PT Adaro Indonesia
PT Adaro Indonesia (AI) is the Adaro Group’s largest mining company operating in Tanjung regency of South Kalimantan province under a Coal Cooperation Agreement (CCA) with the Government of Indonesia. This agreement is valid until 2022 with the right to extend the contract period. On 17 January 2018, AI and Ministry of Energy of Mineral Resources executed the amendment to CCA which constituted the adjustments to the provisions of CCoW in order to comply with the provisions of Law no. 4 of 2009 on Mineral and Coal Mining pursuant to the requirement as set forth in the article 169 of the said law.
Despite the challenging market, AI delivered on its guidance and produced 48.3 million tonnes (Mt) of coal, slightly higher than 2017 production of 47.68 Mt. This total production volume consisted of 35.6 Mt from Tutupan, 6 Mt from Paringin and 6.7 Mt from Wara. Total overburden removal volume at AI in 2018 was 246.5 million bank cubic meter (Mbcm), 9% higher compared to 2017, which resulted in strip ratio of 5.1x.
The year 2018 was still a wet year at AI’s operational areas. Until the end of the year, total rainfalls in Tutupan, Paringin and Wara pits were 2,646 mm, 2,554 mm and 2,216 mm, respectively, while total rain hours were 940 hours, 966 hours and 954 hours. AI was able to effectively manage the impact of such extreme weather by strengthening the control and monitoring on all aspects of the mining operations and evaluating mine planning parameters.
AI’s coal sales increased 6% y-o-y to 53.54 Mt in 2018, following the increased production volume, with approximately 75% of the sales went to the export market, mainly the emerging nations of Asia. Meanwhile, AI’s sales portion to the domestic market remained relatively stable. AI has strong confidence that the demand for coal from emerging countries in Asia will continue to rise, spearheaded by India and Southeast Asia countries, as the region’s economic growth will expand the operations of coal-fied power plants, and thus increase coal consumption.
Balangan Coal Companies
PT Semesta Centramas (SCM), PT Laskar Semesta Alam (LSA) and PT Paramitha Cipta Sarana (PCS) (Balangan Coal Companies) separately holds an IUP over a total area of 7,500 ha that covers the Balangan Coal Companies’ deposits. AE has 75% equity stake in each company.
In 2018, the concessions produced a total of 4.70 Mt of coal, an increase of 46% compared to its 2017 production fiure of 3.21 Mt. Total overburden removal was 18.34 Mbcm, or 138% higher than 7.70 Mbcm in 2017, resulting in a strip ratio of 3.90x.
The three coal licenses constitute an important part of the Adaro Group’s coal mine portfolio because they provide additional sources for thermal coal to support the group’s operations and extend the group’s product diversification. The coal from these concessions is of a calorific value from 4,200kcal/kg to 4,400kcal/kg (GAR) and similar characteristics to AI’s Envirocoal, with low ash and very low sulphur content of less than 0.1%.
The coal produced by Balangan Coal Companies will strengthen AE’s supply reliability and complement AI’s coal. As operations at Balangan Coal Companies progress, continuous market development efforts and higher production capacity will present further growth opportunities.
Adaro Metcoal Companies
Adaro MetCoal Companies (AMC) refers to a group of seven companies holding Coal Contract of Work (CCoW) for seven concession areas in Central and East Kalimantan provinces. The Maruwai Coal Basin, where the seven CCoWs are located, contains the largest relatively undeveloped metallurgical coal deposit in the world. Currently, the metallurgical coal resources within these CCoWs total 1.27 billion tonnes (Bt) with reserves of 54.4 Mt.
In 2018, AMC produced 1.01 Mt of semi-soft coking coal from Lahai, the only operational concession within the seven CCoWs. This production fiure was 12% higher than 2017. Overburden removal during the year reached 8.74 Mbcm, 52% increase compared to 2016, resulting in a strip ratio of 8.61x. The increased overburden removal was due to higher exploration activities conducted at AMC’s concessions. Total coal sales during the year reached 0.85 Mt, a 15% growth over 2017.
Lahai’s Haju mine produces a range of metallurgical products which especially attract global steel producers. In addition to the metallurgical products, Lahai also has a high energy thermal product highly regarded in the markets. AMC sold its coal to customers in Japan, India, China, Europe and several countries in the Southeast Asia region.
AMC focused on three main activities in 2018, i.e. the operations and production activities at Lahai, exploration activities in the Maruwai concession and construction and development of the Lampunut mine in the Maruwai concession. The Lampunut mine is the next to operate in AMC’s sequential development plan and scheduled to commence trial operations in 2019.
AMC conducted limited exploration activities in Maruwai in 2018 to get a more detailed data on the coal seams in order to assist in mine planning. AMC also spent US$109 million of capex in 2018 mainly for development of the Lampunut mine covering the construction of hauling road, coal handling and processing plant as well as other supporting infrastructure.
To prepare for Lampunut’s commercial operations, AMC has started building the recognition for Lampunut’s hard coking coal product and conducted lab test of coal samples from Lampunut to get better understanding of its coal quality and traits for prospective customers. The premium quality of AMC’s coal, with its ultra-low ash and phosphorus content, should benefit customers when blended with other coking coal product and should attract suitable pricing in the global market.
In 2019 AMC will carry on with exploration activities in the other concessions to evaluate and prioritize the development plan, operations and production at Lahai’s Haju mine and prepare for operations and production activities at Lampunut. The Adaro Group continues to work with local communities and other stakeholders to integrate sustainable environmental and community development programs into the development plans of all the CCoWs.
PT Mustika Indah Permai (MIP) & PT Bukit Enim Energi (BEE)
South Sumatra has approximately half of Indonesia’s coal resources and coal reserves but only account for a small portion of the country’s coal production, according to data from the MoEMR. AE views South Sumatra as a highly strategic growth area owing to the province’s proximity to the large power market of Java and its large coal resources and reserves.
The diversification into South Sumatra was made in 2011 through PT Mustika Indah Permai (MIP) and PT Bukit Enim Energi (BEE), and since then AE has explored viable development options for both assets to create maximum shareholder value.
AE has a 75% equity interest in MIP, which holds a mining license (IUP) for a 2,000 hectare coal concession in the Lahat district of South Sumatra that contains medium energy and ultra-low pollutant subbituminous coal suited for power generation.
Based on the JORC compliance report of 2018, MIP has total estimated resources of 287.5 Mt and reserves of 254 Mt of a 4,292 kcal/kg (GAR) coal. MIP’s coal shares similar low-pollutant traits as AE’s flagship Envirocoal product with relatively low sulfur and ash content.
AE plans to commence operations from MIP in the later part of 2019, depending on market situation and with SIS as the primary mining contractor.
In BEE, AE holds a 61.04% equity interest. BEE holds an IUP that covers an area of approximately 11,130 hectares containing the coal-bearing Muara Enim formation about 150 km southwest of the provincial capital of Palembang and 50 km east of the MIP concession.
PT Bhakti Energi Persada (BEP)
PT Bhakti Energi Persada (BEP) owns 15 subsidiaries, of which seven msubsidiaries own mining licenses (IUP) that cover a total of around 34,000 hectares greenfild mining areas in the Muara Wahau regency of East Kalimantan province, about 250 kilometers north of Balikpapan and 120 kilometers to the coast. JORC resources for the concession areas are estimated at 7.96 billion tonnes, one of the largest undeveloped deposits of low CV, low-polluting thermal coal in East Kalimantan.
BEP’s resource is shallow and amenable to surface mining at extremely low stripping ratios. The large scale of the coal resource provides a number of development options for BEP, one of which being the possibility to develop a mine-mouth coal-fied power plant. In 2018, BEP continued the evaluation of its development options, environmental impact assessment, social and community programs, engineering study, and preparation for mine readiness.
AE owns 10.22% of BEP, and in 2012 AE entered into a convertible loan and share subscription agreement with the option to provide a loan to BEP of up to US$500 million, convertible to up to 51% of equity in BEP (Option One), and an option agreement to acquire BEP shares from its controlling shareholders by offering newly issued shares of AE (Option Two). These two options are valid until 2021.
Kestrel Coal Resources
On 1 st August 2018, AE with EMR Capital Ltd (EMR) – a specialist mining private equity manager – completed the acquisition of Rio Tinto’s 80% interest in the Kestrel Coal Mine (Kestrel). EMR and AE will jointly manage and operate the Kestrel mine. Upon completion of the deal, Kestrel is owned by Kestrel Coal Resources Pty Ltd (80%) and Mitsui Coal Australia (20%). Kestrel Coal Resources Pty Ltd is a joint venture company formed by EMR (52%) and AE (48%).
It produces high volatile, high flidity coking coal – qualities favored by premium customers in the seaborne market. Kestrel sells the majority of its coal under long term contracts to steel makers in the Asian and European markets. Kestrel is a world-class asset with marketable coal reserves of 150.7 Mt and resources of 430.7 Mt (as at 1 st December 2018). The synergy between Kestrel and AMC will provide the Adaro Group with exciting development potential and maximize value creation.
Since the acquisition, Kestrel Coal Resources has embarked on a change program which aims to drive effiiency improvements throughout the business. The result of the change program provides us with the strategy to ramp up production profie along with the capex projection to sustain the production fiures.
In 2018, Kestrel recorded saleable coal production of 4.76 Mt, and total coal sales of 4.8 Mt. This production data represents production for the whole entity. In 2019, we project a 40% growth in saleable coal production and anticipate that the volume increase to be well absorbed by the market.