Apr 7, 2010

How precious is Berau for DOID? (2)

Based on the reliable data I got,  Berau Coal began producing coal commercially from Lati and Binungan mines in 1995 and Sambarata mine in 2001.
In 2006, 2007, and 2008, Berau Coal produced 10.6 million tons, 11.8 million tons, and 13.1 million tons.
Lati mine is the largest of Berau Coal's three active mines and accounted for approximately 58.4% of its production in 2008. Binungan mine has the second largest coal reserve among the three active mines, and Sambarata mine is the highest quality coal of all three mines in terms of calorific value.
Between 1995 and 2008, Berau Coal produced 89.2 million tons of coal. 
Berau started exploration of new mine, Kelai, in 2008 and expects to commence commercial coal production in Kelai in 2013, after starting commericial coal production in Gurimbang in 2012.
Lati mine produced 6.3 million tons of coal in 2006, 7.2 million tons in 2007, and 7,6 million tons in 2008. 
Binungan mine dug 3.1 million tons of coal in 2006, 3.3 million tons in 2007, and 4 million tons in 2008, and Sambarata contributed 1.1 million tons of coal in 2006, 1.3 million tons in 2007, and 1.4 million tons in 2008.
Average selling price (ASP) & strip ratio
In 2006, Berau's ASP was US$29.39 per ton, US$31.86 per ton in 2007, and US$48.54 per ton in 2008. 
Cash cost per ton in 2006 reached US$21.40, US$23.81 in 2007, and US$34.88 per ton in 2008. Average strip ratio reached 7.02 times in 2006, 7.84 times in 2007, and 8.06 times in 2008.
Berau Coal has appointed two mining contractors to produce coals. They are Bukit Makmur Mandiri Utama, subsidiary of Delta Dunia Makmur (DOID), and PT Saptaindra Sejati (SIS), subsidiary of PT Adaro Energy Tbk (ADRO).
BUMA has mining contracts until December 31 2018 for Lati mine, Binungan mine-Block 7, Binungan mine to Suaran port). SIS has mining contracts for Binungan mine-Blocks 3 & 4 until December 31 2010, Binungan mine-Pit H4 until December 31 2011, Sambarata mine-Block A until December 31 2011, and Sambarata mine-Block B1/Birang until July 14 2012.
A source familiar with the matter said Berau Coal is planning to jack up an annual gross production from 13.1 million tons in 2008 to 15 million tons in 2009 and to 17.5 million tons of coal in 2012.
"Berau will start at new areas, Binungan Blocks 1,2, and Parapatan, commencing end of this year," the source said.
Infrastructure of Berau, Indonesia's fifth largest coal mine, supported a production capacity of 20 million tons per year. Upgrading will be on the way. The company has set target to enlarge capital expenditures of US$19.8 million and US$47 million in 2009 and 2010 successively.
Valuation and performance
Based on CLSA news report, the brokerage doesn't have a clear picture as yet on potential production growth profile.
"We forecast Berau Coal could generate around US$296 million to US$389 million of EBITDA and US$150 million to US$205 million of net profit over 2010 and 2011. Note that we have assumed benchmark price of US$90 per ton and US$95 per ton in 2010 and 2011, respectively," the report said.
The report said Berau is estimated to post US$305 million of EBITDA and US$149 million of net profit in 2009. ASP was US$52 per ton with 14 million tons of coal production last year.
Should CLSA assumes similar target multiple that it has applied to arrive at fair value for Indonesian coal companies, 12x earnings and 6x 2011 EBITDA. Berau Coal could be valued at around US$2 billion to US$2.4 billion, assuming US$300m debt at Berau Coal level remains. 
"We do not know the total debt level at Berau Energy, hence it would difficult to get a sense of valuation at Berau Energy level, with Berau Energy owns 90% interest in Berau Coal," the report said.
According the data I got, I think that CLSA's 2009 EBITDA estimates is too high. The data said Berau Coal posted Rp487 billion of EBITDA in 2006, Rp509.2 billion in 2007, and Rp960.5 billion in 2008.
Berau's net profit was Rp15.44 billion, Rp25.66 billion, and Rp170.09 billion in 2006, 2007, 2008 respectively.    
If I use EBITDA's growth average of PT Bayan Resources Tbk (BYAN), PT Tambang Batubara Bukit Asam Tbk (PTBA), and PT Indo Tambangraya Megah Tbk (ITMG) in 2009 (year on year) of 36.44%, Berau's EBITDA in 2009 might reach Rp1.31 trillion, far below from CLSA's estimation of US$305 million.      
In the profitability line, Berau's operating margin in 2008 was 23.08%, close to operating margin of Indo Tambangraya last year of 28.89%. In 2007, Berau posted 18.29% of operating margin. 
During 2006-2008, Berau booked sales of Rp2.87 trillion, Rp3.51 trillion, and Rp6.11 trillion respectively. Operating profit reached Rp546.35 billion in 2006, Rp642.02 billion in 2007, and Rp1.41 trillion in 2008 respectively.

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