Agreement kicks Orpheus's plans into gear

AUSTRALIAN-listed Indonesia-focused coal miner Orpheus Energy has secured exclusive barge loading capacity at its local port in South Kalimantan that will spark the rest of it plans into motion.
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Orpheus laoding coal at the SKJM port in South Kalimantan.

Staff Reporter

It has secured capacity for as much as 300,000 tonnes per month.

The company had been stalled by the inability to access loading capacity at the SKJM port in South Kalimantan.

The lack of loading capacity has prevented the company’s first producing ming, the Kintap ADK project with a JORC resource of 3.45 million tonnes, from performing to its full capacity.

This deal has been a long time in the making.

The company has only had access to half a slot. However, after almost a year of negotiations, it has executed a binding agreement that has seen it secure exclusive barge loading capacity at the port for as much as 300,000 tonnes per month.

The agreement’s success does not end there though. Coupled with Orpheus’s trading and export licenses, the Australia-listed company is able to open up export opportunities to local miners.

“A lot of producers in the area have the mining licence, but they don’t have the export licence, they need someone with an export licence to sell [their coal],” Orpheus executive director David Smith told ILN.

Smith said the agreement was really the last piece of the puzzle for the company.

“We have our own exploration, which we are actively doing in two of our other tenements and we are actively looking at other projects in this area where we already have a tenement that we have a JORC resource for.

“We’ve got the production at our ADK mine and we have the trading licence to trade not only our own coal but other producer’s coal ,” Smith said.

“The last piece of the puzzle was how we actually get the coal out and the key part of the puzzle in any resource project is the infrastructure. And this basically secures that.”

The port has a capacity of up to 300,000 tonnes per month through three 100,000t slots.

Orpheus plans to upgrade the port, and due to this work it conservatively estimates an initial capacity of a total 150,000t which Smith said it believed would increase very quickly to around 200,000-250,000t per month by the beginning of the 2014 calendar year where he suggested it would likely stick.

That is, until the upgrades are complete. The company will build another two slots at the port as well developing an all-weather road, tidying up the stockpile areas, building an underpass and ultimately installing a conveyor and another crusher.

Smith said there was potential for further tonnage increase as the port was upgraded, potentially up to 500,000t per month.

While Smith said it was hard to put a percentage value on how much of the coal shipped would be its own, he said the majority of coal would definitely come from other miners, as well as coal mined illegally on their own tenements.

“We see this is as a transition for the company for going from a modest, scratching-out-a-living type company to a company that is moving real tonnage of considerable size,” he said.

“In a recent quarterly we did mention that there are other port opportunities in South Kalimantan that we are working on. We see this as the first of a number of similar type deals that could happen.”

Importantly, the agreement will let company become cash flow positive in the “imminent future”, most likely once it begins moving about 100,000t of coal.

The funding for the deal is coming from a local infrastructure investor. The funder is paying the amount in two tranches, the first of which it has already paid to the company’s 100% owned Indonesian subsidiary.

Orpheus will push that money through to the port for the upgrades and slot acquisition, after which the port is legally obliged to pay back the whole principal amount in equal monthly instalments. This will then be passed back to the funder with a commercial rate of interest, essentially mitigating funding risk and quantum to the level of a reducing, monthly interest payment.

Smith said he was not able to give a figure for the funding but said it was in the region of $A1.5-2.5 million.

“This is the platform from which we believe the company has turned a corner into strong cash flows and has also established an opportunity to build a much larger company on the basis of additional tonnage not only being mined but also being traded through our infrastructure projects,” Smith said.

“So basically, we have sorted out our own problem and we can make a further margin by exporting other producers’ coal as well.”

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