PT Bumi Resources Tbk (BUMI) Earnings Call Transcript & Summary

Hi. Good evening to investor dialing in from Asia, and good morning for those dialing in from Europe or the U.S. Welcome to JPMorgan Investor Update call. My name is Soo Chong Lim, Head of Asia Credit Research. Today, we are delighted to have 2 representatives from Bumi Resources to give us a briefing of the company 2020 financial that they just have released today. We have the company, [indiscernible] Andrew Beckham, the Chief Financial Officer; and also Dileep Srivastava, Director and Company Secretary from Bumi Resources. Definitely, there's a lot of thing to talk about. I mean the coal prices is quite different since the middle of last year. Now we are talking about coal prices is moving around $100 per [ month ]. And I'm sure that a lot of investors would like to get update from company what they are projecting for this year and also probably an update on the KPC concession extension and also probably that -- what they're going to do with the [indiscernible] stock that they have. We're going to have a Q&A at the end of this presentation. [Operator Instructions] Without further ado, I'm going to hand over the forum to Pak Andrew Beckham. Andrew?

Thank you, Soo Chong, and welcome, everyone, whatever time zone you're in. So we'll go straight in. We've got the presentation, which hopefully is available to you. It's also on our website if you need to download it. And there is a recording of this in case you missed half of it or there's anything that's not clear. With that, I'd start. We'll start on Slide 3, the financial 2020 review. In 2020, we saw production fell -- fall by 5 million tonnes due to the COVID pandemic, which affected the world demand for all commodities. This was reflected in our prices with the Newcastle Index -- monthly index falling to about $49.80 in quarter 2 and only recovered in the quarter 4 back to about $67 for the benchmark prices. Costs fell from $34 to around $30 per tonne for our operations due to the pandemic impact on demand for mining equipment, less high-grade coal production at Arutmin and also lower fuel costs as oil was affected by the global slowdown. Arutmin was finally awarded its new IUPK license in November, and we expect KPC to be awarded in the second half of this year, no -- Arutmin was rewarded on the day of expiry. So we have to wait and see on KPC. The key outstanding issue with the IUPK license is that the royalty and tax to be charged is still technically under review. Currently, it is in line with the CCoW rates at 13.5% royalty and 45% corporate tax. We expect corporate tax to fall -- to be reduced back to current levels, which is 20% this year, 19% next year. However, the royalty rate remains unsure and unclear, and we're waiting for guidance from the government on that. As of now we're no clear on that one. We go on to Slide 4 for our guidance for the year. We reflect our belief that the world is starting to recover from the economic slowdowns caused by the COVID pandemic, naturally, any further worldwide shutdown or restrictions would affect this guidance. I mean I think at the moment, the world is a bit unsure. You see Singapore shutting down again, whereas Indonesia is probably opening up a bit. So we don't know who is right. But we've assumed based on that we're over the worst of the effect on the economy, put it that way. We're expecting production between 85 million and 89 million tonnes for this year. This really is in line with our capacity that we have and with the mobile of fleet we have. So there's no extra material capital expenditure required to do this. Prices will be between $51 and $54. If you take it on today's price where it's in the 90s, it's probably a bit conservative, but we have to assume that there will be a bit of softening in prices over the June to August months, which is typical in the seasons for -- in coal demand as coal demand softens in the summer, plus there's a lot more production as the wet season finishes. So naturally, if that doesn't occur, we will upgrade our guidance on prices, and we'll do that come sometime in the third quarter. Costs remain under control with the increase -- potential increase only from higher fuel prices and more high-grade coal production at Arutmin. Hopefully, therefore, we can remain within -- between -- in the lower levels of that cost guidance. Slide 5 and 6 just give good -- an idea where we were at the end of December, beginning of January in prices, with Q4 onwards prices gradually rising steeply. When -- and if you look at Slide 6, you can see that we're looking at current price -- back in January, we're looking at a price of $85 and at calendar '21 of $83 per tonne. That's now increased to probably $86 for the year. But still, I mean, with a $93 is the current April price. So you've still got the curves in backwardation, but that, I think, is just a conservative -- the market expecting to see a drop-off in -- towards the end of this year. Slide 7. Overall, production in sales was down 6% to 7% from 2019, mostly due to no high-grade coal production at Arutmin, mainly because costs -- the prices were lower than costs there but also due to the low demand in quarter 2 and quarter 3 in 2020. Prices averaged at $44.20 versus $51.70 in 2019. But looking at 2021, we expect prices to get back above the 2019 levels. For Q1, yes, we're expecting price [indiscernible]. KPC sales maintained above 60 million tonnes in the year of 2020. However, as mentioned, PT Arutmin sales fell because of the limited high-grade coal production that we did. Slide 8 shows that the overburden -- we continue to move over 600 million bcm a year. However, it's still 5% down on previous year due to the Arutmin production levels. Coal mine decreased also, as mentioned previously. Slide 9. The sales were down due to the lower demand for coal in the market due to the effect of the COVID pandemic, but our strip ratio was maintained. The size we are -- we can't change quickly various things like the mining plans. And thankfully, we didn't. So we now are getting the benefits hopefully this year. In Slide 10, production costs fell due to the lower prices. And there's a lot of work with suppliers and contractors who have been -- who worked hard in the second and third quarters to make sure we're in reasonable levels while we went through the low price scenarios. These are recovered, and we're back to normal now. But we do thank our suppliers and contractors who have done a lot of work with us on that. Slide 11. As noted, there was some -- as you can see in the slide, I've got the note in note 4 there. Receivables over 90 days increased to $16.1 million. That's because under the IUPK now, you can charge VAT on your sales. And there was some confusion in December whether Arutmin -- where the PLN wondered whether it was valid for Arutmin to be charging the VAT. That's all been resolved now in our favor and has been cleared up. December '20, receivables are sitting at $64 million. They've actually increased to $86 million, $87 million in March, mainly because -- what you call it? Mainly because in the first quarter, there was a lot of rainfall and a number of normal suppliers to PLN could not supply because of the high rainfalls. And so therefore, Arutmin and KPC were asked to pick up the [ flak ]. The issue with that is that we've been -- our coal sale prices in Q1 get affected by also the fact of selling more coal domestically at a benchmark of $70 a tonne, not at $90 -- at $80 to $90 that we've been experiencing. So just bear that in mind on our Q1 prices. It will look a little bit lower than expected because we're moving through not only previous year contracts but also more PLN sales. Slide 12 shows our realized prices and how they have fallen from the previous year. As mentioned, 2021, since price is already rebounding, above 2019 levels. We still have good prices. It's just -- it will be -- it takes a little time to catch up. Slide 13. Costs were down in KPC and Arutmin due to the lower input costs and lower fuel costs. Arutmin also produced less high-grade coal. So keeping costs lower. We expect these costs to rise slightly in 2021, in line with our guidance as input costs like fuel prices will go up and had gone up and high-grade coal production starts to come back on board. We'll probably see the high-grade coal influence in the second quarter. First quarter was naturally the rain effect has reduced amount of production and sales. Slide 14 is the cost per bcm. And if you look at the Q1, Q2, Q3, Q4, you see that cost per bcm have stayed pretty constant at around $3.9 per bcm. It's always a good one to look at instead of cost per tonne because that can be affected by the timing of sales and the production levels of coal, how much coal is coming out of the ground, but it's the earth moving that really is important. Slide 15 is the fuel prices. As mentioned, fuel prices have fallen from $0.70 -- $0.77 a liter at the beginning of last year to around a stable $0.60 per liter in 2020. We probably see these are back up to probably $0.65, $0.66 at the moment. And there is potential increases if oil demand continues. Now 16 to -- Slide 16 to 19 are showing -- are covering our financials, which were just published. If we look at Slide 16, it shows our share of the operating profit of -- our subsidiaries shows the breakup of our net loss, with net loss of $338 million. The breakup of that is that our operating profit from our subsidiaries fell by $58 million from 2019. Our interest and finance costs were up $75 million due to no reduced principal repayment. And in 2019, there was a one-off positive reduction in the costs because of the MCB adjustment in 2019. In future, you should see that number stay around that level. But as we repay principal, that will come down. In addition, there was noncash impairment costs to assets under exploration. Because of the COVID restrictions and the limited cash last year, we could not go to the sites to do the drilling exploration. Therefore, and looking at this year, we have pretty much said that we are not going to do any exploration on that project -- on these projects. Therefore, the auditors have said you must impair whether you like it or not. So we've had to impair on those costs and -- a value of about $140 million. There is -- the value is still there, but from a noncash and accounting, we have to make the impairment. Once we get our debt back to levels, and we've refinanced, then we can look at -- and COVID restrictions about flying and moving things around in Indonesia are lifted, then we can refocus on that. Also, in addition, there was -- one of our subsidiaries had -- conservatively had a tax accrual to recognize possible claims, penalties in its -- on its company, so it's taken a one-off accrual of $62 million to cover that. Although the number looks low, we have -- you have to understand the noncash is about 1 50. And with the operating income reduction, it's not enough to offset the profit -- as I say, the interest costs. However, in 2021, we see -- what's it called -- Bumi returning to profit based on our forecast and our budgets. Slide 17. As you can see, this shows the consolidated 100% KPC in Arutmin. So you can see at the operating income level, the fall from $423 million to $230 million of operating income at KPC Arutmin, which is the major -- as I said, I expect by -- for 2000 -- will be back to at least 2019 levels for this year. On Slide 18, that just gives the quarter 4 numbers, so you have by quarter-by-quarter numbers for you in case you need that information, and this is also posted on the website. And then Slide 19 gives you the comparison between our consolidated accounts against the current reporting standards. Naturally, the consolidated accounts give a much more, I think, clearer picture at the moment of where we are and a better picture, of course. On Slide 20, a summary of our performance. In [ 3D ], revenues are down in 2020 because of the COVID effect, but we expect them to return back to pre -- to 2019 levels in 2021. Costs are down. And subject to the fuel costs, we are trying maintaining at these current levels. There may be a bit up on higher grade coal, as we mentioned, but hopefully, we can keep these costs down at these levels. Operating margin should also improve if we're successful with that, back to above 2019 levels. Equity on Slide 21. Equity is naturally down due to the loss. If we go on to Slide 22, then I can discuss the EBITDA. As you can see, EBITDA is at $327 million on a proportionate basis similar to 2019. That's due to the changes in the accounting standards and how they want us to acquire -- account -- these follow, I think, IFRS, but they account for leases. So you actually put the lease on as an asset on the balance sheet and then have the liability of the payments you've got to make under those leases. And then what you do is amortize the asset over the life. So because of that, that actually technically comes out of the EBITDA calculation. So we've improved, and we've tried to show you the adjustments that we've made because of that in the note below just so you don't think we're doing -- hopefully, you can follow that. If there's any questions, please e-mail me later. Slide 23. The cash balances fallen since -- from '19 to '20, but the receivables are quite high. So I think a lot of that was due to the timing on collections as 2020 fourth quarter saw prices back up to reasonable levels. Bumi's debt has increased in 2020, of course, because we haven't been repaying the principal but capitalizing a lot of interest, particularly on B and C. Slide 24 gives the total debt position. We are currently in discussion -- we are currently in discussions with senior lenders and [ we're referring ] on possible refinancing plans. As soon as something is material and ready to go, we will start communicating with everyone who owes our papers. With regards to the MCB, we're now -- I think we'll -- in the next week or so, we'll launch the prospectus -- I think the prospectus or a commentary on the non-preemptive debt we want to do. The plan is to do that on the 30th of June at an AGM. And that -- following that, we will be able to issue shares for the MCB. Our intention at the moment, subject to OJK and shareholder approval, is to issue enough shares to cover all the conversions -- assuming all the conversions were done at the IDR 73, which is the current conversion price. This will allow us to avoid having to go back to the shareholders every quarter or every 3 to 6 months. Assuming that gets approved, probably we are looking at 1 to 2 weeks to get the final -- the signatures from all our Board, and then we can release the shares on those people who have converted but weren't able to get shares. We apologize for the delay, unfortunate situation that it's happened. Slide 25 is the ESG, which remains a key focus for us. We're keen -- I mean there's a lot said about it, and I don't want to go into an argument on the thing. But ESG is from an environmental, social and governance, we take very seriously, and we are doing a lot to highlight that. If there is anything that people need additional information on all our plans and our data, please contact us, and we'll be happy to give more details or have a conference call on what we are doing. With that, Soo Chong, I think that really ends the presentation. I won't go into the detail on KPC and Arutmin metrics, which are there, available, and people can get that data. We'll also publish the KPC and Arutmin financials out very soon, probably in the next few days, to get those out to everyone for the year. In addition, we probably -- we're only delayed because of a slight problem -- a delay on one of the confirmations in Arutmin, because of that, but we expect actually March third quarter results to be out in early June, hopefully, subject to Board and Audit Committee approvals. So we'll -- hopefully, in 2 or 3 weeks' time, we will have another call, but -- so you can see a bit more progress. However, with that, Soo Chong, I'll hand it over to you.

Okay. Thanks, Andrew. [Operator Instructions] I think we're still waiting for people to type in the question. Andrew, maybe I'll just start off with a quick question. So you mentioned that you have started the discussion with some senior lender, which I presume you're talking about your 2 -- the biggest holder. So what is your game plan in the overall bigger scheme? I mean I know that this -- all has been discussed. What are you trying to achieve in terms of the extension that you're talking about? Are we going to really looking at a total refinancing of the whole stack though or how that's going to evolve? And what is the -- what are you going to do? Are you haircut, coupon or whatever that you're trying to do?

Look, there's a number of options to go. For sure, we're not looking at any haircut. And we're not planning on a haircut of our debt. We're not in a restructuring today, but we are keen to get -- to something that's sustainable going forward and that can get the principal repaid as quick as possible. If you look at history of what we did, as soon as the prices fell, we stopped being able to pay principal, and we kept on capitalizing all the B, the C and the MCB interests, which is a fortune. So we have to look at a structure that allows us not to do that. It's really too early to go into more details on that at the moment, but our intention is not to do any haircut in terms of the value -- the actual principal and debt, but to find a way that will -- that can be -- we can repay the principal as quick as possible.

Okay. So this is a question from the audience. Okay. Can you please walk through the bridge from $327 million of EBITDA versus holdco cash that went down $16 million for the full year, cash CapEx, cash taxes, leases, cash principal and interest payment and et cetera?

On this call, no, I'm not going to be able to do that in -- straight off the bat. Especially with the EBITDA numbers, you have to go back to the debt profit of the KPC in Arutmin and do that. But I'm happy if you just drop us an e-mail, or if you like, I can prepare that and put it through Soo Chong and he can post it. There's no problem to give you a breakdown. But if you -- Soo Chong, if you just give me the -- send me the details on that question and I'll send it back to you the response.

Okay.

No problem.

Okay. Okay. Yes. So since on this one, maybe I can ask slightly differently, right? You showed that the cash that the holdco definitely have came down a fair bit, but can you share with us what is the cash level that's sitting now at KPC and Arutmin? Sorry, I always ask this question, just our of curiosity because we're always going to get your financial for Arutmin and KPC a few weeks later. So what is the cash level can we expect at the KPC and Arutmin now?

I think it's in -- I mean they pay the corporate tax in April at KPC. So remember, that's why we didn't pay any principal back in first Q. We will be paying principal in Q2 in July. Probably the cash balances is running around 30 million to 40 million in total. But you will be expecting -- and I mean -- but you've got to be careful with cash on the date of closure because it's the timing of collections and receivables. And you're talking, on average, about $10 million ups and downs depending on what day you look at it. But definitely, we will be paying back -- paying principal in Q2. How much? A minimum of around $15 million because that's just counting the $40 million that we've got back from the tax that we've got to pay in the Q1. If we don't pay, we won't -- we'll have that definitely available. So we get $20 million of that. And once we pay the -- we'll pay the 6.5% of cash coupon, the 1% accrued on A, and then the balance will be used for principal. So we're definitely paying that. If we pay more, it -- we'll wait until we see May and June finalized and that COVID is continuingly -- the economies are continuing to improve, if that is the case, and hopefully, there's more available.

Okay. Another question, can you give us the average selling price in the first quarter for KPC? And I know that you are announcing in some of them monthly, but what is the overall number for first quarter?

Yes. At KPC level, no, you haven't given me the right sheet. Hang on. Just 1 second. I need a moment, the price, yes. KPC was at $59, rough numbers here, the overall numbers at $59, and Arutmin was at $35.80. So averaging $52.80 overall.

Okay.

We'll come out with those numbers, as I said, in -- by -- in the next 2 to 3 weeks.

Okay. Yes. I think, Andrew, let me go back to the proposed extension trade or whatever you want to call it, a liability management that you want to talk about. What is the time line are we talking about? Are we going to see something? You mentioned that you are quite in late-stage discussions. But we are the -- these royalty payments still unknown, probably you have to wait till that's been crystallized before you can come back to know that or something, right?

Look, you can do a lot -- I mean whether the royalty is 13.5%, 15%, 24%, as some people have put in the press, it's -- you still got to get a deal done, right? You've still got to get to a point where you agree what you can pay basic. And then, yes, I think you have to look at some sort of ratchet up based on prices and subject to what that royalty number becomes. I agree -- also subject to KPC's extension, it's probably important. I think the lenders will probably need that extension so that there's no default on day 1, right? But even if you did a deal -- even if you get a deal that's -- of some sort with these senior lenders and then talk to a number of other lenders to get their support on something that will work for everyone, that's still going to take a few months. And then to put it in practice into place with the legal and then the requirements, we have to probably go through a creditors' meeting of some sort, whether it's in Singapore or Indonesia, to get changes or to do something. I don't foresee us putting new money in and out because it will be locked up into the karma and become quite complicated. So I think we have to look at the actual terms of each tranche that we have at the moment and agree on what they look like going forward. So that's the work that needs to be done. I think it's a 6- to 9-month deal to get done because you want to wait for -- not because -- I mean I think you can do a deal quick, but you then have to wait for KPC and the royalty. If you can go [Audio Gap] subject to those or you could do it first, but I don't think the lawyers for the lenders were advised to do that, right? So I think it's a case of -- it's a 6 to 9 months just because we have to wait for confirmation of KPC's extension, which is, I think, is not a problem. And also, hopefully, there's clear guidance on the royalty level.

Okay. Just one follow-up question. On the first quarter KPC average selling price, can you tell us how do you get from -- the average selling price for the benchmark definitely is much higher. We're talking about 18 -- 90 plus, right? How do you get from that to your KPC selling price, which is a much lower price? Maybe you just walk through this 3-month lag. Or what are the reason for that -- trying selling at [ 59 ]? What is the normal discount, that we should expect? Yes, okay.

Well, first thing you do is you take the CV adjustment. Typically, KPC is selling about a 5,000, 5,100 CV coal on average. So therefore, it has to be 5,100 over [6:3 to 2] to get from the benchmark to your coal price. Then, as is mentioned, our contracts are typically index-linked on the -- either the previous month or the previous 3 months or the previous quarter's number. So you often get a lag of 2 or 3 months behind the spot curve. And then the final one is, as I mentioned in my presentation, we are -- the DMO, the domestic market obligation, is 20% to 25% of our sales. That sales are locked at -- the max that can be sold at is $70 benchmark. So our actual price will be less than that based on a $70 benchmark, not on the, let's say, the $90 benchmark that you've got today for that sales. So you have to take that adjustment in as well. If people need it, I can show you the breakdown on the quarter for that in Q1. When we go for the presentation, we'll try and break that up a bit more without trying to give any too much information away to our competitors. But that's the thing you have to do. You have to adjust for the CV, realize that we're probably running 2 to 3 months in arrears and then also adjust for the sale -- the domestic sales that we do in the quarter.

Sorry, can I just clarify, you are saying that domestic sales now is being kept at $70 for -- right now? Or is...

For the last 2 -- I think it's for the last 2 years, you've always had a benchmark price of $70. And then the HBA is fixed that you can't go higher than $70. If the price -- the international price falls below $70, then the HBA will come down, but it won't go up. And it's always been fixed for the last, I think, 2 years, is it? It think, yes, for the last 2 years, it's been at $70 fixed.

Okay. It's not fixed. It's capped at $70. That's what you mean, okay.

Yes, that's it. The benchmark is -- yes.

Yes. Okay. What is the average selling price and sales volume for Arutmin, high grade and low grade in quarter 4?

There was no Q4 production or hardly -- I think there's hardly any in Q4. Q4 '20, you can see the $32.70 pretty much is all the low-grade coal that you can see in the presentation.

Okay, okay. So I'm not sure this is the -- there's a question from the floor, which I'm not sure. Process of finding new customers to avoid high concern to injuries in terms of customer mix.