Thermal coal imports may rise 9 per cent

Kalimantan Coal

The country’s thermal coal imports are likely to shoot up by 9 per cent this year on huge demand from planned mega power projects

According to the latest findings by the Citigroup, thermal coal imports into the country may rise to 36.7 million tonnes in 2009 as against 33.7 million tonnes during last year.
The development assumes significance as coal shortage in India has affected output of many companies including the public sector aluminium major National Aluminium Company (Nalco).
Thermal coal imports
Year Quantity(million tonnes)
2007 27.70
2008* 33.7
2009* 36.7
2010* 39.7
2011* 45.7
2012* 60.0
* Forecast
Meanwhile, government and private companies have proposed to add huge captive power generation capacity that requires coal as fuel. The power from burning coal is rated at 6,150 kilowatt hours per tonne which means, a tonne of coal will produce 6150 kilowatts for one hour.
The report estimates the current status of 31.5 giga watt (GW) total projects stands at 12-15 per cent of the capacity completed (operational), another 10 per cent in construction stage, and the remaining at financing and pre-financing stages.
In contrast to this slow progress, the government recently announced plans for the second-phase of the electricity crash programme, with another 11,000MW capacity planned (of which 7,000 MW coal-fired). This project may face similar issues as existing projects and therefore, a delay in completion (from the original target of 2018) is likely.
There is approximately 250 billion tonnes of coal reserve in the country of which 150 million tonne is extractible and 300 million tonnes is produced per annum. If the coal production is increased to 600 mtpa (million tonnes per annum) then it will be possible to meet the country’s coal requirement for some years.
The report estimates 17 per cent decline in coal prices this year to average at $70 per tonne from the current spot market at $80 per tonne.
Citigroup expects Indonesian coal producers to maintain their low production cost at the bottom-end of the cost curve. Indonesian miners delivered profitability even when coal prices were below $70/t in 2006-2007, and the current outlook should continue to translate into positive return potentials.
In the absence of price rises, non-price drivers such as volume delivery, evidence of cost reduction, and growth from acquisitions, could also drive price upside, albeit more limited.

Indonesia To Suppy Philippine Power Producer 585,000 Tonnes Of Coal

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AHN Staff
Manila, Philippines (AHN) – Philippines-based National Power Corporation announced on Wednesday it has completed a deal with three Indonesia suppliers for the sale of 585,000 tonnes of coal. This is the first contract Napocor has sealed since July 2008 because of high price last year.
The price of coal reached a record $200 per tonne in July which prevented Napocor from buying. But on Monday, coal prices declined to $83 a tonne.
Data provided by Napocor in its Web site, it identifies the three suppliers as PT Trubaindo Coal Mining, PT Indominco Mandiri and PT Kaltim Prima Coal.
According to the Philippines biggest power producer, the contracts were awarded in December and the Indonesian suppliers will start their initial batch of delivery this month.
The bulk of the coal will be used to feed Napocor’s Sual and Pagbilao coal-fed power plants.
For 2009, Napocor said it is expected to import 3.16 million tonnes of coal for its coal-fired power plants.

Asia Coal-Prices fall to near $83/T, China in focus

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PERTH, Feb 2 (Reuters) – Prices of power-station coal fromAustralia, a benchmark for Asia, fell more than $5 to above $83a tonne in the latest week, after a spate of surprise dealslate last month pushed prices to a two-month high. Although North Asian demand remained sluggish, producers and traders said there had been increased buying from Chinese utility firms, which are seeking overseas coal supplies to take advantage of lower prices, while Indian buyers are scouting for bargains. Thermal coal prices on the globalCOAL Newcastle weekly index fell $5.04 from a week ago to $83.15 a tonne in the week ended Jan. 31, based on free-on-board (FOB) prices at Australia’s Newcastle port, the world’s largest coal export terminal. “Chinese customers have stepped up on spot purchases of Indonesian coal recently. They are out in the market to look for high quality coal, but there aren’t a lot of spot supplies available,” said an Indonesian producer. Industry sources said Chinese utilities were likely
attracted by the steep price discount that overseas coal offers
compared with domestic coal prices. Bituminous coal with heating value of 5,800 kcal/kg (NAR)
is being quoted in the range of high-$60s to low-$70s on a FOB
basis from Indonesia, said a producer. With coal of similar quality being sold at about $90 a
tonne, FOB Qinhuangdao in China, industry sources said even
after including freight charges, Chinese utilities could still
save at least $10 a tonne by buying coal from Indonesian
miners. Indian traders were also on the lookout for low quality
coal, with low heating value and high sulphur, industry sources
said. A producer said several cargoes of coal with a heating
value of less than 5,000 kcal/kg (NAR) were sold to Indian
buyers at between $50 and $55 late last month. Industry participants will be closely eyeing tender results
of Korean Southern Power Co Ltd (KOSPO) as a gauge for market
sentiment. The tender, which will close on Feb. 3, is seeking a total
500,000 metric tonnes of thermal coal with a minimum heating
value of 5,350 kcal/kg (NAR) and 4,800 kcal/kg (NAR) for
delivery between February and April. A flurry of trades on globalCOAL, which saw several small
parcels of Australian coal sold at a two-month high of near $96
a tonne, pushed index prices to above $88 late in January. Macquarie said in a research note last week that the string
of above-market deals were likely spurred by traders scrambling
to find physical coal to secure contract obligations, after
rain and equipment issues at Australia’s Hunter Valley
disrupted some coal production.
(Editing by Ramthan Hussain)

Noble, Indika eye stake in Straits Asia Resources

Kalimantan Coal

By Michael Flaherty and Fayen Wong
HONG KONG/PERTH, Jan 30 (Reuters) – Commodities firm Noble Group (NOBG.SI) and Indonesian coal miner PT Indika Energy Tbk (INDY.JK) are among the companies pursuing a bid for Straits Asia Resources (STRL.SI), according to sources familiar with the matter, in a deal that could be worth more than $800 million.
Bidders are setting their sights on the two Indonesian coal mines that the Singapore-listed company controls. Its stock rose 10 percent to S$0.91 on Friday after Reuters first reported the interest of Noble and Indika.
Australian miner Straits Resources Ltd (SRL.AX), which owns 47.1 percent of the company, said last December it was reviewing what to do with the stake after receiving approaches from buyers.
Bids for the stake are due at the end of this month, said the sources, who declined to be identified because they were not authorised to speak publicly about the deal.
If a suitor goes for the entire 47.1 percent stake it will have to make a bid for the whole company under Singapore rules.
The market capitalisation of Straits Asia Resources is S$900 million ($597.2 million). A more than 25 percent premium for the company could make the deal worth more than S$1.1 billion ($800 million).
Analysts said Noble has the capacity to make an acquisition given its strong cash position.
“Noble at the end of September had $1.1 billion of cash,” said Lee Wen Ching, an analyst who covers the company at OCBC Investment Research. “There are quite a few distressed assets in the market and there are long-term investment opportunities.”
Lee said while Noble remained in good shape to ride through the current turbulence it was not immune to dwindling global trade and demand. Shares of Australia’s Straits Resources, like its peers, were hit hard by the commodity cycle downturn. Its stock plummetted from A$8 per share last March to under A$1 by December. Shares of Straits Asia Resources went from S$4 last June to below S$1 by year-end.
With both stocks under heavy pressure, buyers see an opportunity to purchase promising coal assets for bargain prices.
Some bidders could also go a below 30-percent stake in the firm so they do not have to buy the entire company, one source close to the matter said.
Straits Asia Resources was not immediately available for comment.
Standard Chartered (STAN.L) and Macquarie (MQG.AX), the two banks handing the process, were also not immediately available for comment.
Straits Asia Resources has two thermal coal operations in the coal-rich region of South Kalimantan, Indonesia. The mines are expected to produce about 9 million tonnes of coal in 2008 and the firm has targetted to more than double production to 19 million tonnes in the next two to three years

(Editing by Jonathan Hopfner)

East Asia Minerals Comments on the New Indonesian Mineral and Coal Mining Law, and Implications for the Company

VANCOUVER, BRITISH COLUMBIA–(Marketwire – Jan. 26, 2009) – East Asia Minerals Corporation (TSX VENTURE:EAS) believes that the changes proposed under the New Indonesian Mineral and Coal Mining Law (“New Mining Law”) are largely positive for the Company and considers that the New Mining Law of Indonesia is a globally competitive framework within which to operate. It will provide the Company with excellent security of tenure, and a well defined framework within which to grow the Company.
The draft of the New Mining Law was approved by the Indonesian legislature on December 16, 2008, and was signed by the President on January 12, 2009. Upon its enactment, the New Mining Law will replace the current law on Principal Provisions of Mining (“Law No 11/1967” or “Old Mining Law”). However, the existing implementation regulations of the Law No 11/1967 shall remain applicable to the extent that such implementing regulations do not contravene with the New Mining Law. The new regulations required for the implementation of the New Mining Law will take several months to draft.
There are several major changes in the New Mining Law compared with the Old Mining Law. Under Old Mining Law mineral exploration and mining activity in Indonesia was conducted under either a Mining Authorization (“KP”) and/or a Contract of Work (CoW), which was issued by the Central Government. East Asia Minerals Corporation currently operates under several CoW applications, and KP’s.
The New Mining Law grants permits through the issuance of the mining license or IUP. The IUP is granted in two stages, namely the Exploration IUP and the Operation Production IUP. The New Mining Law guarantees that the holder of the Exploration IUP will be consecutively granted with the Production Operation IUP as the continuance of its business activity.
Under Old Mining Law an Exploration KP was granted for 3 (three) years, followed by an Exploitation KP for 30 (thirty) years, extendable for 10 (ten) years twice. The Exploration IUP for the metal minerals may be granted for the maximum period of 8 (eight) years and the subsequent Production Operation IUP will be granted for 20 (twenty) years, extendable for 10 (ten) years twice. Thus total tenure will be shortened by 5 years; however, the exploration term has been extended by 5 years. The Exploration IUP for metal minerals can grant an area of 5,000 (five thousand) to 100,000 (one hundred thousand) hectares. Hence large areas are available to prospective explorers. The Operation Production IUP grants a maximum area of 25,000 (twenty five thousand) hectares. EAS considers that the changes to term and size of tenure are unlikely to impact upon its future operations and are sufficient for all foreseeable mining activities.
IUPs can be granted by the Mayor/Municipal Official, Governor, or Minister, depending on the location of mining area. This is a departure from the previous Mining Law, wherein all exploration and mining licenses were issued by the Central Government. EAS has long been positioning itself for this eventuality and has excellent relationships with all levels of Government in Indonesia.
The Exploration IUP for metal minerals mining will be granted by way of public auction. This may well be a significant disincentive to new entrants to Indonesia. However, under the New Mining Law CoW applications submitted at least (1) one year prior to the enactment of the New Mining Law, where the applicant has obtained a principal license (izin prinsip) or the preliminary investigation permission (surat ijin penyelidikan pendahuluan), will be honoured and treated as an IUP application without the public auction requirement. Similarly, existing KP’s will be automatically converted to IUPs. Hence East Asia Minerals Corporation believes that its large and hugely prospective land position in Indonesia will be converted to the new IUP system automatically.
Furthermore, the Company believes that direct foreign ownership of its tenements will be allowed under the New Mining Law; however there may be some requirement for divestment to an Indonesian entity, much in the same way as there were such requirements under the Old Mining Law.
Kalimantan Coal

Bumi slams critics of mining deals

Bumi slams critics of mining dealsBy Rupert Walker 16 January 2009 Bumi Resources makes a robust defence of its purchases of three mining companies last week, as Bakrie hopes its convertible bond issue will finally ensure it retains control of its “crown jewels”.

Bumi Resources and its dominant shareholder, Bakrie & Brothers, countered attacks by mining analysts regarding the coal miner’s buying spree last week. Nalin Rathod, president-director of Bakrie, protested that analysts with “no commitment, just criticising on the sidelines, had failed to understand the deals properly”, while the media eschewed deep analysis for the easy attractions of “breaking news”.Last week, over four days, Bumi Resources made three purchases of Indonesian coal miners, which analysts quickly complained were too expensive and also too closely connected to Bumi’s principal shareholder. It paid a total of about $564 million for majority stakes in Pendopo Energi Batubar, Fajar Bumi Sakti (FBS) and Darma Henwa. The price paid for Danwa Henwa, for instance, was seven times the current share price. Bumi also paid a high $2.6 per tonne of reserves (another measure commonly used in the mining industry) for FBS, compared with Bumi’s own valuation of just $0.93 per tonne. But, Dileep Srivastava, senior vice-president at Bumi Reources, told FinanceAsia that he believes current valuations are not a true reflection of the worth of minerals – that is coal – which he stresses are “real” in contrast to “paper assets which are often speculative in nature”. Analysts are simply failing to see the bigger picture, he said.He points out that in 2007, analysts valued Bumi’s reserves at between $11 and $15 per tonne, and during the coal price peak between April and June last year they were worth more than $20 per tonne. The collapse of Bumi’s share price from an all-time high of Rp8,750 in June to around Rp750 at the time of the three acquisitions meant a similar fall in the value of reserves, plunging to less than $1 per tonne. So claims based on short-term share price movements that Bumi has paid too much are invalid, he says. Instead, all three purchases are part of a long-term strategy to develop its coal mining franchise.Currently, Bumi’s coal mining operations are conducted by its two mining subsidiaries, KPC and Arutmin, located in Kalimantan. Both are low-cost open-cast operations that have captive coal processing facilities and dedicated loading terminals and ports. Together they made up 28% of Indonesia’s coal production in 2007, and represent the second largest thermal coal exporter globally. Bumi also has plans to diversify its business portfolio and revenue mix through other ventures in the mining sector, such as copper, gold, iron ore, bed methane and power.Nalin Rathod goes further. In a telephone call with FinanceAsia, he criticises analysts for guesswork and a failure to understand the deals properly. In addition to the intrinsic merits of the purchases, he emphasises that after an initial down-payment of 10%, the full cost doesn’t need to be paid for three years; nor will interest accrue. But analysts have also noted that all three acquired companies are closely linked to the Bakrie group through ownership and are even sharing some senior executives. Stevanus Juanda, a Jakarta-based mining analyst at J.P. Morgan, wrote in a note on January 8 that: “A quick check on Indonesian Coal book 2007 [an industry manual] revealed that Bakrie Capital Indonesia owns 90% of Pendopo Energi Batubar.” He concluded that “if this acquisition is announced as a non-related party transaction, we believe investors could lose confidence in Bumi Resources”.Both Rathod and Srivastava counter these accusations by pointing out that the Indonesian regulators were satisfied that no market rules were violated. As far as Bumi is concerned, the use of the proceeds by the sellers of the companies is none of its business, they say. Of course the backdrop to this controversy is a drama that has been confusing and entertaining Jakarta’s financial community since early October. Bakrie, Indonesia’s largest conglomerate, has spent the past three months in a battle to pay off $1.2 billion of debts and to retain control of Bumi, the group’s crown jewels. A complex web of debt-for-equity swaps culminated in the announcement this week of a Rp4.26 trillion ($385 million) convertible bond which will be issued by Bakrie. The CB will be launched in May – subject to regulatory and shareholder approval – and will be sold to the domestic private equity firm Northstar, with whom Bakrie formed a joint-venture last month. The proceeds will be used to buy Bakrie units (but not Bumi shares) and the bonds will eventually be converted into Bakrie & Brothers’ equity. For the moment, at least, it appears that Bakrie has won both the battle and the war.

The new mining law and the environment

Rusdian Lubis and Karlheinz Spitz, JAKARTA
With the enactment of the new Mining Law, we may now face the dilemma of Ulysses when he navigated his ship: To sail toward the Scylla cliff to avoid the Charybdis whirlpool.
The new Mining Law seems to have better and clearer rules on the permitting of mines and on the financial responsibilities of mine operators. However, the Indonesian Mining Association (IMA) argues, quite correctly, that the law will scare off multinational mining companies. This eventually will affect foreign investment and the environment. Why so?
Part of this is due to the loss of long-term security of tenure under the new mining regime. Multinational mining companies are interested in developing large mineral deposits.
It would be naive to assume that any foreign company would commit to the massive investment without long-term security of tenure.
There is also the point that the law requires mine investors to commit to downstream mineral processing. While noble in its intention, only time will tell how such a directive aligns with the global economic forces that characterize today’s mining industry, including a continuing trend from small-scale mining to larger, consolidated mining operations – a trend the new Mining Law runs counter to.
Moreover, IMA anticipates that the law will proliferate small-to-medium mining throughout Indonesia, like acne on the face of Indonesia’s landscape. From the standpoint of environmental protection, this proliferation, if not strategically managed, will be problematic if not catastrophic.
Let’s start with today’s global environmental awareness. Multinational companies cannot afford to adopt low environmental standards anywhere without endangering their global reputation and their ability to raise funds for mining projects in other parts of the world. None of this is a concern for a locally operating small-to-medium mining company.
Mine developers who borrow funds from Equator Principles Financial Institutions (EPFI), which account for 80 percent of private funding worldwide, have to comply with the International Finance Corporation’s Environmental and Social Performance Standards, a leading practice in the environmental assessment of a new mine. These standards cover aspects such as environmental management (including AMDAL/EIA), biodiversity protection, land acquisition and resettlement planning, or indigenous peoples development.
These safeguards are rigidly mandated by the lenders to the borrowers. Securing funding is costly and may take years. Considering these high costs and the lengthy process, it is fair to assume that small-to-medium mine developers may be tempted to borrow money from the softer windows that do not require compliance with such rigid environmental and social safeguards.
During operation, EPFI-financed mining projects have to comply with a myriad of environmental protection and management measures: Mandatory standards such as environmental and social regulations, and voluntary best practices such as Environmental Management Systems (EMS) like the ISO 14000 series, the International Charter of Mining and Minerals, or PROPER. Conformance.
These requirements do not come cheap; They also require highly trained staff and systematic monitoring. Small mine operations, likely cash-strapped, will avoid such environmental practices. Again the outcome is clear — environmental protection and possibly even work safety may be compromised.
Consider now mining’s physical impacts. Admittedly, bigger mines have bigger physical impacts. The ecological footprint of a big mine (say 200,000 hectares) is larger than that of a small mine (say 15,000 hectares).
But what about 20 small mines operating in one province? Their cumulative impact can be staggering, or worse, spread all over the province with little accountability or clear responsibility.
To make things worse, environmental damage from mining is often delayed. The impact of acid mine drainage, for example, will not be evident for several years after the mine is closed. By that time, small and medium mines, with shorter life spans, have already ceased operations and gone.
There is of course also the valid observation that size alone does not determine the significance of environmental pollution.
A case in point is artisanal gold mining, a practice that commonly uses mercury to extract gold from the host rock and has long been banned by multinational mining companies.
On social issues, communities will likely suffer the most from the new Mining Law. Solid community development (CD) programs need time, money and a diligent process. Multinational companies have learned the hard way that CD and social programs are not charities but part of doing business.
To protect their long-term investments, they have learned to engage in CD programs systematically, patiently and sometimes even painfully. Mistakes are still made, considering that nothing is foolproof in this context.
A small mine, operating in a shorter period, may not have enough time to engage in sustainable CD programs.
The lack of consistent CD is likely worse in cases where several small mines operate in parallel; there is no clear-cut responsibility.
Unfortunately there is an even more convincing argument that supports our conclusion that host communities will suffer most: There will be simply not enough mines that will convert minerals into wealth and into opportunities for much needed regional development.
What to do? The journey continues and more challenges are ahead. Lawmakers are advised to consider the impacts of the new Mining Law on environmental and social issues through carefully written and enforced bylaws.
More importantly, they should not be naive in assuming that the impact of big mining operations on environmental, social and regional development are always worse than that of small-to-medium mines.
The writers are senior consultants of PT Environmental Resources Management. This article is their personal view.