BIZ BUZZ: A glimmer of hope for Semirara

Notwithstanding the Lunar New Year holiday break, Semirara Power and Mining Corp. had to convene an emergency analyst briefing on Tuesday. It’s to ease market jitters as its stock prices have crashed following reports that its coal operating contract wouldn’t be extended by the government.

In a Feb. 16 research note, stock brokerage COL Financial reported about what’s fueling management’s optimism that it could win the upcoming bid for a new contract.

The first reason lies in the company’s technical capabilities in operating large-scale coal operation. The unique features of mining on Semirara Island—particularly having coal deposits located below sea level—might just be difficult to replicate, its management reckons.

The second reason is financial in nature. The remaining mine life of Semirara may not be sufficient to justify the huge financial investment required for newbies.

“Huge financial investment requirement might serve as deterrent for new entrants,” COL noted.

During the briefing, Semirara management estimated that the investment required to run this 15-million metric ton (MT) annual coal mining operation is P3 billion per MT, or at least P45 billion. And this is on top of the financial requirement of the forthcoming bid.

“Given that the estimated remaining mine life of the Semirara Island is only 10 years, the potential return might not justify the amount of investment required for new entrants,” COL said, quoting management view.

Of course, everyone wants to know about Semirara’s plans in the worst case that it would lose the bid. Yesterday, shares prices of Semirara and parent conglomerate DMCI Holdings continued their free fall.

Assuming it would lose the bid, Semirara indicated that it’s willing to act as service contractor to the new concessionaire, the COL research pointed out.

Recall that the group of Manual V. Pangilinan is so far the first to express interest. Being partners at Maynilad Water Service, even if MVP group bids separately and wins, it’s possible that the tycoon may still get the Consunjis as partner or service contractor.

For his part, Aboitiz Group chief Sabin Aboitiz told us this asset is “not in our radar.” On the other hand, San Miguel Corp. chair Ramon S. Ang Corp. told Biz Buzz he’s “not sure” to join.

It will be interesting if tycoon Enrique Razón Jr. joins the fray.

For the power generation side of the business, Semirara management estimated that the company’s inventory and coal production from the remaining duration of its contract should be enough to supply the requirement of the Calaca coal plants until 2027, COL noted.

“Beyond that, it will have to rely on imported coal from Indonesia for its power generation coal consumption,” COL noted.

COL’s rating and fair value estimates for SCC are now under review pending the outcome of the bid for the new coal operating contract.

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