Capital Optimisation in the Coal Industry

The optimisation of capital in the total planning context has broadly two components: ò maximising the efficient utilisation of capital against competing capital demands; and ò maximising the efficiency with which the industry's capital requirements are sourced. This paper focuses on the latter of these two concepts, as I wish to highlight that within the coal industry the inefficient sourcing of capital has resulted in the inefficient utilisation of capital. In discussing the optimisation of capital within the coal industry I would like to outline three fundamental issues which currently impact the industry and its application of capital: Initially, from the perspective of an independent investor, the perceived risk associated with investing in a volatile industry cycle has not permitted appropriate funding structures to be created thus leading to an inefficient utilisation of capital. Secondly, investors seeking out a windfall gain have established a practice of trading in the assets rather than encouraging recapitalisation. And lastly the mismatch of supply and demand leading to the establishment of new projects which include a percentage of offshore investment has fostered an environment of lower returns and subsequently a dilution of capital.