The Mozal project as devised by the Sponsors will construct a low cost highly competitive aluminum smelter in Mozambique. Mozambique, a poor emerging market country recovering from a civil war that devastated the country’s economy, presents unique risks for this project which threatens the viability of the project. The sponsors, Alusaf and Industrial Developmental Corporation have to make the critical decision whether to invest in the project. They also have to persuade banks and development finance insitutions - including IFC that the project has been well structured with viable financial and economic return, sufficient to warrant their enthusiastic participation in the project.
An analysis of the project cash flows and measures taken to mitigate the important risks reveals that the Sponsors have adequately dealt with all important risks. The Mozal project has a positive net present value and exceeds the internal return hurdle thereby warranting investment by the Sponsors and lenders. IFC should finance and lend its expertise to the project will provide significant economic value to Mozambique over the life of the project. The real option imbedded in the project creates additional value for all stakeholders in the project thereby providing additional reason to invest in the Mozal project.
Summary of facts
The Mozal Project, a low cost aluminum production plant to be set up in Mozambique, is a joint venture between Alusaf and the Industrial Development Corporation (IDC) (“the Sponsors”) who are the equity investors in the project and will each provide $125m worth of equity into the project.
Major inputs needed to produce aluminum are alumina, electricity, labour and other raw materials. The sponsors have secured long term 25 year contracts for supply of Alumina and Electricity and raw materials on prices linked to LME aluminum prices. Labour will largely be sourced from the low cost Mozambique workforce. Based on this plan, the breakeven...