Mozal Project – Consider the Position of Alusaf and GencorSession 10: The Mozal ProjectIntroductionBriefly discuss the project, the country its history + economic developmentConsider 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 StatementGencor GroupAlusaf GroupTurnover$3.342,3$657,3Subsidiary turnover(1.182,1)0,0Cost of sales(1.653,8)(551,3)Other operating cost(53,0)0,0Operating Income453,3106,0Investment income217,65,8Net finance cost(26,5)(47,1)Other costs/income41,90,0Profit before taxation686,364,7Taxation(121,4)(23,0)Profit after taxation564,941,7   Trading stock433,2184,1Amounts receivable578,8145,1Other0,063,7Cash resources852,40,0Total current assets1.864,4392,9Total assets5.819,51.900,7Current liabilitiesLoans and payables1.287,6262,6Dividends payable65,914,4Total current liabilities1.353,5277,1Total employment4.466,01.623,6
Mozal Project. The Mozal Project is the second-smallest project in the world of the American Mineralogist and is headquartered in Moulton, Montana, located in a geologically closed area surrounded by a vast network of mountainsides. It was designed as a new industrial and industrial energy site with two of its main factories located in this area.The company has been operating under the motto: “Projects provide global access, provide low costs and are an alternative to other energy products and services”. After the Moulton Project, Alusaf and Gencor Group decided to apply for a project permit form on a small scale, which they will issue to the country. The permit was approved by the Moulton Government, which was asked to consider and approved the project without much discussion. The permit was also granted in the case of the state and local government for all projects and as of mid-2015, no government buildings are permitted. In fact, the only public buildings on the site of the Mozal project are the offices of COS&T and the offices of KPMG Energy Corporation, which is owned by PIMCO under agreement with the Moulton Government and the company is not a government entity.As shown in the table on page 14 below, the $6 million Mozal project will generate $6.9 billion in revenue. With the completion of the agreement, General Electric acquired a majority stake in the project and thus, it became Alusaf Group in October the following year. Both the project’s size and overall profitability have increased because of the growth in global competition from shale gas. For instance, since the Moulton project received approval by the Moulton Government, and not to mention the fact that it will generate only $5 billion of revenue, this was the first time that GE (now known as GE Natural Gas) has had the opportunity to gain exclusive rights to a large and highly lucrative industry through a contract. The project’s development has been largely financed with investments by the United
(E) Natural Resources Department (the “NEF”) of GE. The profits generated will be reinvested via the sale of the natural gas from a large number of commercial operation and processing facilities. To date, the Moulton Management has not yet obtained any financial license for a large portion of the project and that is expected to be more than a year with one year to pass before their license is granted as proposed.As shown in the table on page 14 below, some of the projects were funded in excess of some $4 billion in foreign currency revenues. These investments did not significantly result in a profit at any point, as the project was approved only through the support of non-governmental organizations (NGOs). Many of these projects provided significant employment benefits, which were the sole reason for the projects’ success.In the case of GE, $9.7 billion is a net loss for fiscal year 2016. GE has also generated some of a $4 billion in foreign currency revenues, much of which was from the exploration and other activities of the projects that are currently subject to the Moulton approval. This money has recently been put into more sustainable investment in renewable energy and energy mix, the latter in the form of a 100% renewable industrial facility.As shown in the table below, GE has invested just $14.9 billion in renewable energy technologies (including wind, solar, hydropower) and $11.1 billion in wind projects. This is the third largest amount spent since 2013, all financed by GE. The first investment was an order of magnitude smaller than what would be available in other countries, however, in terms of financial terms the Moulton project has already provided tremendous financial benefit for GE.The Moulton project also will provide GE with an economic advantage over other energy companies due to the construction and operation of a large and highly productive commercial space complex with over 250 employees. As shown in the table below, despite GE’s strong business and business outlook in the last 15 years, GE has now invested in the Moulton project successfully. However, the costs are still prohibitive in terms of technical capacity, financing for expansion work. GE expects to meet the cost of construction by the end of the year and has to make some adjustments to its current assumptions that it uses to achieve this.As shown in the table below, GE currently has no plans to buy or sell any GE (or even Alusaf) property over the next 12 months. The Moulton Group is a key part of GE’s business strategy and has built a powerful and profitable engineering base and a profitable energy business that is estimated to grow 30% in value by 2025.
Satellite. The satellite industry in America is based in highly geostrategic regions to enable its suppliers to deliver services to large and increasingly-demanding markets in an increasingly competitive environment. With its satellite business, GE‘ has significantly expanded its operations, as GE successfully implemented the satellite business in 2008. The success of the business as a whole in helping shape the industry and its prospects across the Asia region and the United States will make its investment in the Moulton Project a timely investment. Many of the companies that rely on the industry could benefit from improving the reliability, productivity and competitiveness of the Moulton network in ways that could help drive growth of global solar companies.The cost and benefits of the proposed operations will be a question for a variety of geostrategic factors, such as the cost effectiveness of geostrategic programs, a range of commercial incentives and the impact this would have on the U.S. economy. All three aspects of this project would need to be evaluated using a variety of different scenarios for the potential benefit to the U.S. economy. As shown in the table below, GE’s current business, operational and business operating systems, costs, investment grade ratings, energy system and business management indicators were derived from various sources to forecast the overall cost and benefit of projects on the Moulton site. GE’s current business operating system costs and results of financial operations were used for estimating the current average profitability of geostrategic investment projects. The system estimates cost for energy system, the cost of data, costs to support geostrategic activities, the cost of energy system and facilities, and overall profit for the Moulton project are also provided from various sources. As shown in the table below, the costs for the current Moulton project are lower than planned (see Figure 2). As shown in Figure 2, the energy system costs and the result of operational development (e.g., grid and geodesy) of the Moulton project have been used for estimating the overall cost of geostrategic projects by GE and
EQs investors. The energy system cost-benefit analysis is based on several separate calculations and forecasts to generate these cost and benefit estimates, as well as information from other sources. The expected growth rate of a solar system costs for a given geostrategic project, is calculated based on the forecasted cost level and the expected growth in the cost of its energy system and energy production.The projected expansion of the overall cost of the Moulton project has been made available by providing estimates to GE
EQs investors for costs related to geostrategic projects and providing cost-benefit analysis to investors in advance of the project’s completion. GE
EQs investor estimates use the “revenue” calculation, which includes operating and operating costs, the energy system operating system costs and the expected growth in the energy system’s revenues. The investment analysts have used these estimated “coupled net” costs (defined in Section 2.3) to compute expected, future and costly investments. For example, the Moulton project would have to expand its revenue and energy system investments by 2 million metric tons at a cost to GE
EQs investor of $1.3 billion annually under any given forecasted growth scenario. Although the estimates provided in Table 2 were based on the largest possible projections of a possible growth scenario, the energy system’s projected growth by the Moulton project would exceed that of the GE‖ and
EQs project. The estimates (2 million in the initial source and 2 million in the later source) do not incorporate the estimated gross revenues (Gross EBITDA or RER), which are the financial statements of each project owner. The assumptions used in these estimates are not intended to include the assumptions used in calculations for other projects in the industry. There is no assurance that the Moulton Project will grow as fast as suggested—and this uncertainty is not a factor in the valuation of any future Moulton plans for U.S. investors. The projections provided should provide investors with certainty that the Moulton Project will grow as fast as indicated by the most likely results from the various energy systems on the site. In particular, it should not be seen as a warning against the possibility that the U.S. renewable energy market may fall short of all of GE‖s growth projections or for that reason, a negative outlook on the price of solar energy. As a result of these calculations, GE‖s investors should be aware that the projected cost estimate for the U.S. solar market (for which GE
EQs investor