JP Morgan - Banpu: Analyst briefing (Sukit Chawalitakul)

Key points from BANPU’s recent quarterly analyst briefing:
• Production guidance: Despite reducing its output forecast for Jorong to 1MM tons (due to a permit problem earlier), BANPU maintains its FY10E target of 23MM tons, with help from the out-performing Indominco mine. Our FY10E output estimates are slightly more conservative at 22MMtons.
• Development update: Two key efficiency projects—Bontang port expansion and power plant—are essentially completed. This should help reduce BANPU’s production costs, longer term. Management previously estimates a US$2/ton cost reduction from the port project alone.
• New mines: Commissioning of 45%-owned Gao He project in China should begin imminently—this is 2-3 months behind schedule. The delay is due purely to the company’s waiting for a production license. Operation-wise, Gao He has already begun producing development tonnage. Progress at new Indonesian mine Bharinto is well on schedule, and management still targets Y/E10 production with 0.2MM maiden tonnage (JPM forecasts zero this year, 2MM tons in FY11E).
• Pricing update: Currently, BANPU has 4% of FY10E tonnage un-priced. But, the company has linked additional 14% to an index. This means that 18% of FY10E volume—or roughly 35% of 2H10E volume—remains exposed to pricing volatility.
• Coal market outlook: BANPU appears sanguine about the coal market outlook, as the firm sees still robust demand from its traditional markets of Japan, Taiwan and Korea. More importantly, China is emerging as the most important market for BANPU’s Indonesian coal (22%-24% of total volume over the past three quarters).