Coal Companies Ring Alert

Coal Companies Ring Alert
February 22, 2010 | 10:23 GMT(+7)

Reporting: Abraham Lagaligo, majalahtambang.com

Coal listed companies better performance last year made the business became more attractable to investors. Some of non-listed coal companies decided to start selling their share to the public this year.

However, coal demand is estimated will steady this year under the current global economic condition.
Soekrisno, CEO of PT Tambang Batubara Bukit Asam Tbk seems happy on Wednesday, 3 February. He rushed entering a half-empty meeting room of parliament of Commission VII at Senayan complex, Jakarta. As the meeting had not started yet, he then decided to talk with TAMBANG. He said that he relieves that the company had obtained sales purchase agreement with PT Indonesia Power to supply coal-fired plant in Suralaya by 5.5 million tons annually. Despite brighter revenue forecast this year at Rp 3.76 trillion, Soekrisno thought it won’t directly driven by coal demand surge.
"Our stock price in end of 2009 valued at Rp 17,250. It was increase to Rp 18,100, but then it drop again to Rp 17,000. The vilotile of stock price is influenced regional market condition,” he said. Fortunately with strong fundamental of the company, PTBA was able to avoid further drop in the financial crisis.
The company eyes the stock price at Rp 21,000 a share in the mid of 2010, but it will depended on market condition. PTBA will give its best efforts to increase the company's performance that will draw into positive judgment to investors. The company positive contributors include huge reserves, continuity of the projects and output target at 50 million tons for the next five years.
"For the next ten years, we aim to be the biggest coal company in Indonesia," he said. In a move to boost its reserved, PTBA plans to acquire two new mines in Kalimantan and build joint venture with Australian BHP Billiton.
In 2009, production of the state owned company listed in 23 December 2002 reached 12 million tons, with sales at 15 million tons. This year, PTBA targeted output at 14 million tons.

Attract Investors
Soekrisno's optimistic was not an exaggerations. Stock market analyst, Felix Sindhunata was also agreed that coal demand will keep increasing following completion of coal fired plants in the country and Asia.
"The condition will go along with economy recovery which will boost coal increasing demand," he said to TAMBANG magazine, on Wednesday 3 February.
It will directly have positive impacts to rising stock value fro four major coal companies, including PTBA, BUMI, ADRO, and Indika Energy. The improving performance will stimulate other listed companies to shift their major to coal business.
PT Bhakti Investama Tbk (BHIT), is one of the company that currently under finalization to acquire coal mines. The company lead by Hary Tanoesoedibjo is even willing to take down its MNC Sky Vision share to get capital injection of $800 million. The fund will be use to purchase coal company as well as oil and gas company. No detailed on the transaction until the report is released. Hary said that he keens to announce it in near time.
In December, PT AKR Corporindo Tbk (AKRA) had also acquiring 87.5% stake of PT Anugrah Karya Raya, a coal mining in Muarateweh,Central Kalimantan, worth Rp 60 billion. AKR's Director, Suresh Vembu said the output targeted to sell to China. Other company, PT Delta Dunia Petroindo Tbk (DOID) in January was willing to sell its property unit as it wants to focus more on coal mining business.
In a meantime, other coal companies, PT Borneo Lumbung Energi and PT Harum Energy were preparing to IPO in the first semester this year. Borneo which affiliated with Renaissance Capital seeks to get injection of $200-300 million through selling its 20% - 25 % share to public. Borneo fully owned PT Asmin Koalindo Tuhup, Central Kalimantan, a high-calories coal mines. Borneo will allocate the IPO raised fund to boost its output, from 3.6 million tons to 5 tons annually, including to purchase new equipments and expand infrastructures, as well as to pay the outstanding debt to local and foreign banks consortium prior August. Coal calories output may reach 8,200 to be export with price at $175 a ton. The company reserved estimated at 240 million tons.
Harum Energy owned by Tanito Harum Group, meanwhile, eyeing to sell its 30 percent stake to public to obtain $300-400 million of financing. The thermal coal producer located in East Kalimantan seeks to supply coal to power plants.

Miss Targets
Analyst of stock market, Felix Sindhunata said the decision to shift business to coal was a reasonable decision, considering its enormous market potential. The move was quite strategist concerning the demand and the industry outlook which remain very positive. Considering its earning per share ratio, liquidity and reserved, shares of PTBA, BUMI, and ADRO, will became blue-chip stocks in coal sectors.
Analyst of PT AAA Sekuritas, Herman Koeswanto said, this year is good momentum for mining and energy companies to start IPO as the sector share price remains high which will contribute to high stake value of the new listed companies. Supporting with good fundamental basic, the new public company will get high share valuation as well.
In a meantime, analyst of PT Danareksa Sekuritas, Metty Fauziah predicts coal price in this year will stand at $85 a metric ton, following global economy recovery. Coal demand from China will keep at high level as power plants in the country still dominated with coal. Indonesia's domestic demand will also increase following the completion of the 10,000 MW project.
However, Head of Research Paramita Alfa Sekuritas, Pardomuan Sihombing said the achievement of coal listed companies more supported by coal benchmark price in 2009. ”In 2010, coal will consolidate as demand tends to drop. They depend on better economy condition,” he said to TAMBANG magazine, Friday, 5 February.
He estimates, the coal price share increase will be conservative at 10-20 percent, far low than previous year, when the share rose to hundreds and thousands times. “Many of investors want to switch their business to coal, as Hansen did. But I suggested to do it as soonest so they do not be late.”
The price growth actually had already started in 2005 and 2006, while this year, it have reached its peak, Pardomuan said. Therefore, for those that just entered coal business this year could be considered had already late. “The fact is, the world economy recovery does not run well, price drop and demands are slow. There are many of non listed companies failed to struggle with the condition,” he said.

Don’t be just followers
Investors interested to shift business to coal should also closely watch the crude volatile which will stand at average $72 a barrel, he said. “Do not be just followers, they have to carefully evaluate supply and demand,” he suggested. To open a coal mine, they have to count for calories of coal output. If the coal calories are low, it will difficult for export it.
This year, Indonesia coal benchmark is set at $70-80 a ton with coal players dominated by BUMI, ADRO, ITMG, and BYAN. He recommended this year, investors are better to penetrate to domestic listed companies. “It is because for foreign players, their share will heavily depend on global economy recovery.”
Currently as Europe faced bad winters, coal demand did not show significant growth. India and China are great coal buyers, but they are only looking for high calories coal, while resources in Indonesia are mostly low-rank coal.
As Soekrisno said, skyrocketing PTBA’s share price was not only contributed by increasing demand, but also investors positive sentiment on the country’s six largest company’s fundamental and prospect. PTBA hold 90,702 hectare of coal land concession in South Sumatra, Riau, and East Kalimantan. It posted profit of Rp 2.8 trillion last year. Land acquisition issue with private miners in Lahat regency had also won by PTBA with status of cassation at Supreme Court.

From Train to CBM
PTBA currently involving in projects starting from railway to coal bed methane. The railway project will connect Tanjung Enim to Tarakan Port, and Tanjung Enim to Kertapati quay with maximum capacity at 22.7 million tons annually. In 2010, the capacity is set at 11.5 million tons, 2011 at 14 million tons, 2012 at 15.6 million tons, 2013 at 18.5 million tons, and it may reach 22.7 million tons in 2014 to 2019.
The project will be build under joint venture of PTBA and PTKA which currently remain under process. PTBA asked its partner to solve tax issue before it could continue with the project. Both companies had signed Coal Transportation Agreement (CTA) in October and now they are in process of selecting independent consultant to decide tariff formula. The next railway project that connected Tanjung Enim with Pelabuhan Baru, Lampung will be build under joint venture of PTBA with 10 percent share, PT Transpacific Railway Infrastructure (TRI) will hold 80 percent stake and China Railway Engineering kept the remaining. The railway expects to start operate in 2014 with capacity of 20 million tons annually. The consortium had obtained recommendation letter from Governors of South Sumatra and Lampung since 2008, as well as principal permits from transportation minister in 2009, and currently under reviewing draft of engineering, procurement, and construction contract.
PTBA now is developing two mine mouth power plants project, including a 200 MW Banjarsari plant located in Tanjung Enim. PTBA hold 41 percent share in the project with PT Navigat Innovative Indonesia (NII) that hold 39 percent share, and the remaining keep by PT Pembangkit Jawa Bali (PJB).
The plants targeted to come on stream in 2013 with low rank coal supply demand at one million tons annually, which will be fully supplied by PTBA. The project now under finalize with selected contractor CNEEC (China National Electric Equipment Corporation). However, tariff negotiation with state electricity utility company PT PLN had yet to conclude.
Other mine mouth project is a 2400 MW plant located in Central Bangko, Tanjung Enim. The project is developed together by PTBA with 28% stake, China Huadian Corp with 55% share, PLN at 8% stake, Truba by 8% stake, and local government with one percent stake. The project expects to operate in 2014 and PTBA to supply by low rank coal 10-12 million tons annually.
The project currently under Power Purchase Agreement’s negotiation and it waited for the certainty of Sumatra-Javapower tansmission’s construction. However, it faced issue of coal supply mechanism that stipulated on Law No 4 Year 2009 on Mining and Mineral.
Aside of these projects, PTBA also involved in the coal bed methane project in Tanjung Enim under joint venture with PT Pertamina EP, and Arrow Energy (Indonesia) Holdings Pts Ltd. Arrow hold the biggest share of 45 percent, while Pertamina and PTBA hold the remaining. The consortium signed production sharing contract with the government in 4 August. Upstream oil and gas regulator BPMigas currently reviewing the project’s working program and budget, while the joint operation agreement of the consortium is still under finalized. The CBM project estimates with reserved of 0.8 trillion cubic feet and capacity of 50 million standard cubic feet a day. The output expects to start pump out in 2013