Bumi says coal price to ease by 2006: Report
Tuesday, October 5 2004 - 12:51 AM WIB
"The situation will not last for long. I think once the equipment shortage is overcome by the manufacturers...then a lot of coal will flood into the market and the price will come slightly down," said Ari Hudaya, President Director of Bumi Resources in an interview with Dow Jones Newswires Monday.
Hudaya was in Singapore to sign a $385 million loan facility for Kaltim Prima Coal, a subsidiary of Bumi Resources.
The cost of coal has been rising in tandem with oil prices, amid worries over low supply as demand, particularly from China, continues to rise.
However, miners including Bumi, have been unable to boost output or exports because they have insufficient equipment or because they've faced bottlenecks at ports.
Bumi itself anticipated boosting production in the second half of 2004 but some of its equipment is still being shipped. Hudaya said that should arrive in October or November allowing for a late-year push in output.
Hudaya said Bumi sees coal prices averaging around $35 through to the end of the decade but where the price peaks depends on demand from China.
Australia's coal is now being sold to Japan under a year-long term contract at $45 a metric ton, 68% higher than last year's reference price. The Australia export price to Japan is considered a benchmark for Asian coal sales.
"Brown outs are happening in China. They need more energy. Our prediction would be China will start importing more coal for commercial reasons," said Hudaya.
China currently produces around 1.6 billion tons of coal annually, exports around 80 million and imports around 8 million.
Hudaya predicted China could import 30 million to 35 million tons of coal in 2005 and said, like many of its peers, the firm would look to slowly develop the market there.
Bumi's traditional markets are Japan, Taiwan, South Korea, Hong Kong and Malaysia.
He said Bumi is also anticipating existing customers switching some of their energy needs from oil to coal and said it has also been talking to European energy firms, notably in Italy, France and Spain, which are increasingly looking at dual-use plants.
Bumi anticipates producing around 40 million tons of coal this year - 23 million from Kaltim Prima Coal and 16.5 million from Arutmin Indonesia.
Next year, output should amount to 51 million tons - 33 million from KPC and 18 million from Arutmin - followed by 57 million tons in 2006 and 70 million in 2007, boosted by output from contractors.
The firm has drilled 80 new holes this year and anticipates drilling 120 new holes in 2005, with this year's drilling budget of $1.6 million rising to $3 million next year.
Current reserves stand at 2.2 billion tons but Hudaya said he expects new certification - expected by the end of the month - to show reserves of 2.6 billion tons.
As well as boosting output, Bumi Resources is also keen on further acquisitions and is "actively" looking both inside Indonesia and overseas, Hudaya said.
However, Bumi wouldn't consider acquisitions until the firm has cut its $614 million in debt to a level where it is balanced with equity.
Hudaya said high coal prices and more output would allow the firm to repay its debt within two years but said it would look to maintain an optimal and efficient amount of debt of around $200 million to $300 million.
Bumi has about $190 million in debt due next year which it intends to repay.
The latest syndicated loan from KPC was taken to refinance some acquisition-related financing and came after the firm flirted with the idea of an international bond.
That was scrapped after markets turned sour on Indonesian and other emerging market debt earlier this year but Hudaya said Bumi would be keen on selling international bonds in the future "if the market and the opportunity is there."
He added Bumi is on target to achieve net profit of $137.7 million this year and expects profits of $320 million next year. (*)