Cokal (ASX:CKA) to fast-track underground coal production at BBM mine in Indonesia

Cokal has announced a strategic agreement to develop an underground coal mining operation at Pit 1 of the BBM Metallurgical Coal Mine.

This agreement, signed with PT Cipta Bersama Indonesia (CBI), represents a significant opportunity for Cokal, allowing the company to advance its production timeline without incurring any capital expenditure, and is particularly noteworthy as it was not part of Cokal’s immediate plans to develop underground operations at BBM Pit 1.

However, with CBI covering all upfront and ongoing operational costs, Cokal can now bring forward production and capitalise on the mine’s resources more quickly.

Under the terms of the deal, CBI will handle all aspects of the underground mine development and operations, including the construction of coal processing infrastructure.

CBI will also bear the entire cost burden until the coal is delivered to the BBM ROM stockpile, after which Cokal will take over transport, sales, and marketing responsibilities.

One of the key highlights of this agreement is the revenue-sharing arrangement, where CBI will receive 60% of the revenue from coal sales, while BBM will retain 40%.

This arrangement allows Cokal to benefit from the increased cash flow and value without having to invest its own capital upfront. The development of the underground mine is expected to be completed within 18 months, at which point coal production will begin.

Cokal CEO, Karan Bangur, expressed optimism about the partnership, stating, “This agreement is another major milestone in BBM’s development and production ramp-up. Importantly, prior to the Agreement with CBI, BBM did not anticipate any underground mine development for at least another decade.” He added that the project will significantly enhance Cokal’s production capacity and logistics infrastructure, allowing the company to meet the growing demand for PCI coal products in the market.

Cokal Chairman, Domenic Martino, also emphasised the strategic importance of this agreement, noting that it accelerates the development of BBM’s underground mining capabilities and enhances the overall value of the project.

He credited the company’s largest shareholder and Chairman of BBM, Chin Wai Fong, for facilitating the partnership with CBI and securing this value-enhancing deal.

As Cokal prepares to advance the project towards production, this agreement with CBI underscores the company’s strategic approach to maximising the value of its assets while minimising financial risk.

The collaboration marks a significant step forward in Cokal’s journey to becoming a leading metallurgical coal producer.

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