Why bankers force feed the coal market: Differential economics among fuels, between coals, and within coal blends make coal forecasting a very hazardous profession indeed
- International Advisory Finance, Sydney (Australia)
When bankers try to assess which natural resources are [open quote]safe[close quote] lending targets for project financing, market risk-especially price volatility-is the primary concern. However, coal appears to provide the ingredients to lower this risk perception, namely: stable prices; ability to get long-term [open quotes]contracts[close quotes]; economic rent. Value of energy in thermal coal; direct link to GNP (steel) for coking/metallurgical coal; economies of scale-large unit mining operations; established seaborne trade infrastructure; huge reserves; and straightforward design, estimation, feasibility. Eighteen mine project financings in the 1965-1981 period were analyzed and it was found that of the three coal cases examined, two had problems. One of these never achieved the designed production level and the other came in three years late and 50% over budget. (Both were in North America). Of the 18 mines, 13 had severe problems. Despite this gloomy picture, no banks have lost money on their project financings since the sponsors gave direct credit support or injected new equity. In spite of this risky profile, banks again became hot-to-trot on project financings in the early 1980s and it is this era when the basket cases examined were financed to development.
- OSTI ID:
- 6018879
- Journal Information:
- Engineering and Mining Journal; (United States), Vol. 194:7; ISSN 0095-8948
- Country of Publication:
- United States
- Language:
- English
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