BlackGold tackles Indonesia's growing power needs

A tugboat pulling a coal barge along the Mahakam River in East Kalimantan, Indonesia. Mr Phil Rickard is CEO of BlackGold, which holds the rights to three coal concessions in Sumatra.
A tugboat pulling a coal barge along the Mahakam River in East Kalimantan, Indonesia.PHOTO: REUTERS, BLACKGOLD NATURAL RESOURCES
A tugboat pulling a coal barge along the Mahakam River in East Kalimantan, Indonesia. Mr Phil Rickard is CEO of BlackGold, which holds the rights to three coal concessions in Sumatra.
Mr Phil Rickard is CEO of BlackGold, which holds the rights to three coal concessions in Sumatra.PHOTO: REUTERS, BLACKGOLD NATURAL RESOURCES

Canadian-born and Indonesian-raised Phil Rickard straddles two worlds. Having lived in Jakarta from age 11, and enrolled in both Indonesian and American schools, the chief executive officer of SGX-listed BlackGold Natural Resources is passionate about South-east Asia's largest economy.

His extensive mining, energy and entrepreneurial experience - stemming from a variety of senior roles in Indonesian as well as multinational firms, including Norway's Norsk Hydro group - stands him in good stead as a conduit between cultures.

"I understand the complexities and intricacies of living and working in Indonesia, as well as the various operational requirements of large Western multinationals. I have also developed the ability to get things done, and get them done properly," Mr Rickard said. He describes the period during the Asian financial crisis as critical in reinforcing his understanding of what it takes to build a company with sound fundamentals in Indonesia, especially one that can ride through any tumult.

"I got my PhD in Indonesian business when the crisis struck," he said. "Everything came crashing down in the space of a few months, including the Suharto government."

With those skills, and a network of connections - in both politics and business - painstakingly built up over the last two decades, Mr Rickard is well-placed to take the Indonesia-focused coal miner to its next stage of growth.

RISING CONSUMPTION

BlackGold, which listed on the Catalist board in March 2015, has a market capitalisation of over $100 million. The company is targeting Indonesia's rapidly growing power plant industry, with a focus on supplying coal to power plants located in Sumatra's Riau province.

STEADY REVENUES, STABLE MARGINS

Power plants want consistent coal supplies, and we want to be that consistent supplier. The independent power producers are willing to pay for consistency, and, as a result, we can build a business with steady revenues and stable margins - that has always been our driving goal.

MR PHIL RICKARD, CEO of SGX-listed BlackGold Natural Resources.

It holds the rights to three coal concessions in Sumatra - PT Samantaka Batubara, PT Ausindo Andalas Mandiri, and PT Ausindo Prima Andalas, which span more than 45,550ha in combined acreage. The firm has explored a total area of about 10,000ha in the PT Samantaka Batubara concession.

As of June, coal reserves at the PT Samantaka Batubara concession have more than tripled from last reported estimates announced in August 2016, according to the latest Independent Qualified Person's Report (IQPR) prepared by BlackGold's independent consultant, PT GMT Indonesia. PT Samantaka Batubara is estimated to hold 147 million tonnes of coal reserves and 520 million tonnes of coal resources, according to the IQPR, which was prepared in accordance with the Joint Ore Reserves Committee Code (2012).

The low-sulphur and low-ash properties of its coal make it highly suitable for power production. BlackGold has secured two supply contracts from state-owned firms and another two long-term contracts with independent power producers (IPPs). Coal is expected to be a vital source in meeting Indonesia's growing domestic electrification needs, as urbanisation and an expanding middle class boost demand.

In 2016, the national electrification rate rose to 91.2 per cent, with national electricity consumption forecast to grow 8.3 per cent annually from 2017 to 2026, according to Indonesian state-owned electricity firm PT Perusahaan Listrik Negara's (PLN) 2017-2026 electricity supply business plan. Coal will remain a key part of Indonesia's energy mix - about 84 million tonnes are expected to be consumed annually, data from the business plan showed.

FOCUS ON FUNDAMENTALS

From the start, BlackGold has adopted a slow and steady approach to building its foundations, focusing on long-term contracts with fixed margins, Mr Rickard said.

"Power plants want consistent coal supplies, and we want to be that consistent supplier. The IPPs are willing to pay for consistency, and, as a result, we can build a business with steady revenues and stable margins - that has always been our driving goal."

Earlier this month, BlackGold said it raised selling prices by 10 per cent in its long-term offtake agreement with PLN, and the revision would be applied retroactively to coal sales from March this year.

Another key development for the company is the Riau-1 Project - one of the planned mine-mouth power plants in PLN's 2017 national electricity supply business plan that is expected to start commercial operations in 2020.

Last month, BlackGold inked an agreement with various parties to set up a new consortium to develop, construct, operate and maintain this coal-fired power plant. The consortium comprises BlackGold, its unit PT Samantaka Batubara, Chinese state-owned power engineering firm China Huadian Engineering, as well as PLN subsidiaries PT Pembangkitan Jawa-Bali and PT PLN Batubara.

Upon the successful award of the Riau-1 Project by PLN to the consortium, the latter would establish a joint venture company to enter into relevant agreements with PLN, as well as carry out construction and commissioning of the project. With an expected tenure of 30 years, the contract would require BlackGold to deliver more than 3 million tonnes of coal per annum.

PT Samantaka Batubara's reported coal reserves are dependent on BlackGold being successful with its bid to supply the Riau-1 Project, the company said in a filing, adding there is "reasonable expectation" that its current bid will proceed.

"With nearly 150 million tonnes of coal reserves and over 500 million tonnes of coal resources, we can even do Riau-2. We can supply other IPPs that PLN own and operate, which are in the same zone as we are," Mr Rickard said.

"And when our region has been maximised, we can potentially repeat the same process and business model - signing long-term contracts with fixed margins - for another region, for example, Kalimantan."

The company will target exploration activities to uncover the most profitable pockets of coal located over its three concessions. "And once we increase our reserves, we will sign more contracts."

LONG RUNWAY

The good news for BlackGold is that it still has a long way to go, Mr Rickard added. "Sumatra and our area of Sumatra need a great deal more power, and the majority of that is, and will be, coming from mine-mouth plants and/or coal-fired power stations."

In 2015, Indonesian President Joko Widodo unveiled an ambitious 35,000MW programme to boost the country's electrification ratio to 97 per cent by 2019, with about 25,000MW of capacity expected to come from coal-fired power plants. Since then, some officials have indicated it might take several more years to achieve this target.

In Sumatra, electricity demand is seen rising 11.2 per cent per annum, while in Riau province - the location of BlackGold's assets - the electrification rate is behind the rest of Sumatra, creating future opportunities for power generation.

In June, the company placed out 66.7 million new shares at $0.123 per share to raise more than $8 million in capital. Part of the net proceeds will be channelled into developmental expenses for the Riau-1 Project, while the remainder will be used to boost working capital.

Indonesia's benchmark coal price soared 9.6 per cent month onmonth last month to US$92.03 (S$126.03) per tonne, from US$83.97 in August, according to data from the country's Ministry of Energy and Mineral Resources. The reference coal price, also referred to as Harga Batubara Acuan (HBA), is at its highest since last December.

CHALLENGING COMPLEXITY

Despite a reasonably bright outlook, challenges remain. The country's developing political situation is an issue that weighs on Mr Rickard's mind.

Outside of work, the 48-year-old spends his time exploring and hunting for antique maps, most of which end up on the walls at home - much to his wife's chagrin.

The father of two boys and two girls aged 11 to 16 aims to pass this adventurous spirit on to his children. "I want them to build enough confidence to explore the world themselves, and embrace all that life has to offer."

• This is an excerpt from Singapore Exchange's kopi-C: the Company brew, a regular column featuring C-level executives of SGX-listed companies. Previous editions can be found on SGX's My Gateway website www.sgx.com/mygateway

A version of this article appeared in the print edition of The Straits Times on October 09, 2017, with the headline 'BlackGold tackles Indonesia's growing power needs'. Print Edition | Subscribe