Cambrian Mining plc - A Quality Play on Coal & Gold

AEN has dropped circa 15% over the last 3 days, thus fas CBM has managed to hang in relatively speaking, however any recovery in AEN SP is now limited as the 50ma is dropping very hard, maybe this is why

The cost of building coal fired power stations ( 2 X 500MW currently proposed), will be Billions . Estimates are just that, and are inevitably well wide of the mark.

Bangladesh is a 3rd world country with poor people who can only afford a small cost for electricity supply, and even then many do not pay the bills. Theft of copper infrastructure is a big problem.

If folks think that running power stations in Bangladesh is going to make money think again

'Bangladesh has about 3500 MW of firm generating capacity. It needs another 500 MW to meet current needs. There should in addition be 20 per cent extra generating capacity to cushion against plant breakdown and to provide time for regular maintenance. Demand is growing at about 8 per cent per annum. At 8 per cent per annum growth the capacity requirements in five years will be 5900 MW plus 20 per cent or 7100 MW by 2010. During the next five years 500 MWs will have to be retired or undergo complete overhaul so there is a five year period to put in place 4100 MW of generating capacity. That is the challenge! To put in place 800 MW/year on a steady basis will require about $785 million per annum including transmission and distribution! The only conceivable financing is from private sources, largely foreign. Unless there is a real change of approach to increase the quality and quantity of electrical energy the economy's growth will be hampered by the power problem.

One illusion that we warned against is the belief that the donors would directly fund power generation. Since there is no real source of money other than private funds, the government has had to return to the IPP concept. The Chinese government has been willing to finance new plants through supplier credits; this represents an alternative approach but it is not clear how much such lending is available. Apparently one IPP award has been made and another is close to award. These are big projects, 450 MW, requiring something of the order of $ 315 million each. Where is this money coming from? A private company investing in the electricity generation will normally try to finance as much as possible from the banks. The more they finance the higher the return on their investment will be. [Suppose the project costs $ 315 million; the private company intends to invest $ 95 million; borrow from the ADB $ 100 million; borrow from the infrastructure development fund $50 million and finally borrow from commercial banks $ 70 million. The interest rates are, say, 6 per cent for the ADB and 8 per cent for the infrastructure development fund and the commercial banks. The project produces operating revenues of about $ 41 million at a price of 1.5 ¢/kwh net after paying for natural gas. The interest and principal payments come to $ 21 million per year leaving $ 20 million for the investors or 21 per cent return on their investment before taxes. This is a reasonable return given the risks. All this assumes payments in dollars.] There are two points to be made: The investor is placing a fairly large investment and he must raise a lot of bank money. Dealing with commercial banks and the ADB is not a matter of a few months. To reach "financial closure" - that is assurance of the availability of funds - there is a lot of work in agreements and legal negotiations, etcetera. In the case of AES investments the company took the risk of starting the project even before the final agreements on financing were reached. But AES is a giant company and had the resources to do so. To move really fast implies that the investor is going to take most of the risk and not rely heavily on financing through banks. No one really knows the financial intentions of the two groups that are presumed to be awarded the contracts, but it is hard to believe that they are going to finance these projects with their own money. Using these figures they would earn about $ 41 million annually on a $ 310 million investment. This is a return of 13 per cent. No one would risk their money for that return. They would need to increase the price of the electricity sold to the government by about .0075 ¢/kwh. Furthermore, the willingness of the World Bank [IFC] and the ADB to support the projects are uncertain. There should be no illusions about the speed that the power will be provided. If it does not come at the time promised, the foreign investor will blame the PDB for failing to do this or that. The point is that IPPs vendors may make promises of early delivery to persuade the government to accept their proposal but once the project is underway there is no real recourse when delivery is slow. So what did Bangladesh accomplish?'

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