Banpu eyes welcoming foreigners to board in light of international status

 "It's time to welcome foreigners to the board, as we keep expanding our business outside of Thailand," Chanin Vongkusolkit, a founder of the group and its current chief executive, said during a visit to a mine in Indonesia. "Foreign professionals will provide us new perspectives. This is in line with our vision [to become an international Asian energy firm] and should ensure business sustainability."

 Foreign professionals will be appointed to replace directors who retire at the age of 72.

 Banpu has already welcomed a number of foreign executives into its 6,000-strong workforce. Aside from the Australian management team attached with the acquisition of Centennial Coal, some Americans, Britons and Australians are stationed at its operation bases overseas. Of its total workforce, 3,000 are in Indonesia. About 200 now work at the headquarters in Bangkok.

 Chanin believes overseas business will be the key to Banpu's growth as the group refocuses on the coal business. At present, coal generates nearly 90 per cent of the group's revenue, while other pursuits including power generation make up the balance.

 Indonesia now generates more than half of the group's revenue. Of total sale revenues of Bt65 billion in 2010, Bt61.68 billion or 94.48 per cent was generated overseas.

 Banpu on Monday announced the 100-per-cent acquisition of Hunnu Coal in Mongolia, after the purchase in March of a 12-per-cent stake.

 After the investment in Centennial Coal worth more than US$2 billion (Bt 60 billion), "we have about $800 million left for new investment", Chanin said before the Hunnu Coal deal was announced.

 More acquisitions are being planned, with mines targeted in the vicinity of existing properties in Indonesia, where it has operated business since 1991, as well as in Australia and China to make full use of logistics already in place. Africa is also in the picture, after studying that possibility for three or four years. Major concerns on that continent relate to political stability.

 Chanin said that for economy of scale, targeted mines should be valued at more than $100 million each.

 According to its five-year investment plan ending in 2015, business in Indonesia and Australia will equally generate 30-35 per cent for the group, China and Mongolia 20 per cent, and Thailand as well as projects in Laos 10 per cent.

 While investment of more than $1.3 billion is earmarked to expand its coal capacity, 2 per cent of assets or nearly Bt4 billion will be allocated for alternative energy - mostly ethanol and biodiesel. Half of the overall investment will go to Indonesia, which is expected to produce 25 million tonnes of coal this year and 27.6 million in 2012.

 "Indeed, we don't focus on volume, but more on licences and environmental and regulatory compliance," Chanin said.

 As part of its commitment, Banpu has budgeted $1.1 million for corporate social responsibility projects for 13 villages in East Kalimantan near Indominco, the largest mine in Indonesia, where it hopes to buy more land from villagers for expansion.

 Banpu is also exploring for better-quality coal, such as coking coal - with lower sulphur and phosphorus - for the steel industry, which offers higher value. Producing a higher volume of coal with higher heating value would ensure higher margins. Output from Indonesia produces average heating value of 6,300 kilocalories per kilogram.

 Chanin says Banpu's pursuit of more acquisitions, capacity expansion and added-value products is designed to ensure that enterprise value - which is measured by market capitalisation plus debt, minority interest and preferred shares minus total cash and cash equivalents - during the five years of the current business plan will grow 13 per cent on average.

 If there were anything that to affect the goal, it would be regulations and price. To Chanin, these are the two most important risks that the coal-mining business is facing, but he is optimistic that the pressure on Banpu's operations will remain low.

 Indonesia in 2014 plans to ban the export of coal with heating value below 5,300kcal/kg, for example. Though this will affect coal from the Jorong mine in South Kalimantan, Banpu can cope by blending the small output from Jorong with coal with heating value above 7,000kcal/ kg from other mines.

 Meanwhile, pricing is dictated by global demand and supply. Despite global uncertainties, demand from Asia remains high and this should support coal prices in the years to come, Chanin said.

 Though it is the ninth-largest miner in the Asia-Pacific region, with combined annual production of 44 million tonnes, Banpu should face little threat from newcomers, Chanin said.

 "In this industry, time is a major barrier to entry. Look at us, we were in Indonesia in the early 1990s, only to start production in 1998, and not until 2002 did we start making profits."

 He considers that environmental risks are a matter of long-term management, and the risks can be contained by standardised technology, as Banpu is doing in its operations to ensure sustainable development.

 "That explains why Banpu wants to be the majority owner of all interests, so that we can apply a single standard throughout our supply chain," Chanin said.

Key business milestones

1983 - Established as Banpu Coal

1989 - Listed on Stock Exchange of Thailand

1991 - Exploration on Sumatra island

2002 - Consolidation of all Indonesian coal assets

2003 - Expansion into China

2009 - Joint venture for Hongsa project in Laos

2010 - Acquisition of Australia's Centennial Coal

2011 - Acquisition of Mongolia's Hunnu Coal