Banpu, Thailand’s top coal miner, expects profits from its coal business in 2010 to be lower than last year due to higher costs, but its chief executive is bullish about the outlook for high-quality coal prices.

Banpu, which is Indonesia’s fourth-largest coal miner with five mines
and also has three in China, wants to expand its international presence
and is looking to buy more mines in Indonesia, Australia and South
Africa, Chanin Vongkusolkit said.

In Indonesia, Banpu’s PT Indo Tambangraya Megah Tbk competes with bigger rivals PT Bumi Resources and PT Adaro Energy.

“We have coal reserves at about 300 million tonnes in Indonesia, which
is sufficient for production for the next 13 years. We want to expand
it to 15 years,” Chanin said.

Revenue this year should be close to 2009’s estimated 57 billion baht
($1.7 billion) despite a 12 percent rise in sales volume to 23 million
tonnes, he said, blaming the strength of the baht versus the dollar.

“It will be difficult to have a bottom line for our coal business close
to last year’s because our costs are rising,” Chanin added in an
interview.

An expected rise in oil prices would increase Banpu’s costs this year
by up to 7 percent, he said, adding oil accounted for 25-30 percent of
the company’s costs.

Banpu has already fixed selling prices for half of its coal sales this
year based on 2009 levels, which were lower than market prices this
year.

The widely watched Australia Barlow Jonker Index (BJI), a gauge of spot
thermal coal prices, averaged $75 a tonne in 2009. Prices of
high-quality coal are expected to rise further this year, given strong
demand from China and India, Chanin said.

Banpu’s average sales price may be lower than the BJI index since some
of its coal is of lower quality with a high sulphur content, he said.

Banpu quotes its coal prices in dollars, so revenue will be hit this
year by a rise in the baht, which is trading near to 33 per dollar
versus 34-35 broadly last year.

The company is expected to post a 2010 net profit of 13.7 billion baht,
down 5 percent from 2009, according to Thomson Reuters StarMine’s
SmartEstimate, a consensus estimate that gives more weight to recent
forecasts by top-rated analysts.

Its coal business accounts for almost 70 percent of earnings and the rest comes from its power business.

ROOM TO BORROW

Global coal consumption is forecast to grow almost 40 percent in the
next 20 years as electricity demand increases, according to the
Paris-based International Energy Agency. Thermal coal is used by
utilities for power generation.

Banpu aimed to spend $96 million this year as part of planned
investment of $466 million over the next six years, mainly to expand
its coal and power businesses in Indonesia and China, Chanin said.

Of the $466 million, $255 million is to be invested in its 40 percent
owned Hongsa power plant in Laos, he said, adding the 1,878 megawatt
power plant was due to start operations in 2015.

Last year, Banpu bid for a controlling stake in PT Berau Coal, Indonesia’s fifth-largest coal miner, but did not win.

Banpu, which has a low debt to equity ratio of 0.2, has room to raise
funds via debt or loans to finance an acquisition, Chanin said.

“We have equity of about 50 billion baht. That means we can increase
debt by as much as 40 billion baht and the ratio should not rise to
more than 1.0,” he said.

Shares in Banpu, valued at $4.2 billion, erased some of their earlier
gain and were up 1.5 percent at 524 baht at the midday break, when the
overall market was 0.23 percent lower.

Source: Reuters

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