Analysis of the structure and cost of capital in mining enterprises

Ranosz Robert ()
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Ranosz Robert: Dr inż., AGH Akademia Górniczo-Hutnicza, Wydział Górnictwa i Geoinżynierii, Kraków, Poland

Gospodarka Surowcami Mineralnymi / Mineral Resources Management, 2017, vol. 33, issue 1, 77-92

Abstract: This article focuses on the analysis of the structure and cost of capital in mining companies. Proper selection of appropriate levels of equity and debt capital funding of investment has a significant impact on its value. Thus, to maximize the value of the company, the capital structure of the company should be composed to minimize the weighted average cost of capital. T he objective of the article is to present the capital structure of selected Polish and world’s mining companies and estimate their cost of equity and debt capital. In the paper the optimal capital structure for the Polish mining company (KGHM SA) was also estimated. It was assumed that both Polish and world’s mining companies, have no debt exceeding 45% in the financing structure. For the most of analyzed cases, the level of financing with debt capital is in the range between 10% and 35%. T he cost of equity exceeds the cost of debt capital and is in the range between 8% and 20%, while the cost of debt capital reaches the range between 1.9% and 12%. T he analysis of the optimal capital structure determining, performed for the selected mining company, showed that debt capital funding for the company should be in the range between 5.7% and 7.4%.

Keywords: optimal capital structure; the weighted cost of capital; WACC; the cost of debt capital; cost of equity (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:vrs:gosmin:v:33:y:2017:i:1:p:77-92:n:1

DOI: 10.1515/gospo-2017-0001

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