AEC And the Challenges in Mining Business - dmr.go.th of Banpu in ASEAN (1).pdfHunnu Coal Established JV ... Hunnu (100%) MONGOLIA ... • Large-scale coal contract mining with EGAT’s

AEC And the Challenges in Mining Business

Worapone Pongsuwan

Banpu Public Company Limited

October 17, 2013

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Contents

2

1 Banpu Business Overview

Banpu 3 Decades of Growth

2

3

Banpu Overseas Investment 3

:

Challenges in Mining Business

Based on speaker’s experiences

4

Contents

3



2

3

Banpu Overseas Investment

3

: Challenges in Mining Business

4

Vision of Banpu

Vision

To be an energetic Asian energy provider of quality products & services and

be recognized for its fairness, professionalism, and concerns for society

and environment

Mission •To develop businesses in the fields of energy in pursuit of Asian leadership position

•To diversify and invest in strategic businesses to enhance competitiveness

•To provide a variety of quality products and services with commitment, reliability, and flexibility

•To conduct business in a socially, ethically and environmentally responsible manner.

•To build sustainable value for shareholders, customers, business partners, employees, local communities, and to be a good citizen to host governments

4

The Banpu Spirit

Synergy

A critical element for collaboration, teamwork, ‘win-win’ solutions, fairness and networks in all three countries.

Innovation

Continuous improvement through taking the initiative, thinking ‘out of the box’, being pro-active, flexible and resilient to change.

Integrity

Mindset of being ethical, honest and transparent, trustworthy and commitment-oriented, disciplined and persistent.

Care

Being open, humane, warm, friendly, respectful and sympathetic to each other, as well as to external stakeholders.

5

Started operation

of coal mine in

Indonesia Jorong

1998 2003 2007

Banpu’s

Subsidiary, ‘ITM’

listed in the

Indonesian Stock

Exchange

2010 1983 1989 2011

Listed on Stock

Exchange of

Thailand

2009

Entered into China

through investment

in AACI

2001

Acquired Indocoal

Project

(Listed on ASX

with assets in

NSW)

(Listed on ASX

with projects in

Mongolia)

Established “Banpu

Coal Company

Limited”

Acquired

Centennial

Coal

Acquired

Hunnu Coal

Established JV

for Hongsa

Project in Laos

Banpu Business Overview : Key Business Expansion

6

Banpu Today

7

Hebi (40%) Gaohe (45%)

Kitadin (64.99%)

Indominco (64.99%)

BLCP (50%)

Luannan (100%)

Zhengding (100%)

Zouping (70%)

Bharinto (64.35%)

Trubaindo (64.99%)

Jorong (64.79%)

Hongsa (40%) (COD 2015)

AUSTRALIA

Centennial (100%)* Coal mine

Coal mine project Coal-fired power Coal-fired power project

INDONESIA

THAILAND

CHINA

Kitadin-TM (64.99%)

Hunnu (100%)

MONGOLIA

LAOS

• 30 year track record

• Fundamentals are strong: cash flow,

high CV coal, customers, power

earnings, dividends…

• Highly experienced and committed

senior management team

• 2012 and into 2013, focus on

strengthening fundamentals further:

rationalisation, costs, efficiency,

productivity

• Synergy drive between Banpu

businesses including M&L synergies

between Australia and Indonesia

• Organic growth : Bharinto, Gaohe,

Hongsa, Mongolia…

• Inorganic growth : ITM add-on

acquisitions; vertically integrated

coal-power…

BANPU’S OPERATIONS IN 2013 BANPU STATUS REVIEW

* Some Centennial mines owned <100%

30 Year Track Record

8

External

Annual Revenues

$bn

1970s 1980s 1990s 2000-05 2006-10 2011-15

Coal

Mtpa

Thailand

Indonesia

China &

Mongolia

(equity basis)

Australia

Power

GW (equity)

0.3 GW

TECO COCO BLCP, BIC

0.9 GW

0.9 GW

1.6 GW

BLCP, BIC,Hongsa

0.3 GW

15 Mtpa

16 Mtpa

0.4 Mtpa 0.6 Mtpa

3 Mtpa 4 Mtpa

1.5 Mtpa

Oil price spike Asian economic crisis Lehman crisis Eurozone crisis

Mines close

2008 BPI, Lanna EGAT contract

1983

Banpu established

4 Mtpa 14 Mtpa

23 Mtpa

23 Mtpa

32 Mtpa

$3.8 bn in 2012

$0.6bn

$2.1bn

Contents

9



2

3


:

Challenges in Mining Business 4

Banpu : 3 Decades of Growth

10

• The Early Years : Indigenous Energy

• The 1990s : Breakout Expansion and Diversification

• 1997 – 2000 : Years of Crisis Management and

Reflection

• 2002 – 2010 : Becoming a Regional and “Local”

Coal-based Energy Player

• 2011 – 2013 : Consolidation and Preparation for

New Era of Growth


11

The Early Years : Indigenous Energy

• Established in 1983 as a small lignite mining venture in the north of Thailand.

• Severe global oil supply disruption and price spikes.

• Developed domestic coal resources as alternative fuel for Thai industry.

• Late 1980s Banpu was selling around 1 MT of coal per annum and listed in

SET in 1989 raising towards THB 100 million.

12

Mae Teeb Mine , Amphoe Mae Ta , Lampang

Province


13

The 1990s : Breakout Expansion and Diversification

• Coal Business

- Raised capital throughout early and mid-1990s and start

overseas investment

• Large-scale coal contract mining with EGAT’s lignite mine at Mae Moh

in 1992 pushed Banpu to become large-scale mining expertise

• Entered Indonesia in 1990 and started coal exploration in Sumatra,

acquired Jorong concession in South Kalimantan in 1996 and started

operation in 1998 with 3 Mtpa

14


15

The 1990s : Breakout Expansion and Diversification (con’d)

• Power & Steam Business

•Set-up Thai Cogeneration “COCO” in 1993 in Map Ta Phut IE and

• in 1995 formed 2 joint ventures to bid for EGAT’s new IPP projects ; Tri-Energy

Co.(700MW gas-fired in Ratchaburi) and BLCP (1,400 MW coal-fired in Rayong)

• Other Businesses

• Diversified business into other industrial minerals in Thailand and Vietnam in the 1990s

including a gold mine in Thailand

• Earned Kingsgate shares, an Australian listed company in Australian Stock Exchange

16

17


18

2001 – 2010 : Becoming a Regional and “Local” Coal-based

Energy Player

• Strategically focused on core skills i.e. coal & coal-fired power –

divested non-core investments and reinvested in core businesses

• Indonesia

- March 2001,acquired a group of “Indo Coal” with 2 existing

operations and 2 undeveloped deposits

- In 2007,consolidated coal businesses into one identity

“PT Indotambangraya Megah Tbk”(ITM) and listed in JSX


19

2001 – 2010 : Becoming a Regional and “Local”Coal-based

Energy Player (cont’d)

• Power Business

- During decade to 2010, Banpu divested its gas-fired interests

(TECO & RATCH) but expanded coal-fired power business (BLCP)

with total power generation capacity of 1,434 MW commissioned in

2006 & 2007

- In 2006, acquired 3 power plants in Hebei and Shandong of China

and reached an agreement with the government of Laos PDR to

develop Hongsa, a lignite-fired power project in Xayaburi Province

Laos PDR

20

Hongsa ,Mine-mouth Power Plant , Xayaburi, Laos PDR

Contents

21



2

3


:


Banpu Overseas Investment : Theory & Practicality

22

1. Targeting Country

• Politics , Administration , and Government

• Culture & Community

• National Development Policy & Macro Economics

• Market Size & Strategies

• Tax & Interest Rate

• Commercial Bank System

• Rules , Regulations , Licence


23

2. Finding Optimum Business Directions

• Corporate Set-up Models

• Joint Venture especially with Local Company

• Local Employment and Labor Laws

• Increasing of Salary ,Wages, and other Production Cost

• Clear Vision and Mission


24

3. Banpu SD Framework

License to

Operate

Localization

Competitiveness

•Health and Safety

•Environment

•Community Development

•People Development

•Operational Excellence

•Technology

•Good Governance

•Business Ethic

•Compliance

•Good Citizen

Contents

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2

3


:



26

1

2

3

Project Study-Pre-development Stage

Contractual framework-Key Project Documents

Development Stage-Project Implementation


27

1 Project Study-Pre-Development Stage and start risks undertaking

1. Exclusive MOU to acquire target areas and share benefits with Partner and /or

Government

• M&A to acquire operating assets: Indominco, Indonesia and CEY, Australia

Cashflow generation from day one

Slightly upside

Operating risk profile

• Bid Proposal to compete for Government’s Project: Hongsa Project, Laos

Government’s support

Higher cost for wining the project caused low return

High exposure from commitment with Government

• Greenfield prospect with Local Partner : Jorong, Indonesia Yenbai , Vietnam

Rely on partner’s network

High risk high return if success


28


Vietnam Greenfield Project at Yenbai Province

Ground Calcium Carbonate


29


Laos Greenfield Project

Hongsa Mine Mouth Power Plant


30


2.Key Laws and Regulations

• Foreign Investment Laws

Clarify scope of investment

Clarify privileges especially tax holiday

In general no 100% for minerals investment

• Minerals Laws

Clarify step of implementation

Clarify scope of authorization granted to local

government: Autonomy in Indonesia

• Taxes Laws

May differ from the privileges of the project

Conflict of interpretation and must clarify with tax

officials

Import taxation


31



• Labor Laws

Different from country by country

Working hour planning

Terms and contract of engagement

• Land Laws

May add double cost to the project if not clarify

• Resettlement and Compensation

Obligations under concession agreement

Policy and rate under local government’s approval

• Environment Laws

Become more stringent specifically dust and noise

Lender s require higher standard


32



• JVC with State Enterprise

Share portions

Lead role and responsibilities

Secure equity contribution from local partner

• Change in Laws

New laws may heavily impact project value

Limit amount of damages stated in CA

• Arbitration

Exit strategy if default


33

1 Project Study-Pre-development Stage (cont’d)

3. Economic of the Project

• Exploration and Resource Estimation

• Mine Planning

• Hydrology

• Transportation in remote areas both internal and external


34


3. Economic of the Project

• Key assumptions for Project Valuation plus contingency

• Project Management Skill

• Cross Cultural Management

Do and Don’t

Project Schedule Adjustment

• Profit Sharing/Free carried interest of JVC (State Own)

Must be aware on financial status of local partner

Don’t look down on this burden

• Key Work Forces and Motivation


35


4. Health Safety Environment and Community (HSEC)

• Health and Safety: for employees who work at site especially hi-gene

of local foods so must provide hardship and allowance for motivation of

working at site

• Environment management in terms of EIA Study and standard

measures so must select and engage only a well known EIA

consultant company to conduct EIA study

• Community relations and community development including

Resettlement Action Plan and compensation fees

• Negotiation with Government regarding standard of EIA protection

measures : for example World Bank Guideline or Equator Principle


36


5. Company’s Brand and Image

• Financial Health: To ensure the financial capability to develop

the project successfully

• Technology: To ensure the knowledge and technical capabilities

to develop the project

• References: Past performances related to such mineral project

development


37


6. Government Relations: Must Have!!!

• High level Authorities: To ensure all key approvals of the project

• Middle level Authorities: To ensure the conclusion of all

negotiated issues within project time frame

• Low level Authorities: To help expedite the procedure of

document flow

• Right or wrong channel selection may encourage or destroy the

project with or without achievement


38


6. Project Financing (Non-Recourse)

• Country Risk Rating: Add financial cost or may impact on non-

recourse financing

• Project Information Memo (IM): To provide summary of project

information to Finance Institutions

• Project Insurance Advisor to assure adequate coverage to

protect the financial interests of the Shareholders and Lenders

• Equity Finance for State Enterprise: Usually the State

Enterprise is unable to secure equity amount prior to conclude

Financial Agreement


39

2 Contractual Framework-Key Project Documents

1. Shareholders Agreement to register the Company

2. Mine Concession Agreement

3. EPC Agreement

4. Conditions Precedent

5. Project Land

6. Water Right

7. Compensation and Taxes

8. Environment and Social Obligations

9. Resettlement Obligations

10. Insurance

11.Supply Agreement

12.Government Approval

13.Force majeure


40

3 Development Stage-Project Implementation

1. Financial Agreement with Lenders

2. First draw down after complete conditions precedent

3. Mine Construction Phase

Contractor’s privileges on taxes must be similar to developer

Contractor management to comply with SD policy

Construction risk and mitigation

4. Operation Phase

End of Presentation

41

•Thank You

•Q&A