Coal Business

Company’s core business is in the coal production and distribution domestically and overseas, having coal mine projects located in Indonesia as its base for coal production and distribution activities. In addition, the Company has ocean freight transport service business in Singapore to effectively support and manage coal transport for distribution in the Country or delivery to other countries.

Coal Characteristics
Coal is a fossil fuel, consisting of volatile matter, inherent moisture and important combustible mixture of carbon. After combustion with the volatile matter and inherent moisture driven out, small portion of coal ash remains. Coal is found in various forms or grades based on the contents of heating or calorific value, volatile matter and fixed carbon, representing in descending order of quality in 4 groups from (1) anthracite, (2) bituminous, (3) sub-bituminous, and (4) lignite. The indigenous coal deposits in that have been explored and extensively developed for local industries in Thailand are generally of lignite grade. Imported coal is mostly of bituminous grade which contains higher calorific value than lignite coal produced in Thailand.

The price of coal is usually determined based on the quality of coal, consisting of calorific value, moisture, volatile matter, fixed carbon, ash, sulfur and size.

Coal Production
Coal is formed in several stages from plant remains that have been compacted, hardened, chemically altered and metamorphosed by heat and pressure over millions of years. Therefore, in order to develop a coal mine, coal exploration works are required for the collection and interpretation of geological data in order to learn about the thickness of coal seams, boundary areas of the coal resource, chemical content and quality, and economic reserve estimation. The development of coal deposit is generally based on the information and data obtained from these exploration programs. Accordingly, the production of coal consists of following three major steps:

  1. Coal Exploration: The exploration program begins with the preliminary collection and analysis of the land surface and geological data at the target areas. Subsequently, fieldwork includes scout drilling to study the formation and type of soil and rock, and geological structure of the target areas to ascertain that there exists the coal deposit with further assessment of coal quality and reserve estimation for economic analysis to facilitate a decision for further development of the coal mine.
  2. Coal Mining: Before proceeding with coal mining operation, more detail drilling activities are required to collect and interpret necessary information and data of the mining areas; such as, coal reserves and quality for each of the coal seam formations including soil layers. The collected data and information will be used to determine the mine master plan which includes the analysis of mining costs and mining methods, as well as the quantity and areas for overburden removal and coal winning logistics, and also selection of suitable mining equipment and machinery.
  3. Coal Dressing: In order to attain the quality as required by the users or customers, coal extracted from the coal mining operation need to go through coal dressing process which includes crushing, sizing, sorting and washing to remove any contaminations, etc.

Coal Pricing Policy
Coal pricing is mainly determined by its heating value, similar to other type of fuels. Coal sale price for each customer varies depending on certain factors such as order volume, coal specifications such as calorific value, credit term and other conditions specified by the customer. These factors shall be used to determine the coal price fairly and similarly with all the customers. The price for imported coal is based on the agreement with each customer which can either be priced on FOB or CIF basis, or priced as delivered to the customer’s factory, etc.

Coal Distribution
For coal distribution in the domestic market, the Company directly sells coal directly to customers without going through agent. As for the overseas market, coal are sold directly to the customers or through coal trading agents, mostly on the credit term basis, of which the Company carefully provides credit terms only for the long time customers with stable financial status. For new customers, the Company protects the risk by having a letter of credit (L/C) opened by the customer. Since the start of operation in 1985, the Company has encountered very few bad debts from the sales of coal.

Competitive Strategy
The Company focuses mainly on the service and quality control of the coal products as its marketing strategy rather than relying on pricing strategy. In addition, the Company has continually developed ways to produce high quality coal by bringing in modern technology for continuing improvement of coal production and operation.

The domestic coal distribution business has been recognized as an oligopoly market with only a few numbers of operators, having group of large and small industrial customers with the major competitor is Banpu Public Co., Ltd. Nevertheless, since the Company has its own coal mines with high quality coal and decades of mineable reserves, therefore possesses sufficient competitive advantage and business potential.

Industrial Trend

Coal is the main fuel in electricity generation and can be used as a substitute for almost every kind of fuel depending mainly on the convenience of utilization and demand on heating energy. Additionally, coal reserves are higher than other types of fossil fuel. The trend of coal consumption is still growing as the price of oil and other sources of fuel are still significantly more expensive and experience more price volatility than coal. Nonetheless, coal prices had been declining significantly since year 2011 to the lowest level in early 2016 before recovering during the second half of year 2016 until the coal price climbed up to the highest level in five years in November 2016 and continued to stay at a high level until the middle of 2018 before starting to decline during the second half of 2018 as global economy began to slow down. Additionally, the Indonesian Government policy has become more stringent especially on the Domestic Obligation Market policy, which stipulates higher portion of coal supply to the domestic consumers with lower selling price than that of export. Nevertheless, the average market price of coal in 2018 was still close to the previous year with more fluctuation according to economic condition, seasons and policies of each country. For instance, China’s policy on coal import control and reduction during the second half of 2018 according to slowdown in global economy, while India has demand for coal and increases coal import in line with India’s economic growth, as well as many countries in the Southeast Asia, including Vietnam, Malaysia and Philippines tend to use more imported coal in coal-fired power plants due to the fact that coal has abundant amount of reserves and is less expensive than other types of fuel. Global international organization such as the World Trade Organization (WTO), International Monetary Fund (IMF) and International Energy Agency (IEA) have predicted in the same direction on the future demand of coal that will increase continuously in both quantity and production for at least until 2040, although the proportion of coal usage will decrease as compared to the overall global energy mix. Nonetheless, in year 2019 coal prices are expected to remain volatile but less than in the previous year as global coal supply and demand in the world market begin to reach the equilibrium point.

Domestic Coal Business
The Company imports coal from the joint venture coal mining projects and from other sources in Indonesia for distribution in Thailand by either direct delivery and for inventory and processing before delivery to the customers at Ayutthaya Coal Distribution Center, located in Nakornluang District, Ayutthaya Province on an area of 31 rai and 29 square wah, which can support over 200,000 tons of coal inventory. The Company’s domestic coal market share in 2018 was approximately 4 percent. The majority of domestic coal consumption in 2018 was mainly by cement industry at approximately 39 percent with the remaining 61 percent by electricity production and other industries, which excludes electricity production from the Electricity Generating Authority of Thailand (EGAT). It is expected that the consumption of coal, with lower cost per heat unit than other types of fuel, will continue to increase in the future.

Overseas Coal Business
For more than fifteen years, the Company has invested in joint venture coal mining projects in Indonesia, of which coal is imported for distribution to the domestic customers and exported to other countries especially in the Asia region market, such as India, Japan, South Korea, Taiwan and Hong Kong, etc. Coal produced by the Company has good quality with reputable brand and trusted by both domestic and overseas customers. The Company is one of the highly regarded and reliable coal companies in the Asia region.

1. PT. LANNA HARITA INDONESIA, a subsidiary company registered in Indonesia with Lanna Resources Public Co., Ltd. holding shares at 55 percent of the paid-up capital, conducts coal mining business operation in Samarinda district, Kutai Regency, in East Kalimantan, having received the coal mining concession (Coal Contract of Work) from the Indonesian Government for coal production and distribution for a period of 30 years (from 2001 to 2031). The coal reserves are estimated at 32 million metric tons. Currently, the production capacity is approximately 3.5 million metric tons per year.

2. PT. SINGLURUS PRATAMA, a subsidiary company registered in Indonesia, with Lanna Resources Public Co., Ltd. holding shares at 65 percent of the paid-up capital, conducts coal mining business operation in Kutai Regency, East Kalimantan, having received the coal mining concession (Coal Contract of Work) from the Indonesian Government for coal production and distribution for a period of 30 years (from 2009 to 2039). The coal reserves are estimated at 42 million metric tons. Currently, the production capacity is approximately 3 million metric tons per year.

3. PT LANNA MINING SERVICES, a subsidiary company registered in Indonesia with Lanna Resources Public Co., Ltd. holding shares at 99.95 percent of the paid-up capital and United Bulk Shipping Pte. Ltd. holding shares at 0.05 percent of the paid-up capital, conducts coal trading business by sourcing coal from coal resources in Indonesia for further selling to customers. Also, the Company intends to invest in the future coal concessions via this company.

4. United Bulk Shipping Pte. Ltd., an associated company registered in Singapore, with Lanna Resources Public Co., Ltd. holding 49 percent of the paid-up capital, has been established to undertake business in ocean freight transport and coal trading, which has effectively managed coal transport services for imported coal into Thailand and coal distribution to other countries at reasonable costs.