With superpowers already in the mix for its high-margin metallurgical coal project and, importantly, a good relationship with various levels of Indonesian government, emerging Aussie coal company Cokal is proving there’s a big difference between opportunity and market perception.

Cokal has a project with high-quality coal that it can get into production quickly in the low-cost environment of Indonesia which, compared to Australia, is favourable on a number of fronts.

More on that later.

At least two Australian Securities Exchange and AIM-listed companies have had much-publicised run-ins with the Indonesian government and local partners, but there have been no such troubles for Cokal, which is pushing forward to an early start-up for its Bumi Barito Mineral (BBM) project in the North Barito Basin.

Cokal has headed off any issues by going through the Indonesian process thoroughly so it has converted its contractual rights to real property interests to the point where it owns and controls the majority shares of the companies that own the tenements, and Cokal’s interest in these companies has been formally recognised and approved by the Indonesian authorities.

Cokal has positive relationships with the local Indonesian government, which is Cokal’s partner in a local infrastructure company they have set up together, with a 70:30% ownership split – Cokal with the 70%.

“Having them part of what we’re doing helps us get our approvals and motivates them to help us,” Cokal executive chairman Peter Lynch said.

A pre-feasibility study (PFS) was completed last month and by the end of this year Cokal should have most of the major approvals in place. It will then look to have a commitment to construction by Q1 2013.

If all goes to plan, by late Q3 next year production will have started up at 2 million tonnes per annum, and after 18 months will be ramped up to 5.6Mtpa for Stage 2, by which time Cokal will look to incorporate its three other projects in the area by leveraging off the infrastructure chain it will have put in place.

There is plenty of potential to increase the inferred resource size, as its coal seams are open along strike and down dip, with a trend towards a high coking coal fraction and less pulverised coal injection (PCI).

BBM has a 77Mt JORC inferred resource – 70% coking coal and 30% PCI. In May this year the company said it targetted production starting in 2014, but that has been brought forward to late Q3 next year, such is Cokal’s progress.

The renaissance will come as Cokal’s BBM project represents a new supply source for India, China, Japan and Korea, which are already major buyers of coal from Indonesia, giving them the chance to diversify away from the central Queensland mines.

Less distance from Indonesia means lower shipping costs for the buyers, possibly by up to half as less.

Indonesia also has the edge over the coal mines in central Queensland with much lower capital cost per tonne of annual production, lower labour and energy costs, and slightly cheaper fuel.

Lynch believes the key is offsetting the perception of Indonesia with the opportunity. The PFS will highlight that, for a much lower capital expenditure, investors are getting more annual production compared to Australia.

Indonesia has a large, mature coal industry, so there is an abundance of technical expertise available.

Lynch said the high-quality coking coal industry in the region where the company operated was underdeveloped, with only two mines operating at the moment, and it’s right on the doorstep of the market.

“The Indian steel industry, one of the big buyers, already buys a lot of thermal coal out of Indonesia.

In terms of proximate distance, there’s a lot of logistical simplicity from Indonesia to India, which struggles with infrastructure in the depth of its receiving ports. It can only handle smaller size ships which, coupled with a reduced shipping distance, means a big differential in costs,” Lynch said.

“Regarding infrastructure, with river barging, Indonesia is quite competitive with Australia, but you don’t have anywhere near the capital costs. You don’t have to build a railway line or a port, and you can contract out your barging and your transshipment.”

The coal itself in Cokal’s Kalimantan project has a very high fixed carbon content, high energy, a very high crucible swell number (CSN) of 9 and a very low deleterious element, so it’s low in sulphur and phosphorous. It also has low in situ ash, which allows Cokal to do the direct ship option, which means it don’t have to build a wash plant, which cuts down cost and time significantly.

“So it’s a much simpler, cheaper project,” Lynch said. “That’s our initial 2Mtpa focus, then after 18 months of production we move into a larger, more sophisticated project which incorporates some coal processing on the back of already having the cash flows and proven the production.”

And there’s plenty more where that came from.

Cokal’s other projects in Kalimantan are the Borneo Bara Prima (BBP), Anugerah Alam Manuhing (AAM) and Anugerah Alam Katingan (AAK).

BBP is to the west of BHP Billiton’s Maruwai coal project, which hosts the Lampunut coking coal deposit in the Batu Ayau formation immediately to the southeast of the eastern BBP project area.

Drilling is set to commence on both AAN and AAK (both have a 75:25% ownership split with the local owner) later this year.

SRK consulting, which did the due diligence on the four projects for Cokal, believes that all of them are prospective and worthy of further exploration, including drilling and additional sample analysis.

Cokal’s 19,920 hectare BBM tenement straddles the Barito River, with outcrops that have bright coal which drilling and lab analysis has confirmed as metallurgical coal.

SRK said laboratory analysis of one of the coal samples at AAK indicated the coal was also a good quality anthracite with low ash and good specific energy. The field descriptions of the coal were also indicative of a hard high rank coal.

All four projects will utilise the same river barging solution that Cokal has come up with, along with the river barge loading ports. There are two river ports and two coal-fired power stations to facilitate metallurgical coal production.

With all this, Indonesia is clearly Cokal’s focus at the moment, but the company also plans to have a global footprint – beyond the superpowers that constitute Indonesia’s major buyers.

Cokal also has projects in Queensland, Tanzania and Mozambique, but the Kalimantan projects will give the company leverage to develop a truly global perspective.

Cokal started life as private company Jack Doolan Capital (JDC) before being acquired by Altera Resources, with the JDC board assuming control.

Altera was rebadged Cokal Limited in February 2011 to better reflect its ambitions to become a global metallurgical coal business, on the back of the coking coal potential of Kalimantan.

*A version of this report, first published in the October 2012 edition of RESOURCESTOCKS magazine, was commissioned by Cokal