Stone & coal interests

The group has made loans to certain Indonesian companies with interests in stone and sand deposits and coal mining concessions, all of which are located in East Kalimantan in Indonesia.

The stone concession comprises substantial deposits of high grade andesite stone located to the north east of the group’s northern plantations. Stone interests are complementary to the group’s plantation interests because quarried stone represents a valuable resource for improving the durability of infrastructure in the group’s operations.

The coal mining concessions comprise a high calorific value deposit near Kota Bangun and the lower grade Liburdinding concession in the southern part of East Kalimantan. The Kota Bangun concession has been largely mined out and is currently inactive. The Liburdinding concession is undeveloped and the group is withdrawing from further involvement with the company holding this concession.

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.

The sand concession comprises quartz sand deposits within the Kota Bangun coal concession area, in part within the overburden overlaying the remaining coal deposits. Although this sand lies physically within the same area as the coal, the concession is held by a separate legal entity because sand and coal mining in Indonesia are subject to separate licencing arrangements and a coal mining licence does not entitle the holder of such licence to mine sand.

The andesite stone and the two coal mining concessions are, at the moment, wholly owned by the group’s local partners. The group’s involvement with these concessions derives from what were originally plans for the group to diversify in a limited way into coal mining and stone quarrying. Pursuant to the arrangements originally agreed, the group had the right, subject to satisfaction of certain conditions (the applicable conditions), to acquire 95 per cent ownership of the concession holding companies at the local partners’ original cost. Pending satisfaction of such conditions, the group agreed to make available loan funding to the concession holding companies on terms such that no dividends or other distributions or payments could be paid or made by the
companies concerned to the local partners without the prior agreement of the group.

Changes in Indonesian mining regulations that occurred prior to satisfaction of the applicable conditions has hitherto precluded implementation of the original planned equity ownership. Pending a resolution of this problem, the concession holding companies have not been consolidated but the group has continued to provide loan funding to the concession holding companies. Recent further changes to Indonesian mining regulations have altered the position. The group now intends to take advantage of the currently more permissive mining regulations and to implement the original agreement under which it has the right to acquire a substantial equity participation in the stone concession holding company, subject to due compliance with Indonesian regulatory requirements.

Given that the Kota Bangun coal and sand concessions lie within the same physical area, the group believes that splitting ultimate ownership of the two companies would be likely to create conflicting interests and operational challenges. Accordingly, the group has agreed that the sand concession company should take over and retain ownership of the coal concession company. It is the group’s intention to withdraw completely from coal mining.

Once the sand concession company has formally acquired all of the substantive licences required for mining its quartz sand deposits, the group will proceed to subscribe a 49 per cent interest in the enlarged share capital of that company pursuant to a joint venture agreement agreed in 2022.