Kangaroo, Bayan to develop coal infrastructures

By Ruli Setiawan

ASX-listed Kangaroo Resources Limited (KRL) said Wednesday it has entered into agreements with its strategic alliance partner and majority shareholder, IDX-listed coal firm PT Bayan Resources Tbk (Bayan), to allow the development of haul road and port infrastructure that will benefit both KRL and Bayan?s adjacent coal mining activities. The agreements are subject to certain conditions, including shareholder approval.

The company said in a statement that the Strategic Agreement formalises the framework for cooperation and support between KRL and Bayan in relation to the Tabang and Pakar projects in East Kalimantan being co- developed in order to maximise use of the infrastructure and allow both Bayan and KRL to optimise outputs and profitability from their respective concession areas.

The key provisions of the Strategic Agreement are as follows:
? Bayan agrees to be responsible for funding any required development of the Pakar concessions by way of loans to KRL on commercial terms;
? Bayan may also provide any required funding for the operations of KRL?s subsidiaries, such funding to be by way of loan, accruing interest at prevailing commercial rates for third party loans which are offered by major banks in Indonesia;
? Bayan will, at KRL?s request, use its reasonable endeavours to provide, or procure the provision of, technical development services, mining services, project management services and management and administration services of a diverse and comprehensive nature as may be required by KRL?s subsidiaries to progress, develop and operate the Pakar concessions, as well as barging and transhipping services for the transport of KRL?s product to an ocean-going ship anchorage, with fees payable by KRL?s subsidiaries based on the services provided at arm?s length basis rates to be agreed; and
? KRL?s subsidiaries may retain their own contractors for any of the services contemplated by the paragraph above.

The Haulage Road and Port Access Agreement will entitle KRL?s subsidiaries to 30 percent of the overall throughput capacity from the new haul road and the expanded Senyiur Port infrastructure.

This equates to approximately 5.4 million tons per annum following completion of Bayan?s current expansion phase and potentially 9 million tons per annum if the next phase of the expansion proceeds and is completed.

This throughput capacity allocation matches KRL?s current long term development plans for the Pakar project.

The fees payable by KRL to Bayan under the Haulage Road and Port Access Agreement will be a material component of KRL?s cost of coal production. KRL considers the fees payable to be consistent with commercially reasonable terms that could be obtained on an arm?s length basis.

The other key provisions of the Haulage Road and Port Access Agreement are:
? in addition to access to coal transportation capacity, KRL?s subsidiaries will be entitled to use the new haul road and Senyiur port infrastructure to transport personnel, materials and equipment and for other ancillary purposes;
? Bayan agrees to operate and provide all funding required to construct, develop, operate and maintain the new haul road and the Senyiur Port and obtain all required approvals for this; and
? the term is for whole of the term of the Pakar concessions, including any extension.

KRL?s subsidiary, PT Sumber Aset Utama (SAU), owns a haul road between one of its Pakar concessions and the Senyiur Port and land, infrastructure, buildings and fixed equipment at Pakar and the Senyiur Port (Infrastructure Assets).

The Infrastructure Assets are not otherwise being used while the Pakar concessions continue through the licensing and permitting process.

The parties have agreed that it will be mutually beneficial for Bayan to acquire the Infrastructure Assets and give KRL access to the new haul road and upgraded Senyiur Port on the terms of the following agreements:
? Asset Sale Agreements;
? Haulage Road and Port Access Agreement; and
? Strategic Agreement.

These agreements are described in more detail below, and comprise the SAU Transaction.

Bayan will pay US$12 million in consideration for the Infrastructure Assets. The sale proceeds will then be paid to Bayan in part repayment of KRL?s existing loan from Bayan.

Completion of the Asset Sale Agreements is conditional on:
? KRL obtaining shareholder approval; and
? Bayan obtaining any required corporate and shareholders? approvals and satisfying relevant regulatory procedures and obtaining relevant regulatory approvals.

Bayan?s Tabang project consists of 2 operational coal mines located in the Kutai Kartanegara Regency of East Kalimantan.

KRL?s Pakar project consists of 9 concessions, not yet in production, and is located immediately south of the Tabang project. The coal deposits at Tabang and Pakar are contiguous and part of the same geological structure.

Bayan is currently increasing production at Tabang and, as part of its expansion plans, is upgrading and expanding the Senyiur Port.

Editing by Reiner Simanjuntak