Semirara Mining Power and Corporation
Essay by Pierre Raph Patriana • November 18, 2017 • Research Paper • 16,336 Words (66 Pages) • 1,422 Views
- PURPOSE OF THE STUDY
The purpose of this study is primarily for credit analysis of Semirara Mining Power and Corporation. The goal is to help the lenders assess the company about its ability to pay its obligation whether they (creditors) will be confident enough to lend money to the company. This study focuses on the credit side considering the availability of information that can be used for credit analysis or in other words, analyzing the credit side will be more convenient in the perspective of the researchers provided by the available information. It answers the question if it is wise to lend SMPC funds? Could the company is able to pay its obligation to its lenders?
- CORPORATE PROFILE OF SEMIRARA MININGS and POWER CORPORATION
The company was founded on February 26, 1980 and is headquartered in Makati, Philippines.
On April 7, 1980, Semirara Mining Corporation became the assignee of the coal operating contract pursuant to Presidential Decree No. 972, otherwise known as “The Coal Development Act of 1976,” which was then awarded by the Energy Development Board, now the Department of Energy on July 11, 1977, to a consortium formed by three private companies covering 5,500 hectares track of land. In June 1983, the contract was amended by agreement of the parties, which gives the Corporation exclusive right to conduct exploration, development and coal mining operations on Semirara Island, in the Antique Province until 2012. Under the said law, the Corporation shall have the following incentives: exemption from all taxes except income tax; exemption from payment of tariff duties and compensating tax (VAT) on importation of machinery and equipment and spare parts, and material required for the coal operations, subject to certain conditions; accelerated depreciation of fixed assets necessary in coal operations; preference in grant of government loans, among others. In return, the Corporation pays the Government three percent (3%) royalty for all incentives it enjoys under the coal operating contract. Production at the Unong mine commenced in early 1984 with final acceptance of the project by the Corporation occurring in 1987 following the resolution of technical issues raised by the Corporation. Voest Alpine, after the Corporation negotiated for loan restructuring, acquired 40% equity in the Corporation’s shares. In February 1997, Voest Alpine’s equity was subsequently purchased by DMCI Holdings, Inc. (“DMCI-HI”). However, following further difficulties experienced by the Corporation, DMCI-HI agreed to equity conversion in 1998, which gave it a total interest in the Corporation of 74%. In addition, in July 2004 the Corporation issued 19,657,388 shares to DMCI-HI, taking its shareholdings to 94.5%, and on December 3, 2004, the Corporation issued dividend of P225 million consisting of 225 million shares in favor of all holders of record as of November 25, 2004. As of August 31, 2007, DMCI-HI owns 58.31% of the Corporation’s shares. To date, the Corporation is the only large-scale coal producer in the Philippines and is engaged in surface open cut mining of thermal coal from its Panian mine. The Corporation accounted for approximately 22% of the country’s total coal consumption or 88% of the domestic coal supply for the year ended December 31, 2006.
- INDUSTRY ANALYSIS
- NATURE OF BUSINESS and SIZE OF SMPC IN THE SAID INDUSTRIES
- MINING- SMPC is the biggest coal provider in the Philippines. It is estimated that it produced 7.1 Million Metric Tons in year 2011 alone. They are engaged in surface mining of thermal coal from the Panian mine on Semirara Island, in Antique province. According also to the dept. of Energy, the companies coal production is 97% of the total production in the Philippines in the 2014 production data.
- POWER- They are also a power provider company. In 2009, the Company acquired two 300-megawatt (MW) coal-fired power plants from the National Power Corporation. Located in Calaca, Batangas, both units were primarily designed to run as base-load plants using coal from Semirara Island. This plant provide additional powers to the Luzon Grid. SMPC plans to increase its total generation capacity by another 600MW, to meet the growing power demand in Luzon and Visayas. The Calaca complex has an environmental compliance certificate for up to 1,800 MW. But this does not mean that SMCP is the biggest provider power provider in the Philippines. Although Coal is the major source of energy in the Philippines as for now comprising of 30.4%, there are also source of energy like hydro (21.6%), diesel (18.5%), natural gas (17.7%) and geothermal (11%). Visayas relies more on geothermal plants (41%) while over half of Mindanao power supply is derived from hydro plants.
- CEMENT and others- SMPC is also engage in cement industry which give them 15% of their 2014 total sales. But SMPC is not the biggest in the cement industry. There are more known brand of cement like Holcim, Lafarge, and Pacific Cement.
- GEOGRAPHICAL PRESENCE OF SEMIRARA
- SEMIRARA MINING AND POWER CORPORATION is a local company here in the Philippines. It is based in Makati, Philippines. Although it is a local company, its products are also good for export quality. The name semirara alone is came from the name of the island that the company is currently do its mining operations. It is called Semirara Island, located near the municipality of Caluya, Antique Province in the Philippines.
- TOP COMPETITORS OF SMPC IN ITS INDUSTRY
- Mining- Small scale mining in Cebu, Batan Island, Surigao and Zamboanga and the import coal provider outside the country especially from Indonesia, China and Australia.
- POWER- Diversified conglomerate San Miguel Corp. is the biggest producer, accounting for 22% of the total sold to the grid, based on their aggregate share of power produced in plants they own or partly own ("attributable capacity" in industry jargon). Even if the group's unit, SMC Global Power, sold the 620-megawatt (MW) Limay Combined Cycle plant in 2011, its 2,545 megawatt (MW) attributable capacity has eclipsed prominent business clan, Aboitiz, which comes second at 20% (2,350MW), and the Lopez group third with 18% (2,150 MW).
- CEMENT- SMPC is not the biggest in the cement industry. There are more known brand of cement like Holcim, Lafarge, Pacific Cement, CEMEX Philippines, Northern Cement, TAIHEIYO Philippines.
- BUSINESS STRATEGY
- Primary focus of operations of SMPC AND MAJOR OPERATING SEGMENTS:
- For the year 2014, volume sold to export market accounted for 59% of the total coal sales, the power generation sector 26%, cement and other industries at 15%. Meaning, SMPC is more on coal mining and power providing sector.
- MOST IMPORTANT OR MOST EMPHASIZED STRATEGY OS SEMIRARA AGAINST ITS COMPETITORS:
- One of the best strategy of SMPC is minimizing cost by tax exemptions from the government. The Philippine government made SMPC exempted from tax to their coal mining operations to help the country from its power shortages. Because of this, their net income is higher in their mining operations.
- In their power operations, they are using cost cutting also by using the coals they got from their mining operations to power there powerplants and generators. Because of this, SMPC are assured for cheaper prices of their coals compared to other power generator companies.
- Quantitative Financial Analysis Techniques
COMMON SIZED- STATEMENTS OF FINANCIAL POSITION (VERTICAL)
ACCOUNTS | 2014 | 2013 | 2012 |
Current Assets | |||
Cash & Cash Equivalent | 7.10% | 10.78% | 1.48% |
Receivables | 7.95% | 9.01% | 9.90% |
Inventories | 5.38% | 10.35% | 15.64% |
Other current assets | 4.17% | 2.95% | 5.35% |
Total Current Assets | 24.61% | 33.09% | 32.37% |
NON Current Assets | |||
PPE | 66.38% | 61.01% | 62.80% |
Investment in sinking fund | 1.01% | 1.16% | 1.40% |
Exploration& evaluation assets | 3.69% | 0.79% | ------- |
Deferred Tax Assets | 1.36% | 0.31% | 0.0043% |
Total Non-Current Assets | 2.96% | 3.66% | 3.43% |
TOTAL ASSETS | 100% | 100% | 100% |
LIABILITIES & EQUITY | |||
Current Liabilities | |||
Trade & other payables | 1 6.97% | 13.83% | 18.83% |
Short-term loans | 2.35% | 3.70% | 0.49% |
Current portion of long-term debt | 4.07% | 4.81% | 14.32% |
Total Current Liabilities | 23.39% | 22.34% | 33.64% |
Non-Current Liabilities | |||
Long-term debt-net of current portion | 31% | 30.53% | 19.33% |
Provision for Decommissioning | 0.34% | 0.44% | 0.17% |
Pension Liabilities | 0.09% | 0.07% | 0.02% |
Other non-current Liabilities | 1.43% | 1.62% | 0.16% |
Total Non-Current Liabilities | 32.86% | 32.66% | 19.68% |
TOTAL LIABILITIES | 56.25% | 55% | 53.32% |
EQUITY | |||
Capital Stocks | 2.06% | 0.80% | 0.98% |
Additional Paid-in Capital | 12.86% | 14.92% | 18.45% |
Re-measurement Gains or Losses on pension plan | (0.03%) | (0.01%) | ----- |
Retained Earnings ( Unappropriated) | 24.42% | 24.15% | 25.31% |
Retained Earning (Appropriated) | 4.43% | 5.14% | 1.93% |
TOTAL Equity | 43.75% | 45% | 46.68% |
TOTAL LIABILITY & EQUITY | 100% | 100% | 100% |
ANALYSIS:
In the asset side, there is a decreasing trend in inventory and increasing trend in cash and account receivable. It seems that the inventories are being converted to cash. This might be a good thing since it lessens the risk of obsolescence but bad in a way that the risk in the future that the demand for coal and power might shoot up making SMPC have some difficulties in coping up with this demand. The cash then seems to be used to fund the Fixed Assets especially the PPE and exploration and evaluation assets. But not only the cash available are being used in funding these assets. As we all can see, long term debt and other non-current liability seems to have an increasing trend. This only means that SMPC tend to borrow money in funding this PPE and exploration and evaluation assets. Besides, they rely more on long-term debt than using their current equity in increasing their assets. It maybe good because these new assets can be used in the expansion and the planned expansion in SMPC, whats the bad thing is SMPC rely more in liabilities in which they are increasing the risk of their company in terms of financial structure.
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