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KALIMANTAN COAL CONFERENCE Balikpapan
2-5 Sept 2013
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Growth Prospects and Marketing Strategies
n Supply and Demand pressures
n Strategies to develop
n Maximising sales prices
n Marketing essentials
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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)
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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
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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
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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
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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 :
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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)
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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)
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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:
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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
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Market dynamics
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Current dilemma
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Changed paradigms –costs and prices
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Coking Coal Market changes
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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
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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
012
Mechal Rio Tinto Teck Wesfarmers BMA Riversdale Coal of Africa Consol Energy
1,100 750 350 251 100 18450 (+)
01,000
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
06
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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
02550
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 Tuhup Coking Coal Project
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Source : Bristow & Wilson, 2002
Coal Rank Comparatives Tuhup
Coking Coal
19 Tuhup ‘coke’ being pushed into the truck before quenching, ACIRL
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Tuhup Coal after being coked at ACIRL, Brisbane
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Cost curve comparatives
0
20
40
60
80
100
120
140
160
180
200
0
2012
FO
B c
ash
cost
s (U
S$/
tonn
e)
Cumulative production (Mt)
Oaky Creek Saraji O/C Peak Downs O/C Goonyella
154
BORN
BORN Commands a Significant 1st Quartile Cost Advantage Compared to Global Peers
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Tier 1
Tier 2
Tier 3
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Close Proximity to Largest and Fastest Growing Markets
Significant cost and delivery time advantages to large end users in East Asia and India
India
China
Japan South Korea
Indonesia
Australian coking coal companies
Taiwan
Source: Wood Mackenzie, Trade Data
Estimated Shipping Time to Destination & Cost per Tonne
Producers Destination Estimated time to
destination (Days) Estimated cost
per tonne (US$/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
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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)
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$0.00
$50.00
$100.00
$150.00
$200.00
$250.00
$300.00
$350.00
HCC
SSCC
Appreciate trends
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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%
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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 ?)
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Thank you