Oh no, I understand that entirely. What you don't seem to grasp...

Oh no, I understand that entirely.

What you don't seem to grasp is the lender/s will be charging interest of 8% - 10% p.a. or so. Once you factor in their cost of acquiring that capital, and the cost of having to hold additional capital in reserve to meet adequacy requirements, the actual return to them is closer to 5% p.a. net.

Its a huge risk to take for what is not a huge return. Remember the banks aren't going to cornerstone this or have an equity stake so share price appreciation does nothing for them aside from provide a buffer in a debt/equity swap scenario.

A higher IRR is critical to attractiveness of financing these projects. The quoted payback periods are one aspect but the lenders know that 100% of profits are never getting redirected to paying back the loan in reality.. Companies try to expand or pay dividends, unless their is a no-dividend caveat as part of financing.

Projects that required commodity prices to not only be much higher, but stay much higher for years, are very risky propositions for a meager +/- 5% p.a. net return.