Photo by Pawel Czerwinski on Unsplash
Disclaimer: I am not a professional financial advisor. All financial opinions written in this article are from my personal research and experience, and it is not a recommendation to buy or sell the stocks.
Note: please read the previous post before going on
I’ve gathered a lot of information from the IESR research report on whether coal will still be relevant in the next 10–20 years in the last two posts.
So, why coal? In fact, coal is one of the cyclical stock opportunities that I overlooked during the 2020 Covid-19 economic recovery. The coal index price fell to $50/tonne in March 2020 before rallying to an all-time high of $400/tonne in early March 2022, all in less than two years!
It’s incredible to see the rising price of coal; it demonstrates that many countries are not well prepared to transition to renewable energy sources. With the trade ban between Australia and China, rising demand, and limited supply around the world, coal remains appealing as a fuel.
Last year, I came across an interesting coal stock that lags behind its competitors in stock price movement. The stock I’m about to share also has the biggest market cap in the coal market.
Bayan Resources (IDX: BYAN)
BYAN has exclusive rights to mine through five Coal Contract of Works (CCOWs) and 16 Mining Business Permits (IUP’s), with 126.293 hectares area of land.
Main operations in East of Kalimantan, where almost 70% of the coal resources are in Kalimantan.
Mining Concessions
Mining Concessions. Source: Corporate Profile June 2021
The Tabang Mine is Bayan’s flagship asset today contributing more than 80% of the Group’s coal production, is one of the most competitive coal assets in Indonesia and globally from a scale and cost perspective, and is uniquely positioned to expand capacity rapidly with very low levels of CAPEX intensity
As of 1 January 2021, gross Resources stand at 3.61 billion tonnes, of which 1.74 billion tonnes are classified as Reserves
Before a company can start its mining operation, several procedures must be followed in order to get mining permission from the government. In Indonesia there are 2 types of mining permissions: PKP2B and KP, later after the contract ends, they need to change into IUPK and IUP (overall requirements are similar, with different calculations in revenue and permit).
Coal Mining Concession Work Agreement (PKP2B) -> an agreement between the government and a legal entity company in Indonesia to conduct coal mining business activities. The work will be completed in stages, according to PKP2B:
- General Investigation Stage: The permit holder must conduct a general investigation to determine the possible location of coal reserves. Every discovery of coal reserves is required to be reported to the government. Given one year after the contract’s expiration date. Following that, any location that does not yield coal reserves must be turned over to the government.
- Exploration Stage: The exploration stage entails locating coal reserves. After the general investigation stage, the exploration period lasts 3 years and can be extended twice for a total of 2 years.
- Feasibility Study Phase: Following exploration, a feasibility study on the remaining contract area should be conducted. The contract is for a period of 12 months / one year. Following completion, you must submit a report on the exploration results, as well as a mining project proposal.
- Construction Phase: Once everything has been approved, the permit holder will construct the mining project’s facilities and infrastructure. 3 years following the feasibility study.
- Exploitation Stage: Start mining.
Unless extended, the PKP2B is valid for 30 years after obtaining the exploitation permit.
The government has the right to take 13.5% of all coal produced under PKP2B generation 2. The government also has the authority to take or order the sale of GBP. Generation 2 was told by the government to sell everything. However, in generation 3, the government has the right to take the 13.5% share of this coal in cash.
Operational Activities
Operational Activities. Source: Corporate Profile June 2021
In each mining site, its operation might work in the same procedure with a slightly different transportation method.
Usually, the coal mined is put into a truck and went along via the haul road to the jetty. From the jetty, it can directly go through the coal terminal, or to floating transfer facilities, such as KFT-1 & KFT-2, or directly into the Panamax vessels (large ships, export).
Facilities — Jetty
Senyiur Jetty. Source: Corporate Profile June 2021
Gunung Sari Jetty. Source: Corporate Profile June 2021
These 2 facilities only support Tabang mining operations.
Most of the year barges directly go to BCT (368 km). Only part of the year requires transshipment — barges travel to the Mahakam River (94 km) where transshipment facilities load coal to larger barges and on to the BCT (274 km) / KFT-1 / KFT-2 (256 km).
Facilities — Floating Transfer Barges
KFT-1 & KFT-2. Source: Corporate Profile June 2021
BYAN has 2 Kalimantan Floating Barges, KFT-1 & KFT-2, either can be moved to take advantage of the location and avoid bad weather and can be positioned to load Capesize vessels. Managed by Muji Lines / Bara Tabang (Subsidiaries)
- KFT-1 is able to unload / shipload 4,000 tonnes/hour and has a stockpiling capacity of 45 kt.
- KFT-2 is able to unload / shipload 6,000 tonnes/hour and has a stockpiling capacity of 60 kt
Facilities — Coal Terminal
Balikpapan Coal Terminal (BCT). Source: Corporate Profile June 2021
The final destination is mostly at Balikpapan Coal Terminal (BCT), one of the largest coal terminals in Indonesia, handled more than 217 Mt of coal and loaded more than 3,864 vessels since 1995, supporting Tabang and TSA/FKP project.
This terminal can fully load large Panamax vessels and partially load Capesize vessels. Managed by Dermaga Perkasapratama (DPP), 87.4% owned by Bayan.
Facilities — Others
In addition to the written facilities, BYAN has coal pads where coal is stored, crushed, and reloaded into trucks to be transported to barge loading facilities such as Senyiur Jetty.
BYAN also has 3 barge transshipment facilities, which are used to move coal from smaller to larger barges or to top up partially loaded barges. BYAN is also building a transportation road in order to optimize the coal production cycle; faster transportation means more coal production per year.
Company Structure
Ownership. Source: Corporate Profile June 2021
BYAN bought 56% of the shares in Kangaroo Resources Limited and its 13 mining concessions in 2011, including the North Pakar Concessions which later turned into Tabang concessions.
PT Muji Lineshandles shipping transportation, and own KFT-1 and KFT-2.
PT Indonesia Pratama is a mining contractor, which managed Gunung Sari Jetty.
The majority of the subsidiaries are mining companies that have already entered the exploitation stage, with only a few remaining in the exploration stage.
Reserves and Resources
Industry Positioning. Source: Corporate Profile June 2021
BYAN has the second-largest remaining mine life in 2020. Before the Tabang concession, BYAN only has little remaining reserves left since the GBP project 1 and 2 were already exhausted of resources.
This Tabang concession significantly improves BYAN’s business. It has one of the lowest strip ratios (a higher ratio means a higher cost), a large number of resources, and a high-calorie count.
Coal Production Contribution. Source: BYAN’s Annual Report 2011–2020
The Tabang concession is a combination of 3 mining companies (FSP, BT, BAS).
The key turnaround point in BYAN’s coal production is at PT Bara Tabang. Producing Sub-bituminous coal with calories of 4000–4250 kcal/kg GAR(Gross as Received). Contributed more than 80% of total revenue over the last three years.
Bara Tabang only began coal production in 2014, intensification began in 2016–2018, with the majority of CAPEX allocated to facilitate barge loading, coal mining, and haul road near PT Bara Tabang.
The Tabang concession had actually begun in previous years, but it took a long time due to following the procedures outlined in the regulation.
Export
Export Segment. Source: Investor Update Q321
BYAN exports heavily, with the most recent top buyer coming from the Philippines, GN Power Dinginin and GN Power Kauswagan, both of which are coal-fired power plants. The others are spread evenly between China, Korea, Indonesia, India, and Malaysia. In total, BYAN has 77 customers in 13 countries.
Cost
Cost & Strip Ratio. Source: Investor Update Q321
Cost & Strip Ratio. Source: Investor Update Q321
Cost & Strip Ratio. Source: Investor Update Q321
The stripping ratio is the ratio or comparison of the extracted minerals to the overburden that is peeled off. So the higher the ratio, the higher the cost as well to remove the covered soil from the coal.
Tabang is independently rated as one of the world’s lowest-cost energy-adjusted producers of seaborne thermal coal, as well as having one of Indonesia’s lowest average stripping ratios. It also has significant reserves and a low Life of Mine (LOM) stripping ratio of 3.8.
Tabang, one of BYAN’s projects, has seen significant growth in the last year. However, as evidenced by the increase in output from 2014 to 2018, it requires preparation and time before it is ready for production.
The coal it produces is also in high demand from customers such as coal-fired power plants. Furthermore, the low strip ratio makes this coal even more appealing. Combined with the rising price of coal, BYAN’s earning report in 2021 was marvelous.
I will not go over the financials because almost all coal companies are expected to gain high earnings in 2021. It’s a shame I didn’t do more research earlier, but what’s done is done. It’s time to look for another potential bagger.
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