Jul 28, 2011

Borneo chief expects stable coal price

Coking coal prices should remain near current levels for the rest of this year despite expectations of a slowdown in demand from China, said Samin Tan, chief executive of  PT Borneo Lumbung Energi & Metal Tbk (BORN), Indonesia's largest coking coal miner. 
The recently listed company—which mines the coal used to make steel on Indonesia's island of Kalimantan—expects to get an average price of around US$250 per ton of its coal this year. That is well above the US$185 it made last year but down from a peak of more than $300 hit earlier this year. 
"China has continued to raise the interest rate," Mr. Tan said in an interview as quoted by Wall Street Journal.
Coal prices have reacted, he said, because "that sends to signal to the market that the Chinese economy is cooling down." Despite that, he said he thinks demand will still prove to be strong enough to keep prices from falling much more. 
While China is its biggest customer, the concerns there aren't derailing Borneo Lumbung's expansion plans. Mr. Tan said the company is already on track to expand its production this year by 88% to 3.6 million tons. "We hope we are going to surpass that target," he said. 
The company's aggressive plans demonstrate optimism that demand for coking coal and other commodities will continue to grow even as China's economic expansion starts to slow. 
Borneo Lumbung, which listed its shares in Indonesia in November, recorded earnings before interest, tax, depreciation and amortization of Rp1.319 trillion (US$154.8 million) as it produced roughly two million tons of coal last year. This year it should be able to take home an Ebitda of as much as US$500 million, Mr. Tan predicted.
"Borneo's average selling prices, production and expansion plans are on track, which should set the stage for its long-term growth as a coking-coal player," said Erindra Krisnawan, analyst at CIMB Securities in Jakarta, in a report this week. 
While the global expansion of the coal industry means Borneo Lumbung often has to wait two years or more for delivery of the huge trucks and other equipment needed to get coal out of the ground, Mr. Tan said the company is on track to expand its capacity to five million tons by the beginning of next year and 15 million tons in 2016.
Borneo has enough reserves to last far into the future. It expects that as early as this month it will be able to expand its confirmed minable reserves to 100 million tons from the current 70 million tons, said Mr. Tan. The company still has a huge area to look for coal in its Kalimantan field and expects to find more, he said, and also has more than US$400 million in cash to expand through acquisitions if needed.

Disclosure: No position at the stock mentioned above.

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