1
KALIMANTAN COAL CONFERENCE
Balikpapan
2-5 Sept 2013
2
Growth Prospects and Marketing Strategies
n Supply and Demand pressures
n Strategies to develop
n Maximising sales pr...
3
Supply pressures
n Rain/locale (climate change, volatility)
n Logistics (river, barges, inter-island)
n Quality (it i...
4
The Concession
Tremendous Production Upside and Long Reserve Life
n  Holds two coking coal
deposits - Kohong and
Telako...
5
BORN - Logistical Solutions
Increase Self-sufficiency And Decrease Reliance On The Barito River
n  Alternative transpor...
6
Description Typical
Quality
Basis Average Quality
Shipped
Total Moisture 9% AR 8.88%
Inherent Moisture 1.7% ADB
Volatile...
7
	
  2012 	
  2013 	
  Later	
  
	
  mt 	
  mt 	
  mtpa	
  
AKT	
  Tuhup 	
  4.2 	
  4.2 	
  10	
  
BHPB	
  Maruwai 	
  0...
8
Regulatory issues
u Mining Law & implementation rules (uncertainty)
u Value Added requirements (definition?)
u DMO 'r...
9
Demand pressures
n More local users (expectations of supply)
n DMO (cost)
n Quality differentials (BF sizes, targets)...
10
	
  Capacity 	
  2013 	
  Later	
  
	
  mtpa	
  
Posco/PTKS	
  JV 	
  3(6) 	
  0.4 	
  3.0	
  
PTKS 	
  1.2 	
  0 	
  0...
11
Strategies to Develop
Demand side :
Consistent quality (perception)
Partners (offtake, equity, agency, funding)
Funding...
12
Market dynamics
13
Current dilemma
14
Changed paradigms –costs and prices
15
Coking Coal Market changes
16
Maximising coal prices
Consistent quality & delivery
Understand coking coals
Know your quality/qualities
Know your cust...
17
Premium Hard Coking Coal Product
Consistently Achieved ASP Similar To T2 Australian Hard Coking Coal
0.4 0.4 0.4 0.5 0....
18Tuhup Coking Coal 18
Source : Bristow & Wilson, 2002
Coal Rank Comparatives
Tuhup
Coking Coal
19
Tuhup ‘coke’ being pushed into the truck before quenching, ACIRL
20
Tuhup Coal after being coked at ACIRL, Brisbane
21
22
Cost curve comparatives
0
20
40
60
80
100
120
140
160
180
200
0
2012FOBcashcosts(US$/tonne)
Cumulative production (Mt)
...
23
Tier
1
Tier
2
Tier
3
24
Close Proximity to Largest and Fastest Growing Markets
Significant cost and delivery time advantages to large end users...
25
Marketing essentials
All of the above !
Agent or offtaker (commission or risk sharer)
Buyers come to you – but not best...
26
$0.00	
  
$50.00	
  
$100.00	
  
$150.00	
  
$200.00	
  
$250.00	
  
$300.00	
  
$350.00	
  
HCC	
  
SSCC	
  
Appreciat...
27
Tuhup Coal is Used by a Diverse Mix of Premium End-Users
China General Nice China General Nice, Zhonglian,
Zhejiang Mat...
28
Pricing impacts of additional supply
v Seaborne trade and equilibrium ('controlled' mkt)
v Competition (Australia, US...
29
Thank you
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Kenneth Raymond Allan, Marketing Director, PT Borneo Lumbung Energi & Metal Tbk - kalimantan coking coal project growth prospects and marketing strategies

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Kenneth Raymond Allan, Marketing Director of PT Borneo Lumbung Energi & Metal Tbk 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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Kenneth Raymond Allan, Marketing Director, PT Borneo Lumbung Energi & Metal Tbk - kalimantan coking coal project growth prospects and marketing strategies

  1. 1. 1 KALIMANTAN COAL CONFERENCE Balikpapan 2-5 Sept 2013
  2. 2. 2 Growth Prospects and Marketing Strategies n Supply and Demand pressures n Strategies to develop n Maximising sales prices n Marketing essentials
  3. 3. 3 Supply pressures n Rain/locale (climate change, volatility) n Logistics (river, barges, inter-island) n Quality (it is what it is !) n Competition (local/int’l) n Regulatory/licencing/policy n Funding (local banks, credit, security)
  4. 4. 4 The Concession Tremendous Production Upside and Long Reserve Life n  Holds two coking coal deposits - Kohong and Telakon blocks, within 21,630 hectares of concession area n  JORC compliant Reserves and Resources of 167.8mt and 317.8 mt, respectively, ―  Equivalent to 30+ years of production at the forecast 2013 rate of 5 million tonnes n  CCoW production permitted until 2039 n  Production share (“Royalty”) 13.5% n  Potential future Resource and Reserve gains from on-going drilling and exploration JORC Mineable Reserves at March 2013 (mt) Proved Probable Total Kohong 53.0 84.0 137.0 Telakon 4.0 26.8 30.8 Total 57.0 110.8 167.8 JORC Resources at October 2012 (mt) Measured Indicated Inferred Total Kohong 77.9 70.4 81.8 230.1 Telakon 4.7 30.8 52.2 87.7 Total 82.6 101.2 134.0 317.8
  5. 5. 5 BORN - Logistical Solutions Increase Self-sufficiency And Decrease Reliance On The Barito River n  Alternative transportation route through Mahakam River a possible medium/long term solution n  Haul road from mine to Melak port n  8,000 tonne barges can be operated all year round n  ISP at Damparan, to AKT design, 1MT stockpile, 3,000tph unload, 4,000tph loading capacity n  On-river transshipment capability from 4,000 to 8,000 tonne barges Mahakam River (355 km) Existing logistics - Haul Road (36 km) Existing logistics - Barito River (290 km) Existing logistics - Barito River (272 km) Haul Road (112 km) Taboneo anchorage
  6. 6. 6 Description Typical Quality Basis Average Quality Shipped Total Moisture 9% AR 8.88% Inherent Moisture 1.7% ADB Volatile Matter 26.5% ADB 26.58% Ash Content 7.5% ADB 6.31% Sulphur 0.75% Dry Ash Free 0.74% Gross CV 7,847 Kcal/Kg ADB Fixed Carbon 65% ADB CRI 26 HGI >100 Vitrinite 97% CSR 60 CSN 9 8.69 Fluidity 450 DDPM 550 Romax 1.2% 1.22
  7. 7. 7  2012  2013  Later    mt  mt  mtpa   AKT  Tuhup  4.2  4.2  10   BHPB  Maruwai  0  0  15-­‐20   Energy  Alliance  0.8  0.9  1   MGM  Itochu  1.5  1.6  3   SMM  Itochu  0  0.4  2   Cokal  0  0  2-­‐3   Gemida  0.9  1.0  2   Mamahak  0.4  0.6  1   Bayan  0.5  0.4  0.5   Tanito  0.2  0.1  0   KSM  0.5  0.6  0   Anugerah  0  0.3  1   MTU  0  0.5  2   Palace  0  0  2-­‐3   Others  0.5  1.0  3-­‐5   Total  8.1  11.2  40-­‐50   * Personal estimates Potential new coking coal supplies :
  8. 8. 8 Regulatory issues u Mining Law & implementation rules (uncertainty) u Value Added requirements (definition?) u DMO 'requirement' (no market yet) u Environmental (changing, banks' requirements) u Local communities (more aware, more demanding) u Resource Nationalism (IUP, PP, so many licences!) u Local policies (bridges, railways, roads, ports)
  9. 9. 9 Demand pressures n More local users (expectations of supply) n DMO (cost) n Quality differentials (BF sizes, targets) n Competition (local, int’l) n Equity ties (expectation, discount)
  10. 10. 10  Capacity  2013  Later    mtpa   Posco/PTKS  JV  3(6)  0.4  3.0   PTKS  1.2  0  0.8   Gunung  Garuda  1.5  0  1.0   Wuhan/Garuda  2.0  0  1.5   Titan  1.0  0.2  0.6   Indoferro  NPI  0.5  0.1  0.4   Shenrong  0.5  0.1  0.2     Sebuku  PI  0.8  0.1  0.4   Linfen  PI  0.5  0  0.4   Others…      3.0      0.2  2.0   Total  13.7  0.7  9.3   * Personal estimates Potential users of Indonesian coking coal:
  11. 11. 11 Strategies to Develop Demand side : Consistent quality (perception) Partners (offtake, equity, agency, funding) Funding (contractors, banks, IPO’s, China link) Rising costs : Changed paradigms for costs and prices Use contractors Efficiencies/benchmarking Economies of scale Know where you are on the cost curve
  12. 12. 12 Market dynamics
  13. 13. 13 Current dilemma
  14. 14. 14 Changed paradigms –costs and prices
  15. 15. 15 Coking Coal Market changes
  16. 16. 16 Maximising coal prices Consistent quality & delivery Understand coking coals Know your quality/qualities Know your customer base Be aware of your competitive advantages Target best fit customers Target Japan, Korea, Taiwan LT contracts fare better over time than spot Understand the volatility in the market Hedging your bets ? Do CFR deals help ? Use an agent ! Equity partners won’t add to ASP
  17. 17. 17 Premium Hard Coking Coal Product Consistently Achieved ASP Similar To T2 Australian Hard Coking Coal 0.4 0.4 0.4 0.5 0.5 0.7 0.8 1.0 1.7 0 1 2 Mechal Rio Tinto Teck Wesfarmers BMA Riversdale Coal of Africa Consol Energy 1,100 750 350 251 100 18 450 (+) 0 1,000 15,000 Consol Energy Coal of Africa BMA Teck Rio Tinto Riversdale Wesfarmers Mechal More Favorable Caking Properties (Crucible Swelling Number or “CSN”) Fluidity 15,000 11,600 ddpm Volatile Matter % adb Sulphur % adb Ash % adb Less Favorable 6.6 7.0 7.3 8.5 8.9 9.5 10.0 10.0 10.5 0 6 12 Consol Energy Wesfarmers Rio Tinto BMA Teck Coal of Africa Mechal Riversdale 18.5 20.7 21.5 23.1 24.3 26.5 26.8 29.9 37.0 0 25 50 Mechal Rio Tinto Wesfarmers Riversdale BMA Teck Coal of Africa Consol Energy 9.0 9.0 9.0 9.0 8.0 8.0 7.5 7.0 6.5 0 6 12 Coal of Africa Riversdale Mechal BMA Wesfarmers Consol Energy Rio Tinto Teck Source: AME Tuhup Coal is considered a premium hard coking coal product with very high vitrinite content, which is rare
  18. 18. 18Tuhup Coking Coal 18 Source : Bristow & Wilson, 2002 Coal Rank Comparatives Tuhup Coking Coal
  19. 19. 19 Tuhup ‘coke’ being pushed into the truck before quenching, ACIRL
  20. 20. 20 Tuhup Coal after being coked at ACIRL, Brisbane
  21. 21. 21
  22. 22. 22 Cost curve comparatives 0 20 40 60 80 100 120 140 160 180 200 0 2012FOBcashcosts(US$/tonne) Cumulative production (Mt) Oaky Creek Saraji O/C Peak Downs O/C Goonyella 154 BORN BORN Commands a Significant 1st Quartile Cost Advantage Compared to Global Peers
  23. 23. 23 Tier 1 Tier 2 Tier 3
  24. 24. 24 Close Proximity to Largest and Fastest Growing Markets Significant cost and delivery time advantages to large end users in East Asia and India India China Japan South Korea Indonesia Australian coking coal companies Taiwan Source: Wood Mackenzie, Trade Data Estimated Shipping Time to Destination & Cost per Tonne Producers Destination Estimated time to destination (Days) Estimated cost per tonne (US$/t) Japan 7-9 6-9 China 8-10 7-9 Japan 10-13 10-14 China 12-15 11-15 Japan 14-16 12-32 China 15-18 14-28 Japan 27-33 17-25 China 29-35 20-27
  25. 25. 25 Marketing essentials All of the above ! Agent or offtaker (commission or risk sharer) Buyers come to you – but not best prices Need a wide spread of customers (market diversity; smaller quantities; different VIU) Appreciate/anticipate/watch trends Defend your coal Guard your reputation/brand HBA/HPB standards (specific to your coal)
  26. 26. 26 $0.00   $50.00   $100.00   $150.00   $200.00   $250.00   $300.00   $350.00   HCC   SSCC   Appreciate trends
  27. 27. 27 Tuhup Coal is Used by a Diverse Mix of Premium End-Users China General Nice China General Nice, Zhonglian, Zhejiang Materials Industry Turkey Erdemir India Tata Steel, Apex Energy Japan Nisshin Steel, Nippon Steel Taiwan China Steel Korea Hyundai Steel Vietnam Hoa Phat Company Ltd China Baosteel, Wanxiang, Shente, CNBM, General Nice Turkey & Romania DBK, Erdemir India Tata Steel, Taurian Japan Nisshin Steel, JFE Taiwan China Steel Vietnam Trungdung Trading n  Our exclusive marketing agreement with Glencore ended in July 2012 n  Coal off-take agreements were signed with Noble starting from November 2011 China Baosteel, Wanxiang, Shente, Ningbo, Huajian, Benxi, ShunLi Turkey & Romania DBK, Erdemir India JSW Steel, Shaurastra Japan Sumitomo Korea POSCO Taiwan China Steel Vietnam Han Nam Trading, Trung Dung 2009 China, 100%
  28. 28. 28 Pricing impacts of additional supply v Seaborne trade and equilibrium ('controlled' mkt) v Competition (Australia, USA, new mines) v HBA (which index?, quality differentials harder than thermal, hurdle or price setting?) v DMO (one size fits all ? penalty for having quality) v Domestic users (Rupiah pricing; HBA price ?)
  29. 29. 29 Thank you
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