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T Borneo Lumbung Energi & Metal (BORN), one of Indonesia’s major hard coking coal producers, suffered a sharp downturn in its profits in the first half of this year as lower coal prices and higher operating costs ate up a significant portion of the company’s revenues.

In the first half of 2012, the company saw net profits fall to US$39.03 million, down 58.7 percent from last year.

Borneo’s net sales during the first six months of this year also fell 6 percent to $320.78 million despite higher sales volume, the company announced on Wednesday.

Borneo marketing director Kenneth Allan said in Jakarta on Wednesday that the sharp drop in net profits was mainly caused by a plunge in coal prices and a sharp increase in operating costs.

 “Our average sales price in the first half of this year was $180 per metric ton. It was $250 in the same period last year. In general, the commodity price has decreased 30 percent this year,” Kenneth said in a telephone interview.

The publicly listed company sold 1.7 million tons of coal between January and June 2012, 30.8
percent higher than the same period a year before. It aims at selling 4.3 million tons of coal by year end, a 43.3-percent rise from the previous year.

Borneo’s sales to Noble Resources Pte. Ltd. made up for 65.6 percent of the total net sales in the first half, followed by sales to Glencore International AG with 34.4 percent. Starting July 2011, Allan said, Borneo made Noble its sole marketing agent.

In the first half of 2012, Borneo recorded an increase in its costs of goods sold. Costs reached $192.59 million, up 27 percent from 2011.

Interest payment for Borneo’s $1 billion debt from Standard Chartered Bank also affected the financial result as it had brought in extra costs to the company, Allan said.

Borneo borrowed the money from the bank to purchase a 23.8 percent stake in London-listed Bumi Plc. from PT Bakrie and Brothers (BNBR). The acquisition process was finalized last January.

The loans, which will mature in five years, carry interest rate of about 6 percent year.

Bumi Plc. currently holds 85 percent and 29 percent of shares of coal mining companies PT Berau Coal Energy (BRAU) and PT Bumi Resources (BUMI), respectively.

Meanwhile, Borneo was projected to produce a total of 4.3 million tons of coal this year, up 32 percent from last year, according to Allan. However, during the period of January and June 2012, its coal production declined to 1.6 million tons, 6 percent lower from the same period, 2011.

The company allocates $250 million for its 2012 capital expenditures and has disbursed $200 million of the funds in the first six months of this year.

“We used most of the funds to improve our facilities and mining equipment. We are opening new pits on our mining sites at the moment,” Allan added.

Borneo currently owns two subsidiaries, mining company PT Asmin Koalindo Tuhup and heavy equipment rental company PT Borneo Mining Services. Both subsidiaries operate in Central Kalimantan.

Borneo, through Asmin Koalindo, operates two coal mining blocks in Telakon and Kohong. As of June, it reported that the Kohong block had 51.5 million metric tons of proven coal reserves, while the Telakon block had 11.6 million metric tons.

Borneo’s shares closed at Rp 520 (0.05 US cents) apiece on Wednesday, declined 3.7 percent from a day before. (tas)