Sasavat Sirison SQ Rising up regional coal mine

Over three decades in the mining business as pioneer’s of the Mae Moh Project. Sahakol Equipment Pcl. left a remarkable footprint in ASEAN by expanding its business base in Hongsa Coal Mining, and moving forward into Tin Mining in Myanmar to seek an opportunity in CLMV with an assurance of 5 billion Baht within three years in revenue.

Story by : Pornpan Panyapirom Photo : Kiitdech Charoenporn

A strong foundation initiated from construction work and civil engineering by an engineer  who sees business opportunities. This follows the national development policy to spread prosperity across the country especially in road construction projects which connected commuter paths and national logistics system in 1970 under the name of Sahakol Engineering Company Limited. The company then applied their business profession principles to pave the way to contract signing in the form of a soil excavation project 1 contract with the Electricity Generating Authority of Thailand or EGAT in 1983.

“We are constantly looking for opportunities at CLMV, but not limited to coal mines. We maintained the operational base at the Mae Moh mine and Hongsa with an ambition to be a proprietor instead of being a contractor.”

“The company was established by my father who was an engineer during 1970s. He saw an opportunity as Thailand started road expansion construction. Consequently, we were established from road construction projects before embarking on all soil related projects. The EGAT project evolved into the Mae Moh mine which is the country’s biggest enterprise during the economic expansion period, which had a high demand for electricity. During the same time period, I graduated and joined my father, and learned our business from the ground up by going through every department and operation process.

Sasavat Sirison, Chief Executive Officer of Sahakol Equipment Pcl (SQ), told us back then when he first stepped into the family business after graduating from the Faculty of Engineering at Chulalongkorn University and MBA from Ohio University, USA.

Beginning with the first contract, the company responsible for open soil trenching, soil and coal excavation, and transportation at Mae Moh mine, Lampang province during 1983 – 1990, had a project valued at 3.54 billion baht. Following on,he second project during 1990-1998, had a project valuation of 9.87 billion baht.With accumulated experiences in the industry and proven results, the company was ready to provide complete mining services under the name of Sahakol Equipment Company Limited in 2001.”

In addition, the company also provides mine planning, operation process, opencast mining, mining consulting, and renting and repairing large machinery. With exceptional experiences in civil construction the company also provides crucial facilities in construction such as roads, shelters, etc.

“At that time, there were no contractors in Thailand who were able to handle this particular type of project which required expertise in soil excavation,road contractors and dams construction work, as it required huge investment. We needed to import machines from Germany, where it has the largest opencast-mining operation in the world. We started the project bidding in 1981 and began the first project in 1983 in Mae Moh. The bidding process 9 phases. We were involved in every projects of   each phase. We gained invaluable experience in Mae Moh where we gained an advantage from using the most advanced tools.

The management strategy which brought the company to secure the coal mining project continuously consisted of experienced business professionals, especially in coal mining and transportation which needed a careful understanding along with specific skills. Personnel in the organization from executives to the operations department all played an important role in the growth of the business’.

At the same time, confidence in the company was built on by strategies obtained from previous projects . As a contractor of the EGAT project from 1983 this led to the entrustment by  EGAT in coal mining operations, enabling the path into new contracts with the Hongsa project in Lao. The 1,878 MW coal power plant is considered to be one of the largest coal power plants in Southeast Asia.

“One of the the challenges is to deliver what we had promised and to adhere to a  specified time and quantity. We must calculate the machine operational cost and manage its maximum efficiency. During the monsoon season we were using the average statistics measurement in order to choose the appropriate machines that fit certain weather conditions, count the fixed price auction, results in operational costs, and income or expenditure according to the budget.”

Supplemented to this, the company is well equipped with the proper machines and equipments for mining service business. Whether it is an excavator, a slug, a rotating wheel, an excavator, a conveyor system, a milling machine, a soil sprinkler, and auxiliary machinery such as; tractors, grade cars, trucks, cranes. The company has a variety of machines and has a good relationship with the machine manufacturers ensuring it is ready to enter the auction and operating processes for other mines in the future.

Besides traditional machinery, the company has progressive mining technology, such as 3D laser sensors, software that tracks machine operational process, and the AutoSonde technology which makes drilling holes easier for detonations. It also increases the machines’ equipment maintenance and security capabilities to be on standby all the time.

One of the mining contractor’s challenge that made SQ rise as business leaders is the ability to manage and maintain large machinery to an exceptional standard and condition in order to reach its highest potential.

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FORBES FACTS

• Sasavat always visits the Mae Moh mine twice a month and meets at Hongsa once a month.
• Mining operations in Laos and Myanmar needs to be qualified through a stringent environmental inspection process by releasing water waste from the Myanmar tin mine. It is required to provide a sedimentation pond to collect samples and to measure sediment, to then later be assessed for standardisation practices.
• The geological survey found that Dawei Tin Town is one of the world largest tin resources which can steadily support the mining business for more than 30 years.

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“We are focused on taking care of the environment and surrounding communities. The majority of our employees have worked in the mining industry for more than 30 years. Their offspring have followed in the same footsteps to continue the next generation of miners. We try not to do anything that affects the communities and environment. We adopt world-class standards to control dust, noise pollution, and vibrations by spraying water to mitigate the effects caused by these actions. Explosions created by detonations can cause disturbances to the community. We aim to reduce the effects by keeping the blast radius away from communities and plant large trees to act as a soundproof barrier.”

Currently, the company has an equal joint venture with Italian-Thai Development Public Company limited in 50% portion in ITD-SQ and SQ-ITD Joint venture. We are responsible for the open pit mine and soil and coal excavation for Mae Moh coal mine, Lampang Province under the EGAT in project number 7 during 2008-2020. Project number 7 finished on September 2015 with a project value of 21.9 billion Baht and 5.27 billion Baht accordingly. The Mae Moh project No. 8 which has a contract between 2016-2025 including business expansion to Laos and Myanmar.

Hongsa / Twai as the pathfinder

During the rapid growth of the company, Sasavat continued to look for opportunities to diversify risk and to increase the company’s benefit from the Mae Moh mine, which is the main source of revenue. He paid attention to larger mines in the CLMV region; Cambodia, Laos, and Vietnam, with confidence in the company’s foundation that it had established in Thailand for more than 35 years.

“We have been interested in Laos for around 20 years and we researched the country when it was not as open as today, and at a time when we were not ready to enter the market. Up until 5 years ago, Laos has opened the Hongsa power plant and consequently has a huge coal demand from their large mine.

Hongsa, Ratchaburi, and Banpu power plant received concessions and operated with special privileges.  thus it was easier to deal with the local Thais. Furthermore, Laos, also a huge centre of resource, was a comfortable place to settle down and create a portfolio of what we could deliver” Sasavat added about the business expansion to the neighbouring country in 2014. Started from the Hongsa project, Laos, during 2015 – 2016 and co-operation mining with Hongsa Power Co., Ltd. (HPC).

Furthermore, the company continued their expansion strategies into the CLMV region by signing a service-contractor contract of Tin ore at Dawei Tin Mine, Republic of the Union of Myanmar, on the 9th of February 2018, which is a full-service tin mining operation from soil excavation, raw ore transportation, mineral dressing management, and tailings disposal for Myanmar Pongpipat Company limited. With a contract value at 3.67 billion Baht for a duration of 7 years, which will have the production of tin ore at a capacity of around 2,100 tons.

“Myanmar has had tin as a resource spread over a gigantic area of its land for hundred of years, but the systems and machines needed to mine tin were out-of-date. Mining had been paused for a period of time during the downturn of tin prices. It wasn’t until an environmental study, that summarised lead being a harmful material, that saw a return to tin as being a better alternative. This in turn resulted in tin prices rising as it was a highly regarded resource for the electronics industry. As a result, we had been contacted and entrusted, from our proven portfolio, to produce 20 times in the production of tin from 100 tons to 2,000 tons.”

However, the Dawei Tin Mine Project has not been fully operational. During the first phase, the company started to excavate soil at the tin mine, approximately 6 million cubic meters per year, compared to the Hongsa project with 18 million cubic meters per year, and at Mae Moh Mine, 50 million cubic meters per year. Added to this the exploration and survey of potential new sites.

“Mining concession contracts have approximately a 30 year term. Our contract has 3 years remaining where we may have to wait for Myanmar policy in order to renew the contract for another 30 years. Then we can move the large machines into the operation line whilst targeting next year’s revenue at 600 – 700 million Baht. In Laos we have been working for 3 years and made 600 – 700 million Baht in revenue, or the equivalent of 30% in total revenue. From this point onwards, the company is likely to expand even further, beyond Myanmar and Laos, for natural resources that are not just limited to coal or tin. The three year target accumulated revenue should exceed more than 5 billion baht. “

300 million tons is the approximate amount of coal in the Mae Moh mine, the primary coal production resource in Thailand. A project under Electricity Generating Authority of Thailand (EGAT) where Sahakol Equipment obtains stability from long-term contracts by opening pit mines to excavate soil and coal for the Mae Moh Mine Project 1, Project 2, Project 7, Project 7/1, and Project 8.

In regards to strategies and challenges of the job, each country has different contractual requirements. Mae Moh Mine focuses on system management due to the large investment in heavy machines, machine transportation, and maintenance that require special production.

Laos is focusing on Human Resource Management of 400 employees. The majority consisting of the local population. (Mae Moh has about 1,000 people.). For Myanmar, the first phrase is focused on national law and order, potential area surveying, and logistic pathway repairs.

Tris Rating has listed the company’s credit to level “BBB-” from being a leading entrepreneur in managing soil and coal excavation, and transport business. As well as having cash flow stability of a long-term service-contractor contract with the project owner, who has highly reliable financial status and great number of projects awaiting revenue recognition. However, such strengths received partial reduction in debt from a high level of debt and business concentration risk. The majority of revenue and profits of the company come from a large scale projects. However, there are a small number of those large scale projects.

The company’s strong point in the view of Tris Rating is long-proven project results and recognition with an experienced mining engineer team and ready-to-use mining machines and ability to expand the business to nearby countries. This is the beginning of a new opportunity to expand overseas. Including the steady cash flow from the Long-term contract with EGAT, the main employer who has low risk and has large amount of the backlog project value.

The project value that has not yet been delivered as of March 2018 has approximately 34.3 billion baht. This consists of soil and coal open pit mines at Mae Moh Mine, Phase 7 (during 2012 – 2020), worth 849 million baht. Excavation of soil and coal projects at Mae Moh Mine, phase 8 (during 2016 – 2025), worth 22 billion baht. Hongsa Mine Project in Lao (2015-2026) worth 9.64 billion baht and tin mines in Myanmar (2018 – 2024) worth 3.67 billion baht. Trist Rating expected the company will gain in revenue approximately 3.5-4 billion Baht in 2018 – 2020.

The landslide incident at the end of March 2018 at EGAT’s soil dumping area, which is not far from the Mae Moh mine project, effected the conveyor belt system and damaged some machines parts, and brought a higher cost in project operations.Now, the company is in the legal process of claiming compensation from EGAT.

Trist Rating sees this incident as a one off accident and the performance should return as normal after the phase 8 project fully operates in the second half of 2018.

Sasavat added more explanation about the loss of the first half of this year. Approximately 96.22 million baht was lost as the company’s operating cost increased by 375.06 million baht or by 30.8%. Large portions of the costs incurred from the Mae Moh project no.8 depreciation cost increased to 102.1 million baht due to the project planning adjustment which required replacing the the belt system with a fleet of heavy vehicles, and depreciation cost of Mae Moh Project no.8 increased by 142.3 million baht as a result of acquiring more machines.  Labour costs increased by 37.4 million baht and the Hongsa oil project cost increased by 47.8 million baht, surpassing average oil prices.

In despite of the losses incurred the company should be able to recover and be profitable from the third quarter because of the return of the belt system.  Normal operations resumed since the end of June and increased four times its capability of soil transportation and didn’t get affected from seasonal factors like during the same period of last year. Production capacity rising in the Hongsa project added numbers of excavators and small trucks for soil excavation tasks since August 2018. This should give the company an added in boost the production volume.

“Landslides have serious consequences for our mining operations. Subsidence in the land  causes our machines to be evacuated. We need to install new machines out of the danger zone. On top of that we had to construct new roads and bridges to allow the machine belts to continue production. This process is obviously time consuming taking at least 3 to 4 months away from our operation.. Even though the machine belt system was affected by a relatively small distance, say 1 to 10 kilometres, the entire process had to be shut down.. Again, we had to cease production for nearly the entire quarter. This year the growth should increase by 20%, which did not meet the target of 30%, but next year the revenue should grow more than 30%”

Under load of the signed project, it remained approximately 34.9 billion baht which was able to support revenue for about 9 years. This consisted of the  Mae Moh no.8 project, worth about 19.8 billion baht, the Hongsa project Lao People’s Democratic Republic, worth about 15 billion baht, and finally, the Mae Moh 7 project worth about 905 million baht and tin mining project of the Republic of the Union of Myanmar with approximately 3.67 billion baht on valuation

The 55 year-old executive reiterated his determination in company growth to be double within 3 years from 2017 with total revenue of 3.19 billion baht and the first half of this year at 1.66 billion baht.

Under the total assets of 1.19 ten billion baht, the company qualified to be a leader in the large mining industry who are capable handling complex operations. With the ability and experience, including possessing a large amount of investment, makes it difficult for any new comer to become a potential competitor.

“In terms of experience, we are absolutely number one, because we transferred experience from generation to generation and integrated the new generation’s experience with our top 20 – 30 year-old employees, along with machine selection that matches the work conditions. In the near future we wish to be a regional mine owner and maintain the status of being a leader of opencast mining.”