Pandu Sjahrir, Chief Financial Officer, PT Toba Bara Sejahtra Tbk - Kalimantan projects competitive advantages and managing finance
 

Pandu Sjahrir, Chief Financial Officer, PT Toba Bara Sejahtra Tbk - Kalimantan projects competitive advantages and managing finance

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Pandu Sjahrir, Chief Financial Officer, PT Toba Bara Sejahtra Tbk delivered the presentation at IMM’s 2014 Kalimantan Coal Conference. ...

Pandu Sjahrir, Chief Financial Officer, PT Toba Bara Sejahtra 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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Pandu Sjahrir, Chief Financial Officer, PT Toba Bara Sejahtra Tbk - Kalimantan projects competitive advantages and managing finance Presentation Transcript

  • 1. This presentation is prepared for Kalimantan Coal Conference, Balikpapan, September 2013 1 PT Toba Bara Sejahtra Tbk (“Toba”) Kalimantan Coal Seminar Balikpapan, 4th September 2013
  • 2. This presentation is prepared for Kalimantan Coal Conference, Balikpapan, September 2013 2 Content 2 5 Corporate Profile 4 Business Overview 3 Cost Efficiency Initiatives Importance of Mine Planning 1 Industry Outlook
  • 3. This presentation is prepared for Kalimantan Coal Conference, Balikpapan, September 2013 3 Corporate Profile1
  • 4. This presentation is prepared for Kalimantan Coal Conference, Balikpapan, September 2013 4 ABN 66.1% IM 15.7% TMU 18.2% 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 • Substantialand diversified thermalcoal 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 ABN 79.6% IM 15.0% TMU 5.4% Reserves % • Strong growthprofile 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 TonnesTotal: 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%
  • 5. This presentation is prepared for Kalimantan Coal Conference, Balikpapan, September 2013 5 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 3Major 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 significantoperating leveragevs other concessionsin surroundingareas Prime Location TMU - IM Hauling Road Balikpapan Jetty
  • 6. This presentation is prepared for Kalimantan Coal Conference, Balikpapan, September 2013 Underpass Infrastructure Loading Speed of 1,800 TPH 6 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
  • 7. This presentation is prepared for Kalimantan Coal Conference, Balikpapan, September 2013 7 Business Overview2
  • 8. 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 Forecast • 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 Forecast 0.3
  • 9. This presentation is prepared for Kalimantan Coal Conference, Balikpapan, September 2013 9 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 ~ IndustryComparison • 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
  • 10. This presentation is prepared for Kalimantan Coal Conference, Balikpapan, September 2013 10 3 Industry Outlook
  • 11. This presentation is prepared for Kalimantan Coal Conference, Balikpapan, September 2013 11 Chineseimportdemand slows PotentialIncreasein Royalty and exporttax 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 Excesssupply Seaborne Factors Decrease in profitability and competitive advantage vs seaborne producers Domestic Factor Rising GlobalCash 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
  • 12. This presentation is prepared for Kalimantan Coal Conference, Balikpapan, September 2013 12 Coal Producer’s Excess Supply .. (i) Source: Deutsche Bank reportMay’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
  • 13. This presentation is prepared for Kalimantan Coal Conference, Balikpapan, September 2013 13 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…
  • 14. This presentation is prepared for Kalimantan Coal Conference, Balikpapan, September 2013 14 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
  • 15. This presentation is prepared for Kalimantan Coal Conference, Balikpapan, September 2013 15 ...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 CoalIndex Source: Global Coal Coal demand is expected to face tougher competitionfrom alternative sources ie. hydro, geothermaland solar energy, which are showing increasing trend
  • 16. This presentation is prepared for Kalimantan Coal Conference, Balikpapan, September 2013 16 ...Increase in Royalty and Export Tax Increase in royalty and export tax Lower productionand selective mining by coal producers Decrease in coal producers’profitability Background and Impact Background Governmentand Parliament’s CommissionXI is currently reviewing possibilityto increase governmentrevenue 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 Governmentrevenue Decrease in margin can prompt producers to strengthen its cost efficiency strategy by lowering production Increased royalty would notdirectly increase governmentrevenue. Lower productionmay resultin: (i) decrease in government’s targetrevenuedue to lower royalty income (ii) lower tax income due to lower profitability
  • 17. This presentation is prepared for Kalimantan Coal Conference, Balikpapan, September 2013 17 4 Cost Efficiency Initiatives
  • 18. This presentation is prepared for Kalimantan Coal Conference, Balikpapan, September 2013 18 Coal Prices and Market Values CurrentNEWC index fell by 37% compared to its highestof $132 in Jan 2011 80 90 100 110 120 130 140 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 - 20 40 60 80 100 120 140 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 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 ofall Indonesiancoalmining companies
  • 19. This presentation is prepared for Kalimantan Coal Conference, Balikpapan, September 2013 19 Lower Stripping Ratio (SR), ShortenDump 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 Conductjoint mine plan within borders
  • 20. This presentation is prepared for Kalimantan Coal Conference, Balikpapan, September 2013 20 Importance of Mine Planning5
  • 21. This presentation is prepared for Kalimantan Coal Conference, Balikpapan, September 2013 21 Importance of Proper Mine Planning … (i) Determining Factors in CoalMining Geology(Mining Potential,CoalQuality, SR, Dump Distance) Logistic and Supply Chain SocialEnvironment CAPEX Types of Financing Time Frame Mine Plan Exploration Construction and Development Production Mine Closures
  • 22. This presentation is prepared for Kalimantan Coal Conference, Balikpapan, September 2013 22 Why is it important? Importance of Proper Mine Planning … (ii) ! ! Acts as a primaryguidancefor runningeffective and efficientmining activities that resultin optimum solution Mine Plan Maximize all reserves Minimize Costs ContiniousProduction Activities Flexible to changing business environment Achievable& applicable target operation/production EnsureQuantity & quality for marketing Ensurepropermining practice What are the advantages?
  • 23. This presentation is prepared for Kalimantan Coal Conference, Balikpapan, September 2013 23 Major Factors Affecting Effective Mine Plan .. Production and Logistics Cost Reserve Price View SR Mine Plan Management Financial Projection Decision Making Process Valuation based oneffective mine plan plays criticalrole in defining strategic plan and businessdecision • 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 TechnicalEconomical
  • 24. This presentation is prepared for Kalimantan Coal Conference, Balikpapan, September 2013 24 • 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 subjectto adjustmentbased on mining needs (trade-offbetweenreserve life and margin)
  • 25. 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 ProductionRelated • Crusher • Buildings • Workshop • Drilling • Underpass • Heavy Equipment • Stockpile • Vehicles Various CAPEX may be required depending on location (proximity to river/not) GeneralSurvey 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
  • 26. 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 Total Fixed 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$) 36
  • 27. This presentation is prepared for Kalimantan Coal Conference, Balikpapan, September 2013 Cash Flow Projection 0 1 2 3 4 5 6 7 8 9 10 Average Selling Price 67 67 67 67 67 67 67 67 67 67 Cost 54 54 54 54 54 54 54 54 54 54 EBITDA 13 13 13 13 13 13 13 13 13 13 Royalty increased - - - - - - - - - - Depreciation (2) (2) (2) (2) (2) (2) (2) (2) (2) (2) Interest expense - - - - - - - - - - Profit Before Tax 12 12 12 12 12 12 12 12 12 12 Income Tax (3) (3) (3) (3) (3) (3) (3) (3) (3) (3) Net Income 9 9 9 9 9 9 9 9 9 9 Capital Expenditure (0) (0) (0) (0) (0) (0) (0) (0) (0) (0) Loan Principal Payment - - - - - - Net Cash Flow (36) 10 10 10 10 10 10 10 10 10 10 Project IRR 28% Assumptions Cost of Capital 20% Initial Investment (US$/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 100 Coal Index 100 EBITDA Margin - Before Royalty increased 20% 27 Simulation of Greenfield Mines 28% 90 95 100 110 120 4,000 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
  • 28. This presentation is prepared for Kalimantan Coal Conference, Balikpapan, September 2013 28 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