9 November 2011 – White Energy Company Limited (ASX:WEC; OTCQX:WECFY) (“White Energy”) – As shareholders are aware, PT Kaltim Supacoal (“KSC”) is an Indonesian PMA company owned 51% by White Energy and 49% by PT Bayan Resources Tbk (“Bayan”). It was formed in 2006 to construct, commission and operate a 1 million tonne per annum coal upgrading plant at Bayan’s Tabang coal mine in East Kalimantan, Indonesia.
Bayan’s management acknowledges that the Tabang run of mine coal can be upgraded from approximately 4,200 Kcals/kg GAR to approximately 6,000 Kcals/kg GAR using the BCB technology. However, they have expressed concern over material handling issues, in particular the level of dust generated which is a characteristic of all bulk materials, including sub-bituminous coals. The current plant modification work at Tabang includes installation of a more sophisticated product handling and stockpiling system. These improvements are designed to reduce multiple handling of the product by mobile machines, as this results in some degradation and dust. It is now common within the coal industry to use a small amount of surface additives to allow the fine coal particles to adhere to the lump coal surfaces. During the next phase of operations, KSC intends to trial dust suppression products on the upgraded coal as it is being conveyed to stockpile.
Bayan has advised that based on the current export prices of coal, they have formed the view that the cost associated with upgrading the Tabang run of mine coal may no longer deliver acceptable economic returns for KSC. The key factor in arriving at this position is Bayan’s insistence that the contract price for Tabang run of mine coal must be increased to a price substantially higher than that incorporated in the original coal supply agreement entered into between the parties.
In this regard, Bayan has advised that it can generate much higher margins by selling Tabang run of mine coal directly into the export market, given that the current Indonesian government coal reference price (HBA) for 4,200 Kcal/kg GAR coal is approximately US$60/tonne FOB, which equates to approximately US$40/tonne ex-mine.
These issues go directly to the economic viability of the existing plant located at the Tabang site and the willingness of each of the shareholders to continue with their investment in KSC.
Following a request from Bayan, both shareholders will determine the appropriate steps to be taken in relation to KSC and the operation of the Tabang plant by no later than 31 December 2011.