Consolidation as a risk management method in the lifecycle of a mining company: A novel methodological approach and evidence from the coal industry in Poland

Abstract

This article attempts to identify consolidation schemes used by mining enterprises to limit the risk on European coal mining, specifically Poland as one of the leading producers of this resource in the world. The content of the article refers to: (1) model issues concerning the possible ways of using consolidation as a method of risk mitigation in the mining company life cycle, (2) identification and analysis of consolidation schemes used in coal mining in Europe, and (3) assessment of consolidation processes carried out in a nearly 20-year research perspective for Poland's hard coal mining.Consolidation can theoretically be used at every stage of the life cycle of a mining enterprise. In the phase of its creation, its task is to accelerate the development and reduce the capital and cost of construction of mines and mining enterprises. In the development and declining phase, it can be used as a way to extend the duration of individual phases and extend the life of a mine or a mining company. In Europe, mining companies were consolidated due to market risk (lack of efficiency, progressing decarbonization, prohibition of subsidizing mining production by the state) and, subsequently, the risk of bankruptcy. In case of Polish hard coal mining, macro-level consolidation occurred three times: 1) in 1993, by merging independent hard coal mines into six mining enterprises, 2) in 2003, by establishing Kompania Węglowa SA, and 3) in 2016, by creating a Polish Mining Group and incorporating it to the energy sector. Presented consolidation processes were occasionally effective and allowed achieving positive economic efficiency. Nevertheless, under the conditions of economic downturn and the decline in hard coal prices, financial results slumped rapidly, and consolidated enterprises were on the verge of bankruptcy, unable to stop the steady increase in production costs induced by social pressure and industry trade unions.