Bumi Plans Purchases to Be Indonesian Mine ‘Champion’

By Naila Firdausi

Oct. 9 (Bloomberg) -- PT Bumi Resources, Indonesia’s biggest coal company, plans to acquire mines in the country and may include China Investment Corp. as a partner after borrowing $1.9 billion from the sovereign wealth fund last month.

“Anything less than $400 million to $500 million shouldn’t make sense to us unless it’s very strategic,” said Nalinkant Rathod, president director of PT Bakrie & Brothers, Bumi’s biggest shareholder and a member of the coal company’s board. Bumi and CIC “signed a strategic partnership agreement where in all our investments above $75 million we show to them first,” and potential targets will be discussed with the Chinese fund this month, he said in an interview in Singapore yesterday.

China’s $297.5 billion fund bought debt from the Jakarta- based coal producer and is increasing investments in resources companies to gain access to the raw materials it needs to fuel the country’s growth. Bumi’s shares rose for the first time in four days today, paring a decline since the Sept. 23 announcement prompted by concerns the deal, which gives CIC a 19 percent return, is too expensive.

The agreement “put Bumi at high leverage level,” said Winston Sual, who helps manage $233 million at PT Panin Asset Management in Jakarta, which doesn’t include Bumi in its mutual funds. “I don’t see the urgency in getting this debt.”

Refinancing Debt

Bumi has said $1.7 billion of the funds will be used to refinance debt and the rest as working capital.

Though higher interest costs will hurt Bumi’s earnings in the short term, the funding arrangement and partnership with CIC would fund acquisitions, said Rathod, 58, who is also a member of Bumi’s board of commissioners.

“Sometimes you sacrifice immediate profitability for liquidity and future growth,” he said. “We want to be the national mining champion for Indonesia.”

Bumi shares rose as much as 2.8 percent to 2,800 rupiah in Jakarta trading today, the first gain in four days. The stock was at 2,750 rupiah at 9:58 a.m. local time. Bumi has dropped 18 percent since the CIC agreement was announced.

“Investors expecting strong short-term earnings will likely be disappointed,” Daisy Suryo, Singapore-based analyst at Bank of America Corp’s Merrill Lynch unit, wrote in a note dated yesterday after meeting Bumi. “Interested investors will need to give Bumi the benefit of the doubt -- i.e., believe in its ability to achieve lucrative M&A deals.”

Zinc, Copper, Gold

The company is already a significant coal producer and plans to extract zinc, copper, lead and gold, Rathod said. Bumi is currently looking at “one or two” assets and BHP Billiton Ltd.’s Maruwai coal project in Indonesia is “interesting,” said Dileep Srivastava, the company’s head of investor relations, without elaborating on whether it expressed interest in bidding.

Bumi, which became Indonesia’s biggest coal producer following acquisitions of PT Arutmin Indonesia in 2001 and PT Kaltim Prima Coal in 2003, announced in January it would buy stakes in three companies for $565 million. Bumi said the acquisitions will help the company double its coal output by 2012.

The acquisitions prompted investigations by Indonesia’s capital market regulator on concern Bumi paid too much. Bumi renegotiated the price of PT Fajar Bumi Sakti, which has a coal concession. Stakes purchases in mining contractor PT Darma Henwa and PT Pendopo Energi Batubara, a non-producing miner, were fairly valued, the regulator said in June.

To contact the reporter on this story: Naila Firdausi in Jakarta at nfirdausi@bloomberg.net.