Investment Decision for Pilbara Minerals: Expanding in Australia or Chile

This report discusses the investment decision Pilbara Minerals need to take, including a critical comparison between Australia and Chile and exchange rate analysis to analyze the risk and benefit of expanding. The report provides a sensitivity analysis and highlights the growth opportunity for the firm.

BEA309 International Finance
TABLE OF CONTENT

INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
Sensitivity analysis:.....................................................................................................................3
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................1

INTRODUCTION
Business expansion require firm to perform in depth analysis of industry and their internal
firm condition, this study is based on Pilbara Minerals focusing on expanding either in home
territory (Australia) or Chile (Another nation) (Lupton and et.al., 2020). This report will discuss
investment decision Pilbara Minerals need to take, this may include critical comparison between
two nation and exchange rate to analyse the risk and benefit of expanding. At last, one from two
investment opportunity will be selected.
MAIN BODY
Sensitivity analysis:
Pilbara Minerals want to expand their business unit; this company have two of the major
investment option for continuing further expansion of the firm. Pilbara Minerals either expand in
Australia where they are already dealing and operating (Facada, 2019). On the other hand,
expansion either in Chile (South America), both expansion opportunity includes high risk.
From the above diagram, it is highlighted that the Chile currency (Chilean Peso) is
performing well and rapidly increasing its value in international market. Comparing Chilean
Peso with Australian dollar, there is increment in 1 Australian dollar which allow AU firms to
trade in Chile and expand further. The bilateral exchange rate highlight less or low risk of

investment, this simply means Pilbara Minerals have opportunity to expand their business unit in
Chile as currency of this country is performing well. 1 Australia dollar = 605.105 CLP (2022),
previously this value had major difference. In the year, 2020, 1 Australian dollar = 540 CLP and
in the year, 2018, 1 Australia dollar = 484 CLP that highlight continuous growth of CLP
allowing their currency to become valuable (Reserve Bank of Australia, 2022).
Australia is one of those country who focus on floating exchange system where value of
currency is define with the help of supply and demand from international market. Pilbara
Minerals have opportunity to expand their business unit in Chile but they have to face heavy
international competition because mining and mineral industries of US and Canada will be
purchasing mineral in low rate and their transportation cost will be minimum as compared to
Australia. Pilbara Minerals can capture mineral industry with this expansion because, flow of
supply and continuous demand will allow firm to maintain trade with nearby countries
demanding minerals.
Risk due to exchange rate:
Transaction exposure: This is one of the most common type of risk faced by the business
organization while dealing in international market, due to rapid change in exchange rate, firm
might face loss even generating profit from their operation. Pilbara Minerals might face sudden
change or shift in exchange rate between Australian currency and Chilean Peso which will
impact their foreign transaction. This is major risk faced by Pilbara Minerals which impact their
business expansion.
Operating exposure: Operating exposure is another major risk impacting performance of firm
dealing in international market, this type of risk arrives when firm deal in either competitive or
monopolistic market, exposure of operation impact price of the product. Pilbara Minerals might
face challenge due to operating exposure, Chile currency fluctuation increase cost of production
and affect transaction. Pilbara Minerals can adjust their operation due to currency fluctuation but
they cannot change currency flexibility.
Although, expanding in Australia or local territory is less risky and beneficial because firm
is aware about the market condition and value of 1 Australian dollar. The currency of Australia is
stable allowing firm to maintain further expansion. However, expanding in Chile with currency
rate of 1 AUD = 605 CLP is much more beneficial for the firm.

CONCLUSION
This report has discussed expansion and its importance for the mining companies and
explore overview of Pilbara Minerals which is mineral mining company in Australia. Later this
report has discussed sensitivity analysis to analyse the currency value and exchange rate between
two nations, the formal comparison between AUD and CLP is provided in the report highlight
the growth opportunity for the firm. At last, recommendation is provided whether, Pilbara
Minerals need to expand in Chile or continue their operation in Australia.

REFERENCES
Books and journals
Facada, M., 2019. Pilbara Minerals limits June-July lithium output. Industrial Minerals, (611),
p.18.
Lupton and et.al., 2020. National income inequality and international business
expansion. Business & Society, 59(8), pp.1630-1666.
Online:
Reserve Bank of Australia, 2022. Exchange Rates and their Measurement. Available through.,
<https://www.rba.gov.au/education/resources/explainers/exchange-rates-and-their-
measurement.html>
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