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This presentation is prepared for Kalimantan Coal Conference, Balikpapan, September 2013
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PT Toba Bara Sejahtra Tbk (“Toba”) Kalimantan Coal Seminar
Balikpapan, 4th September 2013
This presentation is prepared for Kalimantan Coal Conference, Balikpapan, September 2013
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Content
2
5
Corporate Profile
4
Business Overview
3
Cost Efficiency Initiatives
Importance of Mine Planning
1
Industry Outlook
This presentation is prepared for Kalimantan Coal Conference, Balikpapan, September 2013
3
Corporate Profile 1
This presentation is prepared for Kalimantan Coal Conference, Balikpapan, September 2013
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ABN66.1%
IM15.7%
TMU18.2%
Toba specializes in thermal coal production and comprises of three operating subsidiaries: Adimitra Baratama Nusantara (ABN), Indomining (IM) and Trisensa Mineral Utama (TMU), which hold adjacent concession areas located in East Kalimantan, Indonesia
Toba in Brief
• Substantial and diversified thermal coal reserves and resources oJORC-compliant proved and probable reserves of
147 MM tons and measured, indicated and inferred resources of 236 MM tons
oCoal brands with calorific values ranging from 4,700 - 5,800 Kcal / kg GAR
ABN79.6%
IM15.0%
TMU5.4%
Reserves
%
• Strong growth profile
oProduced 5.2 MM tons of coal in 2011 and grew to produce 5.6 MM tons of coal in 2012
o Prime location provides the operational cost edge to grow as a logistical & operational center for the area
oContinued exploration effort to increase our Reserves and Resources. Current reserves only account for 52% of our total area has been explored
Revenue (1)
% EBITDA(1)
% Resources %
Total: 147 MM Tonnes Total: US$ 425 MM Total: US$ 30 MM Total: 236 MM Tonnes
Note: (1) Last Twelve Month analysis ~ Revenue and EBITDA
ABN 73.7%
IM 21.8%
TMU 4.5%
ABN 76.0%
IM 19.6%
TMU 4.4%
This presentation is prepared for Kalimantan Coal Conference, Balikpapan, September 2013
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Toba’s Prime Location
Samarinda
Mahakam River
Muara Jawa
Muara Berau
Makassar Strait
Major City Jetty Transhipment Point
~55 km (total ~120 km)
~65 km
kilometers
0 12 24 36 48
ABN
Kutai Energy
Adjacent locations for all
3 mines
TMU ABN
IM
1
17km ABN Jetty
IM Jetty
~ 5 km
Furthest pit to jetty 25km | with
closest one ~5km
3 Major city is less than 50
km
4
Close proximity transhipment point & jetty
2
Toba owns all infrastructures (coal processing plants, overland conveyors, and jetties), giving significant operating leverage vs other concessions in surrounding areas
Prime Location
TMU - IM Hauling Road
Balikpapan
Jetty
This presentation is prepared for Kalimantan Coal Conference, Balikpapan, September 2013
Underpass Infrastructure
Loading Speed of 1,800 TPH
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High Built CPP Cap 10 MM TPY
Hauling Road to IM
Vast Unexplored Areas
Short Coal Hauling Distance < 5km
CPP Ramp Up to 6MM TPY
Conveyor for TMU & Others
Short Coal Hauling Distance 4km
TMU IM
ABN
TMU
Toba’s Concessions
ABN
TMU
Toba has Developed Infrastructure & Exploration Capabilities
INDOMINING
This presentation is prepared for Kalimantan Coal Conference, Balikpapan, September 2013
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Business Overview 2
This presentation is prepared for Kalimantan Coal Conference, Balikpapan, September 2013
Source: Company data
0.1 1.1
3.1 3.8
4.4
~ 6,5
0.7
0.9
0.9
1.4 1.0
0.0 0.3
0
1
2
3
4
5
6
7
2007 2008 2009 2010 2011 2012 2013
TMU Indomining ABN
8
Solid Operating Track Record
0,8
2,0
3,9
5,3 5,6
Production Growth MT = Million Tons
0,2
~5,8 – 6,4
Fore
cast
• Toba started exploration at ABN & IM in 2006 and at TMU in 2008 • Production grew at 65% CAGR from initial size of 800k in 2008 to 5.6 MT in 2012 • Toba focuses on Profitable Production Growth and infrastructure capacity is expected to be
increased from currently 13 MTp.a. to 16 MTp.a. by end 2013
ABN IM TMU
Toba continues to transition to becoming a major player
Fore
cast
0.3
This presentation is prepared for Kalimantan Coal Conference, Balikpapan, September 2013
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Coal Reserves Coal Resources
(MM Tons) Proved Probable Total
Reserves Measured Indicated Inferred Total
Resources
ABN 70 47 117 73 70 13 156
IM 11 10 22 24 10 4 37
TMU 5 4 8 9 8 26 43
Total 86 61 147 106 88 43 236
Reserves and resources upside from conversion of resources to reserves and further exploration of concession areas
Notes: 1. Differences in totals are due to rounding off 2. The Runge Report for ABN was as of 31 December 2011, the PT SMG Consulting Report for IM was as of 1 January 2012 and the Marston Report for TMU
was as of 31 October 2011
Substantial Reserves and Resources Support Production Expansion
Coal Reserves and Resources (1) (2) (JORC)
Source : Broker report
Toba’s reserve life of over 20 years compares
favorably with other listed peers
Reserve life ~ Industry Comparison
• Explored 3,704 of 7,087 hectares of concession areas (52% of total concession area) and drilled 3,512 boreholes as of 31 December 2011
• Additional JORC coal reserves and resources expected to be discovered, especially at TMU where only 680 hectares out of 3,414 hectares of concession (20% of TMU concession area) have only been explored
This presentation is prepared for Kalimantan Coal Conference, Balikpapan, September 2013
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3 Industry Outlook
This presentation is prepared for Kalimantan Coal Conference, Balikpapan, September 2013
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Chinese import demand slows
Potential Increase in Royalty and export tax
Potential Tough Challenges Ahead…
Decline from US$ 115 to 75-85/ton with foreseeable long term est. price of $85-90/ton This condition lead to “survival of fittest” where only those with lowest cash cost are able to survive
Substitute Product
Excess supply
Seaborne Factors
Decrease in profitability and competitive advantage vs seaborne producers
Domestic Factor
Rising Global Cash Cost
Decline in profitability and competitive advantage against seaborne producers This condition leads to “survival of fittest” where only those with lowest cash cost are able to survive
Global Cost
Factor
This presentation is prepared for Kalimantan Coal Conference, Balikpapan, September 2013
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Coal Producer’s Excess Supply .. (i)
Source: Deutsche Bank report May’2013
Global supply potential vs import demand (Mt)2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e
Indonesian exports 371 393 417 429 442 455 469 483 Australian exports 182 197 208 214 230 241 253 265 Russia exports 100 103 106 108 110 113 115 117 South African exports 76 77 79 81 81 82 83 84 Colombian exports 83 85 87 89 91 93 95 97 US exports 35 30 25 25 25 25 25 25 China exports 10 10 10 10 10 10 10 10 Other exports 180 182 183 185 187 189 191 193 Total supply 1,037 1,077 1,115 1,141 1,176 1,208 1,241 1,274 % Indonesian Supply 36% 36% 37% 38% 38% 38% 38% 38%CAGR 3%Japanese imports 143 146 148 150 152 154 157 159 Korea&Taiwan imports 173 176 179 183 186 189 192 196 European imports 220 220 211 201 197 179 160 164 China imports 230 220 200 195 195 195 195 195 India imports 122 127 134 142 150 162 175 189 Other imports 144 146 148 150 152 154 156 158 Total demand 1,032 1,035 1,020 1,021 1,032 1,033 1,035 1,061 CAGR 0.4%
Oversupply 5 42 95 120 144 175 206 213
• 36% of total global coal supply is produced in Indonesia
• Global projection indicates supply is expected grow at higher volume than demand
This presentation is prepared for Kalimantan Coal Conference, Balikpapan, September 2013
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Coal Producers’ Excess Supply .. (ii)
Source: Asian Coal & Power: less, less, less.. The beginning of the end of coal, Bernstein research, Juni 2013
.... China as the biggest coal importer in Asia Pacific affects regional demand…
This presentation is prepared for Kalimantan Coal Conference, Balikpapan, September 2013
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Coal Producers’ Excess Supply .. (iii)
Source: Asian Coal & Power: less, less, less.. The beginning of the end of coal, Bernstein research, June 2013
.... Projected to have vast excess supply, hence impacting lower coal import
Production, Net Import, and Excess Capacity of China Coal Production
This presentation is prepared for Kalimantan Coal Conference, Balikpapan, September 2013
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...Substitute Product
Source: BP Energy outlook
81.7 83.2 86.6 90.3 93.6
95.4 96.7 100.6 105.9 110.2
0
50
100
150
200
250
Q3'13 Q4'13 Cal-14 Cal-15 Cal-16
19-Jun-13 2-Jan-13
Changes in Forward Curve Newc Global Coal Index
Source: Global Coal Coal demand is expected to face tougher competition from alternative sources ie. hydro, geothermal and solar energy, which are showing increasing trend
This presentation is prepared for Kalimantan Coal Conference, Balikpapan, September 2013
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...Increase in Royalty and Export Tax
Increase in royalty and export tax
Lower production and selective mining by coal
producers
Decrease in coal producers’ profitability
Background and Impact
Background
Government and Parliament’s Commission XI is currently reviewing possibility to increase government revenue from coal industry: • To increase coal royalty with
IUP license to 10%-13% starting January 2014.
• Export tax on Coal The purpose is to maximize Government revenue
Decrease in margin can prompt producers to strengthen its cost efficiency strategy by lowering production
Increased royalty would not directly increase government revenue. Lower production may result in: (i) decrease in government’s
target revenue due to lower royalty income
(ii) lower tax income due to lower profitability
This presentation is prepared for Kalimantan Coal Conference, Balikpapan, September 2013
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4 Cost Efficiency Initiatives
This presentation is prepared for Kalimantan Coal Conference, Balikpapan, September 2013
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Coal Prices and Market Values
Current NEWC index fell by 37% compared to its highest of $132 in Jan 2011
80
90
100
110
120
130
140
Jan-
10M
ar-1
0M
ay-1
0Ju
l-10
Sep
-10
Nov
-10
Jan-
11M
ar-1
1M
ay-1
1Ju
l-11
Sep
-11
Nov
-11
Jan-
12M
ar-1
2M
ay-1
2Ju
l-12
Sep
-12
Nov
-12
Jan-
13M
ar-1
3M
ay-1
3 -
20
40
60
80
100
120
140
Jan-
10
Apr
-10
Jul-1
0
Oct
-10
Jan-
11
Apr
-11
Jul-1
1
Oct
-11
Jan-
12
Apr
-12
Jul-1
2
Oct
-12
Jan-
13
Apr
-13
Jan’11= $132
Juy’13= $77
Jul’11=113
July’13=27
Source: GlobalCoal Newcastle
Source: Bloomberg
NEWC Jan’10 – May’13 (US$/ton) Indonesia Coal Mining Co. Index (a) Jan’10 – July’13
Catatan: (a) Calculated based weighted average of Stock Market Capitalization Adaro, Toba Bara, Bukit Asam, Atlas, Bumi, Indo Tambang, Indika, Harum, Bayan, Borneo, Berau, Golden Energy,
Led to decline by over 75% in market capitalization of all Indonesian coal mining
companies
This presentation is prepared for Kalimantan Coal Conference, Balikpapan, September 2013
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Lower Stripping Ratio (SR),
Shorten Dump Distance
Integrate hauling road between subsidiaries
Share current infrastructures : CPP
& Jetty
Strategic Initiatives to Manage Changing Environment
Achieving Desired Profitability Level
Effective Mine Plan (Short, Medium, and LOM (Life of Mine))
Toba’s Response
- Responded to coal price downturn in 2012 by revamping 5-year mine plan and LOM based off current price of US$90/t, which led to reduction in SR and hauling distance
- Hence this resulted in lower Y-o-Y cash cost (including royalties) from US$65/t to US$55/t FOB vessel
Conduct joint mine plan within
borders
This presentation is prepared for Kalimantan Coal Conference, Balikpapan, September 2013
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Importance of Mine Planning 5
This presentation is prepared for Kalimantan Coal Conference, Balikpapan, September 2013
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Importance of Proper Mine Planning … (i)
Determining Factors in Coal Mining
Geology (Mining Potential, Coal Quality, SR, Dump Distance)
Logistic and Supply Chain
Social Environment
CAPEX
Types of Financing
Time Frame
Mine Plan
Exploration Construction
and Development
Production Mine Closures
This presentation is prepared for Kalimantan Coal Conference, Balikpapan, September 2013
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Why is it important?
Importance of Proper Mine Planning … (ii)
!
!
Acts as a primary guidance for running effective and efficient mining activities that result in optimum solution
Mine Plan
Maximize all reserves
Minimize Costs
Continious Production Activities
Flexible to changing business environment
Achievable & applicable target
operation/production
Ensure Quantity & quality for marketing
Ensure proper mining practice
What are the advantages?
This presentation is prepared for Kalimantan Coal Conference, Balikpapan, September 2013
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Major Factors Affecting Effective Mine Plan ..
Production and Logistics Cost
Reserve Price View SR
Mine Plan Management
Financial Projection
Decision Making Process
Valuation based on effective mine plan plays critical role in defining strategic plan and business decision
• SR • Reserve • Dump balance • Production
and logistic cost
Dump Balance (disposal capacity)
Valuation (NPV)
Simulation on Different Price
Scenarios
• Price view • Fuel cost
Controlled Factors
Uncontrolled Factors
Trade-off between Reserve and Price
View
Tech
nica
l Ec
onom
ical
This presentation is prepared for Kalimantan Coal Conference, Balikpapan, September 2013
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• Low strip ratio increases margin and reduces cost
• However, keeping SR too low while
keeping production high can compromise integrity of mine, hence reducing LT reserve of mine
SR
Reserve
Margin
Relationship Between SR and Reserve
Mine plan variables are subject to adjustment based on mining needs (trade-off between reserve life and margin)
This presentation is prepared for Kalimantan Coal Conference, Balikpapan, September 2013
Drilling Land Compensation
Exploration Construction Production Mine Closure
Geological & Geophysical
Reclamation
Logistics Related
• Jetty • Hauling Road • Bridges
• Tug & Barge • Port
Production Related
• Crusher • Buildings • Workshop • Drilling
• Underpass • Heavy Equipment • Stockpile • Vehicles
Various CAPEX may be required depending on location (proximity to river/not)
General Survey
Permit & License
CAPEX needs to be evaluated based on Mine Plan and Ultimately based on NPV Analysis
..Various CAPEX Incurred in Every Stage of Mining Operation
This presentation is prepared for Kalimantan Coal Conference, Balikpapan, September 2013
Note:
Based on Goldman Sachs research , Total Investment / CAPEX on average are $36/ton
..Investment in CAPEX for Coal Mining
Gross Cash Invested
Initial Investment (US$'000) HRUM TOBA KKGI ITMG BYAN TotalFixed Assets 84,676 43,193 47,484 724,882 631,202 1,531,437 Deferred Exploration 43,889 57,791 11,389 154,920 531,874 799,863 Other Assets 107,370 (21,214) 14,683 (8,223) (40,190) 52,426 Total 235,935 79,770 73,556 871,579 1,122,886 2,383,726 Total Production (kton) 12,300 5,400 4,421 27,200 16,300 65,621 Investasi/ton (US$) 36
This presentation is prepared for Kalimantan Coal Conference, Balikpapan, September 2013
Cash Flow Projection 0 1 2 3 4 5 6 7 8 9 10Average Selling Price 67 67 67 67 67 67 67 67 67 67 Cost 54 54 54 54 54 54 54 54 54 54 EBITDA 13 13 13 13 13 13 13 13 13 13 Royalty increased - - - - - - - - - - Depreciation (2) (2) (2) (2) (2) (2) (2) (2) (2) (2) Interest expense - - - - - - - - - - Profit Before Tax 12 12 12 12 12 12 12 12 12 12 Income Tax (3) (3) (3) (3) (3) (3) (3) (3) (3) (3) Net Income 9 9 9 9 9 9 9 9 9 9 Capital Expenditure (0) (0) (0) (0) (0) (0) (0) (0) (0) (0) Loan Principal Payment - - - - - - Net Cash Flow (36) 10 10 10 10 10 10 10 10 10 10 Project IRR 28%
AssumptionsCost of Capital 20%Initial Investment (US$/ton) 36 Equity Portion 100%Interest 0%Debt period - Income Tax 25%Coal Quality (Kcal/kg - GAR) 5,000 Index discount rate 15.0%Project period 20 Coal Index Price 100Coal Index 100EBITDA Margin - Before Royalty increased 20%
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Simulation of Greenfield Mines
28% 90 95 100 110 1204,000 4.1% 13.7% 21.8% 36.9% 51.8%4,200 4.6% 14.5% 22.9% 38.8% 54.4%4,400 5.2% 15.3% 24.1% 40.7% 57.0%4,600 5.7% 16.2% 25.3% 42.5% 59.6%4,800 6.2% 17.0% 26.4% 44.4% 62.2%5,000 6.7% 17.8% 27.5% 46.2% 64.8%
Sensitivitas Kualitas dan Indeks Harga untuk Greenfield Project
Indeks Harga Batubara
This presentation is prepared for Kalimantan Coal Conference, Balikpapan, September 2013
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Conclusion
• Long-term view on coal supply and demand dynamics along with evolution of cash costs
• Coal prices will be in $80-85/ton range in the medium term • Cost will continuously creep up with the most challenging factor,
being labor
Macro View
• Mine Plan has become the key roadmap for viability of projects • Focus has to be on short term survivability vs long-term
sustainability • NPV analysis becomes a key tool for decision makers in investing
further capital expenditure
Mine Plan and Analysis
• Focus on both Short-term and Long-term Mine Plan • Yearly budgeting for management no longer comprises of macro
inputs (e.g. index price, inflation), but also potential policy changes (royalty, export tax)
• More complex issues and uncertainty in the next year for miners
Moving Forward