Risk of coal oversupply Risk of failure or delay in the implementation of the Company’s strategy
Under the terms of contract agreements between the
subsidiaries and the contractors, the contractors are responsible for most capital expenditure requirements and
manpower to run their activities. The contractors’ capital expenditure requirements and operational plans
have risks, which some of the risks are beyond their control, such as increasing price of equipments, delay in
the delivery
of required
equipments and
materials including the ability to obtain permits required, the
procurement of qualified manpower and the ability to obtain funding by acceptable provisions, which may affect
the ability of contractors to meet their contractual obligations to related subsidiaries.
The Company and its subsidiaries or its contractors may
find difficulties in the procurement of machineries, equipments and spare parts, especially the coal trucks,
digging machinery and tires for those equipments required to increase coal production, which may be caused by the
supply constraints in steel and rubber market and high demand for such materials in the global market.
The Company and its subsidiaries must obtain various
permits from the authorities to implement and continue their expansion plan. Failure to obtain required permits
within a specified time period may inhibit or obstruct the expansion plan.
The Companys inability to integrate new mines with
current operation activities.
Declining coal prices during the implementation of the expansion may result in uneconomical business expansion.
There
is no
assurance that
the Company
and its
subsidiaries are able to sell the coal from their production.
Unexpected conditions and development of situation that
may hinder the implementation of the expansion program, including poor weather conditions, forest fires, poor
geological conditions, social and community issues around concession areas, difficulties in reaching agreements
with the residents in the framework of land utilization, and
damage equipments
and machineries
during the
operational activities.
The inability of the Company and its subsidiaries to conduct operations and production expansion in their
PKP2B and IUP territory may cause negative impacts on the financial conditions, operation results and business
prospects of the Company.
There is
no assurance
that the
Company and
its subsidiaries can produce coal in sufficient quantities to
fulfill customer demands, or obligations under existing contracts. Failure in supplying coal in sufficient
quantities can
be caused
partly by
disputes with
contractors, labor problems, failure of machineries and equipments, operational constraints, weather, social and
environmental problems, and variations in quantity and quality of the coal being mined. Failure of the Company
and its subsidiaries in fulfilling their obligations under
existing contracts
may lead
to claims
from customers,
sanctions under
the contracts
and the
incurrence of demurrage costs, things which can disturb their relationship with their customers. In addition, if
in future the quality of the Companys coal production is declining compared with the previous quality, the Company
may have to provide greater discount to its customers. Should this occurs, it may cause negative impacts on
financial condition, results of operations and business prospects of the Company.