The only coking coal play in Indonesia
PT Borneo Lumbung Energi (BORN) is a producer of hard coking coal. It
operates one coal mine Asmin Koalindo Tuhup in Central Kalimantan and one
heavy equipment rental company Borneo Mining Services (solely for internal
usage). It is based in Indonesia and has been listed on the Jakarta Stock
Exchange since November 2010. Based on the current market cap of US$2.8bn,
BORN is currently the sixth largest coal company in Indonesia, but it is the only
one that produces coking coal. The company is 75%-owned by Samin Tan and
Surjadinata Sumantri – founders of Renaissance Capital Asia, a financial advisory
and private equity firm. Free float is 25%. BORN’s production capacity was 3.6mn
t by end-2010, and it plans to ramp up capacity to 5mn t by end-2011.
Operations done by Coal Contract of Work (CCOW)
PT Borneo Lumbung Energi (BORN) is a producer of hard coking coal. It
operates one coal mine Asmin Koalindo Tuhup in Central Kalimantan and one
heavy equipment rental company Borneo Mining Services (solely for internal
usage). It is based in Indonesia and has been listed on the Jakarta Stock
Exchange since November 2010. Based on the current market cap of US$2.8bn,
BORN is currently the sixth largest coal company in Indonesia, but it is the only
one that produces coking coal. The company is 75%-owned by Samin Tan and
Surjadinata Sumantri – founders of Renaissance Capital Asia, a financial advisory
and private equity firm. Free float is 25%. BORN’s production capacity was 3.6mn
t by end-2010, and it plans to ramp up capacity to 5mn t by end-2011.
Operations done by Coal Contract of Work (CCOW)
Based on the third generation of CCOW, BORN has the right to mine for coal in a
21,630ha region in the North of Barito river Murung Raya until 2039. Samin
Tan/Surjadinata Sumantri bought the asset in 2007 from a Russian steel
company (not the first owner) using US$185mn debt, which was repaid using IPO
proceeds. As part of the CCOW agreement, BORN pays 13.5% royalty calculated
with Tuhup port as the point of transfer. Hence about US$20/t barging plus ISP
cost should be deducted from total royalty. The effective royalty rate is 12%, we
estimate. For corporate income tax, it pays the prevailing rates. But due to some
temporary differences, the effective tax rate is roughly 33% before normalizing to
30% starting 2012.
Mine operations and reserves
BORN’s mining activities are now focused in the Kohong block, which has a total
area of 5000ha. So far, BORN has obtained borrow-use permit for 1039ha from a
total 5000ha. Of the 1000ha, half is for mining area, while the remaining half is for
infrastructure such as mine camp, port, as well as overhauling roads.
As of June 2010, its proven and probable reserves are derived solely from the
Kohong area and totaled 36.5mn t and 32.7mn tons, respectively, based on
Tuhup coal standards. The reserves are calculated based on coking coal price of
US$85/t and life of mine S/R 17:1. This compares to 1.65mn t coal sold in 2010
and an estimated 3.6t for 2011. These reserves amount to a reserve life of
around 19 years based on the current estimates of future coal production.
In addition to the reserves, measured and indicated resources amount to about
132mn t within BORN’s exploited area in Kohong block. Inferred resource is
247mn t, of which 60% are derived from the Kohong block. So far, it has done
2000 drillings in Kohong and 198 drillings in Telakon. It plans to do 90 drilling
holes in Telakon from June 2011for JORC certification.
Kohong area and totaled 36.5mn t and 32.7mn tons, respectively, based on
Tuhup coal standards. The reserves are calculated based on coking coal price of
US$85/t and life of mine S/R 17:1. This compares to 1.65mn t coal sold in 2010
and an estimated 3.6t for 2011. These reserves amount to a reserve life of
around 19 years based on the current estimates of future coal production.
In addition to the reserves, measured and indicated resources amount to about
132mn t within BORN’s exploited area in Kohong block. Inferred resource is
247mn t, of which 60% are derived from the Kohong block. So far, it has done
2000 drillings in Kohong and 198 drillings in Telakon. It plans to do 90 drilling
holes in Telakon from June 2011for JORC certification.
Transportation
BORN transports its coal via a 36-km road (which was previously used by the
logging companies) to its own operated port facilities in Muara Tuhup. The coal is
then barged down through Barito river. For the first 290km journey, BORN uses
3500 t barges to transport its coal before continuing the remaining 272km with
8000 t barges to Taboneo anchorage (we understand some 3500 t barges also
go directly to Taboneo). BORN doesn’t own the barges – it has fully committed for
50% of the 3500 t barges (i.e. full payment even if not used), while the remaining
50% is charged based on time-freight charter. For the 8000 t barges, BORN is
now renting based on time-chartered contract. BORN has been renting two
intermediate stockpiles, but we understand they haven’t been used much during
2010. It is now building its own stockpile at Damparan area with 1mn t capacity.
For loading in Taboneo, BORN has signed an MoU for Panamax vessel with
60,000t and 40,000tpd storage and loading capacity, respectively. The final
shipments are being arranged by buyers and Glencore.
Sales agreement
BORN sells 97% of its coals under one single product called Tuhup, and the
remaining 3% as off-spec coal. This off-spec coal is from the top layer (hence it’s
been exposed to oxidization) and not as clean as Tuhup coal. Currently, 100% of
its coals are sold under spot contracts through marketing agent Glencore under a
three-year contract, which will expire in 2012 and BORN pays Glencore a fee of
4.5% of its total revenue. We think BORN will renew its contract with Glencore,
but the renewed contract will most likely have a different scope of work and
different terms. But for forecasting purposes, we still assume 4.5% fee long-term.