ARMS outlines comeback plan as fighting founders split

Fri Mar 28, 2014 9:29am EDT

Related Topics

* Restructuring plan focuses on cost-cutting, debt refinance

* Will curtail production if coal prices fall further

* ARMS to distribute $400 mln via dividend or shares scheme (Adds chief executive comments, details restructuring plan)

By Silvia Antonioli

LONDON, March 28 (Reuters) - Asia Resource Minerals, the Indonesian miner emerging from years of bitter shareholder in-fighting, said on Friday it would now focus on restructuring its business to combat weak coal prices.

ARMS, previously known as Bumi, finally reached a deal on Tuesday of this week to split with co-founding family the Bakries and begin the process of rebuilding a company that has seen its shares drop almost 80 percent as boardroom rows and allegations of wrongdoing exacerbated a tough trading climate.

London-listed ARMS owns 85 percent of PT Berau, Indonesia's fifth producer of thermal coal - used in power generation - and now plans to cut exploration and mining costs to counter falling prices that caused its 2013 core profit to almost halve.

"We now look forward to maximising the opportunity at PT Berau as we begin a new chapter in the company's life," said chief executive Nick von Schirnding.

"In the continuing weak environment for thermal coal prices we remain resolutely focused on cost reduction and asset optimisation."

ARMS also intends to slash contractor rates and reduce fuel usage while refinancing debt at a lower interest rate.

The miner has said it plans to boost output growth by 10 percent in 2014, subject to negotiations with Indonesia on increasing the quota on the export of thermal coal.

But von Schirnding reiterated on Friday that ARMS would curtail production promptly should coal prices fall further and make some output unprofitable.

"This is all about mining profitably and should we see further weakness in coal price, yes, we will curtail production with no hesitation," von Schirnding said.

BATTERED PRICES

ARMS was founded in 2010 by the Indonesian Bakrie family and financier Nat Rothschild, with the aim of giving London investors access to promising Indonesian coal assets.

Since its creation however, coal prices have been battered by excess supply and weakening demand growth from emerging markets. About 20 percent of the world's producers are currently loss-making, according to industry sources, and coal miners around the world have closed mines and cut staff.

Against this backdrop, the relationship between the Bakries and Rothschild soured and the company was battered by boardroom battles and recriminations on all sides.

When ARMS announced its long-awaited split with the Bakries on Tuesday, it sparked bitter posts on Twitter between a Bakrie family member and Rothschild, a member of a prominent dynasty of bankers.

Von Schirnding said on Friday he was "confident the company was in a better position to deliver value to our shareholders" but when asked by journalists whether 2014 was ARMS' toughest year so far, responded: "I think it is."

ARMS posted earnings before interest, tax, depreciation and amortisation (EBITDA) of $176 million in 2013 - 45 percent below the previous year despite the company increasing production by almost 12 percent to 23.5 million tonnes of coal.

It has not given any earnings outlook for 2014, but has said it intends to distribute $400 million to shareholders, either by a straightforward dividend or through a B shares scheme, which is potentially more tax-efficient for shareholders.

ARMS is also looking to refinance $450 million in bonds due to expire in 2015 hoping to obtain a lower interest rate.

Shares in the company were up 1.2 percent by 1305 GMT, in line with the broader mining sector.

(Editing by Sophie Walker)

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