Conquering the Indonesian (and Mongolian) Frontier

I caught up recently with Ranjeet Sundher in Singapore to go over his latest projects and thought it would be worthwhile introducing him to you. I really like Ranjeet because he’s a nuts and bolts entrepreneur, the type of guy who is adaptive enough, smart enough and flexible enough to prosper in countries which many shy away from.

Ranjeet is the CEO of Challenger Deep Resources (TSX.V: CDE), an Indonesian coal producer. Ranjeet formerly built-up Red Hill mining before selling it to Prophecy coal in Mongolia. More on that below.

Scott met more recently with Ranjeet over in Cambodia. Enjoy!

Scott: Ranjeet, you’ve a fascinating background spanning software to coal mining on the Mongolian steppe. You moved from Canada to Indonesia in 1995. What prompted this move?

Ranjeet: My background is actually in equity trading. I worked up from a phone clerk to senior trader on the Vancouver stock exchange and eventually worked on the US trading desk. The Canadian Stock Exchanges were dominated by resource companies, mostly exploration and this is where the focus of my trading was. As a hobby I began staking claims in “hot” areas and selling them to companies, my hobby then became my full time job and I moved to Indonesia, which I believed offered the most reward long-term. I formed a private mining service company that soon grew to 90 employees and we covered everything from acquisition to exploration, legal and accounting for our clients. It was an exciting time until some political uncertainty affected FDI. Then in 2001 I relocated to Singapore where my home base has been ever since.

Scott: In 2001 Mongolia creeped onto your radar. After following the story remotely via your Bloomberg terminal, you ventured to Mongolia to learn about the resource revolution about to unfold first hand. What made you finally decide to commit time and capital there? Something which you are doing to this day.

Ranjeet: I have always, even now, watched for breaking resource news and traded accordingly. In January 2001 Ivanhoe, then a junior, reported an exceptional drill result from its Turquoise Hill Copper/Gold property. I realized immediately that juniors exploration companies from around the world would start to focus their attention on Mongolia. Within 2 weeks I was on a plane to UB and spent the majority of my time there, until 2 years ago.

Scott: From a previous conversation, you mentioned Mongolia was awash with opportunities… from purchasing land leases to the obvious commodities plays. How did you find trustworthy partners to help you navigate the local scene?

Ranjeet: There was some luck involved. For the first 2 weeks I could not find the right partner who understood what I needed. UB was much different then, with no expat scene and no service companies in my sector. On the last day I met the right local partner who understood exactly what I needed, we have been partners ever since.

Scott: Founded in 2003, Redhill Energy focused on Mongolia and eventually identified 200m tonnes of thermal coal at Ulaan Ovoo, near the Russian border and over 1 billion tons on the Chandgana projects in Khenti. What was the strategy for this operation? Where was your end market and how did you intend to achieve delivery with limited infrastructure in country?

Ranjeet: To be honest we were a little short-sighted with our Mongolian ambitions, we were there to build resources fast and gave little thought to how we would sell it, a massive land grab was under way. We had spent 2001 until 2003 searching for gold and copper privately, then as Redhill we continued this and added Uranium. We had lots of initial exploration success but nothing panned out on the scale we needed. We started looking at coal in 2004, at this time there was no interest. In 2005 we made our first acquisitions and the next 4 years were very busy until we sold the company.

Scott: Today it is no surprise that Mongolia is awash in coal, especially thermal. Looking at the economics of this deposit can I assume that this was high-quality coal?

Ranjeet: The Ulaan Ovoo coal was of medium quality, but at the time was probably one of the top 5 deposits in Mongolia. The economics looked good at the resource delineation stage and we had several international consulting companies sign off of on positive scoping and PFS studies as the project developed.

Scott: What were some of the hurdles you faced operating this mine, or was it a rather smooth process?

Ranjeet: The acquisition and exploration of our Mongolian coal projects were straightforward and clear, the hurdles came with the needed mine and environmental permitting. The process was not that clear and few foreign companies had done this, so we kind of learned as we went. In the end we were successful and the hurdles we faced were nothing compared to what others face in Mongolia today.

Scott: Oyu Tolgoi’s tax and royalties agreement with the Mongolian government was initially settled in 2009 which sparked the great mining rush. Was this the catalyst that transformed Mongolia from a sleepy backwater to world class mining destination?

Ranjeet: Without the Ivanhoe discovery in 2001 there would have been no mining rush and Mongolia would not be what it is today. The pioneers of our industry started arriving in Mongolia between 2002, and in 2009 the mainstream investors started to arrive. Mongolia will again have another rush to the resource sector, though in my opinion that’s a couple years away.

Scott: Your operating history in Asia has been largely coal based. What licenses besides Ulan Ovoo did Redhill own and were any of them outside the realm of coal?

Ranjeet: Redhill started out exploring for copper and fold in Mongolia as well as Uranium, we probably had some sort of deal on over 50 projects in total over the years. In late 2004 I decided to have look at the coal sector, because at that time interest did not even exist. In 2005 we acquired Ulaan Ovoo, and 2 years later made a massive coal discovery on our Chandgana coal projects in Khenti Province.

Scott: In 2010 Redhill Energy shareholders agreed to a merger with Prophecy Coal. What made this strategically attractive? Why not position yourself to have been bought out by one of the majors?

Ranjeet: This deal was simply to good to turn down. At the time of the deal Redhill was looking at a capex of $50 million to get Ulaan into production, as well our market cap was only $20 million. By the time our all share swap deal closed the Redhill market cap was around $58 million. We all had shares in Prophecy, who at the time was trading large volume and raising large amounts of capital, they later spun out the non-Mongolian assets into NKL and we received additional shares, it was a good deal for us.

Scott: Today you are focusing your time on Challenger Deep Resources, a TSX.V listed company focusing on developing high caloric coal deposits in Central Kalimantan, Indonesia. At a time when prices have plummeted, what continues to attract you to the Asian thermal coal market?

Ranjeet:  In 2008 I decided I wanted to run a coal mine for cash flow, I believed in the sector’s growth potential and had a good understanding of the steps to success from my previous coal experiences. The best place in the world for this is Indonesia, so I built Challenger and my team and we started to build a small to mid-size coal producer.

Scott: Elaborate on the specifics of the thermal coal market. What does the coal mining and export environment look like in Indonesia?

Ranjeet: Indonesia is the largest exporter of thermal coal in the world, in recent years it has surpassed Australia. There is a lot of untapped potential, and in large part the government has been supportive for 40 years to foreign investment in this sector, this does not however mean that irrational thinking doesn’t comes into play from politicians from time-to-time, but it always works out.

Scott: Speaking of irrational thinking, in 2009 Indonesia created a mining law banning the export of unprocessed ores, to be enforced from 2014. The Supreme Court struck down the export ban in September of last year, though MoEMR is attempting to counter the ruling. While it seems rational to demand the creation of an upstream mining industry in-country, it has wreaked havoc on junior resource companies and scared away investment. What are your thoughts on all of this and is there the potential for the domestic coal industry to be negatively impacted?

Ranjeet: I would first like to point out that the Indonesian domestic market demand for coal is growing every year. Additional power plants are being built and domestic users are competing for the coal that’s being exported, also domestic coal sales are priced against an average of different international coal benchmarks, so margins to sell your coal domestically are competitive. For the foreseeable future coal exports will continue as they have been, I could see however some increased government royalties on exports coming into play once coal prices start to move upwards.

Scott: Your Barito licenses are the most prospective of CDE’s properties, and are expected to be producing coal in Q4. A moderate sized deposit, what are you doing to enhance your resource base? What are your other licenses showing in terms of coal quality and quantity?

Ranjeet: The Barito project comprises 2 licenses 11km from the Barito river, there are also several other licenses in this area that we find attractive. There was only one private road into this area and one jetty, Challenger has purchased all this infrastructure. This creates a mini coal hub in this area and gives us leverage and scale to grow the resources and the economics.

Challenger has reviewed over 200 projects. It is our goal to have 2 operating mines before the end of 2014 as well as 2-3 exploration stage projects. This would then provide several value drivers for our shareholders as far as a return on investment.

Scott: That’s a remarkable filtering process, 200 licenses. Clearly you have a narrow focus which I presume is based predominately around low-capex projects?

Ranjeet:  Low hanging fruit… we are looking for 5 to 10 year mine life projects with a capex under $10 million and a payback within 24 months of production starting. We rely on investor money to grow and we need to have the economics be very competitive.

Scott: Thanks Ranjeet, we’ll speak in more detail soon!

We expect to hear more from Ranjeet in the coming months as I’ll be catching up with him shortly. We also hope to have him speak at our next Meet Up in Southeast Asia, with details on that forthcoming.

– Chris

“How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.” – Robert G. Allen


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