Cokal Partners with Petrosea to Enhance Coal Production at BBM Mine
COKAL LIMITED (CKA) Share Update July 2024 Wednesday 31st
Cokal Signs Agreement with Petrosea to Boost Coal Production
Cokal Limited (ASX: CKA) has announced a significant partnership with PT Petrosea Tbk to increase production at its Bumi Barito Mineral (BBM) metallurgical coal mine in Indonesia.
Instant Summary:
- Cokal signs a binding term-sheet with PT Petrosea Tbk.
- Partnership aims to ramp up production at BBM mine.
- Petrosea to provide contractor and vendor management services.
- Expected reduction in production costs per tonne.
- Petrosea to become lead mining contractor from 2025.
- Agreement conditional on formal documentation and regulatory approvals.
Partnership Details
Cokal Limited (ASX: CKA), through its 60% owned subsidiary PT Bumi Barito Mineral, has entered into a binding term-sheet with PT Petrosea Tbk, a prominent Indonesian mining services company. This partnership aims to ramp up production at Cokal's BBM metallurgical coal mine. Petrosea will assist in managing contractors and vendors, ensuring efficient and sustainable coal production.
The term-sheet outlines that Petrosea will support Cokal in managing current contractors to enhance production efficiency. This includes extending payment terms for mine service providers by an additional 120 days, allowing Cokal to increase spending on production-related costs such as mine contractors, fuel, and blasting.
Cost Reduction and Efficiency
One of the key benefits of this partnership is the anticipated reduction in production costs per tonne. Petrosea, leveraging its status in the Indonesian mining sector, will help Cokal select mine service providers and optimize the terms of agreements with these providers. This strategic move is expected to lower overall production costs and improve operational efficiency.
Additionally, Petrosea will be appointed as the lead mining contractor at BBM starting from 2025, subject to agreement on commercial terms. The term-sheet is initially for one year and can be extended with mutual agreement.
Key Terms and Conditions
The agreement includes several key terms and conditions:
- Contractor and vendor management services by Petrosea.
- Payment to Petrosea within 120 days after support is provided.
- Monthly fee of US$75,000 to Petrosea for services.
- Company guarantee from Cokal-BBM Pte Ltd for payment obligations.
- Establishment of an escrow account for payments from BBM coal sales.
- Authorization for Petrosea to mine coal as payment for any defaults.
The agreement is conditional on the negotiation and execution of formal transaction documentation and obtaining customary internal and regulatory approvals.
About Petrosea
Petrosea is a well-established Indonesian contract mining, engineering, procurement, construction, and oil & gas services company. Listed on the Indonesian Stock Exchange since 1990, Petrosea has annual revenues of US$578 million (2023) and employs over 5,000 staff. The company is controlled by PT Kreasi Jasa Persada, wholly-owned by PT Petrindo Jaya Kreasi Tbk.
Chairman Domenic Martino emphasized the importance of this partnership, stating that it completes one of the three pillars needed to transition Cokal into a high-volume metallurgical coal production company. The other two pillars involve developing logistics and acquiring new self-propelled barges to enhance transportation capacity.
Martino expressed confidence in the team's ability to secure the support and commitment of Petrosea and Petrindo, marking a significant milestone in Cokal's journey towards becoming a profitable coal production and logistics company.
This partnership is expected to have a positive impact on Cokal's stock as it addresses capital constraints and improves production efficiency. The reduction in production costs per tonne and the extension of payment terms for service providers will likely enhance profitability. Investors may view this as a strategic move to strengthen Cokal's position in the metallurgical coal market.
Investor Reaction:
Analysts are likely to react positively to this announcement, considering the potential for increased production and reduced costs. The involvement of a reputable company like Petrosea adds credibility and confidence in Cokal's ability to achieve its production targets. However, the agreement's conditional nature and the need for regulatory approvals may temper some enthusiasm.
Conclusion:
Investors should closely monitor the progress of this partnership and the formalization of the agreement. The successful implementation of this term-sheet with Petrosea could significantly enhance Cokal's production capabilities and profitability. Staying informed on further developments will be crucial for making informed investment decisions.