Essay - IFC and Mozal Alusaf/gencor Should Invest in the Deal if...

IFC and Mozal

Alusaf/Gencor should invest in the deal if ***** IFC *****s. Without *****'s co-investment ***** guarantees, This would be a risky proposition for the two comp*****nies, and ********** should not invest.

The particular reasons for Alusaf/Gencor to invest include the following:

***** close geographic and cultural proximity for Alusaf and Gencor make it easier ***** those two companies to oversee their investments, and to help provide management ***** and when needed.

***** investment's payback could be of benefit to both companies, but particularly to Gencor. For Gencor, a re*****sonable business plan achievement could double the size of the company's revenues and cash flow.

By creating a manufacturing entity with costs in ***** lowest 5% of the global industry, Mozal will have better staying power than many of its competitors, even in ***** event of an ***** downturn in prices.

The pricing assumptions for aluminum product are quite conservative, given the previous history ***** ***** prices. Although it can be viewed as a dis*****dvantage that not all of Mozal's production is secured by long-term supply contracts, the opposite ***** also true: Mozal's participation on the world spot aluminum market could result in higher prof***** than projected. A probability analysis needs to be done ***** analyze ***** effects of these prices on Mozal's overall profitability, ***** it could be substantially higher than currently projected.

Pechiney's agreement with the c*****sortium assures industry-standard construction and cost standards.

***** French government's willingness to finance a m*****jor part of ***** project *****s additional security ***** other investors and may lower the ***** ***** of capital.

***** remains a risky operation, as the rating for Mozambique continues to be low (but rising fast, according ***** Economist Intelligence Unit). The commercial risks have certainly *****en identified, ***** there are several areas which need additional exploration. In particular:

It appears that Mozambique offers the potential of cheap hydroelectric power ***** cheap labor, but no specific advantages in terms of customers or bauxite supplies. *****s a *****, Moz*****mbique should be compared to ***** countries ***** the region which *****fer ***** same hydroelectric and lab***** cost advantages.

***** *****or is not a large cost item, it is nevertheless an important component. Given the expectation ***** the project will hire 90% local citizens, it ***** important ***** know if there are capable, motivated people ready and willing to work w*****h this new company.

***** Mozambique government has yet ***** abandon its highly bureaucratic (and perhaps corruption-tinged) methods for approval. While the case mentions that a committee has been arranged to "take care" of the political dimension, ***** unstable nature of Mozambique's power structure ***** uncertain laws may require ***** *****.

An analysis ***** a ***** war needs to take into account the capital at risk ***** Alusaf/Gencor. Although a portion of this will be covered ***** insurance (assuming IFC *****), th***** may only pay back a portion of ***** c*****pital *****. It will not cover business interruption, nor the sure legal action that buyers with long-term contracts may ***** able