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Indonesian cement producer seeks coal miner

World Cement,

Around Rp 1 trillion (US$115 million) has been set aside by Indonesia’s largest cement maker, Semen Gresik, to acquire a local coal mining company in a bid to secure a reliable energy supply for its production.

President Director of Gresik, Dwi Soetjipto, said the company was considering several coal mining companies and was scrutinising several components, including legal assets and product quality, of potential purchases.

The East Java-based company is looking for a miner that has up to a decade’s worth of reserves and a capacity to produce coal with caloric value of at least 5000 kcal/kg. This coal is used to fuel furnaces for cement production.

“We are still open to any offers [for coal miners offering stakes to Gresik],” Dwi recently. “Hopefully it will be realised within a year,” he said, adding that the company aims to own a majority of shares in the coal miner.

The most suitable location for the mine would be Kalimantan, he noted, justifying this would be its proximity to South Sulawesi-based subsidiary, Semen Tonasa.

Of the Rp 1 trillion budget, half would be drawn from internal funds and half from external sources such as loans or bonds.

The state-controlled company plans to increase its cement production to 30 million tpa by 2015, up from this year’s 20 million tpa estimate and last year’s 18 million tpa production.

To meet next year’s production target of 24.5 million tpa, the company needs 4 million t of coal to supply its two new factories in Pangkep, South Sulawesi, and Tuban, East Java. Gresik also plans to build a factory in Papua in the next four years.

“We want to acquire a coal-mining company because we need to secure supply, especially because we know that it would be more difficult to get in the future,” Dwi said. “We will be able to increase efficiency, since the production costs of a mining company will not be as expensive as buying coal from miners according to global price.”

Mino, an analyst at Jakarta-based securities firm Mega Capital Indonesia, noted that Gresik’s strategy aligned with its long-term goal. “This strategy would secure both coal supply and reduce the risk from volatility of [coal] prices,” he said.

Shares in Gresik recently fell by 2.7% to Rp 8900.

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