Coal mining company PT Indo Tambangraya Megah (ITMG) has allocated about US$200 million to acquire several mines in Kalimantan this year in order to boost its coal reserves and expand into the power generation business.
The purchase of the mines will extend the expected lifespan of the company’s coal production from at least seven years to up to 15 years. ITMG currently has 200 million tons of underground coal reserves.
ITMG finance director Yulius Gozali said Monday said that the firm already assessed more than five mines in Kalimantan, including one mine with reserves of from 60 to 70 million tons.
“The question is whether we can seal the deal to acquire all of the targeted mines this year,” he said.
To finance the acquisition, the firm has earmarked $200 million its current year’s total cash reserves of about $360 million to $370 million.
However, Yulius added, the cost of the acquisition might surpass the allocated figure by the time the company seals all the deals before year-end and, consequently, it would then need to seek bank loans to fully realize its plan.
ITMG may also need alternative financing sources as it has dedicated $60.3 million for capital expenditure (capex) in 2017, about half of which would be used to develop infrastructure near its existing mines in Kalimantan.
Another one-fourth of the capex would be spend to replace some equipment owned by its subsidiary, mining contractor PT Tambang Raya Usaha Tama, while the rest will support the construction of a new crushing plant.
ITMG aims to produce 25.5 million tons of coal this year, about the same as it produced last year.
However, it intends to sell 27 million tons of coal by adding another 1 million tons to be sourced from small mining firms in Kalimantan, Indonesia’s top coal producing region, and 500,000 tons from its own stocks.
Of the figure, about 85 percent would be exported, mostly to China, Japan and South Korea, while the remaining 15 percent would be sold domestically.
Currently, ITMG sells most of its production overseas because there is a mismatch between what it mines and what is required by domestic power plants.
The firm mines medium-grade coal, while local power plants require lower-grade goal.
As global coal prices may improve throughout this year on the back of surging demand from the world’s largest energy consumer, China, ITMG is optimistic it would see both its top line and bottom line grow significantly this year.
“Demand from China usually decreases in the second and third quarter of the year as the country uses hydro power to generate electricity during these periods,” Yulius said. “However, a heat wave has cause a 20 percent decline in hydro power this year, forcing China to rely on coal once again.”
Furthermore, as China would also restock coal in the fourth quarter to anticipate higher winter demand, Yulius estimated that coal prices would hover from $75 to $80 per ton throughout this year.
In the first half of this year, the price of Asian benchmark Newcastle thermal coal averaged $86.60 per ton.
Despite the brighter outlook for coal prices, ITMG is trying to reduce its reliance on the commodity and seeks to become an energy producer in the long run.
Within the next five years, it expect to see its power generation business to contribute 30 percent of its total revenues.
The firm is at this moment conducting a feasibility study for building a 70-megawatt (MW) hydroelectric plant in Kalimantan for a total investment of $210 million.
Within the first quarter of 2017, ITMG’s revenues rose by 11.1 percent year-on-year (yoy) to $367.8 million. Its net profits also jumped significantly by 148.6 percent to $57.17 million over the same period.
Source: Viriya P. Singgih / The Jakarta Post
18 July 2017