Bumi Resources: a catch-up with the managementAdam Worthington met with Bumi’s senior management yesterday. Key points:
1. No new purchase transactions in the next 12-months (a positive) – The focus will be on making the recent acquisitions work and on existing operations.
2. Unlocking the upside in Darmahenwa (a positive) – Bumi is restructuring this operation with numerous managers being made redundant and the company looking to order a new fleet of high quality equipment (Caterpillar/Komatsu etc).
3. Unlocking the upside in Herald Resources (a positive) – Bumi looks to improve cost structure through renegotiation of contracts, while at the same time working on the boundary approval.
4. Catching-up with coal price settlements (a negative) – Bumi has only locked in 30% of its production into price and given our negative outlook for spot prices we see risk to consensus earnings.
5. Bakrie & Brothers debt problems (a negative) – Adam Worthington remains unconvinced that a resolution whereby Northstar acting as a white knight will materialize anytime soon.
Coal: Newcastle coal price for March settlement was up by US$0.35 to US$61.65 with the future curves also massively rallying in the range of US$1-4/t. The 2010 average settlement price is now trading at US$70.6 vs. our forecast of US$65/t. This is mainly driven by the gain in oil price, which was up by US$1.73 to US$53.8/bbl.
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