PT Bumi Resources Tbk (BUMI) Earnings Call Transcript

So good afternoon, everyone. Welcome to CLSA Komodo Access for Bumi Resources Fourth Quarter '24 and Full Year '24 Earnings Call. I'm [ Nicolas ] from research, and I will be the moderator for the call today. On this call, we are joined by Bumi's key Director. So we have Mr. Andrew Beckham, the CFO of PT Bumi Resources; we have Mr. Nalin, the Commissioner at Bumi; we also have Mr. Ashok, the CEO of KPC; and lastly, we have Mr. Chris Fong, the Director of Corporate Affairs. So we will begin the call with presentation by Bumi management, then followed by Q&A session. [Operator Instructions] So without further ado, I will pass on the call to Bumi team. Please go ahead, Pak.

Thank you, Nicolas. Welcome, everyone. We'll take you, as usual, through the presentation as quick as we can and then open it up to Q&A. So on the first slide, the financial update, total production was slightly down overall 74.7 million tons for financial year 2024 versus 77.8 million tons in 2023. KPC was actually up, but we were down due to one of the contractors in Arutmin and a land dispute delayed our production. With prices, realized coal prices decreased from 71.8 million tons -- sorry, $71.8 per ton from $81.3 in financial year '23 with the global markets downward trend and production costs also followed down from $51.3 to $46.6 and that was not only on fuel prices, but also as our mine developed into a lower stripping ratio with the operations. And next slide, please. Forward guidance for next year -- or this year, I should say, we're guiding on 79 million to 81 million tons, 55 million tons to 56 million tons at KPC and Arutmin 25 million tons to 26 million tons. Prices at $64 to $69. KPC $70 to $75 and Arutmin $50 to $55. Costs at $44 to $46 overall. Again, KPC $48 to $50 and Arutmin $35 to $37. Next slide. As we can see over the years, the prices have been quite volatile. But if you see the 2024 and '25 for the moment are slightly down but pretty stable. I think that's the uncertainties that's happened in the global market in 2024 with all the elections and war -- the couple of wars and of course, in 2025 with the obvious trade war that -- or let's call it sort of different way, the tariff war that is currently going on. Next slide, please. And in terms the forward curve, it's still in contango and we're looking at calendar '27 at $100, for the Newcastle at $128.50. This is as of the 11th of April. I think even at the 7th of April, it's very close to that. And we still expect to see a recovery in the world economies over the next 6 to 9 months as hopefully wars are resolved and some settlement on the tariffs can be done. Those would I think be the main spurs to any increase in the coal price at the moment. The next slide, please. So on our operational highlights. As you can see the KPC strip ratio, the amount of mud earth we're moving to produce 1 ton of coal, fell from 10.9 at KPC to 9.3. That's as the mines got -- are developed, and we're not opening up so much. So that helps us long term in terms of cost. Prices were down from $89 to $76, but sales and production were up compared to 2023. We have Arutmin, again, similar. We were down on strip ratio because of the mines development. But as I mentioned earlier, we had a delay due to a dispute in one area on the land ownership, which was resolved, but it cost us about 3 million tons to 4 million tons. Prices were down from $64 million -- $64 a ton to $59 in 2024. So overall, we were at 75.8 million tons of sales against 78 million tons, down 4% and production was similar. And -- but with a strip ratio from 9.8 down to 8.7 overall. Next slide, please. Rainfall, as can be seen, other than a few unusual points, has been pretty much in line with the long-term forecast that we had, the long term and the 5 year, it's been pretty following. And we haven't had like unusually poor -- should we say, poor production effects due to rain. The start of this year has been more wet for sure, both KPC -- and especially at KPC but we hope that will soon change as we come more into the dry season. Next slide, please. So as we said, overburden decreased primarily due to the decline in Arutmin's coal production, mainly because of the land dispute. There was improved performance from the owner operators and contractors at KPC. Coal mine was only slightly down overall. Next slide, please. Coal sales were up -- sorry, were down slightly 4%. Again, as I mentioned before, because of the Arutmin stoppage. Stripping ratio, again, was down, as mentioned, and you should see that, especially in KPC, you should see that maintained around that 9 figure. Arutmin, it would be only if the higher-grade coals are sold more sold where you could get an increase in that strip ratio. Next slide, please. Production costs were down because of fuel, but also because of the strip ratio, we're mining as we mentioned. And also prices were down as the general global market fell overall. Next slide, please. Bumi's average selling prices, as you can see Ecocoal -- by the ASPs for the coal, excluding Ecocoal, were down from $96 in 2023 to $80 in 2024. This is our realized prices here, not the benchmark. The Ecocoal, there was only a slight drop of $48 to $46 because a lot of that coal is sold domestically and is worked out on the $70 benchmark price that has been implemented for Pertamina sales -- sorry, for PLN sales in Indonesia. So average overall has fallen from $81.3 a ton to $71.8 a ton. Next slide, please. Production cost, as you can see, at Arutmin was only slightly down at $40.9, down to $39.2, but KPC fell from $56 to $49, as we said, with the lower strip ratio, but also because oil prices came down. Next slide, please. On the financials, the fourth quarter, we had an adjustment on our noncash items in the deferred tax asset area, which is -- which brought our number down to the $67.5 million profit compared to $10.9 million last year. That $67 million does allow us conveniently to -- and $90.1 million net income in total does allow us to apply for the quasi reorg -- reorganization, which we had tried to do in 2024. But one of the criteria, which was the total net income was not -- did not qualify, and we believe it will qualify this year. So you should see the advert in the newspaper now today and we are going through the process with OJK for approval. The reason for that, for those who don't understand, is that, that will -- that allows us to use our paid-in capital, the premium paid-in capital to be used to offset our negative retained earnings once that returns, therefore, to 0 at the beginning of the year in 2025. Therefore, we're allowed to -- if we make profit, we are allowed the dividend to the shareholders. So that application and process is started and will go on, and we hope the final approval from OJK will come in around mid-May and with the shareholders approving at the AGM. And next slide, please. The next slide is the number we often report to you guys on -- in the press is the consolidated number. It's in the notes to the financial accounts and statements, but the revenue, you can see is around $5.7 billion because it includes KPC's costs and revenues. So you get the full picture of the company. Alternate -- if not, only Arutmin and BRMS revenue is included. Next slide, please. So this is just to help you compare the two. So you can see from the financial statements as prepared under PSAK, the Indonesian accounting standards, and compared to a consolidated number, which includes our 51% of KPC. Note under the Indonesian accounting standards, we can't consolidate KPC because we have a very tight shareholder agreement with the Tata Power and CIC. That means that there's very good governance in the company. But of course, from an Indonesian accounting standard, they class that as a joint venture. And under joint ventures, only equity -- they can only be shown as equity income. Next slide, please. At Bumi level, the equity has increased because of the slight net profit from $2.7 billion to $2.8 billion. That's the total net equity. And as I said, retained earnings are negative at the moment. And on EBITDA, it's slightly fallen compared to December 31, 2023, by about 3% as prices fell over 2024. Next slide, please. From a consolidated adjusted EBITDA, you can see on a 100% basis how KPC, Arutmin and Bumi look and then how much we're generating. And then our share of that is in the proportion of, so our $294.3 million for the 12 months of 2024 are shown there. Next slide, please. Cash wise, the number looks quite high. And you have to understand, because of the up until December, I believe, the DHE, which is the requirement that you keep your 3 months of your imports revenue or your export revenue -- sorry, 3 months of your export revenue is kept on deposit, and you must keep that in the account and you borrow against that money. So you can see for KPC and Arutmin, that was $266.5 million and $89.65 million on the cash deposits. Against that, on the other side will be liabilities where we borrowed against those sums, not all of it, but we borrowed against them to use for our operations. It comes in the latest -- require DHE update this year, we are meant to keep 12 months of our money -- of our exports revenue in -- if it's in U.S. dollars, in the account. However, we are allowed to -- if we convert that into rupiah, we are allowed to use that money, and we are allowed to use the U.S. dollars for operations or for dividends. So the U.S. -- its restrict side is the longest restriction, but it's actually benefit -- is easier to manage now. Next slide, please. The latest announcement that you might have seen on the royalty for a number of the mining industry companies. One part of that was that they changed the bans for the IUPK, which are the coal assets that were previously under contracts of work, coal contracts of work and first generation. And when they expired, we moved to an IUPK. Ourselves and Adaro are the obvious ones at least. And vertically is the rates, we had a ban and we were constantly paying 28% royalty to the government and that was running around $1 billion to $1.5 billion a year of actual payments. That now has been slightly changed, so now it's moved to current, right where we are today, we're running at 18% to 19% royalty will be charged going forward from May onwards -- well, from the 26th of April was the actual date. The current HBA is running at about, I think, $130 per ton, but we expect that to fall in May, as prices have been continuing to fall. So most likely, we will end up with about 18% royalty instead of paying 28% royalty going forward. So that's a saving of about 10% on our revenues and net will be about, what, 7.8% as we have to take off the tax benefit you normally get. So there will be a big -- a good improvement in the cash and the profit from May onwards. Next slide. This is our ESG data as of December 2024. This information is published regularly monthly on our websites. All -- any requirements for additional ESG data for your internal approvals or details, please contact us. We have a lot more information available. Also to note, the CSR expenditure is for Bumi. If we take the group at the moment, we're running at about $70 million of ESG expenditure that we're spending. And we'll gradually update that -- we'll update these numbers going forward. But please any -- if anyone has any questions on the ESG points, we will happily do. We are also looking at S1 and S2 reporting based on 2024 numbers, even though the requirement for Indonesia is for 2027 to start that. And we are in the process of appointing someone to do that at the moment. With that, I think that's about it. I'm happy to -- these are the KPC and Arutmin details. They are available to you guys, but they've already been summarized. Feel free to pick them up off our website if you haven't received a copy already. So with that, Nicolas, I'll open that up to Q&A, if that's okay.

So thank you, Andrew, for your very compressive presentation. So -- and before we start the Q&A session, I guess I have a few questions from my end. So let me start with this. So given that coal price has fallen quite significantly in 2025, what are the cost efficiencies initiatives that the company has taken? And maybe if you could share with us what is your coal industry outlook in the upcoming year, Pak?

Pak Ashok, do you want to comment on it?

Yes, let me explain to you what we are doing now. See, we have appointed McKinsey to look into all the entire life of mine plan and also our operation improvements. Basically, we are looking at reducing the strip ratio going forward both in KPC and Arutmin, but not sacrificing the reserves. So what we are doing, it is more a selective mining so that we gain on lower strip ratio to offset the drop in sales price. Also, as a result, we will be also looking at how to save on fuel. The fuel consumption, I'm glad to inform you that will go down by almost 15%, both in KPC and Arutmin this year apart from the fall in fuel price -- coal price. So coal price, fuel price has gone down, but the Government of Indonesia has also come up with subsidy. They -- we used to have a subsidy last year, up to last year. But effective this year, it has been withdrawn, which led to an increase of $0.20 in fuel from -- effective from 1st January. So we are affected both not only by the drop in coal price, but also in increase in fuel price, even though the Brent crude has fallen considerably now. In KPC, we have also stood down some trucks where because of the reduction in OB distance. See, we -- because of the long plan being looked into, we have been able to reduce the OB distance and some of the trucks have been stood down. We have also started with AI, GenAI in some of the divisions in KPC, preventive maintenance, how to improve the unscheduled maintenance also in our supply chain management, in our accounts, HR to start with. So all in all, we will be able to save substantial sum by the end of this year to offset the drop in coal price.

Got it. And maybe if I could follow up with my second question regarding your coal industry outlook in the upcoming year, Pak?

Sorry, say that again?

Your coal industry outlook in this upcoming year?

Pak Nalin, do you want to comment? Or...

Sorry, Pak Nalin, I think you're still muted.

Yes, I think the market has been pretty depressed, again, for various reasons, including the current trade wars and other things. We believe that the market will be depressed and markets are offering prices at a discount, which we are resisting from offering any discounts in the market today. We believe that things should turn around in the next 3 to 4 months once the dust on the trade war is settled. Until then, we believe that there's bound to be pressure on the coal prices.

Got it. So let me follow up with the question coming from the floor. So we have question coming from the chatbox from [ Giovanni ]. So would you mind sharing detail regarding the dispute in Arutmin? And how will it impact production in the future as well?

No. It was purely an area of the -- on the edge of the boundary that was under dispute. And that restricted production there and for dumping as well. That was resolved last year and we don't foresee that continuing.

Got it. So if I may ask a follow up question on this. So how much of the production that was impacted, if you could like guesstimate?

About 2 million to 3 million tons, I think it was.

And it has been resolved, right?

Yes. That's why our guidance is back up.

Got it. Okay. And we also have following question coming from [ Matthew ]. So regarding the recent requirements from government to use the HBA goal as a benchmark. So do you have -- can you share about this? Like what's the impact from this? And are you seeing any push back from your customer, Pak?

It's always been there. It's always been -- Pak Ashok, please correct me if I'm wrong, but it's always been the HBA is the basis. You should sell HBA or higher. Unfortunately the HBA often trends behind. So we pay -- we will have to pay royalty on the HBA or the actual sales price depending on which one is the highest.

Just to add, Nicolas, to that. See, under the new regulation which has been just been issued, though although government is trying to put a stress on HBA as the floor price and all contracts to be on HBA, but they have allowed us to dispatch using the contracted price and you pay the difference between the contracted price and HBA. HPB, once you get the calculation done to pay the royalty, additional royalty and additional tax. So there is an element of additional tax has come in addition to the extra royalty to be paid. So that's only the difference now under the new law, which has come. So yes, that adds to our cost.

Got it. So let me follow up with the question coming from the chatbox coming from [ Benyamin ]. So there's three questions here. So first one, can you provide an update on the progress of the coking coal and bauxite mine acquisition? On the second question. So regarding the alumina project, is there any update you can share particularly on whether the project partner can now be disclosed? And on the third question, has Bumi received approval from OJK regarding the cost reorganization plan?

Yes. The -- on the bauxite and alumina, we're in discussions with various parties, and we hope to be able to announce something pretty soon, hopefully, in the next 2 to 3 months on that area. Coking coal, we are not looking at anything at the moment, especially with coal prices -- coking coal prices have dropped quite significantly. And I think most people are tied up on Anglo coal, the Anglo coal deal anyway. And the quasi, as I mentioned in the presentation, that's -- an advert has been put in the newspaper. We will be now in conversation and discussions with OJK over the next 4 to 6 weeks. And then hopefully, we will get their approval and at the AGM we'll hold an EGM also and that -- for that approval. And we hope that OJK are supportive as it's the best way to help all the minority shareholders.

So following up on the question from the floor from [ Ian ]. So when does the new royalty regime take effect? So I think this has been answered.

Yes, the 26th of April it come into effect.

Got it. 26th of April. And following question, what will be the extra annual profit to be generated as we understand that we will pay less royalty but we'll pay more income tax?

Yes, but if you look at our numbers, on 100% basis, you can see that we're running at about $5 billion to $6 billion revenues. So you have about $500 million of benefit to the shareholders of KPC and Arutmin, less 22% corporate tax. So maybe like $400 million of benefit. Of course, that's for the shareholders to share. So we will be 51% of KPC and 90% of Arutmin. But I'll let everyone else work out what the revenue is going to be for this year. We have our guidance so they can calculate that, yes.

Got it. Very clear. So we've got another question coming from [indiscernible]. Can you share more updates on your Pendopo mine? Is there any chance to start operating sooner?

Well, actually, we actually did a very small amount of coal sales in 2024. Unfortunately, because of prices, we haven't been able to continue doing that and there hasn't been any further developments on the Pendopo mine. We haven't been able to sell at the moment. Although we are looking at an upgrading process from Germany, however, that's early stages.

Got it. We've got a follow-up question coming from Benyamin. So thank you, Pak, for the answer. Any guidance for the gas cost in 2025 compared to 2024?

Well, as the strip ratio we maintain, and as Pak Ashok said, we are looking at efficiencies with McKinsey and strip ratios there, from an actual operational point of view, we should see our costs maintained and our guidance are down. Of course, wherever the oil price goes, it will be having an effect. If that increases along with coal prices towards the end of the year, you'll see cost go back up a bit. But we should be pretty maintaining based on last year should be okay.

[Operator Instructions] So with that, let me continue with some questions on my own, Pak. This is regarding the DHE lockup that you already touched on, on the presentation. So how do you see the recent change lockup affecting your cash flow, given that it is 100% requirement and yes, how do you see the impact coming in the following months?

Pak Ashok, do you want to comment from the KPC point?

So from both from KPC and Arutmin point of view, see, this 100% is not affected in much. In fact, the one which was the earlier regulation, you had to take a loan and then you have to pay an interest. But under this new regulation, after setting aside the dollar amount for tax and nontax revenue payment, the balance you can convert into IDR immediately and use it for your operation purposes. So there is no impact on both in KPC and Arutmin under the new regulation.

Got it. Okay. [ Darren ], do you want to ask any questions?

Yes. Maybe I want to check on since like we acknowledge like the fuel price has been falling, right, like how about the implementation of using like biodiesel like B40? How does it like affect your fuel cost so far? Like how does it impact the cash cost so far, if any?

Ashok, do you want to do that one?

So let me tell you, B40 has become compulsory from 1st January. So we have not felt the impact. But as I mentioned to you that beginning of 1st January, the subsidy of $0.20 had been withdrawn. So although the Brent crude price has gone down from what it was in November, December but because of the fuel price has increased by $0.20 because of the subsidy removal, it has increased the fuel price compared to what it should have been.

And just to add to that, remember, the B40, I think the highest usage somewhere else in the world is in Brazil at 15%. And it wears on your engine, it wears on -- so maintenance costs over the long term go up as well. So it's not really helping us at the moment, I can tell you. It might be good for the environment, it might be good for the palm oil guys, but that's about it.

Maybe I want to touch a bit on the cost reorganization that you guys mentioned in the slides. Like I think in the market, we are quite aware that the proceeds -- the intention was to potentially distribute some dividend to the shareholders. Is there like any indicative on the payout on that maybe?