Mercator will mine coal in Indonesia

Shipping companies world over are looking to diversify to hedge against the cyclicality of their core business. But Mercator Lines has taken a deeper path into coal mining. The country’s second-largest private sector shipping company has entered the business through its second subsidiary in Singapore. It has secured mining licences for two coal blocks in Indonesia and one in Mozambique.

Mercator has secured 50% rights in two coal blocks in Indonesia, which have reserves of 15 million tonnes of decent to good quality coal. The company would start production of coal in July this year and expects the two mines to contribute one million tonne of coal in the first year. However, the coal block in Mozambique where Mercator Lines has 85% rights is still under development. The coal reserves there have been estimated to be around three billion tonnes and the company anticipates a wait of another two to three years before they can start production.

The operating cost of producing one tonne of coal is $25. This also includes production tax and 9% royalty that the company needs to pay the Indonesian government. Thermal coal, on the other hand is currently sold at $45-50 per tonne. While, doing a forward calculation, one million tonne of coal for Mercator would translate into $50 million of revenue and a $25 million profit. Having 50% rights in the Indonesian mines, Mercator is set to draw a profit of $11-12 per tonne of coal that they produce or about $12 million profit.