Thailand's Banpu to Invest $466 Million in Coal Mine Projects in China, Indonesia and Laos

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Researched by Industrial Info Resources (Sugar Land, Texas)--Banpu Public Company Limited (BAK:BANPU) (Banpu) (Bangkok, Thailand), Thailand's largest coal mining company, has announced plans to invest $466 million on existing projects in China, Indonesia and Laos during a period of six years. Chanin Vongkusolkit, the chief executive of Banpu, said the company will focus largely on its coal business and not on its power business. Further, it intends to reduce its presence in the power sector and focus only on those power projects that are likely to boost the company's coal business. The investment plans are part of Banpu's spending plans for the period between 2010 and 2015.

About $189 million of the investment will be earmarked for the company's coal mining projects in Indonesia, $22 million for projects in China, and the remaining $255 million for the Hongsa Lignite power plant project being set up at the Hongsa Valley in Laos. Banpu has a 40% stake in the 1,878-MW Hongsa Mine Mouth Power Project, which is jointly owned by subsidiary Banpu Power Limited Company (BPLC) (Bangkok); Ratchaburi Electricity Generating Holding Public Company Limited (SET:RATCH) (Bangkok), which has a 40% stake; and the state-owned Lao Holding State Enterprise (LHSE) (Vientiane Capital, Laos), which has a 20% stake. The project has been estimated at $400 million, and the power plant is scheduled to be completed in 2015. It then will begin supplying electricity to the state-owned Electricity Generating Authority of Thailand (EGAT) (Bangkok).

Banpu intends to fund the proposed investments through bond issues and bank loans. The company's debt-to-equity ratio is at 1:1, which implies that Banpu can borrow up to $1.2 billion more than its existing liability of about $301 million.

With the implementation of the investment plans, the company hopes to increase its total coal production from China and Indonesia to 33.5 million tons per year, an increase of more than 43% from the existing production rate of 23.3 million tons per year. Banpu owns three coal mines in China and five in Indonesia, where it is the fourth-largest coal mining company. The company's coal reserves were reported as 581.4 million tons at the end of September 2009. The number is 1.1% lower than that reported in the previous quarter. Since the average coal price is expected to fall in 2010, Chanin said that the company's revenue is likely to grow by less than 10% next year. Banpu's projected revenue for the current year is $1.71 billion. Sales volumes would no doubt increase, but the company expects to be selling lower grades of coal next year, which would affect the revenue generated. The maintenance shutdown of BLCP Power's 1,434-MW coal-fired power plant at the Map Ta Phut Industrial Estate is also likely to affect the revenue generated by the company. Banpu has a 50% stake in the BLCP project, which was originally a 50:50 joint venture between Banpu and CLP Power Hong Kong Limited (OTC:HGKGY) (Hong Kong). CLP Power later sold its stake to integrated power company Electricity Generating Public Company Limited (BAK:EGCO) (EGCO) (Bangkok).

Banpu is also exploring the possibility of acquiring new assets in Australia and additional coal assets in Indonesia. According to Chanin, the company's cash flow and assets are worth about $1.5 billion. Based on the value of the company's assets and its debt-to-equity ratio, Chanin is quite confident that the company will be able to obtain help from financial institutions should it decide to acquire a new business or if it wins any bid. The company is awaiting the results of a bid to acquire the Berau coal mines of Indonesia, which have the capacity to produce 15 million tons per year of coal.

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