Bumi Plc outlines results, plans and strategies
Thursday, August 18 2011 - 02:32 AM WIB
UK-based firm Bumi Plc (Bumi) said Wednesday that its first set of financial results includes its ownership of PT Berau Coal Energy and 25% interest in PT Bumi Resources (Bumi Resources), from 4 March 2011, when the acquisition of the two interests became effective. Since then, the group has increased its ownership in Berau to 85%, and in Bumi Resources to 29%.
Bumi's operating profit for the period was $62 million, with underlying earnings of $54 million. EBITDA was $146 million. Strong demand for thermal coal, driven by increased consumption levels from Asia, particularly India, resulted in supportive demand conditions overall. Approximately 90% of total coal sales (on a gross revenue basis) went to exports, with around 10% to domestic Indonesian sales.
Average Free-On-Board (FOB) selling prices for the Group were 33% higher than the prior period, more than offsetting production costs of sales, which increased by 18%. Cost pressures were mainly due to a 13% increase in the stripping ratio, greater distances from the coal mined to the coal processing plant, higher fuel prices, and higher contractor costs.
Following the mandatory takeover offer made to PT Berau's minority shareholders, Bumi increased its holding in PT Berau from 75% to 85% for a total amount of $214 million. Group cash at 30 June 2011 was $467 million. $30 million of dividends payable to Bumi, which were declared by PT Bumi Resources in respect of 2010, were paid on 15 August 2011.
The group is embarking on a major expansion of production at its existing mines in both Berau and Bumi Resources. Capital expenditure for 2011 is expected to be $106 million for Berau and $310 million for Bumi Resources, on a 100% basis.
Step up transaction
As disclosed in its prospectus published on 24 February 2011, Bumi entered into a number of individual transactions in July 2011, between Bumi and certain PT Bumi Resources shareholders, at an agreed ratio, to increase its holding in PT Bumi Resources above 25%. The result of the step up transactions took Bumi's holding in PT Bumi Resources to 29%. It remains a medium term goal to increase this ownership level in PT Bumi Resources and to consolidate its financial results.
Strategy
Bumi plc is a leading natural resources group, with the largest coal-producing assets in Indonesia, the world's biggest sea-borne thermal coal-exporting country. The group's key assets are Berau which is the country's fifth largest coal producer, and PT Bumi Resources, which is the biggest thermal coal producer in Indonesia. Both Berau and PT Bumi Resources have cost competitive positions in thermal coal, with all mining operations situated in the lower half of the cost curve.
In June 2011, the Group announced that it intends to acquire from PT Bumi Resources, a controlling interest in PT Bumi Resources Minerals ("BRM"), which is a major base metals exploration company, with interests in Indonesia and West Africa.
Bumi plc's strategy is to create a premium-listed FTSE Indonesian coal champion with a focus on executing one of the largest-ever organic expansion plans in thermal coal. In addition, through the proposed acquisition of BRM, the Group will create a second business unit, focused on developing a number of high quality, Tier 1 base metal projects.
A key focus of the strategy is enhanced transparency and corporate governance as well as a simplification of the Group's structure to remove duplication and to lower funding costs. In terms of PT Bumi Resources' $1.9 billion loan to the China Investment Corporation (CIC), PT Bumi will pre-pay the first $600 million tranche in October 2011.
A central tenet of the Group's strategy is to integrate and optimise its coal asset base to attain best-in-class performance across all its operations. In this regard, on 16 August 2011, the Bumi plc board approved a Group-wide operational benchmarking study across all its coal businesses including a review of contractor performances. The aim of the benchmarking study is to unlock value from existing assets through cost and productivity improvements which will further drive shareholder value. In addition, in order to capitalise on the scale of the Group's procurement spend, a further initiative has been launched to streamline its supply chain, covering existing operations and expansions.
Industry leading growth - major expansion phase underway
Bumi plc has one of the strongest organic growth profiles in the industry. On a combined basis, production levels of thermal coal from PT Berau and PT Bumi Resources are set to increase significantly in the near term.
The majority of the increase is set to come from PT Bumi Resources, the largest portion of which will come from the Kaltim Prima Coal (KPC) operation. This will be achieved by stepping up owner-operated mining activities as well as the construction of a new coal crusher, a new overland belt conveyor and a second ship loader.
The majority of the increase in production from Arutmin will come from three expansion projects involving construction of port facilities, overland belt conveyors and coal processing plants.
A number of projects are underway at PT Berau, including the upgrading of existing coal handling facilities such as its barge loaders and crushers at the Lati coal handling facilities. Construction of a new crushing line and a new stockpile were completed in May 2011.
For 2011, PT Berau is currently forecast to produce 20 million tonnes, an increase from 17 million tonnes in 2010 and PT Bumi Resources' operations are expected to produce 66 million tonnes, an increase from 60 million tonnes in 2010.
Outlook
Notwithstanding the current turmoil in financial markets, thermal coal prices are currently forecast to remain strong over the short and medium term, with higher levels of demand forecast from Asia as well as Europe. India in particular is expected to increase its level of thermal coal imports over the next few years with a major planned increase in electricity capacity addition. China's electricity demand is also expected to grow significantly with thermal coal the major beneficiary. In Japan, following the nuclear accident earlier this year, thermal coal's share of generating capacity is expected to increase.
On the supply side, capacity has been restricted. In Australia, delays to port and particularly rail infrastructure have hampered levels of thermal coal exports and South African exports have been impacted by rail infrastructure issues. Heavy rainfall in the Kalimantan province of Indonesia during the first half of 2011 affected levels of thermal coal exports, though conditions have recently improved.
With one of the strongest growth profiles in the industry over the next few years, Bumi expects to be a major beneficiary of the strong market conditions and high pricing for thermal coal.(ends)