pandu sjahrir, chief financial officer, pt toba bara sejahtra tbk - kalimantan projects competitive...

This presentation is prepared for Kalimantan Coal Conference, Balikpapan, September 2013

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PT Toba Bara Sejahtra Tbk (“Toba”) Kalimantan Coal Seminar

Balikpapan, 4th September 2013


2

Content

2

5

Corporate Profile

4

Business Overview

3

Cost Efficiency Initiatives

Importance of Mine Planning

1

Industry Outlook


3

Corporate Profile 1


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ABN66.1%

IM15.7%

TMU18.2%

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

• Substantial and diversified thermal coal 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

ABN79.6%

IM15.0%

TMU5.4%

Reserves

%

• Strong growth profile

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 Tonnes Total: 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%


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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

3 Major 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 significant operating leverage vs other concessions in surrounding areas

Prime Location

TMU - IM Hauling Road

Balikpapan

Jetty


Underpass Infrastructure

Loading Speed of 1,800 TPH

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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


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Business Overview 2


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

Fore

cast

• 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

Fore

cast

0.3


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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 ~ Industry Comparison

• 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


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3 Industry Outlook


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Chinese import demand slows

Potential Increase in Royalty and export tax

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

Excess supply

Seaborne Factors

Decrease in profitability and competitive advantage vs seaborne producers

Domestic Factor

Rising Global Cash 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


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Coal Producer’s Excess Supply .. (i)

Source: Deutsche Bank report May’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


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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…


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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


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...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 Coal Index

Source: Global Coal Coal demand is expected to face tougher competition from alternative sources ie. hydro, geothermal and solar energy, which are showing increasing trend


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...Increase in Royalty and Export Tax

Increase in royalty and export tax

Lower production and selective mining by coal

producers

Decrease in coal producers’ profitability

Background and Impact

Background

Government and Parliament’s Commission XI is currently reviewing possibility to increase government revenue 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 Government revenue

Decrease in margin can prompt producers to strengthen its cost efficiency strategy by lowering production

Increased royalty would not directly increase government revenue. Lower production may result in: (i) decrease in government’s

target revenue due to lower royalty income

(ii) lower tax income due to lower profitability


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4 Cost Efficiency Initiatives


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Coal Prices and Market Values

Current NEWC index fell by 37% compared to its highest of $132 in Jan 2011

80

90

100

110

120

130

140

Jan-

10M

ar-1

0M

ay-1

0Ju

l-10

Sep

-10

Nov

-10

Jan-

11M

ar-1

1M

ay-1

1Ju

l-11

Sep

-11

Nov

-11

Jan-

12M

ar-1

2M

ay-1

2Ju

l-12

Sep

-12

Nov

-12

Jan-

13M

ar-1

3M

ay-1

3 -

20

40

60

80

100

120

140

Jan-

10

Apr

-10

Jul-1

0

Oct

-10

Jan-

11

Apr

-11

Jul-1

1

Oct

-11

Jan-

12

Apr

-12

Jul-1

2

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 of all Indonesian coal mining

companies


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Lower Stripping Ratio (SR),

Shorten Dump 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

Conduct joint mine plan within

borders


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Importance of Mine Planning 5


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Importance of Proper Mine Planning … (i)

Determining Factors in Coal Mining

Geology (Mining Potential, Coal Quality, SR, Dump Distance)

Logistic and Supply Chain

Social Environment

CAPEX

Types of Financing

Time Frame

Mine Plan

Exploration Construction

and Development

Production Mine Closures


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Why is it important?

Importance of Proper Mine Planning … (ii)

!

!

Acts as a primary guidance for running effective and efficient mining activities that result in optimum solution

Mine Plan

Maximize all reserves

Minimize Costs

Continious Production Activities

Flexible to changing business environment

Achievable & applicable target

operation/production

Ensure Quantity & quality for marketing

Ensure proper mining practice

What are the advantages?


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Major Factors Affecting Effective Mine Plan ..

Production and Logistics Cost

Reserve Price View SR

Mine Plan Management

Financial Projection

Decision Making Process

Valuation based on effective mine plan plays critical role in defining strategic plan and business decision

• 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

Tech

nica

l Ec

onom

ical


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• 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 subject to adjustment based on mining needs (trade-off between reserve life and margin)


Drilling Land Compensation

Exploration Construction Production Mine Closure

Geological & Geophysical

Reclamation

Logistics Related

• Jetty • Hauling Road • Bridges

• Tug & Barge • Port

Production Related

• Crusher • Buildings • Workshop • Drilling

• Underpass • Heavy Equipment • Stockpile • Vehicles

Various CAPEX may be required depending on location (proximity to river/not)

General Survey

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


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$'000) HRUM TOBA KKGI ITMG BYAN TotalFixed Assets 84,676 43,193 47,484 724,882 631,202 1,531,437 Deferred Exploration 43,889 57,791 11,389 154,920 531,874 799,863 Other Assets 107,370 (21,214) 14,683 (8,223) (40,190) 52,426 Total 235,935 79,770 73,556 871,579 1,122,886 2,383,726 Total Production (kton) 12,300 5,400 4,421 27,200 16,300 65,621 Investasi/ton (US$) 36


Cash Flow Projection 0 1 2 3 4 5 6 7 8 9 10Average 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%

AssumptionsCost 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 100Coal Index 100EBITDA Margin - Before Royalty increased 20%

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Simulation of Greenfield Mines

28% 90 95 100 110 1204,000 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


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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