What is meant by the term 'non-recourse finance' in relation to project financing? Why is this particular financing method employed?

A project lender will typically insist that the term of any project debt finance is less than the project life. Why?

Estimate the project's weighted average selling price per tonne, sales revenue and cash operating costs (in A$ millions) in year 1.

Assume that a project lender is willing to provide a $20 million loan with a five-year term at an interest rate of 10% p.a. The principal of the loan is repayable in five equal end-of-year instalments and interest is payable annually in arrears. Can the project satisfy these debt servicing requirements?

Commodity price risk and exchange rate risk are two obvious risk factors for the project but why do mining companies in Australia often not bother with attempting to hedge these risks?

Answer rating: 100% (QA)

Nonrecourse finance in project financing refers to a type of loan where the lender has no recourse to the borrowers assets beyond the project assets a... View the full answer