“Underground Coalmines:!
Less Divestment Over Longer Periods”!
2nd Annual Kalimantan Coal Conference, 2-5 September 2013!
2
1.  Underground	
  coal	
  mining	
  
•  Many	
  benefits	
  for	
  Indonesia	
  	
  
	
  
Key	
  Points	
  
2.  Divestme...
3
Mining	
  is	
  a	
  Marriage,	
  Not	
  a	
  Date	
  	
  
	
  
	
  
OUR	
  PREDICTION	
  	
  
The	
  TCM	
  Project	
  ...
4
Mining	
  Coal	
  Underground:	
  	
  Benefits	
  for	
  Indonesia	
  
ü  Increases	
  Indonesia’s	
  
mineable	
  coal	...
5
Technical	
  Benefits:	
  Specialised	
  Equipment	
  /	
  Skills	
  
	
  
	
  
	
  
Ø  Longwall	
  opera<on	
  
	
  -­‐...
6
Environmental	
  Benefits	
  	
  
	
  
	
  
u/g	
  mining	
  requires	
  very	
  liWle	
  surface	
  disturbance	
  
PT	
...
7
Community	
  Rela9ons	
  	
  
Engagement	
  with	
  local	
  community	
  
•  Educa<on	
  &	
  training	
  for	
  local	...
8
Underground	
  Coal	
  Mining:	
  Ticks	
  all	
  the	
  boxes	
  
" Increases	
  Indonesia’s	
  mineable	
  coal	
  res...
9
TCM	
  Project:	
  Loca9on	
  and	
  Logis9cs	
  
ü Produc<on	
  IUP	
  
	
  
ü Clean	
  &	
  Clear	
  
	
  
	
  
ü P...
10
TCM	
  Project:	
  	
  Cross	
  Sec9on	
  
11
TCM	
  mineable	
  seams:	
  	
  JORC	
  resource	
  
•  Base	
  case	
  feasibility	
  study	
  
completed	
  on	
  so...
12
TCM	
  Project	
  Overview	
  
4	
  major	
  exposed	
  coal	
  seams	
  dipping	
  into	
  TCM	
  area	
  
Haul	
  roa...
13
Safety	
  Improvements:	
  Chinese	
  Coal	
  Mines	
  
0	
  
1	
  
2	
  
3	
  
4	
  
0	
  
2	
  
4	
  
6	
  
8	
  
10	...
14
Staged	
  Development	
  at	
  TCM	
  Now	
  Planned	
  
Longwall	
  Shearer	
  for	
  maximum	
  tons,	
  
minimum	
  ...
15
v  Decreasing	
  coal	
  prices	
  
v  Worldwide	
  capital	
  drought	
  
v  Numerous	
  regulatory	
  changes	
  	...
16
Divestment	
  #1:	
  	
  Regulatory	
  History	
  
	
  	
  	
  
	
  
YEAR	
  
ACT	
  or	
  
REG	
  
FOREIGN	
  SHARE	
 ...
17
Confusion	
  over	
  buyer	
  &	
  price	
  of	
  shares	
  to	
  be	
  divested	
  
•  2009	
  Mining	
  Act	
  –	
  s...
18
Divestment	
  #3:	
  	
  Consequences	
  for	
  Investors	
  
Ø  If	
  <	
  50%	
  share,	
  foreign	
  investor	
  lo...
19
Proposals	
  to	
  Mi9gate	
  Divestment	
  Rules	
  
1.  Before	
  changing	
  regula<ons,	
  please	
  consult	
  wid...
20
Benefits	
  for	
  IDX	
  
	
  
v  Most	
  PMA	
  mining	
  companies	
  would	
  divest	
  via	
  IDX	
  lis<ng	
  	
 ...
21
SUMMARY	
  
Ø  Large,	
  long-­‐term	
  mining	
  needs	
  long-­‐term	
  
thinking	
  
Ø  Mining	
  coal	
  u/g	
  o...
“Underground Coalmines:!
Less Divestment Over Longer Periods”!
2nd Annual Kalimantan Coal Conference, 2-5 September 2013"
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Bill Hewitt, PanAsia - Underground Coalmines: Less Divestment Over Longer Periods

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Bill Hewitt, PanAsia delivered the presentation at IMM’s 2014 Kalimantan Coal Conference.

The IMM’s Kalimantan Coal Conference brings together 120+ senior executives, decision makers from government, mining, infrastructure, shipping and supply sectors to discuss new policies and strategies for tackling the current and emerging issues within the burgeoning Kalimantan coal sector.

For more information about the event, please visit: http://www.immevents.com/kalicoalconference13

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Bill Hewitt, PanAsia - Underground Coalmines: Less Divestment Over Longer Periods

  1. 1. “Underground Coalmines:! Less Divestment Over Longer Periods”! 2nd Annual Kalimantan Coal Conference, 2-5 September 2013!
  2. 2. 2 1.  Underground  coal  mining   •  Many  benefits  for  Indonesia       Key  Points   2.  Divestment  regula9ons   •  Amend  to  encourage   underground  coal  mining       3.  The  Indonesian  Stock  Exchange   •  Could  offer  a  win-­‐win  solu<on      
  3. 3. 3 Mining  is  a  Marriage,  Not  a  Date         OUR  PREDICTION     The  TCM  Project  and  local  community  aAer  40  years  of  opera<ons:     Successful,  Produc<ve  and  Harmonious    
  4. 4. 4 Mining  Coal  Underground:    Benefits  for  Indonesia   ü  Increases  Indonesia’s   mineable  coal  reserves   ü  Technical     ü  Environmental   ü  Community  rela<ons   ü  Promotes  safety  culture   ü  Improves  corporate   ci<zenship       Paiton,  East  Java,  1200  MW  
  5. 5. 5 Technical  Benefits:  Specialised  Equipment  /  Skills         Ø  Longwall  opera<on    -­‐  shearer,  conveyor  &  powered  roof  support  in  ac<on   Ø  Capital  cost  ~$50  million  
  6. 6. 6 Environmental  Benefits         u/g  mining  requires  very  liWle  surface  disturbance   PT  Arutmin  ATA  coal  mine  adjacent  to  TCM  
  7. 7. 7 Community  Rela9ons     Engagement  with  local  community   •  Educa<on  &  training  for  local  children  &  adults    →    life9me  employees   •  Help  people  set  up  local  businesses      →    to  service  mine  and  community   •  Provide  infrastructure    →    essen9al  for  mine,  good  for  community   •  Promote  self-­‐help  community  development   programs         Large  scale  u/g  coal  mines:   P  high  capital  costs   P  longer  payback   P  long  mine  life  
  8. 8. 8 Underground  Coal  Mining:  Ticks  all  the  boxes   " Increases  Indonesia’s  mineable  coal  reserves   " Technical     " Environmental   " Community  rela<ons   " Promotes  safety  culture   " Improves  corporate  ci<zenship          
  9. 9. 9 TCM  Project:  Loca9on  and  Logis9cs   ü Produc<on  IUP     ü Clean  &  Clear       ü PMA  Status  
  10. 10. 10 TCM  Project:    Cross  Sec9on  
  11. 11. 11 TCM  mineable  seams:    JORC  resource   •  Base  case  feasibility  study   completed  on  southern  half   •  Drilling  in  north  completed   later   •  JORC  resource  increased  to   ~129Mt    in  mineable  seams         Measured   Indicated                                       Inferred  
  12. 12. 12 TCM  Project  Overview   4  major  exposed  coal  seams  dipping  into  TCM  area   Haul  road  infrastructure  at  TCM   Two  seams  +  par9ng   129  Mt  JORC   Target  sellable  coal   >  1.5  Mt  pa   Mine  life   >  30  years     Target    sellable  coal   @  14%  ash   CV  6200  gar   Opera9ng  cost  $/t  on   Mother  Vessel   ~  US  $52/t   •  Base  Case  FS  by  Kopex  (Poland)   •  FS  to  be  refined   -­‐  staged  development   -­‐  update  data-­‐base,  costs,  coal  price,   regula<ons  
  13. 13. 13 Safety  Improvements:  Chinese  Coal  Mines   0   1   2   3   4   0   2   4   6   8   10   Fatality  Rate   Coal  Produc9on  (billion  tonnes)   Fatality  Rate  vs  Coal  Produc9on    1978  –  2011     from  S.  Peng,  “Coal  Age”,  Vol  115  No  8,  August  2010   calculated  from  miscellaneous  reports                                   Major  improvements  in  safety  are  being  made  in  China,     mainly  by  closing  illegal  &  small-­‐scale  local  mines  
  14. 14. 14 Staged  Development  at  TCM  Now  Planned   Longwall  Shearer  for  maximum  tons,   minimum  cost/ton   Con<nuous  Miner   for  2+  years   PHASE  1   PHASE  2  
  15. 15. 15 v  Decreasing  coal  prices   v  Worldwide  capital  drought   v  Numerous  regulatory  changes     Factors  Spooking  Poten9al  Investors  
  16. 16. 16 Divestment  #1:    Regulatory  History           YEAR   ACT  or   REG   FOREIGN  SHARE   DETAILS   2009   UU  4   100%  →  ?   subject  to  further  regula<on,  must  divest   “aAer  producing  for  5  years”   2010   GR  23   100%  →  80%   “5  years  aAer  start  of  produc<on”   2012   GR  24   100%  →  80%     80%  →  49%   by  end  of  6th  year  of  produc<on,     then  in  yearly  stages   by  end  of  10th  year  of  produc<on     2013   BKPM  R5   clarifies  that  PMA  companies  with  foreign   control  are  s<ll  foreign  even  if  IDX    listed  
  17. 17. 17 Confusion  over  buyer  &  price  of  shares  to  be  divested   •  2009  Mining  Act  –  sell  to  govt  en<ty  or  private  co   •  2012  GR  24  –offer  to  1  govt,  2  govt  coy,  3  Ind  en<ty     •  Pro  rata  to  expenditure  or  fair  market  price  ?   Divestment  #2:    Policy,  Rumour  &  Confusion   New  policy  for  IUP  holders  on  conversion  to  PMA   •  Explora<on  IUP  –    75%  max  foreign   •  Opera<ons  IUP  –    49%  max  foreign   •  No  suppor<ng  regula<ons  &  contrary  to  2009  Mining  Act   Rumour   •  Max  foreign  shareholding  limit  to  be  raised?   •  Divestment  periods  extendable?   Confusion  over  date  on  which  produc9on  commences:   •  Date  on  which  Produc<on  IUP  is  issued?  or   •  2  years  later,  aAer  “Construc<on  Period”?  or     •  Date  on  which  coal  is  first  sold?  
  18. 18. 18 Divestment  #3:    Consequences  for  Investors   Ø  If  <  50%  share,  foreign  investor  loses  control  of  project  cash  flow   Ø  Change  from  20%  in  2010  to  51%  in  2012  had  retrospec9ve  impact   Ø  If  divestment  price  =  expenditure,  poten<al  reward  would  be  nega<ve   (aAer  interest  &  infla<on)   Ø  Timing  and  pricing  are  uncertain,  regulatory  changes  unpredictable   v  PAN  ASIA  CASE  STUDY:     -  Several  poten9al  investors  withdrew  because  of  size  &  <ming  of   compulsory  divestment   Ø  Conclusion:     -  Current  divestment  provisions  are  a  serious  disincen9ve  for  long-­‐ term  foreign  investment  in  the  Indonesian  mining  Industry   Ø  But  foreign  investment  is  needed  for  large,  long-­‐term  mining  projects  
  19. 19. 19 Proposals  to  Mi9gate  Divestment  Rules   1.  Before  changing  regula<ons,  please  consult  widely   2.  Revise  so  maximum  foreign  share  stays  above  50%   3.  Delay  start  &  extend  period  of  divestment    -­‐  for  large,  long-­‐life  mines,  especially  u/g  coal  mines   4.  Clarify  all  ambigui<es  in  regula<ons        -­‐  especially  “start  of  produc<on”   5.  IDX-­‐listed  PMA  mining  companies  -­‐             classify  as  Indonesian  for  divestment  purposes   (MoEMR,  BKPM)  
  20. 20. 20 Benefits  for  IDX     v  Most  PMA  mining  companies  would  divest  via  IDX  lis<ng     →      Huge  boost  to  IDX   →    Huge  increase  to  Indonesian  par<cipa<on  in  mining   →    Sellers  get  fair  market  value  (both  foreign  &  Indonesian)   v  Listed  companies  are  open  to  greater  public  scru<ny     If  rules  are  amended,  IDX   could  become  the  major   regional  exchange  for   mining  stocks  &  capital   raisings      
  21. 21. 21 SUMMARY   Ø  Large,  long-­‐term  mining  needs  long-­‐term   thinking   Ø  Mining  coal  u/g  offers  many  benefits  for   Indonesia   Ø  eg:    Pan  Asia’s  TCM  Underground  Coal   Mining  Project   Ø  The  current  divestment  regime  is  a   disincen<ve  for  PMA  companies  to  invest   in  large,  long-­‐term  mining  projects   Ø  Amend  the  divestment  rules,  please   Ø  IDX  could  be  major  regional  exchange  if   lis<ng  rules  amended  →  major  benefits  for   Indonesia  &  investors     Indonesia Stock Exchange Building
  22. 22. “Underground Coalmines:! Less Divestment Over Longer Periods”! 2nd Annual Kalimantan Coal Conference, 2-5 September 2013" THANK YOU!
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