DEPOK (eNBe Indonesia) - Shares of giant coal miner Bumi Resources (BUMI) gained 6.57% to Rp146 on Tuesday (February 14), to make market capitalization of Rp54.2 trillion, after rating agency S&P Global Ratings revised up BUMI’s CCC long-term issuer credit rating to B-.
That said BUMI’s rating was on CreditWatch at the time, with positive implications on a drawdown.
BUMI’s stand-alone credit profile (SCAP) had improved after paying off its US$1.7 billion debt, using US$1.6 billion in funds from the issuance of non-preemptive rights in mid-October 2022.
With this in mind, S&P assesses that BUMI is currently able to receive and retain dividends from its subsidiaries, which will significantly boost the availability of cash flow and liquidity.
BUMI’s private placement brought in a new controlling shareholder, Mach Energy (Hong Kong) Ltd, a joint venture between Salim Group and Bakrie Group.
This might have improved Bumi’s credit rating even though some are still waiting full impact of Salim Group’s presence, especially in day-to-day operation of Bumi’s coal production units.
S&P Global continued, BUMI’s rating could still be raised up to two notches, considering the withdrawal of BUMI’s rating on CreditWatch had positive implications.
BUMI earlier said its biggest challenge previously faced was the amount of debt that is difficult to do repayment in 2015/2016 when the price of coal experienced a sharp decline through the capital increase.
But with private placement finalized in October 2022, BUMI was able to pay off the entire amount debt related to the suspension of debt payment obligations (PKPU).
Also heavy rainfall (La Nina) challenged BUMI last year, so it is estimated to lose production by 10% compared to 2021, resulting in loss in income of approximately US$1 billion.
Other challenge is the increase in royalty rates which only applied to BUMI as of January 1, 2022, expected 11% increase versus rates in 2021, and cost impact year to date (ytd) to September 2022 of approximately US$700 million in revenue of US$6.3 billion.
BUMI explained it plans to diversify with starting the coal downstreaming project in accordance with the extension of the IUPK.
For this year year, BUMI will finalize the plans and preparations to develop this industry. This might be related to US$2 billion coal-to-chemical project signed by Bumi Resources, Ithaca Resources, and Air Products and Chemicals Inc (USA) three years ago.
Bear in mind that Ithaca Resources is a coal group controlled by the same partners of Bakrie Group in Bumi.
International media quoted Bumi director Dileep Srivastava in April 2022 that the joint venture will start the coal-to-methanol project in Bengalon, East Kalimantan province in May 2022.
Beyond that BUMI is also currently reviewing several non-coal diversifications, but not on EV.
The company is currently reviewing several strategic projects for different metal mineral projects from Bumi Resources Minerals (BRMS). BUMI sets capital expenditure (capex) of US$50-75 million for this year.
BUMI targets coal production of 80 million tons this year, higher than 70-78 million tons last year.
While current market driving factors and coal prices are supply and demand. There is no increase in production capacity at this time but the demand in the power sector (electricity) going up globally.
Hence the request coal continues to rise. Currently, gas prices are increasing significant and triggering an energy crisis.
BUMI estimated that in 2023 the price of coal will increase, and the trend will continue for the next 2-3 years.
That said, increasingly limited funding for projects coal, the inability of renewable energy (renewable) and alternative raw materials (alternate feedstock) in supporting demand is expected to maintain coal prices remain high this year and beyond.
Meanwhile Tradingeconomics.com reported Newcastle coal futures, the benchmark for the top consuming region of Asia, slid towards US$200 per ton, a level not seen since February 2022, as signs of sluggish demand offset concerns about supply disruptions from key exporter Australia.
In addition, the Ministry of Energy and Mineral Resources (ESDM) set the Reference Coal Price (HBA) in February 2023 at US$277.05 per ton, decreased by US$28.16 per ton in previous month, influenced by the start of warmer weather on the European continent.
The decline in coal prices is due to reduced demand for coal from Europe due to the warm weather in Europe. The weakening of natural gas prices also had an impact on coal prices.***
