Coal Age

JUN 2014

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48 www.coalage.com June 2014 small building projects and provision of temporary camps around the site. They are essentially acting like a contractor — it's their own business, they are paying taxes to the government and employ local people. It is a similar self-empowerment model to that established by Medusa Mining in the Philippines. It is not just about mining education, but also agriculture, which helps get better productivity from crops. In this way they don't just rely on the mining project, it extends into betterment of the ongoing existing economy," Lynch said. Indonesian Advantages Compared to Australia's timeline for bringing mining projects online, it has been a relatively short road toward production for Cokal. Lynch said in the last 10 years Australia has gone back- ward in this regard. "It was possible to get projects into produc- tion in two or three years, but now it is a five- to 10-year slog. In Indonesia, the system is bureaucratic because of the levels of government in various stages of autonomy, but overall there is a strong desire to move forward and make things happen. Despite the bureaucracy, the underlying drive has ensured that the approvals system is of an international standard, including AMDAL for environmental approvals. "At least you know what you are dealing with, whereas in Australia there is supposedly a system, but it is subjective and politically tarnished. Whenever a new project comes up, as soon as a group becomes vocal with their concerns, the company, which has often done a detailed technical review identifying all issues, is often forced to go into a time-consuming and costly supplementary process because local politicians don't want to face up to some perception of negative sentiment. "It hasn't always been easy in Indonesia owing to the bureaucracy with one level of government thinking the process works differently to what another level of government believes. Despite this, there's ultimately a way through. Cokal has been aided by establishing a successful Indonesian team. We use some consultants but have a very strong team that fully understands the process. We even have government using us as an example to others. Our BBM process for the AMDAL and mining approvals is used as a model for the province to progress further projects," he said. Risk Reward Investment Lynch said as an investment destination, Indonesia is perceived as being high risk, but it is risk that is rewarded: the geological poten- tial of Indonesia is largely untapped, which means juniors operat- ing in Australia have to contend with more marginal projects; in terms of approvals, it is quicker in Indonesia; labor rates are at least a 10 th of the cost of Australia; and there is half the shipping distance to the main markets of China, Korea, Japan and India. "The signifi- cant differences between most Indonesian and Australian coal projects are that infrastructure costs are a lot less and transport approvals much simpler, particularly for projects serviced by a riv- er. We don't need to form a complicated consortium to negotiate further capacity on rail lines or ports, which are often controlled by a major. The cost to get the coal to an ocean-going vessel is much less, at about $2.54/mt for Cokal, and we don't have to put capital into that process apart from the barging fleet. All we have to do is sign a contract with the floating crane operators to load from barges to vessels. This compares to costs of up to $13/mt to get Australian coal to vessels. As well as being much cheaper, easier and quicker, you don't have the interrelationship hassles often seen in rail and port deals. "We have good faith in Indonesia despite many people saying bad things. We don't listen to the chit-chat; we're having a go and believe we'll be rewarded because we have a good company setup, giving us respect from the country, which will ultimately lead to positive project outcomes," he said. c o k a l c o n t i n u e d Barging is the preferred method of transport from the BBM project. Cokal Indonesia President Director Garry Kielenstyn awards university scholarships in Murung Raya Regency as part of the company's CSR program. CA_pg44-48_V3_CA_pg46-47 6/17/14 10:01 AM Page 48

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