Orpheus Energy: Secures 100% Interest In Two Agreements

Infrastructure and trading strategy driving growth
Orpheus Energy (OEG.AX) is consolidating Indonesian port allocations and facilitating coal exports from fragmented coal producers, some of which do not have export licences. This ‘logistics trading’ model will generate additional cash flow without raising new capital and is in contrast to many coal companies that are struggling to achieve production or growth.

Capital light infrastructure and trading model
OEG is evolving from predominately a coal mining company to a coal infrastructure and trading company. This has been achieved by securing coal infrastructure agreements that provide agreed coal export capacity for its own produced coal (OEG attributable share 51%) and the loading of other producers’ coal (OEG attributable share 100%). The company makes a trading margin on each tonne of coal shipped. The change is in line with the company’s stated strategy. It represents a ‘capital-light’ model with greater potential for scale. Two infrastructure agreements have so far been announced and more are possible. By employing this model, OEG has been able to avoid shareholder dilution. The agreements overcome constraints to sales due to the limited availability of barge loading slots and enable OEG to expand port capacity through efficiencies and investment. The agreements should increase coal exports from less than 50,000 tonnes per month to >240,000 tonnes per month, equivalent to approximately 3.0Mtpa. By 2015, annual exports are expected to increase to 4.5Mtpa.

OEG secures 100% interest in two agreements
Both agreements are in South Kalimantan. The most significant agreement is with SKJM Port, which will continue to be managed by the current port owner while OEG has responsibilty for allocating loading slots. This agreement requires a payment comprising a fee for the lease and a modest level of capital for both upgrade and expansion work. This will be funded off balance sheet by a local infrastructure investor. The upgrade will lift capacity to 2.5Mtpa then to 4.0Mtpa after the expansion. The second agreement has been executed with Abidin 1 Port and secures just under 0.5Mtpa capacity for OEG’s exclusive use.

Mining investment to be deferred
OEG anticipates an average net trading margin of around US$2 per tonne on coal handled through the ports. It believes this is the best way of providing profit growth with the present balance sheet. The expansion of its higher-margin but more capital-intensive mining operations has been deferred for the time being.

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