Orpheus reevaluates presence in RI coal sector

By Ruli Setiawan

Chairman of ASX-listed Orpheus Energy, Wayne Mitchell said that his company was evaluating its presence in the Indonesian coal mining sector amid emerging uncertainty triggered by new regulatory environment.

He said at the company?s annual general meeting Friday that while Orpheus believes that the coal sector remains a strong long-term prospect, the company was also looking into opportunities outside coal.

Mitchell said that some recent developments in the Indonesian coal sector which provided further impetus for the company to make the decision to carefully re-evaluate Orpheus?s future in this sector included:
1. New Indonesian government regulations require all existing miners to re-apply for export mining permits, with the intent by the government to control the payment of all back taxes. The approval process will take time, restricting the operations of many export miners;
2. The new rules have the intention of reining in illegal operations, forcing coal miners to register with the central government and make royalty payments upfront before they are allowed to export, and as reported by the Indonesian Coal Mining Association, this will affect exports significantly;
3. The government has also announced that it will proceed with plans to cap the production of coal next year, a move aimed not only at protecting the environment but also at helping stem a decline in global coal prices;
4. Data in early September from the Financial Services Authority (OJK) showed that non-performing loans to the mining sector had more than doubled to 2.49 percent in June from 0.99 percent a year before, showing the impact of the downturn in prices; and
5. The ongoing lack of clarity on the process of obtaining mining licenses.

?In this ongoing environment, the board continues to implement its asset rationalization and cost reduction strategy as determined through the comprehensive strategic review of the company?s asset base and cost structure in late 2013,?? Mitchell said.

In July of this year, Orpheus announced the sale of its non-performing projects to the company?s Indonesian partner, Nugroho Suksmanto, for a total consideration of US$ 8.2 million, representing an overall profit of US$ 3.9 million. This was subsequently approved by shareholders at the General Meeting on 14 August. These funds will significantly strengthen Orpheus?s balance sheet and facilitate transacting on and developing future growth opportunities for the company.

The assets are PT Daya Mega Citra and PT Daya Mega Pelita (Papua tenements), PT Pelita Dian Petangi (83), PT Pelita Kharisma Kenanga (B4) PT Alam Duta Kalimantan (ADK) and PT Citra Bara Prima (CBP).

?(But) Collections have been slow, with only US$ 965,853 paid to date, so in consultation with our Indonesian legal advisors, Orpheus extracted a personal legal undertaking from Suksmanto whereby Suksmanto personally commits to settle all outstanding debts by PT Mega Coal and related parties, and to indemnify Orpheus and related parties against cost, loss or liability, suffered by Orpheus or related parties in the case of a breach of the project sales agreements,? Mitchell explained.

The Orpheus Board is in the process of initiating action to expedite the recovery of outstanding monies owed by Suksmanto, he added.

Mitchell said the sale of the non-performing coal assets allows the company to progress an alternative asset acquisition strategy. ?One of these projects is a potentially industry changing gold processing technology. Orpheus has significantly progressed its due diligence and negotiations, which commenced a number of months ago, on this technology. Orpheus anticipates being in a position in the very near term to announce details to shareholders.?

Editing by Reiner Simanjuntak