Coal Sourcing Schemes

through enhanced risk

mitigation
Contents

¾ Overall Summary

¾ Scheme 1

¾ Scheme 2

¾ Scheme 3

¾ Scheme 4

¾ Team Credibility

1
Summary

¾ Demand for Indonesian steam coal continues to increase primarily driven by

economic growth in China and India. Coal trading is still a promising sector
capable of providing annualized return above 40%.

¾ Despite development in the sector, Indonesian coal producers are mostly not
well organized, creating problems for the coal buyers, namely in the delivery
consistency, quality discrepancy, logistical obstacles, and most importantly
reliability to execute on their commitments

¾ Korpindo Resources Group (KRG) and/or its subsidiary PT. Tri Negrindo
Gemilang (TNG) proposed four schemes to mitigate the risks faced by
buyers while still providing attractive trade margin. We have successfully
executed two of the schemes and continue to improve on them while
building up the financing/investment case for the other two schemes.

¾ KRG’s role is mainly in ensuring protection for buyers, monitoring

miner/seller performance, identify potential road blocks/ risk factors, and
bridging communication gap along the chain.

2
Four different schemes for access to coal trading
1) Supply of coal from a mine under contract with TNG.
• Buyer funds TNG directly to extract the mine with tranche payments protecting
maximum exposures.
• TNG has rights to mine and sell from a well-known mines in South Kalimantan,
East Kalimantan and Sumatra.

2) Supply of Coal contractors who provide volume commitment for KRG to sell
• Buyer provides KRG with funding line to be used for coal shopping.
• Risk is managed through control over supply chain and payment at KRG
controlled stock piles.

3) Working capital financing to a contractor for first year delivery commitment of

600,000 MT and second year commitment of 1,000,000 MT.
• Direct supply agreement between seller and buyer facilitated by KRG. KRG to be
appointed as the monitoring agency.

4) Investment into JV on Mines to enable required annual supply base

• A longer term perspective proposal. Securing coal supply by becoming JV partner
in a mine and have 100% off-take arrangements. KRG to identify such mines and
3
play a bridging role
Sample Coal Quality – Typical 55-53

Typical analysis are

Total Moisture : 37.98 % (AR)

Inherent Moisture : 14.52 % (ADB)
Ash Content : 4.16% (ADB)
Volatile Matter : 41.97% (ADB)
Total Sulphur : 0.12 % Max
Gross CV : 5,362 Kcal/Kg
HGI : 58 Min

4
Sample Coal Quality – Typical 58-56

Typical analysis are

Total Moisture : 33.6 % (AR)

Inherent Moisture : 14 % (ADB)
Ash Content : 4.4 % (ADB)
Volatile Matter : 43.3 % (ADB)
Total Sulphur : 0.26 % Max
Gross CV : 5,618 Kcal/Kg
HGI : 58

5
Sample Coal quality – Typical 63-61 (blend)

Based on ASTM classification, coal from

mines here is generally described as a very
medium sulphur, low ash, low moisture sub-
bituminous coal. It has medium heat value and
satisfactory ash fusion temperature and
Hardgrove Grindability Index.

Typical analysis are

Total Moisture : 14 % (AR)

Inherent Moisture : 8 % (ADB)
Ash Content : 14% (ADB)
Volatile Matter : 40% (ADB)
Fixed Carbon : 42% Max
Total Sulphur : 1 % Max
Gross CV : 6,300 Kcal/Kg
HGI : 38. Min

6
Sample – Stock Pile & Barging

7
Sample: Exposed Seams

8
Sample: Construction and Logistics

9
Contents

¾ Overall Summary

¾ Scheme 1

¾ Scheme 2

¾ Scheme 3

¾ Scheme 4

¾ Team Credibility

10
Scheme 1: General description

Cargo Buyer/
Mine
Funder

Cargo value
payment
Cash in tranches
KRG/TNG
Joint monitoring
Barge rental
(wet)

Transporter • TNG may extract directly form Mines or use

an independent contractor.
• Sales term is FOB MV
• Payment term is 50-40-10*. The first 50% in
tranches based on performance.
* 50% at contract signing (max naked exposure, 40% when loading the barge; 10% when documents are supplied) 11
 Scheme 1: Process flow
Coal Getting,
by TNG or
contractor
• Accumulation of coal
stock in intermediary
stockpile
• Payment of 50% coal
contract value on
tranches.
• Control of coal stock with
TNG
Transportation
to stockpile at Barge loading Barging
Jetty
• Managed by contractor, • 2-3 days before ETA of MV • Barges leave to
supervised by TNG the coal loading on barges anchorage point after due
start at rate of ~8000 MT/day documentation
• Transfer to Jetty only
when receiving sign of • Payment of 40% coal contract • 25% barge rental payment
lay-can date value paid per barge loaded
• 25% barge rental at • 25% barge rental payment
contract signing

Final Draft, MV Loading by

MV departs
COA stevedoring agent

• Buyer is assured by TNG’s experienced • Once the loading is • Suggest to use MV that
completed, the cargo is comes with on board
team and contractors managing the process. finally quantified and the grabs with 8000 + MT
Most international buyers do not have such certificate of analysis is /day capacity.
provided by the surveyor • 25% balance barge
capability and extended resource support • 10% balance coal contract payment
• Buyer payment exposure is limited at each value
stage. Buyer will be given rights to jointly
operate account (escrow) or may use
independent monitoring agency at its own
cost. Point of Typical sampling and test results by
independent surveyor 12
 Scheme 1: Risk management
Risk Description Mitigation

I. Product Risk
• Coal quality: Quality below buyer’s • TNG already tested and has experience with various
specifications mines. Mines have track records and open for
independent assessment.
• TNG pays premium to ensure acceptable blending
standard (if any).
• Coal quantity: reserves in the opened pit not • TNG positions its staff to ensure allocated pit is only
enough to meet order used for TNG requirement.
II. Operational Risk
• Mine ability to deliver: the required quantity • Daily monitoring by TNG staff on mine/ contractor
not available on date performance. Use of intermediary stock pile.
• Loading/ unloading time & delay: Port • Logistic control & conforming barge loading after
congestion, etc. causing demurrage assurance from jetty operator.
• Additional slack included in the assumption
• Barge operations • Uses reputable operator with new barges/ tug boats

• Shrinkage/ yield loss: evaporation in transit/ • Factored into calculation and price offered
unloading
III. Payment Risk
• Cash exposure • Pay in tranches based on delivery to intermediary
13
stockpile
• Quality found to be sub-standard • Partial test at intermediary stockpile.
Contents

¾ Overall Summary

¾ Scheme 1

¾ Scheme 2

¾ Scheme 3

¾ Scheme 4

¾ Team Credibility

14
 Scheme 2: General description

• Coal purchase and

Buyer
financing agreement
• Cash disbursement Coal as per spec.

Network of proven and trusted

coal contractors and/or mining
• Financing agreement companies
• Cash disbursement on
KRG/TNG tranches •KEI – South & East Kalimantan
• Performance monitoring •SDB – South & Central Kalimantan
•IMT – South Kalimantan
•Spot quota from reputed large mining
companies
• KRG acts as the fund channeling for buyer in return for managing risk
• Offshore escrow account to be used to ensure joint accountability with buyer
• Sales term is FOB MV; Payment term is cash 50-40-10* and is made when
cargo is secured in agreed stockpile

* 50% at contract signing (max naked exposure, 40% when loading the barge; 10% when documents are supplied) 15
 Scheme 2: Process flow
Transportation
Coal Getting,
to stockpile at Barge loading Barging
by contractor
selected Jetty
• Accumulation of coal • Space rented by KRG on • Crushing and other process • Barges leave to
stock to reach a minimum its account as needed anchorage point after due
pre-set limit documentation
• Control of coal stock • 2-3 days before ETA of MV
• Normally a down payment under KRG the coal loading on barges • Payment of 40% coal
is needed when contract start at rate of ~8000 MT/day contract value paid per
• Payment to reach 50% of
is signed barge leaves jetty to open
contract value based on
sea
weekly delivered load or
pre-agreed batches

Final Draft, MV Loading by

MV departs
COA stevedoring agent

• Once the loading is • Suggest to use MV that

• KRG minimizes the risk of cash lost in case completed, the cargo is comes with on board
finally quantified and the grabs with 8000 + MT
of non-performance by seller. certificate of analysis is /day capacity.
• Buyer does not need to have a large local provided by the surveyor
team to monitor process. • 10% balance coal contract
value
• Buyer payment exposure is limited to down
payment.
• Early alert system if process does not go as
planned.
Point of Typical sampling and test results by
independent surveyor 16
Scheme 2: KRG roles in risk mitigation
• KRG only selects miners and contractors with proven record
Selecting • KRG will introduce miners/contractors to buyer and facilitate additional
mine/ due diligence if required by buyer
contractor • KRG will position one of its staffs in the field to monitor and gather
information on the mine and the miner
• Documented report for buyer’s review
• Develop timeline and agree on daily production and delivery plan
Controlling • Daily monitoring on production to identify production problem
coal stock & • Rents stockpile at reputed and secure jetty
quantity • Daily report by KRG staff on stock status and moving forward plan
• Payment based on 50% value of delivered coal to stock pile
• Test by independent surveyor at the stockpile for agreed batch size
Assuring • Extra payment to stockpile operator to ensure proper crushing and
quality blending (if any)
• May conduct separate test at different surveyor during initial stage until
reaching comfortable confidence level

• Insist on using reliable transporter. Will conduct fleet check

Assuring • Insist on using reputable barge operator. Will conduct fleet check and
efficient performance record
supply chain • Frequent information exchanges with buyer and shipper on lay-can
17
Contents

¾ Overall Summary

¾ Scheme 1

¾ Scheme 2

¾ Scheme 3

¾ Scheme 4

¾ Team Credibility

18
 Scheme 3: General Description
Exclusive Mandate to find
exploitation and financing and
MINE selling rights for 3 Contractor coal buyer KRG
years
• A CCOW mine in Highly reputed
Indonesia mining contractor
• Confirmed reserve Coal at agreed
of 10-50 million quantity, quality • Financing either direct or
& delivery through KRG
MT
frequency • Sales Purchase Contract

Single entity or
Buyer through internal Financier
arrangement

• KRG will structure the deal

• Contractor provides Buyer with exclusive and guaranteed 600,000 MT coal for the first 12
months, followed by an option for securing 1,000,000 MT in the second year.

19
Scheme 3: Proposed Process Flow
• Management presentation to potential buyer and/or financier
Project • Field visits and general survey
Review & due • Buyer/financier to issue indicative term sheet
diligence • Due diligence by financier/buyer appointed agent
• Coal purchase contract & loan agreement signing upon satisfactory
due diligence

• Financial control (if required by financier) framework to be implemented

Disbursement • Equipment procured to be collateralized (fiduciary agreement)
& monitoring • Construction process monitoring
• Production process monitoring
• Coal stock ramp-up monitoring

• First shipment within 45 days from loan disbursement

Coal delivery
• Monitoring at the stockpile
• Independent shipping scheduling & sales

20
Contents

¾ Overall Summary

¾ Scheme 1

¾ Scheme 2

¾ Scheme 3

¾ Scheme 4

¾ Team Credibility

21
Scheme 4: General Description
Area
• South and East Kalimantan mines mostly supplying coal for exports
• Some miners facing financial difficulties and willing to let go and sell mines
• South Sumatra is known for its huge coal reserve but trapped due to lack of
access infrastructure.

Become a JV partner
• Work together with the existing mine to let overcome the financial problems
and in return ask for shares or coal off load
• Right mine to be identified and term sheet discussed subject to interest

Investment Opportunity
• KRG currently holds mandates from various mines for JV relationship or
complete sale

22