FUTURE PROSPECTS
Do you anticipate that the cost of bank loans going forward will be much higher in terms of interest rates?
It’s an interesting question. Let’s look at China again. There’s a lot of anticipation of an increase in interest rate in China. In a country that strong, logic would dictate at some point in time that this would happen. And that will have an impact, probably globally, on the price of credit. It would have to put upward pressure on the price of credit because the willingness to lend money would be restricted again and it will be tightened and it’s going to force prices up.
And there’ll be a great concentration and desire to land at the bottom end of the Basle II curve . . . It’s not so much that I don’t want to lend money; it’s I don’t want to lend it here [in high risk projects]. And so the conversation [with banks] will be, if you can prove to us that our risk is very low, you’ll get reasonable credit. And you’ll probably get not a bad pricing. Anything with a bit of risk in it, pricing will be much higher.
The banks may end up simply buying government treasuries . . .
Ultimately you can’t make money doing that. It would be interesting to see what will happen in the States if they reinstitute the Glass-Steagall Act, where investment banks have to be pure investment banks. I think perhaps that is the way around a whole bunch of problems. So when you’re dealing with investment banks, you know the risk. You know they’re being creative, you know they’re doing a lot of exciting risky stuff. And you know that your housing loan is not necessarily at risk because of what these guys are doing on the more creative fourth derivative of the fourth derivative.
Do you anticipate the reinstitution of Glass-Steagall happening anytime soon?
I wouldn’t be surprised because what we see what the current incumbent in the Oval office doing is trying to tighten up to protect his shareholders’ money. And his shareholders are the American taxpayer.
But Glass-Steagall wouldn’t apply here in Asia.
No, it wouldn’t, but it would affect the world’s credit markets. If pricing goes up somewhere else, and I’m a bank, I’d think, “Hang on, why not ratchet it up 1%?” Logic tells me there will have to be an upward pressure. Until such a point in time as markets genuinely and truly recover, and that point in time might be two years, it might be five years, when they truly recover, things will go back to normal. But “normal” is not 2007. The pricing of risk became ridiculously low through 2006-2007. Banks weren’t making much money for taking reasonable risk at that point in time. It was in 2003, 2004, those are what we would call normal pricing of risk. You’re taking reasonable risks for reasonable rewards.
So is it a good strategy for a company, knowing that it has to fund capex in the next two years, say, to raise money now before loans become more expensive?
My theory of money for projects is, if you want it, and you can get it, go and get it and don’t worry about pricing. The reason for that is I don’t have a crystal ball so I don’t know what’s going to happen in the future. But if I’ve got a good strong project and I can finance it now, take the money.
Even though going forward the financing might become cheaper?
It might be, but there is only one rule in getting a project going. Get the money. That's it. There are no other rules. You just don’t know what’s going to happen in the future.
Even if it’s expensive today?
If I can normally finance a project to 2% and someone offers me 10%, that’s not a reasonable price. But please don’t debate between 2% and 3%. Ultimately that is not a smart thing to do.
Is this adage applicable only to the mining industry?
To business in general. We don’t have a crystal ball. None of us can see the future.
2010, Sep 10 
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