Sabine If it costs two students $25,000 a year to live in a unit...

Sabine

If it costs two students $25,000 a year to live in a unit and feed themselves, and the unit's rental is $15,000 a year, fixed for the year, then if a third student joins them. and pushes up the total spend by $5,000 a year, that is the marginal cost per student. What the students each pay is a different matter. Think of the GCY work as the third student at a time when NWH had unutilised capacity.

The so-called loan to GCY was an extension of payment terms for services that NWH had performed. The cost of that service, relative to all NWH's costs and expenses is the marginal cost in the sense that it is what the GCY service cost NWH, excluding overhead costs, which would have been incurred, with, or without the GCY work. The sum of the marginal costs does not equal the sum of the average costs (the total costs), as you can see from the 3-student example.

Average cost, total cost, marginal cost, and opportunity cost are all terms used in commerce. If NWH had the option to deploy resources used in the GCY service elsewhere at a price of $30,000 then $30,000 is the opportunity cost. However, that was not the case in the GCY situation.

The opening paragraph of the GCY Announcement stated:

NRW Holdings Limited (ASX:NWH) has agreed to support Gascoyne Resources (ASX:GCY) through the provision of a $12 million loan facility. The loan provided to GNT Resources Pty Ltd (GNT), a subsidiary of Gascoyne Resources, effectively extends payment terms to circa 75 days. The mining contract is for the open pit mining and drill and blast operations, the award of which was announced by NRW on the 13th December 2017. The facility and associated mining contract is secured by a subordinated general security agreement over the assets of GNT. The loan, which will be used by GNT to meet working capital requirements, will be repaid through instalments during the second half of calendar year 2019.