interest, after income Cash flows less project cost (free cash flow).

Before continuing with the calculations, we will briefly discuss the project in short.

The mozal project is a joint venture between Alusaf and the IDC of South Africa. Alusaf is the subsidiary of the Gencor group, which is the fourth largest aluminum producer with two main divisions, namely, precious metals and base metals.

More information is provided about Gencor’s and Alusaf’s financial data in exhibit 1.

Exhibit 1 Income Statement