PT Adaro Indonesia
PT Adaro Indonesia (AI) is the Adaro Group’s largest mining company, which mainly runs coal mining operations in South Kalimantan and Central Kalimantan under a Coal Cooperation Agreement (CCA) with the Government of Indonesia until 2022 with the right to extend the contract period based on the terms and conditions in the PKP2B and the applicable laws and regulations. AI is owned by Electricity Generating Authority of Thailand International Company Limited (EGATi), a state-owned electricity company of Thailand, and AE’s subsidiary, with 11.5% and 88.5% ownership stakes, respectively. ATA has direct and indirect ownership of AI.
AI produces sub-bituminous coal of medium calorific value between 4,000 kcal/kg and 5,000 kcal/kg GAR from its three mines: Paringin, Tutupan and Wara. AI’s coal has ultra-low pollutant content, thus trademarked “Envirocoal”. Envirocoal has been developed into several different specifications and widely used by power stations and other industries globally since 1992. It is versatile to use, especially in environmentally-restricted condition, due to its low content of ash, sulphur and nitrogen, which are 2.5%, 0.2%, and 0.9% respectively. Due to its low-pollutant content, Envirocoal is often blended with higher ash and sulphur coals to reduce the cost associated with ash disposal and the capital expenditure required for sulphur and nitrous oxides reducing units. This means Envirocoal delivers high economic values and provides technical alternatives for achieving excellent coal combustion performance with lower expenditure, making it one of the most environmentally acceptable and cost-effective solid fuels available.
Overview of AI’s Operations in 2019
The coal industry was faced with strong headwinds in 2019 as a result of, among others, slowdown of global economic growth, low LNG prices, uncertainties over government policies, and record coal production from Indonesia which created a well-supplied market that put downward pressure on coal prices.
Amid these headwinds, AI was able to deliver its guidance and produced 51.6 million tonnes (Mt) of coal, 7% growth over its 2018 production of 48.3 Mt. Total overburden removal volume at AI in 2019 was 246.5 million bank cubic meter (Mbcm), flat year-on-year (y-o-y), which resulted in strip ratio of 4.8x.
The relatively dry weather condition throughout 2019 also supported AI’s operations. Until the end of the year, total rainfalls in Tutupan, Paringin and Wara pits were 2,495 mm, 2,199 mm and 2,797 mm, respectively, while total rain hours were 835 hours, 809 hours and 891 hours. On the other side, AI’s coal sales increased 6% y-o-y to 56.7 Mt in 2019, following the increase in production volume. Approximately 75% of AI’s sales went to the export market, which is dominated by Asia’s emerging countries. In 2019, AI’s sales portion to the domestic market remained relatively stable.
AI’s Pit-to-Port Activities
After the coal is mined from one of AI’s three mines, it is hauled along 80 km hauling road to the Kelanis Dedicated Coal Terminal (Kelanis) at the Barito River. On this hauling road, AI uses more than 300 double-trailer trucks with a capacity of 130 tonnes per truck, all operated by its contractors. Each truck is equipped with GPS and tracking system to detect and allow quick responses to holdups along the hauling road. AI makes considerable investment to maintain the condition of this hauling road in order to keep it operational 24/7. The coal haulage operations is essential for ensuring timely shipments of AI’s coal.
Once the trucks arrive in Kelanis, they submit to the designated hoppers classified based on the quality of the coal carried. There are seven hoppers and six conveyor lines in Kelanis, with an annual capacity of 60 Mt in normal operating condition. Kelanis port’s depth can accommodate barges of 8,000 dwt – 18,000 dwt.
Kelanis is also our first quality control checkpoint to ensure that the coal loaded to barges is free from contamination. We have metal detector and magnet installed along the conveyor and conduct checking from time to time. In 2019, Kelanis achieved strong performance on plant productivity, plant availability, and plant utilization. AI recorded its highest quarterly volume achievement in 3Q19 for coal sales, coal hauling, and coal out-loading volume.
AI’s coal is transported by barge by four main barging contractors – including AE’s subsidiary PT Maritim Barito Perkasa (MBP) – from Kelanis terminal to the transshipment facilities at the Taboneo offshore anchorage for the export market or directly to the locations of its domestic customers. Ship-loading operations are primarily undertaken at Taboneo anchorage where more than 95% of export coal was loaded, while the remaining tonnage was shipped through the IBT terminal on Pulau Laut.
In a coal mining operations as large and as complex as AI’s, safety is a priority and is the foundation of operational excellence. AI had a total of 83,601,250 man hours worked with LTIFR (lost time injury frequency rate) of 0.02 and SR (severity rate) of 1.48, with two lost time injuries (LTI) in 2019 and recorded zero fatality in 2019, an achievement we appreciate. AI continues to improve its safety performance by developing mindset and behavior of strong safety culture to achieve and maintain zero accident. This program is part of the Adaro Group’s group-wide safety program called AZAM (Adaro Zero Accident Mindset), which is aimed at strengthening the safety culture in Adaro Group and minimizing human errors that may lead to occupational health and safety hazards.
The downward pressure of coal prices in 2019 had pushed AI to take strategic cost-saving measures in its mining operations in order to create sustainable operations and financial stability. AI strove to make continuous improvements at each part of its mining process, the key to productivity improvement and optimum efficiency of the mining costs.
Among the initiatives taken were the application of good mining practices and the reviews and maintenance of the infrastructure such as the settling ponds and hauling road, an essential measure to ensure work safety, support operational activities and drive other improvements.
AI also implemented other programs to improve the efficiency of its operational cost such as prioritizing mining sequences at the deepest section of the pits to reduce loads on pumps, optimizing product mixes to conserve coal reserves and achieve the highest sales value, electrifying dewatering pumps to reduce fuel consumption, and implementing good mining practices by prioritizing mining safety and environmental conservation while continually improving productivity.
Coal is a cyclical industry and despite believing that the long-term fundamentals for thermal coal are intact, we think the industry will be faced with heightened challenges in the short-term as a result of increased competition from cheap gas and uncertainty over government policies in both exporting and importing nations. To weather the heightened uncertainties and challenges, AI strengthened its focus on operational excellence through, among others, further improving efficiency to achieve optimum output and lowest costs. The strategies taken to attain this include optimizing mine planning, hauling distances for both overburden and coal, and strip ratio, while attending to reserves conservation and geotechnical aspects, and coal supply chain by strengthening communication network, and improving effective working hours of production units.
Balangan Coal Companies
PT Semesta Centramas (SCM), PT Laskar Semesta Alam (LSA) and PT Paramitha Cipta Sarana (PCS), on each of which ATA has a 75% equity stake, separately holds an IUP over a total area of 7,500 ha, which makes up Balangan Coal Companies’ deposits. As a whole, Balangan Coal Companies produced 5 Mt of coal in 2019, or recording a 6% increase from 4.70 Mt in 2018, and removed 14.49 Mbcm overburden, taking 2019 strip ratio to 2.90x.
The three coal licenses constitute an important part of the Adaro Group’s coal mine portfolio by providing additional thermal coal sources to support the group’s operations, hence securing supply reliability. With CV range from 200kcal/kg to 4,400kcal/kg (GAR) and characteristics similar to AI’s Envirocoal (low ash and very low sulphur contents of less than 0.1%), the coal produced by Balangan Coal Companies does not only complement AI’s coal but also extends the group’s product diversification. Congruent with the progress of Balangan Coal Companies’ operations, efforts to develop the market for the coal are intensified to respond to the opportunities for growth out of the higher production capacity.
Adaro Metcoal Companies
Adaro MetCoal Companies (AMC) is made up of the Coal Contracts of Work (CCoW) for seven concession areas in Central and East Kalimantan provinces. The seven CCoWs are part of the Maruwai Coal Basin, which contains the largest green-field metallurgical coal deposit globally. Currently, the metallurgical coal resources within these CCoWs total 868 Mt with reserves of 85 Mt.
In 2019, AMC produced 1.09 Mt of coal, or 7% higher than in 2018, consisting of 0.93 Mt of Haju semi-soft coking coal from the Lahai mine and 0.16 Mt of Lampunut hard coking coal from the Lampunut mine in the Maruwai concession, the second operational concession of AMC. Overburden removal by AMC decreased 4% from 2018 or totalled 8.36 Mbcm with a strip ratio of 7.67x. AMC sold a total of 0.98 Mt of coal to its customers in Japan, Indonesia, India, China and Europe, or increased 15% from 2018.
In 4Q19, AMC recorded the first coal production at the Lampunut mine and ceased the production at Lahai mine to enable more efficient resource allocation and to dedicate more focus to the development of Maruwai mine project, which produces coking coal of a higher grade and offers a more attractive rate of return. From the previous year, AMC had started to construct infrastructure (such as coal handling and processing plant and haul road) and conduct trial production to prepare Lampunut mine within the Maruwai concession to produce hard coking coal, which then made significant progress to reach 3 Mtpa operational readiness capacity at the year-end.
In 2019, AMC also completed further exploration and feasibility study at its undeveloped assets and have applied for operation production permits at three concessions.
Trial production at Lampunut mine was undertaken to meet AMC’s plan to develop concessions in sequence. This mine produces medium-volatile hard coking coal of premium quality with ultra-low ash and phosphorus content, which has garnered the interest of customers in key steel producing countries. The unique quality of Lampunut coal benefit customers when blended with other coking coal products and therefore attracts suitable pricing in the global market.
AE has committed to allocate a portion of capex every year to develop AMC. In 2019, AE spent approximately US$180 million on AMC development, which was in-line with the plan. AMC has one of the best undeveloped metallurgical coal deposits and advancement of AMC will take place over several years. We are confident that, once AMC is fully operational, it will be a significant revenue contributor to AE while diversifying the sources of AE’s revenues.
In 2020 AMC will carry on with production of Lampunut hard coking coal at the Maruwai mine and will continue to study, evaluate and prioritize its development plan. 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 under AMC.
PT Mustika Indah Permai (MIP) & PT Bukit Enim Energi (BEE)
AE has established its foothold in South Sumatra since 2011 through PT Mustika Indah Permai (MIP) and PT Bukit Enim Energi (BEE). South Sumatra is a highly strategic growth area for the Adaro Group due to its proximity to the power market in Java and neighboring countries, as well as the large coal resources and reserves available in the island. AE continues to explore viable development options for both assets to create maximum shareholder value.
AE holds 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. MIP has total estimated coal resources of 308 Mt and coal reserves of 214 Mt of a 4,269 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. In 2019, MIP continued to prepare for mining readiness and had conducted trial operations in order to develop the market for its product. Result of the trial is promising and we continue to prepare for MIP’s mining readiness in 2020.
AE’s second coal mining asset in South Sumatra is BEE. AE holds a 61.04% equity interest in BEE which owns an IUP that covers an area of approximately 11,130 hectares that contains the coal-bearing Muara Enim formation about 150 kilometers southwest of the provincial capital of Palembang and 50 kilometers east of the MIP concession.
Kestrel Coal Resources
Kestrel Coal Resources is the latest addition to AE’s portfolio of coal mining assets after the company and EMR Capital Ltd (EMR) acquired Rio Tinto’s 80% interest in the Kestrel Coal Mine (Kestrel) in August 2018 to jointly manage and operate Kestrel’s mine. Upon completion of the deal, ownership stakes in Kestrel consisted of 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%).
Kestrel produces low ash, high fluidity coking coal – qualities favored by premium customers in the seaborne market – and sells the majority of its coal on a contracted basis to key steel producing countries, mostly in Asia. Kestrel is a world-class asset with marketable coal reserves of 145 Mt and resources of 428 Mt as at 1 October 2019. The synergy between Kestrel and AMC creates exciting potential for business development and enhances value creation for the Adaro Group.
In 2019, Kestrel as a whole entity recorded saleable coal production of 6.76 Mt and total coal sales of 6.55 Mt, meeting the guidance set at the beginning of 2019 and achieving a record run-of-mine (ROM) coal mining volume in underground mining. We will continue with our plan to improve Kestrel’s operational efficiency and productivity, and will align our production plan with customers’ needs and market conditions. We expect that Kestrel will be able to achieve another successful year in 2020.
Kestrel is an underground mine and requires a mining technique different from the technique used at other Adaro Group’s coal mines. In mining coal, Kestrel uses longwall method, commonly used in underground coal mines, where a mechanical shearer is used to extract coal from the seam or “face”. The mined coal then moves into a conveyor belt, which takes it to the Coal Handling and Processing Plant (CHPP) at the mining site. CHPP then processes coal by removing dirt, rock, ash, sulfur, and other unwanted materials. The processed coal is subsequently loaded for railway transportation to Gladstone port. Kestrel employs third-party service providers for its logistics, engaged under long-term contracts.
PT Bhakti Energi Persada
PT Bhakti Energi Persada (BEP) owns fifteen subsidiaries, of which seven own mining licenses (IUP) for around 34,000 hectares greenfield mining areas in Muara Wahau, East Kalimantan. Based on JORC the resources of the concession are estimated to be 3.27 Bt, making it one of the largest undeveloped deposits of low CV, low-pollutant thermal coal in the province. BEP’s resources are shallow and amenable to surface mining at extremely low stripping ratios. In 2019, BEP continued the evaluation of its development options, environmental impact assessment, social and community programs, engineering and geological studies, and preparation for mine readiness.
ATA owns 10.22% stake in BEP and in 2012 entered into a convertible loan and share subscription agreement with an option to provide a loan to BEP for up to US$500 million, convertible 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 ATA (Option Two). These two options are valid until 2021. In 2019, we ceased consolidation of BEP.
Coal Resources and Reserves
In 2019, Adaro Group has more than 8.1 billion of coal resources and 1.4 billion of coal reserves. For more details, please click here.