Coal firm Energy Earth looks to power generation

Energy Earth aims to move on to operating power plants in seven to 10 years after scoring a success with coal mining.

The company last month became the third listed Thai company to own coal mines after buying Tri Tunggal Pitriati (TPP), a licensed miner in Indonesia with coal reserves in two mines of 7.4 million tonnes.

The other two listed mine owners are Banpu and Lanna Resources. 

Khajohnpong Khamdee, managing director of Energy Earth, said coal mining supported the company’s vision to be an upstream business. Coal mining also generates a hefty gross profit margin of 30 per cent, against 16 per cent for coal trading.

This is now a seller’s market, so owning coal mines is better than just trading in coal.

However, the company must reduce risk because coal prices could be volatile and end users are expected to play an important role in setting prices.

“We expect market control could change from the coal miner to the electricity generator in seven to 10 years, so we should get into the power business through a joint venture or by buying stakes in power plants,” he said.

Energy Earth should integrate its energy business from upstream to downstream within seven to 10 years. The recent coal-mining acquisition in Indonesia was the first move of the company to become an upstream coal producer.

The company can realise revenue from selling coal from the first mine in Sebamban this quarter and the second mine in Batulicin in April. Both mines are in South Kalimantan province on Borneo.

The company believes its revenue next year will jump to Bt10 billion from Bt3.8 billion expected this year. The company earned Bt267.26 million in the first nine months, up from Bt50.80 million in the same period last year. The company can clear its retained losses of Bt240 million this year. 

The two mines are expected to run out of coal next year, so the company is starting to look for new ones in Indonesia to supply power plants in China and one in India, which has ordered 8.5 million tonnes for delivery by 2013. 

A new mine should be a virgin source and should have coal reserves of more than 7 million tonnes.

If a new mine cannot be found, the company can sell coal through trading. 

The company will set aside Bt3 billion for working capital next year, while the budget for acquiring mines in Indonesia should be billions of baht or cover coal reserves of 10 million tonnes or at least four years.

It is not easy for small or medium-sized enterprises to invest in coal mining in Indonesia unless they are rich and have links with local people. In Energy Earth’s case, it has a connection with a local newspaper owner, who is an influential person in the country. The media owner is also familiar with TTP, a licensed miner in which a Thai investor is a major shareholder. 

“Local relationships can ensure the company has an opportunity to get additional coal mines. The newspaper owner will join our board of directors soon,” Khajohnpong said.