Question 1: Who's who in the market? How is the technology of production of molybdenum?
Considering the point of view of AMAX, the main players involved in the market are (1) molybdenum producers – direct competitor like other mines or base metal companies that produce it as by-product, (2) the metal exchanges where prices are set, (3) the distribution channels, (4) the high performance steel manufacturers (the direct clients of molybdenum), and (5) the companies that produce goods partly composed by molybdenum. Besides that, (6) iron and carbon suppliers are complementary products, and (7) light aluminum is a substitute product.
The technologies of gaining the molybdenum are mentioned as the direct mining of the material, the production as the by-product and the reuse from scrap metal.
Question 2: What would the price prediction if we focus to the market data?
...view middle of the document...
At the other, all other forces push demand up, like fear of exhausting, the political interruptions, the inflation, the rising prices of the complementary material and the raising income of the companies. We believe the resultant force will be positive, bringing demand up, and so the market price.
Question 3: At what prices would be profitable each of mine? Are likely to occur?
The cash flows forecasted for the three projects are as following:
Year/Mines 1980 1981 1982 Each year from 1983 to 1992
Climax inflow Return interval 15 to 135
Minimum Return that has to be made: 81
Climax outflow 100 100 100 51
Henderson inflow Return interval 7 to 111
Minimum Return that has to be made: 54
Henderson outflow 66 66 66 34
Kitault inflow Return interval to 70
Minimum Return that has to be made: 27
Kitault outflow 33 33 33 17
Considering this information, we calculate that the price levels to achieve profitability for each project are:
Mine Climax: $ 9.40
Mine Henderson: $ 8.62
Mine Kitault: $ 8.70
And we believe these are likely to occur.
Question 4: What is your forecast for the evolution of the market price for the next decade?
As depicted earlier, the demand will increase, but the supply will also be increased because of investments on production capacity. Nevertheless, the expected equilibrium price will stabilize in a higher level than the current one, as shown in the charts below.
Question 5: Should AMAX proceed with these investments? If so, in which mines?
According to our forecast of the market price for the next decade, AMAX should proceed with these investments. Considering the trigger price level for achieving profitability in each project, AMAX should prioritize investments starting with Henderson ($8,62), Kitault ($8,70) and Climax ($9,40). This order would increase the chance of achieving profitability, as illustrated in the probability distribution of possible price levels.