Principles of Project Finance

The price risk is obviously very significant, however, and lenders take

a cautious attitude in this respect. Commodity prices are affected by the

economic cycles: lenders therefore base their projections for the Project

Company and hence the viability of the project on the lower range of his-

toric prices for the commodity over a long period of time. Factors that might

lead to a growth in supply need to be considered (e.g., opening of new

mines elsewhere or developments of new mining technology) as well as

anything that could lead to a drop in demand in future (e.g., because another

commodity can be substituted, such as plastic bottles instead of alumi-

num cans).

Lenders and their advisers also look at the cost competitiveness of the

project in the ...