black gold

black gold

Chairman's Statement

black gold

Extracted from Annual Report 2016

Dear Shareholders,

On behalf of the Board, it is my great pleasure to present to you the Annual Report of BlackGold Natural Resources Limited for the financial year ended 31 December 2016 (“FY2016”).

Performance

Over the years, we have developed a well-trained workforce led by experienced supervisors who have expertise in a wide range of skills. Our employees delivered another year of positive development in FY2016. The Group commenced its production activities in March 2016 and successfully made its first coal delivery in June 2016. We have subsequently made steady progress in ramping-up production and the Group produced a total of 30,000 metric tonnes of coal in FY2016.

In 2014, the Group was awarded a tender to supply 500,000 metric tonnes per annum to the Indonesian state-owned electricity company, PT Perusahaan Listrik Negara (“PT PLN”), for a new 2 x 110 MW power plant project in Riau province, Indonesia. I am very pleased to announce that in December 2016, the Group’s subsidiary, PT Samantaka Batubara (“PT SB”), signed a sales and purchase contract in respect of this award, with an initial term of 5 years and the option to extend for three-additional 5-year terms subject to mutual agreement between the Group and PT PLN (the “Tenayan Contract”). Largely guided by Regulation 9/2016 issued by the Ministry of Energy and Mineral Resources, the Group qualifies as a mine-mouth coal supplier, and is eligible to sell its coal to the power plant at a benchmarked production cost plus a margin. This contract gives the Group a competitive edge since it ensures a consistent amount of coal sales volume and a steady long-term income stream for the Group.

In February 2017, the Group announced that it had received a US$12.6 million purchase order for the supply of coal to Indonesia’s state-owned cement company, PT Semen Padang (“Cement Padang”), with the first delivery successfully completed in March 2017. Cement Padang is part of the largest cement distributor group in Indonesia. We are very pleased to add another esteemed state-owned company to our current portfolio of customers, and we are confident that this will accelerate our strategy of becoming a leading Indonesian coal producer.

As BlackGold continues to grow, we are always on the look-out for ways to expand our business. Up to July 2017, BlackGold successfully completed share placements raising a total of S$15 million, which will be used mainly to strengthen working capital and for preliminary preparation work on the potential development of a 2 x 300 MW coal-fired power plant in Riau province, Indonesia (the “Project”, or the "Riau 1 Project"), pending the successful award of the Project by PT PLN. In addition, we are very encouraged by the strong interest from our new investors in BlackGold, as it further affirms investor confidence in the Company’s prospects.

Forging Ahead

Indonesia has been experiencing high economic growth and urbanisation in the past few decades, leading to an increase in urban energy consumption. Indonesia’s energy demand is projected to increase 8.3%1 annually from 2017 to 2026. In spite of the increasing focus on renewable energy, coal will continue to play a vital role in the development of power generation and Indonesia’s electrification efforts for the foreseeable future, with between 84 - 152 million tonnes of coal to be consumed annually over the next 10 years1. This translates into a large market for well-positioned coal suppliers such as BlackGold. With our substantial thermal coal reserves, the Group sees significant opportunities to thrive in the domestic market.

In addition to the government’s effort to meet the energy demand, Indonesia also recognizes the importance of electricity in boosting economic growth. In line with this, during 2015, President Joko Widodo launched a program to provide an additional 35,000 MW of power capacity by 2019 (the “Program”) to attract investments and create equal access to electricity in the less developed regions - in which 56.8%1 of the planned power plants in the Program are coal-fired. With an intention to be part of this Program, in June 2017 the Group has signed a conditional term sheet together with China Huadian Engineering Co., Ltd. (“CHEC”) to work on the Project, as mentioned above, which is a joint cooperation project for the development, construction, operation and maintenance of a 2 x 300 MW coal-fired power plant in Riau province, Indonesia. Upon successful award of the Project, PT SB would be appointed the designated exclusive coal supplier to the Project for up to 30 years. This offtake contract would allow the Group to enjoy a steady revenue stream in the future.

Coal will remain an integral fuel source for Indonesia electricity generation for years to come, and we will continue to work hard to strengthen our position in the market. We are very pleased to inform shareholders that the Coal Reserves at our PT SB Concession have increased by 227% as compared to its last reported estimates, from 45 million tonnes to 147 million tonnes. We are very encouraged with this development since having abundant reserves is crucial for the Group to achieve its long-term goal of becoming a major coal player in Indonesia. Furthermore, the Group has been working tirelessly to boost production in early 2017 to meet the requirements of the Tenayan Contract, and PT SB has continued to make steady deliveries to PT PLN in this regard. Once production reaches full capacity, we expect to produce up to approximately 70,000 tonnes of coal per month for both the Tenayan and Cement Padang contracts. The Group is ready to thrive in the ever-evolving energy landscape, and we are working hard to create measurable results for our shareholders.

As the Group continues to work towards strengthening its position in the market, we will also continue to work proactively to reduce costs, increase operational efficiency and raise productivity. We will continuously monitor market conditions and enhance our cash-flow management. At the same time, we will persist in our efforts towards expansive sales and marketing strategies to increase our customer base.

Acknowledgement

Our achievements in FY2016 would not have been possible without the dedication, support and trust of our business associates, employees, customers and shareholders. On behalf of the Group, I would like to extend my deepest gratitude for your commitment and unwavering support during FY2016. We remain optimistic in the future of the company and aspire to bring the Group to greater heights.

Intekhab Khan

Independent Non-Executive Chairman
Source: 1RUPTL PLN 2017-2026, Ministry of Energy and Mineral Resources of the Republic of Indonesia
Republic of Indonesia