Subject: Process Economic Management
Tahle 1 Canital cost estimation and acsumntions Australian inflation will affect both revenue and costs to the same degree and is expected to average 2.1%. Your forecast is that the long-term exchange rate will be 1 US $=1.40 AUS, with US CPI forecast at 1.8% per annum. The Australian Corpoate Income Tax rate is 30% and for tax purpose, assum capital assets in this project depreciate using the diminishing value method over the 10 -year life of the project, with a premium of 200%. Owing to the sovereign setting, the upfront capital or development costs will be sourced in the ratio of 70% equity and 30% debt. The targeted long-term capital structure of the company reflects a preferred 30% debt target level. Woodside Energy Group (ASX : WDS) proxies as a comparable company in terms of its stock's 3year beta (1.42) in the Australian market. It has a Market Capitalisation of AU\$67.42 billion with attributable net debt of AU\$46.21 billion, and an existing gearing ratio of 69%. In addition, financial institutions will charge the project 3-month LIBOR (2.79\%) plus 350 basis points for a 10-year debt facility, with an initial 3-year interest roll-up, capital-and-interest repayment moratorium (i.e. non-payment) period. From the above, please address the following questions using the provided template (Excel worksheet is provided): 1. Determine the appropriate (variable) costs of capital (WACC) to use in the discount rates for this project. We have identified an opportunity in Western Australia (WA) to produce a total of 1.5GW of renewable energy and want to evaluate the attractiveness of building our own Green Energy lithium refinery project to offset carbon emissions versus exporting electricity via HVDC/HVAC to Singapore. Our renewable energy operation around WA will produce 111.8 MW of electricity per year that can either be sold in Singapore for US $0.22/kWh (net of transmission costs and loss) or utilised through our own Green Energy lithium refinery in WA. The purpose-built Green Energy lithium refinery will process the spodumene concentrates to produce a batterygrade 99.5% lithium hydroxide, with a 42,000 tonnes per year capacity. The final product will be sold to overseas lithium battery producers with two different fixed-term forward contracts for US $43,000/ tonne for 60% (to Company A) and US $45,000/ tonne for 40% (to Company B) of production, respectively. An initial scoping study has been completed, and your group assigned to identify the fesibility of building the refinery by providing an assessment of its value. The refinery design is being based on an existing refinery that process, and capital cost needs to be estimated using six-tenth rule (cb=ca(eb/ea), where ca,b are Costs, ea,b are size, is size exponent) and ratio factors from given information in Table 1 below. All equipments are assumed to be a double size of the base equipment. Working capital is injected equivalent to 1 month of OPEX in the first year of production for first fill of consumables such as chemicals, fuels, and spares. The project will require the investment in capital to be committed over 2 years of construction, with 60% capital being spent in year 1 and the remaining 40% spent in year 2 . Once commissioned it will take another 3 years to ramp up to full production. During the ramping up stage, the production will be 50% of design capacity in year 1,80% in year 2 , and reaching full capacity in year 3 , but the energy consumptions will be equvalent to full capacity. Operating costs are forecast to commence at $31,230 /tonne in the first year of production, dropping to $29,080 /tonne, in the second year and then reaching $27,485/ tonne produced in real terms over the remaining life of the project. Tahle 1 Canital cost estimation and acsumntions Australian inflation will affect both revenue and costs to the same degree and is expected to average 2.1%. Your forecast is that the long-term exchange rate will be 1 US $=1.40 AUS, with US CPI forecast at 1.8% per annum. The Australian Corpoate Income Tax rate is 30% and for tax purpose, assum capital assets in this project depreciate using the diminishing value method over the 10 -year life of the project, with a premium of 200%. Owing to the sovereign setting, the upfront capital or development costs will be sourced in the ratio of 70% equity and 30% debt. The targeted long-term capital structure of the company reflects a preferred 30% debt target level. Woodside Energy Group (ASX : WDS) proxies as a comparable company in terms of its stock's 3year beta (1.42) in the Australian market. It has a Market Capitalisation of AU\$67.42 billion with attributable net debt of AU\$46.21 billion, and an existing gearing ratio of 69%. In addition, financial institutions will charge the project 3-month LIBOR (2.79\%) plus 350 basis points for a 10-year debt facility, with an initial 3-year interest roll-up, capital-and-interest repayment moratorium (i.e. non-payment) period. From the above, please address the following questions using the provided template (Excel worksheet is provided): 1. Determine the appropriate (variable) costs of capital (WACC) to use in the discount rates for this project. We have identified an opportunity in Western Australia (WA) to produce a total of 1.5GW of renewable energy and want to evaluate the attractiveness of building our own Green Energy lithium refinery project to offset carbon emissions versus exporting electricity via HVDC/HVAC to Singapore. Our renewable energy operation around WA will produce 111.8 MW of electricity per year that can either be sold in Singapore for US $0.22/kWh (net of transmission costs and loss) or utilised through our own Green Energy lithium refinery in WA. The purpose-built Green Energy lithium refinery will process the spodumene concentrates to produce a batterygrade 99.5% lithium hydroxide, with a 42,000 tonnes per year capacity. The final product will be sold to overseas lithium battery producers with two different fixed-term forward contracts for US $43,000/ tonne for 60% (to Company A) and US $45,000/ tonne for 40% (to Company B) of production, respectively. An initial scoping study has been completed, and your group assigned to identify the fesibility of building the refinery by providing an assessment of its value. The refinery design is being based on an existing refinery that process, and capital cost needs to be estimated using six-tenth rule (cb=ca(eb/ea), where ca,b are Costs, ea,b are size, is size exponent) and ratio factors from given information in Table 1 below. All equipments are assumed to be a double size of the base equipment. Working capital is injected equivalent to 1 month of OPEX in the first year of production for first fill of consumables such as chemicals, fuels, and spares. The project will require the investment in capital to be committed over 2 years of construction, with 60% capital being spent in year 1 and the remaining 40% spent in year 2 . Once commissioned it will take another 3 years to ramp up to full production. During the ramping up stage, the production will be 50% of design capacity in year 1,80% in year 2 , and reaching full capacity in year 3 , but the energy consumptions will be equvalent to full capacity. Operating costs are forecast to commence at $31,230 /tonne in the first year of production, dropping to $29,080 /tonne, in the second year and then reaching $27,485/ tonne produced in real terms over the remaining life of the project
