Oct. 9 (Bloomberg) -- PT Bumi Resources, Indonesia’s biggest coal company, plans to acquire mines in the country and may include China Investment Corp. as a partner after borrowing $1.9 billion from the sovereign wealth fund last month.

“Anything less than $400 million to $500 million shouldn’t make sense to us unless it’s very strategic,” said Nalinkant Rathod, president director of PT Bakrie & Brothers, Bumi’s biggest shareholder and a member of the board. Bumi and CIC have signed a “strategic partnership,” he said, adding that CIC wanted to make investments in countries where it felt welcome.

China’s $297.5 billion fund bought debt from the Jakarta- based coal producer and is increasing investments in resources companies to gain access to the raw materials it needs to fuel the country’s growth. Bumi’s shares rose for the first time in four days, paring a 19 percent decline since the Sept. 23 announcement, prompted by concerns the deal, which gives CIC a 19 percent return, is too expensive.

“CIC has deep pockets, so Bumi can expand its business further,” said Syaiful Adrian, an analyst at PT Ciptadana Securities in Jakarta. “CIC is an extension of the Chinese government’s hand, and China itself is very interested in energy assets, especially coal. In that sense Bumi’s interest and CIC’s are in line.”

Shares Jump

Bumi shares jumped 6.4 percent to close at 2,900 rupiah, the biggest one-day gain since Sept. 3. The Jakarta Composite index slid 0.4 percent.

In terms of the agreement with CIC, Bumi will first show the Beijing-based fund all its proposed investments above $75 million, Rathod said in an interview in Singapore yesterday.

“They’re looking at a very safe investment to start with in Indonesia,” he said. “They’ve done a lot of due diligence on Bumi, and they had to sell internally not just Bumi, but Indonesia as a country for their investment. They don’t want to be rejected again like in other places.”

Aluminum Corp. of China, known as Chinalco, was rebuffed by Melbourne-based Rio Tinto Group, which rejected a $19.5 billion deal in June that would have given the state-controlled Chinese company stakes in some of Rio’s mining projects.

Opposition to Chinese investment helped block Cnooc Ltd.’s $18.5 billion bid for U.S. oil company Unocal in 2005 while Haier Group Corp. lost out in the race to acquire U.S. appliance maker Maytag Corp. in the same year.

Refinancing Debt

Bumi has said $1.7 billion of the funds from CIC will be used to refinance debt and the rest as working capital.

Though higher interest costs will hurt Bumi’s earnings in the short term, the funding arrangement and partnership with CIC would fund acquisitions, said Rathod, 58, who is also a member of Bumi’s board of commissioners.

“Sometimes you sacrifice immediate profitability for liquidity and future growth,” he said. “We want to be the national mining champion for Indonesia.”

Chief Financial Officer Andrew Beckham said the cost of fund from the debt won’t be 19 percent as the company will book some tax benefits.

The agreement “put Bumi at high leverage level,” said Winston Sual, who helps manage $233 million at PT Panin Asset Management in Jakarta, which doesn’t include Bumi in its mutual funds. “I don’t see the urgency in getting this debt.”

Zinc, Copper, Gold

The company is already a significant coal producer and plans to extract zinc, copper, lead and gold, Rathod said. Bumi is currently looking at “one or two” assets and BHP Billiton Ltd.’s Maruwai coal project in Indonesia is “interesting,” said Dileep Srivastava, the company’s head of investor relations, without elaborating on whether it expressed interest in bidding.

Bumi, which became Indonesia’s biggest coal producer following acquisitions of PT Arutmin Indonesia in 2001 and PT Kaltim Prima Coal in 2003, announced in January it would buy stakes in three companies for $565 million. Bumi said the acquisitions will help it double its coal output by 2012.

The purchases prompted investigations by Indonesia’s capital market regulator about whether Bumi paid too much. Bumi renegotiated the price of PT Fajar Bumi Sakti, which has a coal concession. Stakes purchases in mining contractor PT Darma Henwa and PT Pendopo Energi Batubara, a non-producing miner, were fairly valued, the regulator said in June.

To contact the reporter on this story: Naila Firdausi in Jakarta at nfirdausi@bloomberg.net.

Last Updated: October 9, 2009 05:39 EDT