Stone & coal interests
The group has made loans to certain Indonesian companies with interests in respect of stone deposits and 2 coal mining concessions, all of which are located in East Kalimantan in Indonesia.
Between 2008 and 2010, the REA group embarked on a new initiative investing in two coal mining concessions in East Kalimantan. Subsequently a further investment was made in a stone concession comprising a substantial deposit of high grade andesite stone located to the north of the group’s main plantation estates.
The andesite stone and coal mining concessions are held by Indonesian companies, which are currently wholly owned by the group’s local partners. Stone quarrying is classified as a mining activity for Indonesian licensing purposes and is subject to the same regulatory regime as coal mining.
At the outset of the stone and coal activities, it was agreed that the group had the right, subject to satisfaction of certain conditions, to acquire 95 per cent interests in each of the concession holding companies at the local partners’ original cost. Pending exercise of that right, the concession holding companies were ﬁnanced by loan funding from the group on terms such that no dividends or other distributions or payments could be paid or made by the concession holding companies to the local partners without the prior agreement of the group. Changes to the Indonesian regulatory regime applicable to foreign investment in mining since these arrangements were agreed has meant that, since 2014, the applicable conditions for acquisition of equity in the concession holding companies can no longer be satisﬁed in their existing form. In the meanwhile, the group has continued to provide loan funding to the concession holding companies.
In 2012, the group concluded that coal mining and trading have specific complexities that are not shared by the group's agricultural operations and decided to limit further capital commitment to the coal companies and to concentrate on maximising recoveries of the amounts already invested. Then, in 2014, in light of a substantial fall in international coal prices, coal activities were suspended until 2017 when coal prices began to recover. In 2019, the principal coal concession holding company appointed a contractor to provide mining services and manage its port facility, as well as funding all further expenditure in exchange for a participation in profits from the mine. Activities are expected to commence during 2021, but it remains the group’s intention to withdraw from coal activities and to seek to recover its loans to the coal concession holding companies.
The stone interests are of more significance than coal and are complementary to the group’s plantation interests. The group’s agricultural operations can utilise significant quantities of crushed stone for building and infrastructure programmes. In addition, stone offtake arrangements have been negotiated with a neighbouring company for its road building project. Looking further ahead, local civil works for government projects in East Kalimantan are likely to require large quantities of crushed stone.