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Message from the President Director

 

In 2014, irrespectively from the challenges we have to deal with, the Company managed to maintain a fairly strong operational fundamentals. The Company also strengthened its efforts in optimizing costs and efficiency.

 

Dear Shareholders,

 

In 2014, the coal industry continued to face tough challenges. The sluggish world economy has taken its toll on various sectors of industry, including the mining industry. This is reflected in the decrease of prices of virtually all commodities. Particularly for coal, the declining trend of prices, which started in 2011, has continued through 2014.

As with other companies engaged in the mining sector, the Company cannot avoid the impact of such conditions. The Company addressed these unfavorable conditions by conducting a series of reforms, internally, on the operational and financial sides. It also continued to look for various other business opportunities, both in the energy sector as well as in other mineral mining sectors, that could be the alternative solution to support the Company’s business continuity in the future.

 

Operational Performance

In 2014, irrespective of the challenges we have to deal with, the Company managed to maintain a fairly strong operational fundamentals, as evidenced by the following facts:

·           Stripping of overburden (OB) decreased by 15.82% to 579.3 mbcm (from 688.1 mbcm in 2013), due to the lower strip ratio.

·           Stripping ratios reduced significantly by 20.07% to 6.9 (compared to the same period last year at 8.6).

·           Coal Mined increased by 5.32% to 84.4 million tonnes (compared to the same period last out of 80.2 million tons)

·           Coal sales increased by 3.25% to 84.7 million tonnes (compared to the same period last year amounted to 82.0 million tons).

·           Production Cash Cost reduced by 17% to USD 34.6/ ton of coal mined (compared with USD 40.5/ton of coal mined in 2013.)

·           Coal inventory reduced by 20.95% to 4.3 million tons (from 5.5 million tons in 2013).

The Company managed to maintain its operational performance, however the average selling price of BUMI coal in 2014 fell by 17.49%, from USD 63.8/ton in 2013, to USD 52.7/ton (during the period of January-December 2014), mainly due to the drop in coal indices that reflect the dynamic of global coal demand and supply. With the downward trend in coal prices continuing, the Company is left with no choice but to strengthen its effort in optimizing costs and efficiencies. In addition, the Company also continues to seek to maximize its sales price, in line with the market price index.

 

Since 2013, the Company has sought to overcome the volatile trend of prices and to anticipate and seize opportunities in improving its operations in the short term. We continued this policy in 2014, as a number of operating programs aimed to maintain competitiveness, improve operating efficiency, and manage the decline in profit margin per tons of coal sold were realized. These included among others, improvement in mining practices and mine planning in KPC and Arutmin.

To maintain our operational efficiency, mine planning was able to significantly lower the stripping ratio, from 8.6 down to 6.9. Production Cash Cost for the period January – December 2014 stood at USD 34.6/ton of coal mined, or a decrease of 17% compared to the same period in the previous year, amounting to USD 40.5/ton of coal mined.

The amount of coal mined for the period January – December 2014 recorded an increase of 5.32% to 84.4 million tonnes, while in the same period last year was recorded at 80.2 million tons.

The increase in production lead to an increase in coal sales by 3.25% from 82.0 million tons to 84.7 million tons, for the same period. The Company’s success in increasing sales of coal is mainly caused by the BUMI’s world class infrastructure and policy to consistently apply long-term sales contracts with highly reputable consumers. The majority of BUMI coal customers are engaged in the power generation, cement manufacturing, and iron and steel manufacturing sectors. Only a small portion of the total production of BUMI sold on the spot market.

Meanwhile, the non-coal segment also showed quite encouraging accomplishments throughout 2014. Operationally, Newmont Nusa Tenggara (NNT) has received an export license as of September 2014 and is expected to promptly return to full productivity in 2015-2016. Dairi Prima Mineral is currently in the construction phase and the Company has passed the feasibility study update stage and has constructed a mine plan in the Dairi district for producing as much as 5.9 million tons, consisting of 14% zinc and 8.8% lead. The Gorontalo Minerals Feasibility Study for the copper mining project in Sungai Mak has been completed and has also been accepted by the Ministry of Energy and Mineral Resources, and therefore the Company could record reserves of 105 million tonnes of 0.70% copper, 0.33 g/t gold, and 1.62 g/t silver, as well as total resources of 292 million tonnes of 0.50% copper, 0.47 g/t gold. Gorontalo Minerals is currently in the preparation phase of an Environmental Impact Assessment (EIA). Citra Palu is at the completion of the Feasibility Study phase, and this is expected to be completed in 2015, fully equipped with a JORC resource statement.

 

Financial Performance

Various efforts undertaken by BUMI in improving its operational efficiency, and increasing its sales volume, in 2014, has led to a net loss attributable to controlling shareholders of USD 388.0 million (Jan-Dec 2014), decreased by USD 221.0 million compared to the same period last year, which recorded a net loss of USD 609.0 million dollars.

BUMI also continued to pursue debt reduction, through its rights issue of USD 314 million. Currently, the BUMI is in the middle of debt settlement process and debt restructuring process through legal means in Singapore and the United States, in order to reduce its debt to a level that is more healthy and reasonable as soon as possible. BUMI was fully focused on these in order to improve its cash flow, and in 2015 those efforts began to show encouraging results.

 

Corporate Governance

BUMI believes that the implementation of good corporate governance is critical to the success of the Company in adding value for stakeholders. That is why, BUMI is committed to apply GCG to a high standard and in accordance with best practices in Indonesia. This is also reflected from BUMI’s compliance to regulations in Indonesia.

Throughout 2014, the Company continues to improve the quality of GCG implementation throughout the company. It is partly done by strengthening the supervision function through the Internal Audit, implementing Speak Up system, as well as improving the quality of risk management in various corporate actions, either in relation to investment or operational activities.

BUMI has established a complete structure to support the implementation of GCG. But without earnest support from all employees, it will be rendered useless. Therefore BUMI encourages the management and all employees to adhere to good business ethics in every activity of the company. We believe that all this will increase the confidence of all stakeholders to the company, and will really help the Company in the face of the challenges faced today and in the future.

Over the years, BUMI has demonstrated its high commitment in upholding the basic principles of good corporate governance, namely transparency, accountability, responsibility, independence and fairness.

 

Human Resources

In seeking to improve its human resources, BUMI has completed several improvement programs related to IT applications, and Occupational Health, Safety and Environmental (K3). BUMI has developed an HR information system to facilitate the administrative management, to oversee, and to report HR-related activities.

Supported by a system that has been tailored to the needs, BUMI and its subsidiaries strive to contribute to the realization of optimal operational efficiency. BUMI also fully supports the efforts of achieving targets through the development and improvement of management systems, and through implementation of programs designed to ensure the achievement of our long-term goals.

 

Change in BOD Composition

There was no change in the composition of the Board of Directors in 2104. All the current members of the Board of Directors is committed to continue our hard work through various business improvement efforts.

 

Business Prospect in 2015

Upon seeing the development of economic, social and the political world today, we expect that in 2015 the global economy will not be fully recovered yet and will still be filled with uncertainty. China has showed a downward trend in its macro-economic indicators, while the United States (US) and India showed the opposite. These circumstances have driven the observers to be more cautious in expressing predictions and forecast.

Nevertheless, we are optimistic that our economy is solid enough to grow in the midst of uncertainty. Analysts expect Indonesia’s economic growth rate to stand at 5.5 to 5.8%.

Currently, the Indonesian government has initiated the 35,000 MW power plant project in accordance with the National Medium Term Development Plan 2015 - 2019. The mine mouth power plant that uses coal fuel is one option that is taken into account by the Government. We are confident that with this plan the domestic coal market may increase significantly.

Quoting a statement from Moody’s research, coal prices are expected to remain weak in 2015. In addition to the lack of demand from China as a major importer of coal, also due to excess supply of coal coming from Indonesia and Australia.

 

Closing

Finally, please allow me on behalf of my fellow Directors to express my sincere gratitude to all shareholders, the Board of Commissioners, employees, contractors and partners for their support and contribution in charting the course of the Company. This has enabled BUMI to manage major challenges and problems in a structured manner.

These make us more confident that later when the prices of coal rebound, BUMI is ready to best seize opportunities. With the cooperation of all parties, BUMI will continue to move forward and strengthen its position in the coal sector as a leader and establish its presence in the mineral and metals sector.

 

On behalf of Directors

PT Bumi Resources, Tbk

 

Saptari Hoedaja

President Director

 

 
© 2017 PT. Bumi Resources Tbk.