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Edited Transcript of BUMI.JK earnings conference call or presentation 5-Nov-19 10:00am GMT

Q3 2019 Bumi Resources Tbk PT Earnings Call

Jakarta Nov 19, 2019 (Thomson StreetEvents) -- Edited Transcript of Bumi Resources Tbk PT earnings conference call or presentation Tuesday, November 5, 2019 at 10:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Andrew Christopher Beckham

PT Bumi Resources Tbk - CFO & Director

* Dileep Srivastava

PT Bumi Resources Tbk - Corporate Secretary & Independent Director

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Conference Call Participants

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* Alex Radu;Goldman Sachs;Analyst

* Jason Zhu;Deutsche Bank;Analyst

* Oon Jin Chng;HPS;Analyst

* Soo Chong Lim

JP Morgan Chase & Co, Research Division - Analyst

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Presentation

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Operator [1]

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Good day, everybody, and welcome to the Bumi Resources 3Q '19 Conference Call hosted by Soo Chong Lim. My name is George, and I'm your event manager. (Operator Instructions) I would like to advise all parties this call is being recorded for replay purposes. I'd now like to hand over to Soo Chong. Please go ahead.

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Soo Chong Lim, JP Morgan Chase & Co, Research Division - Analyst [2]

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Yes, good morning and good afternoon, everyone. Thanks for joining the Bumi Resources Third Quarter '19 Results briefing by management for both equity and equity investor.

Today we have the President Andrew Beckham, the CFO; and also Dileep Srivastava, the Company's Secretary, to provide us an update on the results and also probably give an update on the concession renewal and also the ongoing consensus conceptualization for the changes to the bond covenant and also probably some guidance on the cash flow going forward.

I think just as a -- maybe a housekeeping, I think we're going to start with the Q&A result -- result briefing before followed by Q&A. (Operator Instructions)

I think before further delay, let me hand over the forum to Andrew. Andrew, over to you.

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Andrew Christopher Beckham, PT Bumi Resources Tbk - CFO & Director [3]

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Thank you, Soo Chong. As usual, for those who don't know, we'll go through the company presentation that's on our website and has been distributed to as many as possible people. We'll start -- and actually, with the 9-month update, Slide 3.

As we said, prices have fallen over the first 9 months from $89 in January to below $70 in September. As we all know, the China and Australian trade dispute is weighing on the markets. The trade dispute has depressed global markets and gets -- especially for the high-grade coal prices. Also competition from LNG now and increased supply from Russia, increased coal supplies in Russia has also contributed and kept prices in the third quarter low. Arutmin is on course for about 5.3 million tonnes of high-grade coal in our plan this year. Q1 and Q2 are there. Q3 was 1.2 million tonnes, and we expect to get to 2.5 million, which is pretty much where we want to be on a going-forward basis in Q4.

Naturally, there'll be a bit of weather effect going forward, but that's the sort of target we have. In addition, on the CCoW New, Arutmin has submitted an application for a New IUPK extension on the 25th of October, that with the agreement with the government. It seems to be now that the government is moving forward on all this and getting things done. We hope that means that it's positive.

At the moment, I can't really guide on does it mean we get it quicker or slower, but it at least means that they're focused and the Ministry of Mines are focused on getting these extensions done. I note that Fitch came out with a report today or yesterday regarding the actual mentioning about the extensions and that they were, for Adaro and Indika, they were very confident of getting these extensions. So I think on general terms, things are moving forward better now, now that the government is all settled in, and we hope to have some good news by the first quarter.

KPC sales and production are on plan as we've talked before. On Slide 4, I'd just like to highlight that, I mean we might not have any color, but the GC NEW curve, which is the top one, if you look at it from mid-2018, it was over $120 a tonne and has dropped to around now $66, $67 a tonne over the last 12, 18 months. So we've had quite a significant fall. I think we talked about -- we can talk further on trade and the dispute and a bit more supply coming out of Russia.

If you look at the next slide, Slide 5, you see that for the next year, most -- the forward curve is looking at between $74 and $76. I've seen a couple of bank forecasts also guiding on about $75, $76, and pretty much that's where we're running our numbers at the moment for our KPC and Arutmin. On Slide 6, we've updated the guidance. We're still maintaining our production levels at between 87 million and 90 million tonnes. Also on prices, we've dropped it down now to $52 to $54, simply because the fourth quarter looks like a very similar quarter to the third quarter. There doesn't seem to be any -- although you get the forward curve moving up, it doesn't -- every time you get to the actual month, it seems to have dropped down to below $70, between $65 and $67 for our coal.

So from that point of view, we've dropped down the level. I mean, November is the last pretty -- month really before all the indexes are locked in for the third quarter. So we think a realistic is $52 to $54 a tonne. Costs remain between $34 and $36, that we [have been] maintaining, and we don't see any changes to that for the rest of the year. So what does that mean? That means free cash flow will come down. We're looking at about $150 million to $180 million with -- if things don't improve, we'll hit about $150 with a similar sort of cash payment as we did in the third quarter. So around the $40 million mark. Yes. That would be the sort of -- what does that mean for repayments? If we assume the $75 for next year, we still believe that April 2021, we can get A repaid and assuming prices do recover, then Tranche B can be repaid in December 2022. Naturally, that would have to be with prices and recovery.

On Slide 7, Bumi operation highlights. If you look at KPC, prices have gone from $59 to $55 in the third quarter, about $4 drop, which is equivalent to about a $62 million of revenue loss. Simple as that. I -- we do move quite significantly with prices. Inventory, you know has gone up to about 3.8 million tonnes, but we expect that to be sold in the fourth quarter as sales probably will increase by about 1.1 million to 1.5 million tonnes above current levels.

This is a -- I'll come onto that in a few slides later. At Arutmin, prices have been a bit more stable, one, because of low coal prices, but also because the high-grade coal. There's a bit of high-grade coal sales in there, which has helped.

But if you notice, the stock has increased from 0.8 to 1.4. Again, this should be sold in the fourth quarter. We've already seen that in October, stock levels falling again. With sales probably 1.5 million to 2 million tonnes at least above third quarter with 1 -- an extra 1.3 million tonnes of high-grade and 0.6 million tonnes of additional low grade. So that shows realized prices are down to about $51, [51 4] and that's probably where we're guiding for the fourth quarter as well, unless things start to change. Naturally, any macro changes to the discussions between Trump and Xi will help, but we're running out of time for the fourth quarter. Moving on to Slide 8, on the overburden in coal mines. Coal mine was affected by the delay in Arutmin sales, so slightly down on high-grade coal, overburden removal has increased as KPC produces more and has higher-grade coal sales. Slide 9 shows the coal sales, KPC sales have benefited as Bengalon has now increased production. That's the Darma Henwa area in KPC, and that's getting back to almost planned production levels after a poor start to the year.

Stripping ratios remain stable, and hence our costs are pretty stable as well, and we see this continuing into next year. Slide 10 shows our production cash cost, which is slightly up, in line with our guidance due to the high-grade coal sales. And of course, fuel prices over the last 3 quarters have slightly increased. FOB prices is the key reduction, reduced a lot this year, especially for KPC because of the high grade, the effect on the high-grade coal.

Our third quarter, if we go on to Slide 11, our third quarter was helped because of PLN receivables being under control. We're now getting them down below the 90 days, but more work is trying to be done on this. I mean you see actual receivables are down. Total receivables are also down. But I expect that to go back up in the fourth quarter in terms of total. So it's critical that we keep under that 90 days at least and [yet] not try and get down towards 60 days. We'll keep this updated and let you know the actual days where we are. Do realize that on Arutmin, although the receivable from PLN is down, the total trade receivables were up by about $14 million in terms of outstanding because of sales, a lot of sales in the September quarter -- in the September month. I think we had about quite a bit of sales in that last month -- last month of the quarter. We should see some benefit coming through in the fourth quarter.

On Slide 12, as stated prices were down for high-grade coal products, but slightly up for our 4,200 GAR and CV coal and below products. So that's the sort of trend at the moment. The low-grade is affected by the ability to supply from Indonesia. And as it gets a bit tighter and a bit more -- the rain season comes in, certain producers come out. So that's what's affecting the low-grade coal price. The high-grade is naturally being based off the Australia-China dispute and the trade talks.

Bumi's production cash costs -- Arutmin's cash cost, sorry -- remained low due to Q1 -- due to the low costs in Q1; Q2 and Q3 saw costs rising to about $28 and $29 per tonne, respectively, as the high-grade coal sales come on. By this fourth quarter, we should be back up above the $30 and maybe even to $32, $33.

KPC costs remain stable and only fluctuate due to the oil price or any sort of timing on quarter-on-quarter. So where you produce a lot -- you move a lot more overburden, just the timing between quarter, it may affect it, but we should be pretty steady now at the moment. Slide 14 just gives a bit more detail with the cost of BCM. And the costs over the last 12 months have slightly increased due to the higher fuel costs and high-grade coal in Arutmin. If you see Slide 15, you can see the fuel costs have increased from $0.64 in January to $0.73 per liter in September. But over the last quarter, it's been pretty steady. Naturally, as I guided before, the effect of a $10 increase in the cost per barrel will have about $1 per tonne effect on the coal -- on our costs during the medium to long term.

Slide 16 gives you the financial results, which were down a bit. On Slide 16, the 9 months, the gross profit and operating income is up. That is because it excludes the KPC numbers. This is only Arutmin that we consolidate. KPC, you see it shown as a separate line equity income. So that's why you get that sort of change.

On the balance sheet side, assets fell -- asset values fell due to the sale of Dairi last year. If we look in Slide 17, you can see on a consolidated basis, and that shows you where, with KPC involved in, you can see that in the effect of the lower prices have affected KPC substantially because of the higher-grade coals it has. And this shows the effect of that price fall.

Slide 18 simply gives you the Q3 numbers on a consolidated basis, just so you can see how it's performing quarter-on-quarter. And Slide 19 gives you the comparison between what consolidated numbers look like and what current reporting standards allow us to show. Ultimately, the net income stays the same, but that the above line numbers change. Slide 20 is just a summary of what we've talked about, with revenue down due to the price fall that we've seen over the last 9 to 12 months. And the cost slightly up due to the higher-grade coal coming in on Arutmin and the fuel prices.

On Slide 21, we've got the equity over from December of last year has increased due to the net profit, an increase. And the last 12 months EBITDA, though, has come down quite substantially as the lower prices have come in. 22 -- Slide 22 just gives you that quarter-on-quarter EBITDA to show you the effect. And you can see although we've had high-grade coal out of -- starting in Arutmin, and we hope in fourth quarter, it's because of these prices that we're struggling to get enough cash coming up from KPC. And hopefully, from Arutmin by at least the third quarter, if not earlier.

On Slide 23, the cash balance. The main reason for the $59 million December down to September is mostly on timing. And the debt level, as we can see, has not really changed much because of the fact that we are -- well, it's because we've capitalized the interest on the other parts of the debt. We are actively discussing ideas on refi. We're talking about debt here. We believe there is a number of solutions and opportunities to get something done. However, until we see a very clear guidance and clear that the extension will be done, we can't really move that forward.

Discussion can be had, ideas can be given. But until we get that certainty, we don't really want to make any commitment or to give any -- to put anything down on paper that we can agree. We will naturally keep you updated on that. Slide 24 just gives you the debt by tranches in CVR and the OWK, which is the MCB or the Indonesian version of the MCB. And as we've talked about, it's slightly up. It comes down in October with the payment of $23 million. But we're naturally looking at ways to get that -- get this refinancing done as soon as we can, but we are subject waiting on the government and the process for the extension.

I don't intend to go through Slide 25 and to 32, they're KBC Arutmin individual numbers. By all means, if you have questions later, please give me a -- please ask them, but I'm not going to go into details because I think I'll be repeating myself again. On Slide 33, we have one of the lawyers on the phone with us, [Tahira]. And just to give you an update because there's been a lot of concern about the consent solicitation that we've requested.

As someone pointed out, the timing of it was probably not the best timing as prices are coming down. Cash -- less cash is being repaid on debt. And now we're wanting you to sign consent solicitations. But unfortunately, it's actually what's been forced on us by the government or by the new regulations. The government of Indonesia required exports -- to be clear, government of Indonesia required exporters to put money back onshore since 2012. And that's been the case always. The new regulations that came out in January 2019 for mining and plantations and forestry and fishery sectors means that now we must pay that into special bank accounts. And I think it's more that the Bank of Indonesia will record those bank accounts, so that they know actually what the total amount of money coming in, in a better way, I think.

Then the payments of those can only be made out of these accounts for imports, payables, taxes, debt or dividends supported by supporting documentation. So you can't pay the money out into an escrow or into another -- straight into another account. So that's what's been causing the changes that we're looking at now.

On the CDA, the cash distribution agreement, which controls all the coal mine cash flow, and then impacts on the CAMA, on the cash and account management agreement for the repayment of debt, just simply because what we have to do is remove IndoCoal resources from the documentation. So KPC and Arutmin required a change in practice. They're not material changes to what's already done in the CDA, because it does not affect the timing sequence or the amount of any payment. At the moment, we're in a position where if we do not comply with it, there is an export ban from the -- from the Bank Indonesia will impose and the actual regulation came effective on the 1st of July 2019. We have been in discussions with the Bank Indonesia, in global discussions. And they are aware of the process we're going through. And so there's not an issue as of today. But I think if it's delayed longer than this year, if we cannot get it resolved in this year, we would have a problem. The final slide, and the key point and the point and to carry on, this is not new. We're not bringing new money from offshore onto onshore.

This is all that's been done since 2013 and is in the original amendment to the CDA. The onshore bank is Deutsche Bank, and the trustee is still the Bank of New York and the cash account management agent is still the Bank of New York. So we've got those banks still controlling everything. All the money that comes in still cannot leak out of that, they still have to be only -- they can only go if the Bank of New York instructs the payment, okay? So there's no -- someone was asking whether money could go onshore and then be paid to other things before it came offshore again. That can't be done. It still has to follow the CDA, first off. And then when the money is paid in dividends on the CAMA, that is done still offshore.

The trustee also has a legal opinion, and has Hogan Lovells appointed to opine on this whole process. And they have a legal opinion which will be provided to the trustee, pursuant to the indenture. So if there's any queries, questions or requests for that, let us know. We can get you in contact with not only Bank of New York as the trustee or to our lawyers, if you have more questions on the -- when you get into those details.

And so the regulation is public. It's been there for quite a while, Reuters and Singapore Straits Times, to name but a few, have had these news articles on this information. So we hope people have picked up and been aware of what's going to happen. With that, I think we've covered quite a lot of points. I think it's best, Soo Chong, that we open it up to Q&A, and then we can go from there.

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Questions and Answers

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Soo Chong Lim, JP Morgan Chase & Co, Research Division - Analyst [1]

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Okay. Operator, can we open now to Q&A?

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Operator [2]

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(Operator Instructions)

The first question comes from the line of Jin Chng from HPS.

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Oon Jin Chng;HPS;Analyst, [3]

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Andrew, thank you for the presentation. Thank you for the numbers. Looks like the numbers are pretty good, I think better-than-expected in fact, or better than [forecast]. And also the company made quite good progress in terms of accounts receivable, bringing on a PLN looks like a good use for the cash there. A few questions I have. One is in terms of your EBITDA for Arutmin, I'm surprised that the EBITDA has been coming down quarter-to-quarter despite [a ramp] stable production as well as ramping up of the high grade. That's my first question. Can you explain the trend?

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Andrew Christopher Beckham, PT Bumi Resources Tbk - CFO & Director [4]

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Yes. Simply, the coal prices have dropped so much. I mean May high-grade coal prices were $85, and we were guiding on Arutmin paying cash third, fourth quarters. You can't lose $20. We're now down to $65. We can't lose $20 of [tonne] and still be comfortable. There is -- payables are being paid up, and we hope to clear that all up in the fourth quarter.

If we have a very good quarter, there may be money still available. But at the moment, we're guiding purely just on KPC money coming in by the end of the month, end of the quarter. But [really]...

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Oon Jin Chng;HPS;Analyst, [5]

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Yes, EBITDA, actually more specifically, EBITDA of Arutmin, it's been trending down quite significantly. I just want to know the trend, why is it declining? And is that what we should expect for the fourth quarter?

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Andrew Christopher Beckham, PT Bumi Resources Tbk - CFO & Director [6]

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I just came to the Slide 22, so you've got it -- I've got it in front of me. Yes, because your Q3, you only had about 1 million tonnes of -- you had 1 million tonnes of high-grade coal, but all the prices have dropped to that level. You can't recover from the Q1, Q2, where we had higher coal prices. We had the low-grade coal where if you look at the first quarter realized prices of 38 then 41, now it's coming down still on the -- what [could be] prices falling.

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Oon Jin Chng;HPS;Analyst, [7]

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Understood. My next question is on your guidance. I see that the 9 months, Arutmin's cash cost is $27 per tonne, whereas your guidance is $34 a tonne cash cost for Arutmin. That would suggest that the fourth quarter, your cash cost will be significantly higher than $34. Can you care to elaborate?

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Andrew Christopher Beckham, PT Bumi Resources Tbk - CFO & Director [8]

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Yes. Look, I mean probably the $34 is a bit -- it'll probably be a bit less than that. It'll be more like $31, $32. It's just getting once we get to 2.5 million, 3 million tonnes of high-grade coal production in the quarter, we should be seeing, I mean the cost of the high-grade coal production is trending around $40 to $41 a tonne for my whole high-grade costs.

So you take that blend. And yes, it'll probably be a bit less than $34. But the guidance always has been between $34 and $36 for the overall. So we kept that where it is.

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Oon Jin Chng;HPS;Analyst, [9]

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Okay. Then my last question is just back on the PLN receivables again. And just want to understand the first quarter, there has been very little, in fact 0, cash dividend upstream for Arutmin. And overall, the company only made about $30 million of payment to Tranche A, principal and interest. But I look at your numbers, even Arutmin alone, the 9-month EBITDA, $133 million, net profit is $100 million. You guys had great success in monetizing or collecting on the PLN receivable. I'm trying to understand, where did the cash go? And why is the cash dividend upstream so low for the quarter?

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Andrew Christopher Beckham, PT Bumi Resources Tbk - CFO & Director [10]

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The Arutmin one is clearly -- is purely because we had the backlog liabilities and royalty and tax that we've been trying to clear up, and also the payables, and we haven't done that as quick as we want. There still is payables. You should be getting the Arutmin financial statements if you are a bondholder or a lender. Please let me know if you're not. But those should say clear how much there -- still there is of liabilities. With the higher-grade coal production, we definitely missed in terms of guidance. We were hoping to have first, second quarter production of high-grade coal. That got delayed because of the sales. That's definitely one thing. But the actual payments now as they come in and as the cash comes in from the receivables (technical difficulty) hopefully, as I said, the fourth quarter is very good and prices recover a little bit, we may have funds available, hence why we've guided on $150 to $180, not at $150. But that's all upside. At the moment, we're assuming just from KPC.

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Oon Jin Chng;HPS;Analyst, [11]

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Yes, this is what I don't understand, because it looks like Arutmin, they're performing pretty well, given that your net profits are $100 million. And if there is PLN receivable so far you've drawn down about $100 million of your receivables. [But so for] I think the second quarter KPC was sitting on about $140 million of cash, where [we see what were] the cash level. But [I think this doesn't turn out]... (technical difficulty)

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Andrew Christopher Beckham, PT Bumi Resources Tbk - CFO & Director [12]

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Okay, I can't hear you. The quality -- we can't hear you. You've faded out.

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Oon Jin Chng;HPS;Analyst, [13]

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Sorry, can you hear me now?

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Andrew Christopher Beckham, PT Bumi Resources Tbk - CFO & Director [14]

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Yes.

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Oon Jin Chng;HPS;Analyst, [15]

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Yes. I was saying that I'm seeing Arutmin performing really well, better than expected, and I noted it was [$150] million EBITDA, your PLN receivable is another $100 million reduction, [that means there will] be cash on hand, plus KPC was sitting on $140 million of cash. We haven't seen the cash level for third quarter. But that means about the cash lying around, if you only got [$13] million plus of principal repayment, how [what can be made]. So [paying 31] on principal repayment, I was wondering again how do we reconcile the cash?

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Andrew Christopher Beckham, PT Bumi Resources Tbk - CFO & Director [16]

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Okay. Look, what I'll do, I'll prepare a reconciliation of our cash numbers. So you get a [be aware], a lot of -- when you see the cash balance, you have to look at the restricted cash, a lot of that is for the payment of contractors that's restricted, but still in the KPC accounts. But I'll make sure I prepare a reconciliation of that cash just to show you where it's gone, yes?

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Oon Jin Chng;HPS;Analyst, [17]

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Great. I'll follow up with you on that.

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Operator [18]

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Our next question comes from the line of [Haydee Chu] from [Terhan] Capital.

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Unidentified Analyst, [19]

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I have a few quick questions. On the first one, so for the past few quarters, we've gotten the benefit of reduction in PLN receivables. So now that this is pretty much done, how confident are you of at least sustaining this $30 million per quarter kind of payment? Or do you see more downside from here?

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Andrew Christopher Beckham, PT Bumi Resources Tbk - CFO & Director [20]

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Given where we are with our production numbers now, and we expect in fourth quarter production to increase from third quarter. And so therefore, sales, then I'm quite comfortable of where we see the numbers at the moment.

Hopefully, there's nothing -- as long as prices stay at this sort of level, so they're consistent with the third quarter, then we should see our cash come in.

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Unidentified Analyst, [21]

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And you also mentioned that your expected coal prices is below $75. So in your base case, where do you see Tranche A getting repaid?

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Andrew Christopher Beckham, PT Bumi Resources Tbk - CFO & Director [22]

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No. What I said is that the next year's outlook was -- based on where we've seen from various forecasts, is around $75 a tonne. That's where -- I think I've seen JP Morgan with $75. I've also seen Standard Chartered come out with $75 or $76 for next year. So based on that is where we're seeing that we can still repay A by the -- by April '21.

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Unidentified Analyst, [23]

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Okay. And also, you mentioned earlier, in the event that you do get the [full] -- the [bill] conversion done, you are looking into possible refinancing options. So what would that look like to you? What would management want to achieve out of that?

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Andrew Christopher Beckham, PT Bumi Resources Tbk - CFO & Director [24]

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Yes, just to be clear, we can't do a refi without the extension. The extension, so that everyone on the call is aware, are they finish -- Arutmin's finished on November 2020 and KPC is finished December 2021. So we can't -- without the extensions, we can't ask anyone to refi approximately $1.8 billion, $1.9 billion of debt. So we must get that extension before we refi. With the processes that you have to go through for anyone to refi would require a complicated structure, of course, and there's a number of major holders from China, who would need to go for a full approval process for any refinancing proposal. Therefore, there's no way we can take that to that level and to that sort of proposal until we get clear guidance on the extension.

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Operator [25]

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We do have another question, and that question comes from the line of [Hong Yu Yual] from [Alliance].

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Unidentified Analyst, [26]

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Just now, you mentioned that you have to clear Arutmin [for table], I [would like] some clarification on that. Essentially, how much have you paid down through 2019? And what will be left for -- in terms of payment of -- for whatever is left ?

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Andrew Christopher Beckham, PT Bumi Resources Tbk - CFO & Director [27]

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Yes. Look, I'm guiding on a general, oh, sorry, I've got [you silenced]. Okay. So on the basis of what we see is that the outstanding backlog, we estimate we should be able to clear by the end of the fourth quarter in terms of what Arutmin are guiding to our numbers.

I haven't got in front of me the exact number of what's been repaid in the -- to the 9 months to date in the trade backlog numbers, but I can get you those. We will give you those numbers in the next update by the end of -- in the e-mail by the end of the month, I can update people on that number. But we believe that by then, we should get under control of all our liabilities. Naturally, we have to make sure that the royalty and tax is up-to-date to the very penny, so that there's no danger of the contractor work being delayed any further.

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Unidentified Analyst, [28]

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Okay -- sorry, [unmute]. So for 2020 for next year, so in terms of cash outflow upstream from Arutmin we will -- we could assume that if coal price stays stable and production of the hybrid coal comes up, to expect that cash flow upstream will be much healthier than 2019? As you have mentioned, payables have come down -- will normalize to a very acceptable level in 2019, by end of 2019. Am I right to -- okay.

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Andrew Christopher Beckham, PT Bumi Resources Tbk - CFO & Director [29]

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Yes, yes, that's correct. And our guidance is based on that happening.

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Unidentified Analyst, [30]

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Okay, okay. So can I just have a follow-up email with you to get on the clear number on these payables?

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Andrew Christopher Beckham, PT Bumi Resources Tbk - CFO & Director [31]

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Yes, no problem, no problem.

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Operator [32]

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(Operator Instructions)

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Soo Chong Lim, JP Morgan Chase & Co, Research Division - Analyst [33]

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If -- sorry, if no further questions, can I just quickly ask, if I look your guidance, you are talking about fully repaid A by April 2021. And then the B by December 2022. I mean isn't it a bit ambitious? Because it take you like, 2.5 to 3 years to repay -- 2.5 years at least -- 3.5 years, sorry, 3.5 years to repay the A and now B is you have balloon up to $700 million plus. How do you going to repay the A -- the B in the 1.5 year time? Isn't it a bit ambitious?

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Andrew Christopher Beckham, PT Bumi Resources Tbk - CFO & Director [34]

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If you look at -- all I've done from a guidance point of view and from a forecast now, it all will be subject to our extensions being done. If you take -- if we take a $10 increase, which is what we're guiding, we're really running around a $65 coal price at the moment, although the benchmark said $67, $68, it's about $65 that anyone is accepting.

If you say that next year will be a $75 coal price, it's a $10 increase. If you take off that $10 increase, just purely forget everything else, you say the $10 gives you a royalty of -- you take off royalty of $1.35 or 13.5%, commission of 0.25 for the 2.5%. So you get a margin of about $8.40 before tax. You take off the 45% tax, you're left with $4.62 margin.

Then all I've done is taken 30 million tonnes of equity coal from KPC and 30 million tonnes of equity coal from Arutmin. So our equity coal next year will be around 60 million tonnes. When you take that times the $4.62, it gives us an additional cash of $277 million, okay? That $277 million plus the $150 million we've guided on, gives you about $427 million. That's the simple way I've done it at the moment. I haven't -- there is -- I will quite happily say if there's a sudden surprise or shock or backlog or something, then that's always going to have the effect or the change.

And naturally, if the $75 doesn't come in until halfway through the year, it can have an effect. But that's our -- what we based our plan on. And that's all we can do at the moment. We don't see why Arutmin should be putting -- especially if prices increased by $10, that additional cash should be available to us.

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Dileep Srivastava, PT Bumi Resources Tbk - Corporate Secretary & Independent Director [35]

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But Soo Chong, talking from a strategic perspective for next year and our expectations from next year, I think the point to be highlighted is that we expect a 10% sales volume increase in 2019. The costs, as Andy has said, are relatively flat at $33, $34. In terms of margins, we feel that higher volume can also contribute in some way to more cash coming in.

And as Arutmin pursues more high-ranked coal, hopefully at higher prices, we should be hopeful of expecting a dividend into Bumi Holding. Now when we look at 2020, we have not finalized our budget as yet. But it would be reasonable to expect that over the 10% increase this year, we could be looking at a number which is 3% to 5% higher next year. Now coal prices are currently in contango. People are talking prices up and even the HBA price today which has been declared is actually 4% or 5% higher than last month. And the forecasts are, as Andy has said, $75, and we think that the band would be between the range of $70 and $80. Now there are 2 market developments to take into account.

The first is that China has imported 10% more than last year. And the second one is that India has had major floods in August and September, and Coal India cannot produce what India needs. So the expectation from India is that there could be a 20% to 25% rise in their coal imports. And as far as Bumi is concerned, quite apart from TATA and Adani, the 2 largest customers, we are also approaching coastal power plants for medium-term contracts. And in many ways, this has been successful.

So next year, we'd be looking at 3% to 5% higher volume. We would be looking at a prospect of inching back to 2018 price levels, with a richer mix. So I would think that with the prospects of Arutmin dividends looking brighter for next year, our ability to be able to generate cash and to pay more than what we have been doing is probably quite high.

Now that's the point that we want to make.

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Soo Chong Lim, JP Morgan Chase & Co, Research Division - Analyst [36]

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Okay. Operator, any more questions on the line?

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Operator [37]

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We do have one more question from Jason Zhu from Deutsche Bank.

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Jason Zhu;Deutsche Bank;Analyst, [38]

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So I have a very quick 2 questions. So for Arutmin I see that the coal mine is like 6.2 plus. Can you guidance me, so previously, you mentioned the high-CV coal has basically found a 100% benchmark. But if you really break down, I think this time, actually the low CV coal is highly -- selling much, much higher as a percentage of benchmark. Previously, it was like 40%. But this time it's -- what's the percentage of the benchmark price?

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Andrew Christopher Beckham, PT Bumi Resources Tbk - CFO & Director [39]

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I don't have it in front of me, but that's because what we've said on the benchmark, low CV coal is falling between -- around the $38 to $36 to $38 mark. What's happened in -- but what you see in Q2 was a complete collapse in prices, right, in [complex]. May down to June, July, things collapsed and then prices started to recover from August, September back to better on the low-grade coal. But that margin, you can't -- it's very hard to guide on that price and the discount to the benchmark, because it depends so much on demand and supply factors.

So not only the international demand, but the supply out of Indonesia. If the supply out of Indonesia is a lot in the current -- in the month, and you get a lot of coal coming on and PLNs don't use so much of that coal, then they try to [supply] the export market.

And vice versa, you get heavy rains, suddenly PLN wants to demand a lot more and suddenly your international price tightens because there's no supply. So it's hard to -- on quarter-on-quarter to give you a guidance.

As I said before, the best [thing] is to look at about a $37, $38 coal price at the moment, while PLN has this sort of cap and anything above that is upside for us.

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Jason Zhu;Deutsche Bank;Analyst, [40]

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Understood, understood. So it looks like it improved from 40% to almost 50% or 50-above percent. So another question is I'm trying to understand is the holdco EBITDA. The Bumi itself also reported previously [4 million] it was a big -- can you remind me again, so what's the biggest EBITDA generated in the first Q, like a $29 million? So what is that? And what do you think about the next several quarters as far 4Q, do you think it's like USD 20 million to USD 30 million? So what do you think in the next several quarters, what's the EBITDA at the Bumi level, holdco level?

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Andrew Christopher Beckham, PT Bumi Resources Tbk - CFO & Director [41]

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Of that 4Q gain, you mean?

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Jason Zhu;Deutsche Bank;Analyst, [42]

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Yes.

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Andrew Christopher Beckham, PT Bumi Resources Tbk - CFO & Director [43]

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Yes, that's just the one [outstanding] on the Arutmin?

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Dileep Srivastava, PT Bumi Resources Tbk - Corporate Secretary & Independent Director [44]

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Yes, the [RLX] price would be [gaining].

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Andrew Christopher Beckham, PT Bumi Resources Tbk - CFO & Director [45]

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So yes, at Bumi, that would be the one-off gain on the exploration assets when we settled with [PLR] with the whole settlement. That's a one-off gain. You won't get that again. You won't normally see a gain at Bumi level on the earnings. And bear in mind, we do this EBITDA based on the definition as per the debt document. It's not strictly an accounting thing because you have to watch for one-off incomes of funds from tax refunds or tax penalty one-offs that would affect it in a normal EBITDA. So from that point of view, yes, the Bumi is a one-off thing that happened back then. I don't expect that to happen again, and I'm not aware of anything that we're planning to do.

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Jason Zhu;Deutsche Bank;Analyst, [46]

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Understood. So it will continue to be like a minus $4 million every quarter?

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Andrew Christopher Beckham, PT Bumi Resources Tbk - CFO & Director [47]

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Yes. That's a safe assumption.

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Operator [48]

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We do have another question from the line of Alex Radu from Goldman Sachs.

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Alex Radu;Goldman Sachs;Analyst, [49]

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A quick question, I must have missing. For Tranche B, when you have seen the paydown for December 2022. Can I clarify the assumed Newcastle price for the business plan for that paydown? Your -- the graph where you show your forward on Slide 5 only goes out to 2021.

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Andrew Christopher Beckham, PT Bumi Resources Tbk - CFO & Director [50]

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Yes, I know. We'll probably be up to around $85, back to the earlier this year prices. So we'll be back to $85 by 2021 on our plan.

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Alex Radu;Goldman Sachs;Analyst, [51]

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Okay. So throughout 2022, you need the coal -- Newcastle coal to be $85 for Tranche B to be paid down by December 2022?

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Andrew Christopher Beckham, PT Bumi Resources Tbk - CFO & Director [52]

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No, I'm -- just on my example of what I was doing with the extra $10, on $65 to $75 and then $75 to $85. That gives you more than enough cash to clear A, B and the CVR. We won't guide -- that's just a illustration. We can't guide out that far in terms of total cash and total forecast because it will depend on when the contract -- the contract that work extension, the terms of that [aren't yet] known. And then also how our production increases and the cost per tonne increases. But what I've used for my guidance is that $75 in 2020 and $85 in '21 and '22 and the $85 is coming back to earlier this year number.

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Alex Radu;Goldman Sachs;Analyst, [53]

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Got it. Got it. So that's, I guess, call it, is $5 more than the curve for '21, right? Because the curve ends in '21 at $80.

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Andrew Christopher Beckham, PT Bumi Resources Tbk - CFO & Director [54]

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That's right.

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Soo Chong Lim, JP Morgan Chase & Co, Research Division - Analyst [55]

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If there are no more questions, thank you Achmad -- oh, sorry.

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Operator [56]

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I was saying we have no more questions at this time.

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Soo Chong Lim, JP Morgan Chase & Co, Research Division - Analyst [57]

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Okay. Thanks, everyone, for dialing to the call. And thanks, Andrew and Dileep.

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Andrew Christopher Beckham, PT Bumi Resources Tbk - CFO & Director [58]

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Thank you, everyone.

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Dileep Srivastava, PT Bumi Resources Tbk - Corporate Secretary & Independent Director [59]

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Thank you, everybody, thanks.

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Operator [60]

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Thank you. That does conclude today's call. You may now disconnect. Thank you for joining, and have a good day.