BLACKGOLD NATURAL RESOURCES: Tackles Indonesia's Growing Power Needs

Coal mining operations of Blackgold Natural Resources.
(Photo: Company annual report)

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 Ltd is deeply passionate about Southeast 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 was raised a Canadian in American schools, and grew up in Asia. Although I wear batik and speak fluent Indonesian, I'm always going to be regarded as a bule," Rickard said, referring to the colloquial term for white foreigners in the country.

That's not necessarily a bad thing.

It's precisely these qualities that make the Bachelor of Arts in Philosophy graduate from Washington's Gonzaga University an effective liaison between the East and the West.

"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," 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," Rickard quipped. "Everything came crashing down in the space of a few months, including the Soeharto government."

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

"My ability to be a bridge is special, and I embrace that role," he added.

Sumatra and our area of Sumatra needs 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.

- Phil Rickard
CEO

Blackgold Natural Resources

(NextInisght file photo)

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

"We've always stayed away, and guided the company away from, fluctuations in coal prices. That's our key mission statement," he noted.

"We never wanted BlackGold to play the mining spot market or ride the swings - US$20 a tonne versus US$100 a tonne - in coal prices."

The market will reward consistency, and long-term coal demand is indisputable, Rickard added.

"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% in its long-term offtake agreement with PLN, and the revision would be applied retroactively to coal sales from March 2017.

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's expected to start commercial operations in 2020.

Earlier this 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 last month, 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," 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." 

We wouldn't be in Indonesia if we didn't believe there will be consistency in terms of policies and regulations, but does it keep me awake at night? Yes, because it's incredibly complicated. For example, several levels - provincial, district and national - exist in the government, and sometimes people who might have a different focus take on different positions.

- Phil Rickard
CEO

Blackgold Natural Resources

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

"Things are changing and improving, and with these shifts, it can be difficult to achieve consistency. And all major business investments require consistency," he said.

"We wouldn't be in Indonesia if we didn't believe there will be consistency in terms of policies and regulations, but does it keep me awake at night? Yes, because it's incredibly complicated. For example, several levels - provincial, district and national - exist in the government, and sometimes people who might have a different focus take on different positions."

Nonetheless, Rickard, who has long felt a calling to live and work in the world's fourth-most populous nation, remains fascinated by the country's convoluted dynamics. "Some people say Indonesia is daunting in its intricacies and complexities, but I actually find it challenging."

"The US was exciting, but it lacked a passion I knew I could find in Indonesia. In a developing economy, you can effect real change, and be involved in projects that have a massive impact on people's lives," he added.

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

"Indonesia is an explorer's dream - after more than 30 years in Jakarta, I still discover parts of the city that amaze me," he grinned.

And the discovery process is everything, Rickard admitted. "That's what I love about the mining industry and creating a business - you find a mine or have an idea, and make something of it."

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."

He also hopes to demonstrate key values by example, and engage them in activities that don't involve a screen.

"How else would you teach your kids the importance of integrity and honesty apart from showing it? And that's not going to happen sitting in front of a TV or playing with the mobile device."

• The Group successfully completed three share placements during 6M2017, raising a total of S$15.0 million, which will be used mainly for working capital and preliminary preparation work on the Riau-1 Project.
• The Group's subsidiary, PT Samantaka Batubara, completed its 10th shipment of coal by barge to the Tenayan port in August 2017. The shipment was made in relation to the coal sales and purchase contract signed between PT SB and PT PLN Persero. These steady deliveries will continue to generate consistent revenue for the Group.
• An article published in Bisnis.com, citing a recently issued MEMR Decision (No. 2183 K/30/MEM/2017), stated that coal demand from coal-fired power plants is projected to reach 88.3 million tonnes, which accounts for the majority (81.8%) of Indonesia's Domestic Market Obligation (DMO) for coal. The DMO refers to the regulation requiring coal and mineral producing companies to allocate a certain minimum percentage of their production to the domestic market. In another article published in industry.kontan.co.id, Sofyan Basir, President Director of PT PLN Persero, was quoted as saying that the state-owned electricity company currently needs around 86 million tonnes of coal for supply to mine-mouth power plants. This demand is forecast to increase by another 70 million tonnes by 2020.
• The Group's contracts for annual delivery of 360,000 tonnes of coal each to PT SMS and PT SDU are expected to commence in 2H2017 and 1H2018 respectively.
• With the construction of its own jetty expected to complete in 3Q 2017, delivery of coal from this jetty will likely translate into costs savings for the Group.
• Barring unforeseen circumstances, the gradual ramp-up of coal deliveries to its customers, combined with the continued dominance of coal in the development of domestic Indonesian power generation, will position the Group for further growth.