Bumi to Build Power Plants, Conveyors to Cut Costs

By Leony Aurora and Arijit Ghosh

Aug. 7 (Bloomberg) -- PT Bumi Resources, Asia's third- biggest coal producer by sales, expects to cut costs 18 percent in two years by investing $300 million to build power plants and conveyor belts to transport the fuel.

The Indonesian company will build two coal-fired plants and at least three conveyor belts, Nalinkant Rathod, a commissioner at Bumi, said in Jakarta yesterday. The producer expects the cost of producing and transporting coal to fall to $22 a metric ton by 2009 from $26.87 a ton in the first half of this year, he said. The figure includes the cost of maintaining inventories.

The investment will help the Jakarta-based company cut dependence on diesel for electricity generation and trucks for transportation. Lower costs will help boost earnings as demand from China and India keeps coal prices near a record of $70.88 a ton in June. Fuel prices, which account for a fifth of Bumi's expenses, have risen by about 25 percent this year.

``Fuel prices are outside the control of the company,'' and generating electricity from coal will remain cheaper than with diesel, said Ahmad Solihin, an analyst at PT Mandiri Sekuritas in Jakarta. He has a ``buy'' recommendation on the stock.

Shares in Bumi, Indonesia's biggest publicly traded energy company, have more than doubled this year, outpacing the 24 percent gain in the benchmark Jakarta Composite Index. The stock fell 1 percent to 2,350 rupiah in Jakarta today.

``The company is looking at the possibility of cutting costs by a further dollar or two from $22 a ton'' by 2009, Rathod, who is also the president of Bumi's coal mining units PT Kaltim Prima Coal and PT Arutmin Indonesia, said in an interview.

Heavy Rains

Bumi currently has a 13-kilometer (8-mile) conveyor belt that moves coal from unit Kaltim Prima's crusher to ships. Building an additional 38 kilometers of belts will also help transport the fuel when heavy rains hamper the movement of trucks.

The company expects this year's coal production to be at the lower end of its 58 million tons to 60 million ton forecast range because heavy rainfall is hampering production and transportation, Rathod said.

Excessive rains in the southern part of Borneo prompted Banpu Pcl and Straits Asia Resources Ltd. last month to declare force majeure, a legal clause allowing companies to miss shipments because of circumstances beyond their control.

The price of power-station coal at Australia's Newcastle port, the world's largest export harbor for the fuel, rose 5 percent last week on concerns Asian buyers will have to turn to the spot market to make up for the missed deliveries.

Earnings

Coal for immediate delivery at Newcastle increased $3.27 to $70.08 a metric ton in the week ended Aug. 3, according to the globalCOAL NEWC Index. That's near the record level of $70.88 reached in June.

Bumi expects to meet or top analysts' projections for its earnings, Rathod said. Bumi's profit may rise 24 percent to $275 million this year, according to the median of 12 estimates compiled by Bloomberg.

That's excluding a one time gain that Bumi posted this year after selling a 30 percent stake in Kaltim Prima and Arutmin to India's Tata Power Co. for $1.3 billion.

Bumi's net income in the second quarter of the year jumped 10-fold to $641.7 million from $65.8 million a year earlier. Profit excluding the one-time gain rose 44 percent to $94.5 million in the three-month period.

To contact the reporter on this story: Leony Aurora in Jakarta at laurora@bloomberg.net ; Arijit Ghosh in Jakarta at aghosh@bloomberg.net .