Beating the Low Coal Price Condition

PT Borneo Lumbung Energi & Metal Tbk: On the Road to Recovery

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Beating the Low Price Condition

by Sando Sasako

Jakarta, 1 September 2016 20.40

The price of any goods will always low as long as there are no demand or there are too much supply

in the market. No demand can mean there may be a demand, but it is weak and may have lower

priority than any other products and services that consumers are willing to pay for it. Consumer

preferences, expectations, and purchasing power are other perspectives that the sellers should

consider.

Let’s take a look at price mechanism below.

A price will fall as: A price will rise as:

1. too much supply.

2. there are too many sellers offering the same

products.

3. fire sale.

4. supplying companies are in (desperate) need

of liquidity (cash-strapped / -starved).

5. too little demand, or lack of demand.

1. too little supply.

2. there are not many sellers (offering the same

products).

3. short of supply.

4. consumers are in (desperate) need of the

goods.

5. too much demand.

To deal with any price levels in the market equilibrium, we are also encouraged to see things with

their own perspectives and capabilities of producers and sellers. The low price will discourage

producers and sellers to produce and sell goods with a larger volume, but for survival. Lack of

incentives surely turns down the appetite to grab a bigger share of the market.

In other words, a shrinking market size makes it less attractive for producers to agressively to

pursue their own agenda. Create a product that will provide another potential profit margin. To do

so, the product has to have some specialties beyond the competing products. Product creation

through innovation will be available as there are sufficient fund to finance some R&D.

It shall prevail as it is up to the market to decide. However, government is another significant player

in the market. They will offer some incentives for producers to expand and accelerate the speed to

market. At the opposite direction, some government will make some restrictions and constraints for

the players to enter the market.

Some agenda deemed necessary to apply are environmental impacts and protection, clean coal

technology to reduce the acceleration of global warming that leads to drastic climate change. Some

tax and royalties, even prohibition, may also reduce the product supplies to the market. Some hikes

on the financial interest may curb the supply as well.

Above all, there’s nothing more challenging to raise the price immediately. Assume the global fears

are felt worldwide. Create some intense ambient that will make market supply short, disappear, or

won’t continue to exist regularly or periodically. Particularly the product that is essential in day to

day life. The price will surely jump to the sky, above any roof policy available.

They used to call it as a threat of war.

Serabdi Sakti

Jakarta, August 2016

PT Borneo Lumbung Energi & Metal Tbk

On the Road to Recovery

by :

Sando Sasako

Serabdi Sakti

Jakarta, August 2016

PT Borneo Lumbung Energi & Metal Tbk

On the Road to Recovery

by :

Sando Sasako

Perpustakaan Nasional RI: Data Katalog dalam Terbitan (KDT)

Sando Sasako.

PT Borneo Lumbung Energi & Metal Tbk: On the Road to

Recovery / by Sando Sasako. Jakarta : CV Serabdi Sakti, 2016.

x + 95 pp. ; 21 cm

ISBN 978-602-73508-7-…

1. …. I. Judul.

Published by CV Serabdi Sakti

Graha Anggrek

Jl. Anggrek Rosliana VII No.63

Jakarta Barat 11480, Indonesia

Tel. +62 21 4027 8375 (Fren)

+62 851 0518 7118

Copyright © Sando Sasako

All rights reserved.

You may not reproduce the content of this book, in part

or in whole in any form with or without the written

permission of the copyright owner and publisher, as long

as you cite this reference as your ultimate one.

Keywords:

PT Borneo Lumbung Energi & Metal Tbk: On the Road to Recovery – iii

Foreword

In less than 2 months before Linc Energy Ltd filed for voluntary administration on 30 March 2016,

Linc Energy had signed an MOU with at least 2 Indonesian companies regarding the UCG projects

in Indonesia, that is 18 February 2016. However, on 23 May 2016, Linc Energy just had confirmed

its status as a liquidating company, but not its US subsidiaries as they had filed for relief and seek

bankruptcy protection (Chapter 11) on 29 May 2016.

The MOUs were the one of many heydays that UCG projects have been accepted worldwide as an

alternative to mine the primary energy coal in terms of syngas. Scotland, Australia, Vancouver, and

Nova Scotia were the few names that had been offering and approving coal companies to try and

implement the UCG technologies.

As coal companies can never be aware of what beneath the earth surface, they failed to convince

that they already have the required technologies and resources to protect the environment. They are

doomed to fail before it’s begun.

As a consequences, lenders and creditors participating as investors in the proposed UCG projects

surely stop funding and began to demand a payback. Even worst, they wanted to liquidate their

assets invested in the troubled coal companies.

Some companies may weather the storm and sail unscathedly. Some others may have to sink and

scuttle their ships to the bottom of ocean floor. Nevertheless, what may have saved the ships from

sinking is the captain and skipper of the ship. Should the captain know exactly the weights and

worth of the ship, the cargoes, and the crews, they shall bargain to salvage what’s worth saving.

Indeed, in the beginning, it hurts. A lot. To many parties. Corporate retrenchment, layoffs, shrinking

assets are some desperate measures to be taken in desperate times. These inevitable corporate

actions are unload some burdens in preserving cashflows and contain cash drains. Some assets are

indeed liabilities. Especially when the assets are failing to perform and generate revenues that

profitable enough to cover the incurred and embedded expenses.

Jakarta, 31 August 2016

Sando Sasako

Email: sandosako @ yahoo.com

Mobile: +62 812 8056 516

PT Borneo Lumbung Energi & Metal Tbk: On the Road to Recovery – v

Contents

Foreword ....................................................................................................................................... iii

Contents .......................................................................................................................................... v

List of Tables .................................................................................................................................ix List of Figures ................................................................................................................................. x

Global Trends in Energy Industry .................................................................................................... 1

Global Coal Trends.......................................................................................................................... 2

Energy Business in Indonesia in a brief ........................................................................................... 3

Coal ............................................................................................................................................. 5

Borneo Lumbung Energi & Metal ...................................................................................... 11 Has Samin Tan lost his bets in Bumi plc and BORN? ..................................................... 11

The Company Named Borneo Lumbung Energi ............................................................. 12 The Road to Highly Indebted BORN .............................................................................. 14

The Awkward and Ugliness in 2011 ............................................................................... 17 The Teasing Dreams and Illusion of Interest in Bumi plc ............................................... 21

The $1b Debt Traps for Lending Stanchart and Borrowing BORN ................................. 23 The End of Bumi plc ...................................................................................................... 25

Tony Blair ...................................................................................................................... 26 REDD+ .......................................................................................................................... 27

Heart of Borneo ............................................................................................................. 28 Samin Tan ...................................................................................................................... 29

Recapital Advisors ......................................................................................................... 30 Borneo Lumbung Energi and Energi Megah Persada ...................................................... 31

Borneo Lumbung Energi & Metal: The Brief Profile .......................................................... 33

Shareholders .................................................................................................................. 33 Management .................................................................................................................. 34

Related Parties and Financial Transactions ..................................................................... 35 Third Parties & Transaction Types ................................................................................. 37

IPO Proceeds ................................................................................................................. 39 Financials ....................................................................................................................... 40

Surviving on Debt Burdens, Theoretically ...................................................................... 40 The Walk-Through ......................................................................................................... 43

The Road So Far ............................................................................................................ 44 Troubles with the Crown Jewel Holding the Bargain Chip ............................................. 45

Asmin Koalindo Tuhup ...................................................................................................... 48

AKT in Brief, Legally .................................................................................................... 50 Concession Area ............................................................................................................ 51

Coal Deposits ................................................................................................................. 52 Mining Operations ......................................................................................................... 53

Production ...................................................................................................................... 54 Product Specifications .................................................................................................... 55

Coal 101 ........................................................................................................................ 55 Coking Coal Grades ....................................................................................................... 56

vi – PT Borneo Lumbung Energi & Metal Tbk: On the Road to Recovery

Infrastructure .................................................................................................................. 57

Transportation ................................................................................................................ 58 Marketing & Sales ......................................................................................................... 60

Customers ...................................................................................................................... 60 Management .................................................................................................................. 61

Shareholders .................................................................................................................. 61 Financials ....................................................................................................................... 61

References ..................................................................................................................................... 63

Directory of Coal Mining Companies in Indonesia ........................................................................ 67

Abadi Batubara Cemerlang .................................................................................................... 67 Abadi Coal Cemerlang ........................................................................................................... 67

Aceh Resources and Mineral .................................................................................................. 67 Aceh Resources and Mineral Core ......................................................................................... 67

Adaro Indonesia ..................................................................................................................... 67 Adimas Baturaja Cemerlang .................................................................................................. 67

Allied Indo Coal , PT ............................................................................................................. 68 Andhika Mutiara Etam ........................................................................................................... 68

Andhika Mutiara Lestari ........................................................................................................ 68 Andhika Mutiara Sejahtera ..................................................................................................... 68

Antang Gunung Meratus ........................................................................................................ 68 Anugerah Jatimulia ................................................................................................................ 69

Anugerah Jatimulya ............................................................................................................... 69 Arutmin Indonesia ................................................................................................................. 69

Asmin Bara Bronang.............................................................................................................. 69 Asmin Bara Jaan .................................................................................................................... 69

Asmin Koalindo Tuhup .......................................................................................................... 69 Astaka Dodol ......................................................................................................................... 70

Bahari Cakrawala Sebuku ...................................................................................................... 70 Bangun Banua Persada Kalimantan ........................................................................................ 70

Bara Mutiara Prima ................................................................................................................ 70 Bara Pramulya Abadi ............................................................................................................. 71

Bara Sentosa Lestari .............................................................................................................. 71 Bara Utama Unggul ............................................................................................................... 71

Baradinamika Mudasukses ..................................................................................................... 71 Baramarta, PD ....................................................................................................................... 71

Baramarta .............................................................................................................................. 71 Baramulti Sukses Sarana ........................................................................................................ 72

Baramulti Suksessartana ........................................................................................................ 72 Baramutiara Prima ................................................................................................................. 72

Barasentosa Lestari ................................................................................................................ 72 Batu Alam Selaras ................................................................................................................. 72

Batubara Duaribu Abadi, PT .................................................................................................. 72 Batubara Selaras Sapta, PT .................................................................................................... 72

Baturona Adimulya ................................................................................................................ 73 Benakat Energi ...................................................................................................................... 73

Benakat Energy...................................................................................................................... 73 Bentala Coal Mining .............................................................................................................. 73

Berau Coal ............................................................................................................................. 73 Bharinto Ekatama .................................................................................................................. 73

Bima Duta Batubara Sakti ...................................................................................................... 74

PT Borneo Lumbung Energi & Metal Tbk: On the Road to Recovery – vii

Borneo Bhaktibara Utama ...................................................................................................... 74

Borneo Indobara .................................................................................................................... 74 Buana Bara Utama ................................................................................................................. 74

Bukit Baiduri Enterprises ....................................................................................................... 74 Bukit Sunur ........................................................................................................................... 75

Bumi Laksana Perkasa ........................................................................................................... 75 Bumi Panen Sukses ................................................................................................................ 75

Bumi Sukse Mandiri .............................................................................................................. 75 Buntok Perdana Coal Mining ................................................................................................. 75

Calicari .................................................................................................................................. 75 Coal Duaribu Abadi ............................................................................................................... 75

Coal Selaras Sapta ................................................................................................................. 76 Danau Mas Hitam .................................................................................................................. 76

Daya Lapan ........................................................................................................................... 76 Delma Mining Corporation .................................................................................................... 76

Dhamar Tejokencono ............................................................................................................. 76 Dharma Puspita Mining ......................................................................................................... 76

Dutaputra Tanaratama ............................................................................................................ 77 Ekasatya Yanatama ................................................................................................................ 77

Energi Batubara Sumatera ...................................................................................................... 77 Energy Batubara Sumatra ...................................................................................................... 77

Fajar Bumi Sakti .................................................................................................................... 77 Firman Ketaun Perkasa .......................................................................................................... 77

Galicari .................................................................................................................................. 77 General Sakti Kreasindo ........................................................................................................ 78

Generalindo Prima Coal ......................................................................................................... 78 Gunung Bayan Pratama ......................................................................................................... 78

Gunung Bayan Pratama Coal ................................................................................................. 78 Hulubalang Inti Bumi ............................................................................................................ 78

Indexim Coalindo .................................................................................................................. 78 Indominco Mandiri ................................................................................................................ 79

Insani Bara Perkasa ................................................................................................................ 79 Interex Sacra Raya ................................................................................................................. 79

Intitirta Prima Sakti ................................................................................................................ 79 Intitirta Primasakti ................................................................................................................. 80

Jorong Barutama Greston ....................................................................................................... 80 Juloi Coal .............................................................................................................................. 80

Kadya Caraka Mulia .............................................................................................................. 80 Kalimantan Energi Lestari ..................................................................................................... 80

Kalteng Coal .......................................................................................................................... 81 Kaltim Prima Coal ................................................................................................................. 81

Kartika Selabumi Mining ....................................................................................................... 81 Karunia Poladaya Bumi ......................................................................................................... 81

Karya Bumi Baratama............................................................................................................ 81 Kendilo Coal Indonesia .......................................................................................................... 82

BHP Kendilo Coal Indonesia ................................................................................................. 82 Kideco Jaya Agung ................................................................................................................ 82

Kitadin ................................................................................................................................... 82 Kodeco Horna Mandiri .......................................................................................................... 82

Kurnia Sarana Lestari ............................................................................................................ 82 Kutai Kertanegara Prima Coal ............................................................................................... 82

Lahai Coal ............................................................................................................................. 83

viii – PT Borneo Lumbung Energi & Metal Tbk: On the Road to Recovery

Lanna Harita Indonesia .......................................................................................................... 83

Lianganggang Cemerlang ...................................................................................................... 83 Mahakam Sumber Jaya .......................................................................................................... 83

Mandiri Intiperkasa ................................................................................................................ 83 Mantimin Coal Mining........................................................................................................... 84

Marunda Graha Mineral ......................................................................................................... 84 Marunda Grahamineral .......................................................................................................... 84

Maruwai Coal ........................................................................................................................ 84 Maruai Coal ........................................................................................................................... 84

Meulaboh Energitama ............................................................................................................ 84 Meullaboho Energitama ......................................................................................................... 85

Mitrajaya Timuragung ........................................................................................................... 85 Multi Harapan Utama ............................................................................................................ 85

Multi Tambangjaya Utama ..................................................................................................... 85 Nusa Minera Utama ............................................................................................................... 85

Nusantara Termal Coal (D/A Nusantara Thai Coal) ............................................................... 86 Nusantara Thai Coal .............................................................................................................. 86

Pari Coal ................................................................................................................................ 86 Pendopo Energi Coal ............................................................................................................. 86

Pendopo Energy Batubara ...................................................................................................... 86 Perkasa Inakakerta ................................................................................................................. 86

Persada Permata Mulya .......................................................................................................... 87 Persada Permata Mulia........................................................................................................... 87

Pesona Khatulistiwa Nusantara .............................................................................................. 87 Pinang Jaya Sarana Bara ........................................................................................................ 87

Pinangjaya Sarana Bara ......................................................................................................... 87 Ramdany Coal Mining ........................................................................................................... 87

Ratah Coal ............................................................................................................................. 87 Restubara Karya Pratama ....................................................................................................... 88

Riau Bara Harum ................................................................................................................... 88 Salamindo Coalindo ............................................................................................................... 88

Salamindo Pahala................................................................................................................... 88 Santan Coal............................................................................................................................ 88

Santan Batubara ..................................................................................................................... 88 Sarwa Sembada Karya Bumi .................................................................................................. 88

Selatan Selabara ..................................................................................................................... 89 Selo Argodedali ..................................................................................................................... 89

Selo Argokencono Sakti ......................................................................................................... 89 Senamas Energindo Mulya ..................................................................................................... 89

Senamas Energindo Mulia ..................................................................................................... 89 Sinar Benua Prima ................................................................................................................. 90

Sinarindo Barakarya............................................................................................................... 90 Singlurus Pratama .................................................................................................................. 90

Solok Bara Adipratama .......................................................................................................... 90 Sumber Barito Coal ............................................................................................................... 90

Sumber Kurnia Buana ............................................................................................................ 91 Suprabari Mapanindo Mineral ................................................................................................ 91

Tambang Damai .................................................................................................................... 91 Tanito Harum......................................................................................................................... 91

Tanjung Alam Jaya ................................................................................................................ 92 Tanjung Alam Raya ............................................................................................................... 92

Taraco Mining ....................................................................................................................... 92

PT Borneo Lumbung Energi & Metal Tbk: On the Road to Recovery – ix

Teguh Persada Coal ............................................................................................................... 92

Teguh Reksa Daya ................................................................................................................. 92 Teguh Sinar Abadi ................................................................................................................. 92

Tempayang Cemerlang .......................................................................................................... 93 Timah Batubara Utama .......................................................................................................... 93

Torah Antareja Mining .......................................................................................................... 93 Trimarta Coal Perkasa............................................................................................................ 93

Trimata Buana ....................................................................................................................... 93 Trimata Benua ....................................................................................................................... 93

Trimata Coal Perkasa ............................................................................................................. 94 Trubaindo Coal Mining .......................................................................................................... 94

Wadung Mas Tambang Mulia ................................................................................................ 94 Wadungmas Tambang Mulia ................................................................................................. 94

Wahana Baratama Mining ...................................................................................................... 94 Whirakaneo Coalindo ............................................................................................................ 94

Whiratama Bina Perkasa ........................................................................................................ 94 Yamabhumi Palaka ................................................................................................................ 95

List of Tables

Table 1 – Coal reserves in Indonesia, 2014 (million ton).................................................................. 6

Table 2 – Coal supply in Indonesia, 2000-2014 ............................................................................... 7 Table 3 – Existing coal terminals in Indonesia ................................................................................. 8

Table 4 – The most vital financial figures of PT Borneo Lumbung Energi & Metal Tbk,

2006-2014q3 ........................................................................................................... 14

Table 5 – BORN’s debts by signing dates and terms, 2005-2010 ................................................... 16 Table 6 – BORN’s loans, 2007q4 -2012q1 ..................................................................................... 17

Table 7 – Underwriters at BORN’s IPO ......................................................................................... 18 Table 8 – Corporate actions of Bakrie & Brothers regarding Bumi plc and BORN, late 2011 ........ 19

Table 9 – BORN’s IPO proceeds: Planned vs Reported in 2012 Annual Report (IDR mn) ............. 19 Table 10 – Subsidiaries of Bumi plc, June 2012 ............................................................................. 22

Table 11 – ARMS company financials, 2011-2014 £(M) ............................................................... 26 Table 12 – BORN’s Shareholders, March 2006 – Sept. 2014 (shares) ............................................ 33

Table 13 – Trading suspension dates of BORN’s stock in IDX, 20130701-20160801 .................... 33 Table 14 – BORN’s Board of Commissioners, Dec. 2007 – Sept. 2014.......................................... 34

Table 15 – BORN’s Board of Directors, Dec. 2007 – Sept. 2014 ................................................... 34 Table 16 – Corporate Officers in BORN group of companies, 2010 ............................................... 35

Table 17 – Related companies of BORN and transaction types, 2011-201409 (US$) ..................... 35 Table 18 – Related companies of BORN and transaction types, 2007-2011 (IDR mn) ................... 37

Table 19 – Third parties of BORN ................................................................................................. 37 Table 20 – BORN’s IPO underwriting fees detailed ....................................................................... 39

Table 21 – BORN’s IPO proceeds: Planned vs Reported in 2012 Annual Report (IDR mn) ........... 39 Table 22 – BORN’s outstanding loans, 20100630 .......................................................................... 40

Table 23 – The most vital financial figures of PT Borneo Lumbung Energi & Metal Tbk,

2006-2014q3 ........................................................................................................... 40

Table 24 – The financial structure of BORN (share of liabilities components to assets), 2009-

2014q3 .................................................................................................................... 41

Table 25 – Coal mineable reserves of BORN, March 2013 (mt)..................................................... 52 Table 26 – Coal resources of BORN, March 2013 (mt) .................................................................. 52

Table 27 – BORN’s coal deposits in Kohong and Telakong blocks, 30 June 2010 (mt) .................. 52 Table 28 – BORN’s performance in coal productions, sales, and price, 2007-2013 ........................ 54

x – PT Borneo Lumbung Energi & Metal Tbk: On the Road to Recovery

Table 29 – Tuhup coal product specification, 30 June 2010 ........................................................... 55

Table 30 – Grades of coking coal ................................................................................................... 57 Table 31 – Utilisation of installed capacity of BORN, 2007-2010H1 ............................................. 57

Table 32 – Third parties contracted in relation to barging and loading in ISP ................................. 59 Table 33 – Coal sales by marketers, 2011-2012 ($) ........................................................................ 60

Table 34 – BORN sales by country, 2009-2013 ............................................................................. 60 Table 35 – Management Boards of Asmindo Koalindo Tuhup, 1 Sept. 2010 .................................. 61

Table 36 – Changes in AKT shareholders, 1993 – 20091220 ......................................................... 61 Table 37 – The financials of AKT acquisition in 2008 and 2012 .................................................... 62

Table 38 – The financials of AKT, 2007 – 2010H1 ($) .................................................................. 62

List of Figures

Figure 1 – Gasification-based system concepts ................................................................................5 Figure 2 – Gasification chemistry ....................................................................................................5

Figure 3 – Coal distribution in Indonesia by calory class, 2014 ........................................................6 Figure 4 – Supply and export of Indonesian coal, 1997-2014 ...........................................................7

Figure 5 – Export share over coal production in top producing countries .........................................7 Figure 6 – Coal seaports in Indonesia, 2015 .....................................................................................9

Figure 7 – UK banks involvement in Indonesian coal companies ................................................... 10 Figure 8 – Share price of Vallar plc, Bumi plc, and Asia Resource Minerals plc, 9 July 2010 –

10 August 2015 ....................................................................................................... 11 Figure 9 – The owners of BLE ....................................................................................................... 13

Figure 10 - The net debt maturities of PT Borneo Lumbung Energi & Metal Tbk, 2012q1 ............. 14 Figure 11 - The debt burdens of PT Borneo Lumbung Energi & Metal Tbk, 2012q1 ...................... 14

Figure 12 – The flows of debts and stakes within companies related with PT Borneo

Lumbung Energi & Metal Tbk (BORN), Nov.2010 ................................................. 15

Figure 13 – The interests of BNBR and LHHL in Bumi plc, December 2011 ................................. 20 Figure 14 – The interests of BORN and Samin Tan in Bumi plc, June 2012 ................................... 21

Figure 15 – Bumi plc related companies, from shareholders to subsidiaries, June 2012 .................. 22 Figure 16 – The interests of BORN and Samin Tan in Bumi plc, prior to March 2014 ................... 24

Figure 17 – Heart of Borneo: Three countries, One conservation vision ......................................... 28 Figure 18 – Transfers of $15m loan of AKT .................................................................................. 36

Figure 19 – Transfers of $50m loan of BMS .................................................................................. 36 Figure 20 – Transfers of $75m loan of BORN ............................................................................... 36

Figure 21 – Transfer of advance and receivable of ETU in BMS and BORN to REM .................... 36 Figure 22 – Classification of asset structure, financial structure, and capital structure .................... 41

Figure 23 – AKT's coal deposit, 200511-201109 ........................................................................... 48 Figure 24 – BORN's coal specification, worldwide comparation .................................................... 48

Figure 25 – Indonesian coal producers by mine sites ...................................................................... 49 Figure 26 – Sea access of AKT as BORN's asset ........................................................................... 50

Figure 27 – The site map of Muara Tuhup and Damparan in Central Kalimantan........................... 51 Figure 28 – Mining activities cycle of AKT ................................................................................... 53

Figure 29 – BORN monthly production, Oct.2008 – June 2010 (000 ton) ...................................... 54 Figure 30 – Coal classification by energy content .......................................................................... 56

Figure 31 – Bulk carriers compared by size, from Handysize to Capesize ...................................... 58