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 longtime 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.
Competition
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 high-quality coal mines with several years of mineable reserves, therefore possesses sufficient competitive advantage and business potential.
Industrial Trend
The global economy is undergoing a recovery phase since 2021 as the easing of the coronavirus disease 2019 (COVID-19) has led to higher energy demand, while the supply of fuel and logistics has remained relatively tight. In addition, the growing tensions between Ukraine and Russia during the 1st quarter 2022 have emerged as a cause of concern for the market, leading to a sharp rise in commodity prices, including coal prices.
Subsequently, following the stabilization of the market, fluctuations still occurred driven by various factors, such as the stringent COVID-19 measures in China have slowed down the domestic trade and service industry in China. Additionally, the market is anticipating signals from the European Union (“EU”) that is
awaiting a consensus from member states on the implementation of sanctions on Russian oil. Moreover, concerns regarding the rising inflation from the tighter monetary policies by central banks in several countries, have led to a corresponding economic slowdown. In late May 2022, the EU reached a consensus and formally declared its intention to reduce crude oil imports from Russia by more than 90% by the end of year 2022. In response to the sanctions, Russia announced a suspension of oil deliveries, including natural gas and coal to countries refusing to pay for energy in Russian ruble. In July 2022, the market experienced increasingly anxiety over the global recession due to concerns about the increasing cases of COVID-19 in China and the declaration of new control areas that caused public protests. As a result, market confidence in the Chinese economy has decreased, leading to a reduced projection of oil consumption from China, which is the world’s largest importer of oil. Additionally, fluctuations in the currency market have contributed to the
decline in crude oil prices to the same level during the pre-tension period between Ukraine and Russia, regarded as a manifestation of the world’s economic turbulence in year 2022.
Nevertheless, the dynamics of the natural gas market stand in contrast to the oil market, by the increase in natural gas prices according to the concerns of European countries about the availability of energy during the upcoming winter following the suspension of Russian gas deliveries, therefore, the European countries has expedited the construction of its own stockpiles of natural gas imported from other sources. Consequently, the market has become exceedingly tight, as well as the limitation of pipeline systems and a
potential shortage of LNG degasification facilities. Accordingly, there was an increase in the utilization of coal fuel to supplement the electricity generation from existing power plants or reactivate the plants that were previously decommissioned due to policies aimed at reducing or eliminating coal fuel usage. In the beginning of December 2022, the winter was not as severe as anticipated, resulting in a reduction in concerns over energy crisis among many countries, and natural gas stockpiles have been used less than expected with fallen demand. The Dutch TTF, the main benchmark price index for natural gas trading in Europe, that had hit a record high of 345 euros per megawatt-hour in March 2022, has dropped sharply to 73 euros per megawatthour in December 2022 or a decline of 50 percent. Additionally, the coal market also declined in January 2023 and continued to decline in the following months.
As for the Asian coal market in 2022, the main importing country like China, decreased its coal imported from Indonesia by 35.76% to 69.69 million metric tons from the previous year of 109.49 million metric tons, with the economy slowing down from the Zero-COVID policy, while India has taken over as the largest importer of coal, with an increase of 55.63% to 110.15 million metric tons from the previous year of 70.78 million metric tons. In this regard, Indonesia’s coal exports totaled 306.29 million metric tons, an increase of 4.29% from 2021.
According to the Coal Analysis of U.S. Energy Information Administration (“EIA”) for year 2022, the total global coal consumption was 8,025 million metric tons, representing 1.2% higher than the previous year of 7,929 million metric tons, and was marked the highest consumption level ever recorded and is expected to remain above the eight billion metric tons until at least 2025 according to the projected year. China and India are still the world’s largest coal consumers, with China ranks first with 4,250 million metric tons in 2022, projected to rise to 4,337 million metric tons in 2025, or an increase of 0.7%. India follows in the second place with 1,103 million metric tons in 2022, projected to rise to 1,220 million metric tons in 2025 or an increase of 3.4%. As for coal production, it is expected to peak in 2023 and decline especially after 2025, due to restrictions on new coal development that will become less available under factors that challenged by the abundance of mineral resources, environmental concerns, social issues, corporate governance, and limited access to large funding sources.
COAL BUSINESS ACTIVITIES
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 metric tons of coal inventory. The Company’s domestic coal market share in 2022 was approximately 5 percent of
the amount of coal used in the industrial sector, excluding coal used for electricity production of independent power producer (IPP) and small power producer (SPP). The majority of domestic coal consumption in 2022 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 21 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, 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.
PT. Lanna Harita Indonesia (“LHI”), a subsidiary company registered in Indonesia, with Lanna Resources Public Co., Ltd. directly holds shares at 55 percent of the paid-up capital, conducts coal mining business operation in Samarinda district, 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 2001 to 2031). The remaining coal reserves are estimated at 20 million metric tons. Currently, the production capacity is approximately 3.5 million metric tons per year.
PT. Singlurus Pratama (“SGP”)a subsidiary company registered in Indonesia, with Lanna Resources Public Co., Ltd. directly holds 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 remaining coal reserves are estimated at not less than 40 million metric tons, with production capacity in 2022 of approximately 4 million metric tons, and plans to increase coal production and distribution to 4-5 million metric tons in the following years. At present, SGP is in the process of developing a new coal deposit within SGP concession area, namely, Margomulyo Block (“MG”). Coal production and distribution from MG is expected to commence in the 2nd quarter 2023 of approximately 0.5 million metric tons, before increasing to 1-1.5 million metric tons in the following years. The coal produced from MG will be transported via the port and jetty of the Argosari Block (“AG”), which is currently in operation. SGP has increased its production capacity by constructing a second coal processing plant and renovating the coal stockyard areas to increase coal stockpile capacity to 200,000 metric tons, as well as renovating the port and jetty, and adding another 1.70-km long conveyor belt extending from the port to the jetty in the sea in order to accommodate the coal production and distribution from the AG and MG coal deposits as mentioned above, with plan to produce and distribute coal of approximately 3 million and 1.5 million metric tons per year, respectively, totaling 4.5 million metric tons per year. The coal produced is of good quality with relatively high calorific value and low Sulphur content, making it easily marketable and profitable.
PT. Pesona Khatulistiwa Nusantara (“PKN”)a subsidiary company registered in Indonesia, with Lanna Resources Public Co., Ltd. directly holds shares at 10 percent of the total number of shares, conducts coal mining business operation in Bulungan Regency, North 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 remaining coal reserves are estimated
at not less than 31 million metric tons with production capacity in 2022 of approximately 5.4 million metric tons per year, and PKN plans to increase production capacity to 6.0 million metric tons in year 2023.
United Bulk Shipping Pte. Ltd. (“UBS”), an associated company registered in Singapore, with Lanna Resources Public Co., Ltd. directly holds shares at 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.
