Abstract
Not being mindful of the energy market’s inherent volatilities, capital budgeting assumes a well-ordered world that conforms to the preference of net present value (NPV) for predictable payoffs. Using the examples of coal-mining and power generation, this chapter presents the sad reality: when volatilities are explicitly considered, NPV’s carefully crafted “pecking order” falls apart, so that expected payoffs are seldom achieved. This trap could be avoided if managers were reacquainted with uncertainties and risk-taking. This chapter connects managerial actions and their financial consequences. Consequently, the ability to adapt or reverse commitments when conditions change is bound to have value.
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Appendix 3.1—Kalimantan Financial Model, P50 Basis
Appendix 3.1—Kalimantan Financial Model, P50 Basis
Financial items | Units | Profit and loss analysis—project level | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | 14 | ||
Revenues | $ mln | 0.00 | 0.00 | 33.25 | 99.75 | 199.50 | 199.50 | 199.50 | 199.50 | 199.50 | 199.50 | 199.50 | 199.50 | 199.50 | 66.50 |
Costs of extraction—cash basis | $ mln | 0.00 | 0.00 | 11.00 | 24.60 | 45.00 | 45.00 | 45.00 | 45.00 | 45.00 | 45.00 | 45.00 | 45.00 | 45.00 | 17.80 |
Mining overburden | $ mln | 0.00 | 0.00 | 5.95 | 17.85 | 35.70 | 35.70 | 35.70 | 35.70 | 35.70 | 35.70 | 35.70 | 35.70 | 35.70 | 11.90 |
Coal removal | $ mln | 0.00 | 0.00 | 0.85 | 2.55 | 5.10 | 5.10 | 5.10 | 5.10 | 5.10 | 5.10 | 5.10 | 5.10 | 5.10 | 1.70 |
Royalties | $ mln | 0.00 | 0.00 | 4.20 | 4.20 | 4.20 | 4.20 | 4.20 | 4.20 | 4.20 | 4.20 | 4.20 | 4.20 | 4.20 | 4.20 |
Operating costs—cash basis | $ mln | 0.30 | 0.30 | 6.66 | 19.39 | 38.50 | 38.53 | 38.56 | 38.59 | 38.62 | 38.65 | 38.69 | 38.72 | 38.76 | 13.13 |
Selling and administration | $ mln | 0.00 | 0.00 | 1.50 | 4.50 | 9.00 | 9.00 | 9.00 | 9.00 | 9.00 | 9.00 | 9.00 | 9.00 | 9.00 | 3.00 |
Marketing | $ mln | 0.00 | 0.00 | 1.50 | 4.50 | 9.00 | 9.00 | 9.00 | 9.00 | 9.00 | 9.00 | 9.00 | 9.00 | 9.00 | 3.00 |
Overheads | $ mln | 0.30 | 0.30 | 0.30 | 0.30 | 0.30 | 0.30 | 0.30 | 0.30 | 0.30 | 0.30 | 0.30 | 0.30 | 0.30 | 0.30 |
Mining operations | $ mln | 0.00 | 0.00 | 0.11 | 0.34 | 0.70 | 0.73 | 0.76 | 0.79 | 0.82 | 0.85 | 0.89 | 0.92 | 0.96 | 0.33 |
Freight and transportation | $ mln | 0.00 | 0.00 | 3.25 | 9.75 | 19.50 | 19.50 | 19.50 | 19.50 | 19.50 | 19.50 | 19.50 | 19.50 | 19.50 | 6.50 |
Earnings before interest, taxes, depreciation and amortisation—EBITDA | $ mln | −0.30 | −0.30 | 15.59 | 55.76 | 116.00 | 115.97 | 115.94 | 115.91 | 115.88 | 115.85 | 115.81 | 115.78 | 115.74 | 35.57 |
Depreciation | $ mln | 0.00 | 0.00 | 1.00 | 1.00 | 1.00 | 1.00 | 1.00 | 1.00 | 1.00 | 1.00 | 1.00 | 1.00 | 1.00 | 1.00 |
Provisions—Rehabilitation | $ mln | 0.00 | 0.00 | 0.83 | 0.83 | 0.83 | 0.83 | 0.83 | 0.83 | 0.83 | 0.83 | 0.83 | 0.83 | 0.83 | 0.83 |
Earnings before interest and taxes | $ mln | −0.30 | −0.30 | 13.76 | 53.93 | 114.16 | 114.14 | 114.11 | 114.08 | 114.05 | 114.01 | 113.98 | 113.94 | 113.91 | 33.73 |
Interest income | $ mln | 0.06 | 0.06 | 0.05 | 0.10 | 0.30 | 0.77 | 1.37 | 1.98 | 2.60 | 3.21 | 3.83 | 4.45 | 5.09 | 5.74 |
Interest expense | $ mln | 0.00 | 0.00 | 0.84 | 0.90 | 1.02 | 1.14 | 1.26 | 1.38 | 1.50 | 1.62 | 1.68 | 1.68 | 1.68 | 1.68 |
Earnings before taxes | $ mln | −0.24 | −0.24 | 12.97 | 53.13 | 113.45 | 113.76 | 114.22 | 114.68 | 115.14 | 115.60 | 116.12 | 116.72 | 117.32 | 37.79 |
Taxes | $ mln | 0.00 | 0.00 | 3.89 | 15.94 | 34.03 | 34.13 | 34.27 | 34.40 | 34.54 | 34.68 | 34.84 | 35.02 | 35.20 | 11.34 |
Tax rate | % | 30.00% | 30.00% | 30.00% | 30.00% | 30.00% | 30.00% | 30.00% | 30.00% | 30.00% | 30.00% | 30.00% | 30.00% | 30.00% | 30.00% |
Earnings after taxes | $ mln | −0.24 | −0.24 | 9.08 | 37.19 | 79.41 | 79.64 | 79.96 | 80.28 | 80.60 | 80.92 | 81.29 | 81.70 | 82.12 | 26.45 |
Financial items | Units | Cash flow analysis—project level | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | 14 | ||
Earnings after tax | $ mln | −0.24 | −0.24 | 9.08 | 37.19 | 79.41 | 79.64 | 79.96 | 80.28 | 80.60 | 80.92 | 81.29 | 81.70 | 82.12 | 26.45 |
Depreciation | $ mln | 0.00 | 0.00 | 1.00 | 1.00 | 1.00 | 1.00 | 1.00 | 1.00 | 1.00 | 1.00 | 1.00 | 1.00 | 1.00 | 1.00 |
Provisions—rehabilitation | $ mln | 0.00 | 0.00 | 0.83 | 0.83 | 0.83 | 0.83 | 0.83 | 0.83 | 0.83 | 0.83 | 0.83 | 0.83 | 0.83 | 0.83 |
Cash from operations | $ mln | −0.24 | −0.24 | 10.91 | 39.02 | 81.25 | 81.47 | 81.79 | 82.11 | 82.43 | 82.75 | 83.12 | 83.54 | 83.96 | 28.29 |
Change in working capital requirements | $ mln | 0.00 | 0.00 | −3.34 | −6.21 | −9.32 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 12.42 |
Operating cash flows | $ mln | −0.24 | −0.24 | 7.58 | 32.81 | 71.93 | 81.47 | 81.79 | 82.11 | 82.43 | 82.75 | 83.12 | 83.54 | 83.96 | 40.71 |
Capital expenditures | $ mln | 6.00 | 6.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
Other asset additions | $ mln | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
Other asset disposals | $ mln | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
End of mine’s life rehabilitation | $ mln | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 10.00 |
Free cash flow | $ mln | −6.24 | −6.24 | 7.58 | 32.81 | 71.93 | 81.47 | 81.79 | 82.11 | 82.43 | 82.75 | 83.12 | 83.54 | 83.96 | 30.71 |
Additional debt | 4.20 | 4.20 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | |
Repayment of debt | 0.00 | 0.00 | 0.00 | 0.60 | 1.20 | 1.20 | 1.20 | 1.20 | 1.20 | 1.20 | 0.60 | 0.00 | 0.00 | 0.00 | |
Available cash for disbursement | $ mln | −2.04 | −2.04 | 7.58 | 32.21 | 70.73 | 80.27 | 80.59 | 80.91 | 81.23 | 81.55 | 82.52 | 83.54 | 83.96 | 30.71 |
Dividends distributed | 0.00 | 0.00 | 4.54 | 18.59 | 39.71 | 39.82 | 39.98 | 40.14 | 40.30 | 40.46 | 40.64 | 40.85 | 41.06 | 13.23 | |
Equity issuance or buy-back | 1.80 | 1.80 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | |
Change in cash | $ mln | −0.24 | −0.24 | 3.04 | 13.62 | 31.02 | 40.45 | 40.61 | 40.77 | 40.93 | 41.09 | 41.88 | 42.68 | 42.90 | 17.48 |
Financial items | Units | Balance sheet analysis—project level | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | 14 | ||
Cash | $ mln | 4.00 | 4.00 | 4.00 | 7.00 | 20.00 | 51.00 | 92.00 | 132.00 | 173.00 | 214.00 | 255.00 | 297.00 | 340.00 | 383.00 | 400.00 |
Receivables | $ mln | 0.00 | 0.00 | 0.00 | 3.00 | 8.00 | 16.00 | 16.00 | 16.00 | 16.00 | 16.00 | 16.00 | 16.00 | 16.00 | 16.00 | 5.00 |
Inventory | $ mln | 0.00 | 0.00 | 0.00 | 1.00 | 3.00 | 6.00 | 6.00 | 6.00 | 6.00 | 6.00 | 6.00 | 6.00 | 6.00 | 6.00 | 2.00 |
Others | $ mln | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
Current assets | 0.00 | 0.00 | 0.00 | 4.00 | 11.00 | 22.00 | 22.00 | 22.00 | 22.00 | 22.00 | 22.00 | 22.00 | 22.00 | 22.00 | 8.00 | |
Mining assets—gross value | $ mln | 0.00 | 6.00 | 12.00 | 12.00 | 12.00 | 12.00 | 12.00 | 12.00 | 12.00 | 12.00 | 12.00 | 12.00 | 12.00 | 12.00 | 12.00 |
Accumulated depreciation | $ mln | 0.00 | 0.00 | 0.00 | 1.00 | 2.00 | 3.00 | 4.00 | 5.00 | 6.00 | 7.00 | 8.00 | 9.00 | 10.00 | 11.00 | 12.00 |
Net fixed assets | $ mln | 0.00 | 6.00 | 12.00 | 11.00 | 10.00 | 9.00 | 8.00 | 7.00 | 6.00 | 5.00 | 4.00 | 3.00 | 2.00 | 1.00 | 0.00 |
Total assets | $ mln | 4.00 | 10.00 | 16.00 | 22.00 | 41.00 | 82.00 | 122.00 | 161.00 | 201.00 | 241.00 | 281.00 | 322.00 | 364.00 | 405.00 | 408.00 |
Payables | $ mln | 0.00 | 0.00 | 0.00 | 1.00 | 2.00 | 3.00 | 3.00 | 3.00 | 3.00 | 3.00 | 3.00 | 3.00 | 3.00 | 3.00 | 1.00 |
Current liabilities | $ mln | 0.00 | 0.00 | 0.00 | 1.00 | 2.00 | 3.00 | 3.00 | 3.00 | 3.00 | 3.00 | 3.00 | 3.00 | 3.00 | 3.00 | 1.00 |
Borrowings | $ mln | 0.00 | 4.00 | 8.00 | 8.00 | 8.00 | 7.00 | 5.00 | 4.00 | 3.00 | 2.00 | 1.00 | 0.00 | 0.00 | 0.00 | 0.00 |
Provisions—rehabilitation | $ mln | 0.00 | 0.00 | 0.00 | 1.00 | 2.00 | 3.00 | 3.00 | 4.00 | 5.00 | 6.00 | 7.00 | 8.00 | 8.00 | 9.00 | 0.00 |
Long term liabilities | $ mln | 0.00 | 4.00 | 8.00 | 9.00 | 9.00 | 9.00 | 9.00 | 8.00 | 8.00 | 8.00 | 7.00 | 8.00 | 8.00 | 9.00 | 0.00 |
Equity | $ mln | 4.00 | 6.00 | 8.00 | 8.00 | 8.00 | 8.00 | 8.00 | 8.00 | 8.00 | 8.00 | 8.00 | 8.00 | 8.00 | 8.00 | 8.00 |
Retained earnings | $ mln | 0.00 | −0.00 | −0.00 | 4.00 | 23.00 | 62.00 | 102.00 | 142.00 | 182.00 | 223.00 | 263.00 | 304.00 | 345.00 | 386.00 | 399.00 |
Capital | $ mln | 4.00 | 6.00 | 7.00 | 12.00 | 30.00 | 70.00 | 110.00 | 150.00 | 190.00 | 230.00 | 271.00 | 311.00 | 352.00 | 393.00 | 406.00 |
Total liabilities and capital | $ mln | 4.00 | 10.00 | 16.00 | 22.00 | 41.00 | 82.00 | 122.00 | 161.00 | 201.00 | 241.00 | 281.00 | 322.00 | 364.00 | 405.00 | 408.00 |
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Barcelona, R.G. (2017). Getting the Sums Wrong. In: Energy Investments. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-137-59139-5_3
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DOI: https://doi.org/10.1057/978-1-137-59139-5_3
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