Sydney based energy company Jatenergy (ASX:JAT) has finalised a profit sharing agreement struck with Chapmans Limited (ASX:CHP) that could see increased production and profits from its Indonesian coal projects.
In November, Jatenergy announced the deal and a first payment of $200,000 has been received from Chapmans.
Under the agreement, Jatenergy will receive 50% of profits from coal shipments from the Jongkang project.
This joint venture will initially rework the Jongkang project into a higher production mine facility with a monthly production target of 20,000 tonnes per month.
If Chapman's elects to invest the further $850,000 into 50% owned Singapore subsidiary company, Blackrock Energy Pte Ltd, it will accelerate Jatenergy's establishment of the mine site at Gerrongang which will take around 2-3 months to bring into production.
The Jongkang I and Jongkang II projects are currently in production and produced around 35,000 tonnes over the past year and were developed in December 2011 as part of a Joint Venture arrangement with a local Indonesian partner.
Located in East Kalimantan approximately 5 kilometres along an existing haul road from the Mahakam River, and about 25 kilometres from a major hub of Indonesia's coal industry at Samarinda, each concession is covered by a production licence comprising 100 hectares.
Transport infrastructure is capable of handling a maximum of 20,000 tonnes per month, subject to weather conditions. Upon the receipt of the investment from Exalt, Jatenergy will move to operate the Jongkang project at increased capacity.
The cash flow that will be provided by the increased production of this project is an important part of the Jatenergy business as it will substantially assist with funding the expansion of the company's operations
On 3 December 2012, Jatenergy announced that it had signed an exclusive MOU with PT Saijaan Prima Coal (SPC) to ultimately acquire the 183 hectare property within the Kotabaru regency in South Kalimantan.
The MOU was effective for three months, during which time economic, geological and legal due diligence was conducted.
Under its investment model, the profits from the venture are shared between Jatenergy and SPC. In 2013 over 300 metres of drilling was carried out by Jatenergy and a detailed topographical survey was undertaken to produce working mine plans which will cost under $1 million to bring them into production.
The drilling to date totals around 360 metres, including 7.5 metres of coring. The transport infrastructure handles 20,000 tonnes per month, depending on weather conditions and Jatenergy has the rights to 100% of this project. Work has just commenced on a new jetty which is being funded by the owner of the site.
This new jetty will be located only 5 kilometres from the mine - as opposed to the public jetties which are 22 kilometres away. With existing infrastructure including a number of jetties in the close vicinity, Jatenergy looks forwards to bring this project into production using the financing provided by Chapmans.
Indonesian coal is generally low in ash and sulphur but high in volatiles and moisture. Nearly 80% of production is rated as being sub‐bituminous, having a niche position in domestic and international markets because of strong demand for environmentally friendly, low ash, sulphur and nitrogen thermal coal.
The coal is commonly sold for blending with higher sulphur coal, enabling the lower quality product to meet emissions standards.
Indonesia's coal mining sector is one of the fastest growing industries in the country, recently overtaking Australia as the world's largest exporter of thermal coal. Exports have increased more six‐fold from 31 million tonnes (Mt) in 1995 to 191Mt in 2009.
Its main export markets are Japan, India, Korea, Taiwan and China.
Jatenergy is methodically moving towards increased cash flow and profits from its Indonesian coal projects.
If Chapman's elects to invest the further $850,000 into Blackrock Energy Pte Ltd, it will accelerate establishment of the mine site at Gerrongang which will take around 2-3 months to bring into production and increased cash flows and profits.
Proactive Investors estimates that Jongkang's production of 20,000 tonnes of coal per month could generate between $100,000 and $120,000 in profit per month.
This would translate to $50,000 to $60,000 in profit per month to Jatenergy. Against a current market cap. of circa $2 million and share price of $0.023, the $600,000 to $720,000 per annum completely undervalues Jatenergy. On Proactive Investors' calculation, we have a share price target of $0.034 - $0.045 per share.
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