BIDDING FOR ANTAMINA

This case is about bidding for a copper mine, offered for sale by the Peruvian government as
part of the county’s privatization program. The mine had a valuable component in form of the
right to develop the mine after finishing exploration. The transaction novel was the type of bid
which was requested by the Peruvian government asking bidders to pledge the premium that
they would pay for the expenditure.
In 1996, the Peruvian government decided to make the assets owned by the state private. The
first one to be privatized was Antamina, a polymetallic ore which is 500 kilometers north of
Lima, Peru. The Bidder was to have two years to explore the property before deciding whether
to develop the site or not. This time gave rise to a good option which the bidders would use to
incorporate the valuation. The valuation was not as unique to the Antamina than the real
option embedded in the bidding rules set by the Peruvian government and the result to show
the behavior of the bidders and the ultimate developer of the deposit.
BACKGROUND OF THE ANTAMINA MINE
The Antamina mine, which is 482 kilometers north of Lima, Peru was sufficient in polymetallic
and zinc deposit. According to engineering reports made by the government in public as part of
the auction, the property had proven the ore reserves estimated at 127 million metric tons of
the ore containing 1.7 % copper and 0.8% zinc. The management had publicly stated that the
figures were under re-estimated according to the reserves of the property. Besides the part of
the ore body being well studied by the geologists, there was no geologic study of a very big
portion of the deposit. Due to this, there was a large uncertainty concerning the size of the
reserves. The contracts were put in a way that the winner needed to point out a premium for
the mine and explore it for two years, then decide whether to develop if they found it useful.