Biloela Resources (BR), a Queensland based mining company, is considering developing a

copper mine in Brazil. It plans to use a subsidiary, Bahia Mines, to develop the mine. BR has a

90% share in Bahia Mines with the remaining 10% owned by the government of the state of

Bahia. BR has completed exploration and feasibility studies and has spent the last few years in

the process of acquiring permits to begin development. The proposed mine has "proven and

probable reserves" of 50 million tonnes of copper. BR has so far spent USD 200 million and

will need an additional USD 800 million to complete the developmental phase of the mine. The

plan is to use open pit mining and use "heap leaching", a process that involves using chemicals

to extract copper from crushed ore. It is being considered because it is a low cost process with

recovery rates of around 70%. The planned life of the mine is 20 years.

Given the recent Samarco disaster, in the nearby state of Minas Gerais, where the tailings dam

at the iron ore mine burst resulting in the loss of lives and the pollution of the Doce river, local

community interest groups have become more vocal in their opposition to the mine. These local

stakeholders have raised concerns about the potential damage to the tourism sector and to the

environment if the use of cyanide contaminates aquifers.

BR estimates that the mine will create jobs and inject billions of dollars into the Brazilian

economy and over $2 billion directly to the treasury of the state of Bahia. However, BR is

concerned about this escalating political issue affecting its stock price and the chances of final

approval for the project. Given its declining cash reserves it is keen to get started on the

developmental phase of the project. The NPV approach indicates that the mining project has a

positive valuation and this value is robust to sensitivity analyses done utilizing various key

inputs such as cost of capital, royalties paid to the state of Bahia, quantity of reserves, price of

copper etc. Despite this upbeat assessment, BR is concerned about its financing needs. The

project is currently funded entirely by equity. Its stock is currently trading at around 75 cents.

How can Bahia ensure it receives the final approval for the mine? If the project is approved,

what do you believe, based on understanding of the benefits/costs of various types of financing,

is the best way to finance its CAPEX needs?

(b) In March 2020, the Australian Treasurer announced that the Foreign Investment Review Board

(FIRB) would assess all foreign proposals to acquire Australian firms. He said in a statement

that "These measures are necessary to safeguard the national interest as the coronavirus

outbreak puts intense pressure on the Australian economy and Australian businesses." (Reuters

March 30, 2020). Evaluate the argument that the Australian government should impose

restrictions because a depreciation of the Australian dollar offers a significant financial

advantage to foreign bidders for Australian firms/assets.