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PT Adaro Indonesia (AI)

AI is currently Adaro Group’s largest coal mining operation, which produces our flagship thermal coal product, Envirocoal, a sub-bituminous coal with medium calorific value (CV) and ultra-low pollutant content. The Envirocoal CV ranges from 4,000kcal/kg to 5,000kcal/kg and it is one of the cleanest coal available in the global seaborne thermal coal market. AI has 731 Mt of coal reserves and 3.3 Bt of coal resources.

AI’s operation is in Kalimantan, and it operates under a Coal Contract Agreement (CCA) with the Government of Indonesia. Within its concession, AI has three pits, Tutupan, Paringin and Wara. AI’s CCA is up for renewal, and extension documents have been submitted to the government.

In 2021, AI produced 43.2 Mt of coal, 8% lower year-on- year (y-o-y), and sold 47.5 Mt of coal, 7% lower y-o-y. As AI’s mine sequencing progresses, AI planned to remove more overburden in 2021, thus removing 194.4 million bank cubic meter (Mbcm) of overburden, or an increase of 1% y-o-y, and recording a strip ratio of 4.5x.

AI’s productivity in 2021 was mainly affected by the unfavorable weather, labor and equipment supply constraint, outbreak of COVID-19 and its impact, as well as the transition of contractors that occurred during the year. Despite the challenges, AI fulfilled all its commitment to customers. AI recorded solid profitability on the back of positive coal price environment.

 

AI’s operations in 2021

AI employs two mining services contractors including AEI’s subsidiary PT Saptaindra Sejati (SIS). Each contractor provides equipment, supplies and labor to operate and achieve production targets in the area allocated to them. In 2021, AI’s productivity was affected by the transition of mining contractors, but the company is going to work together with the contractors to find better ways to improve business process, control costs, and find better ways to conduct the mining and hauling operations in more efficient, reliable and safe measures.

AI produced 43.2 Mt of coal in 2021, 8% lower than in 2020, comprising 31.7 Mt from Tutupan pit or 10% lower y-o-y; 5.5 Mt from Paringin pit or 2% lower y-o-y; and 6 Mt from Wara pit or 2% increase y-o-y. AI removed 194.4 Mbcm of overburden, 1% higher y-o-y, resulting in a strip ratio of 4.5x, compared to 4.1x in 2020. The higher strip ratio is in line with AI’s mining plan and due to the requirement of its mining sequence.

AI also experienced prolonged rainy season and wet weather, marked with higher rainfall volume and longer rain hours throughout the year. This significantly impacted AI’s mining operations by reducing the effective operating and utilization hours of production equipment, and adding challenges to mine water treatment with the much higher volume of water to be treated.

On the hauling road, impact of the adverse weather was minimal. Proper hauling is a prerequisite for reliable supply to customers; therefore, AI makes considerable investment to ensure hassle-free hauling, such as physical road maintenance and the installation of GPS and tracking system to detect and make quick responses to holdups along the hauling road. AI’s coal hauling activities involved more than 300 double-trailer trucks with capacity of 130 tonnes per truck. Coal hauling operation is conducted by AI’s mining contractors along the 80 km of dedicated hauling road that connects AI’s mine to Kelanis Dedicated Coal Terminal (Kelanis) on the Barito River, a dedicated terminal where coal processing and barge-loading are carried out. In normal operating condition, Kelanis has an annual capacity of 60 Mt. From Kelanis, AI barges its coal either to the transshipment facilities at the Taboneo offshore anchorage for the export market or directly to the locations of its domestic customers.

To maintain its operational excellence, safety is a priority for AI. AI’s large scale and complex coal mining operations require it to consistently implements work safety programs in line with the Adaro Group’s “Adaro Zero Accident Mindset” (AZAM) campaign. AZAM emphasizes on continuous improvements in standard operating procedures and inspections for mobile equipment operations and workshops, safety competency development for the supervisor level for them to enhance monitoring on subordinates, and rule enforcement and strict sanctions to improve workers’ behavior.

Unfortunately, AI had one fatality, and two lost time injuries during the year, thus recording LTIFR (lost time injury frequency rate) of 0.04 and SR (severity rate) of 90.87 out of 66,930,000 man hours worked. AEI’s HSE Division along with AI’s HSE Division have conducted thorough evaluation of the accident, and as the preventive and corrective action. To prevent the recurrence of such incident in the future, AI has implemented the Mine Inspector’s recommendations as well as other actions considered necessary to improve safety. The company will continue to shape the mindset and behavior among workers to instill a consistent zero-accident mindset through AEI’s group-wide safety program called AZAM (Adaro Zero Accident Mindset).

In the second year of the COVID-19 pandemic, AI carried out preventive and mitigation measures to protect AI’s and contractors workers and minimizing the impact of COVID-19 to operations. Some of the initiatives are promulgating the prevention and mitigation measures against COVID-19 exposure among the impacted employees or their family, campaigning on health protocols in a consistent and discipline manner, providing treatment for those who were exposed to COVID-19, and organizing COVID-19 vaccination event for the employees and the surrounding communities. Some of these initiatives have caused some lost in both effective operating and utilization hours in production.

Balangan Coal Companies

PT Semesta Centramas (SCM), PT Laskar Semesta Alam (LSA), and PT Paramitha Cipta Sarana (PCS) (Balangan Coal Companies or Balangan) separately holds an IUP over a total area of 7,500 ha that covers the Balangan Coal Companies’ deposits. The Adaro Group has 75% equity stake in each company. The concessions produced a total of 5.24 Mt of coal in 2021, 14% higher y-o-y. Total overburden removal in 2021 reached 17 Mbcm, 40% higher y-o-y, resulting in a strip ratio of 3.2x. Balangan’s operations in 2021 was affected by the prolonged rainy season in Indonesia. To overcome the challenges from weather condition, Balangan is in the process of upgrading its hauling road to become usable in all-weather condition to improve the productivity of its operation. On top of that, Balangan has also developed various mine planning scenarios to ensure that it can achieve its long-term production target.

The three coal licenses are an important part of the Adaro Group’s coal mine portfolio due to the additional sources of thermal coal they provide. 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 sulfur content of less than 0.1%. Balangan has total estimated coal reserves of 125 Mt and coal resources of 265 Mt. Balangan will continue to be an important part of the Adaro Group’s portfolio, and thus it needs to continue improve the quality and capacity of its infrastructure from hauling road, stockpile, office, warehouse, and its mine water management facilities.

PT Mustika Indah Permai (MIP)

Through MIP, the Adaro Group has established its foothold in South Sumatra since 2011. The Group 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’s commercial production began in 2019 and it has developed market presence in both domestic and export market.

In 2021, MIP produced 2 Mt of coal, 53% higher y-o-y, and it sold 1.8 Mt of coal in 2021, 41% higher y-o-y. Total overburden removal from MIP in 2021 was 2.4 Mbcm, 88% higher y-o-y, which resulted in strip ratio of 1.2x for the year. MIP’s performance in 2021 was affected by high rain intensity. To overcome similar challenges in the future, MIP is preparing and upgrading its hauling road to become an all-weather road to improve its productivity. MIP also conducts strategic maintenance of its heavy equipment regularly and strategically manages its operation to ensure optimal usage of its heavy equipment.

MIP has total estimated coal resources of 305 Mt and coal reserves of 210 Mt of a 4,269 kcal/kg (gar) coal. MIP’s coal has low-pollutant traits with relatively low sulfur and ash content.

PT Bukit Enim Energi (BEE)

BEE is AEI’s second mining asset in South Sumatra. AEI 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.

PT Bhakti Energi Persada (BEP)

AEI owns 10.22% stake in PT Bhakti Energi Persada (BEP). BEP owns seven subsidiaries which each own mining license (IUP) that in total cover around 34,000 hectares greenfield mining areas in Muara Wahau district, Kutai Timur, East Kalimantan. Based on JORC the resources of the concession are estimated to be 3.3 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 2021, BEP continued the evaluation of its development options, environmental impact assessment, social and community programs, engineering and geological studies, and preparation for mine readiness.

Kestrel Coal Mine (Kestrel)

Kestrel is an underground metallurgical coal mine that we acquired in 2018. AEI – through our subsidiary Adaro Capital Ltd (48%) – and EMR Capital Ltd (52%) own 80% of Kestrel. Kestrel is in Queensland, Australia, and the acquisition of Kestrel marked our first venture outside of Indonesia.

Kestrel’s acquisition is a significant milestone in our strategic expansion of metallurgical coal portfolio and will strengthen our position in the metallurgical coal market and sustain AEI’s growth over the longer term. Kestrel’s product is an established premium hard coking coal which has low ash and phosphorus content and high fluidity properties, making it a valued component in coke oven feed blends.

In 2021, Kestrel saleable coal production volume was 5.67 Mt, flat y-o-y compared with 2020. Meanwhile its coal sales in 2021 was 5.56 Mt, which was 7% lower y-o-y compared with 2020. During the year, Kestrel encountered known and expected diff icult geological conditions which affected its productivity. This is not an uncommon occurrence in underground coal mining operation.

Kestrel mainly sells its hard coking coal on a contract basis to major customers in the Asian markets. India, South Korea, and Japan were Kestrel’s top three sales destination in 2021. Kestrel is a world-class asset with marketable coal reserves of 190 Mt and resources of 431 Mt as of September 1, 2021. In 2022, Kestrel expects its saleable coal production to grow to 7 Mt.

Access to high quality metallurgical coal assets in Australia and Indonesia through Kestrel and PT Adaro Minerals Indonesia Tbk (AMI) unlocks the business development opportunities within the metallurgical coal market and enhances value creation for the Adaro Group.

PT Adaro Minerals Indonesia Tbk (AMI)

AMI is the first company under AEI to list in the Indonesia Stock Exchange (IDX). It listed on 3 January 2022 with the ticker ADMR and received great interest from investor as it recorded oversupply of 179 times during pooling. The IPO of AMI will further improve transparency and governance practices of the company, and most importantly AEI expects to create value from the IPO.

AMI conducts metallurgical coal mining activities through its subsidiaries. There are five subsidiaries under AMI which each owns a CCOW. Collectively, these CCOWs span over an area of 146,579 ha with total coal reserves of 170 Mt and total coal resources of 980 Mt as of August 2021. The vast resources and reserves establish AMI’s position as one of the largest greenfield metallurgical coal projects globally. As part of the Adaro Group, AMI is supported by the group’s integrated pit-to-port coal supply chain.

In 2021, AMI’s total coal production was 2.3 Mt, 23% increase y-o-y while its coal sales reached 2.3 Mt, 63% increase y-o-y. The higher coal production and sales were in line with AMI’s higher production target of 2.3 Mt to 2.5 Mt in 2021. The majority of coal produced by AMI during the year was hard coking coal (HCC) from its Lampunut mine in the Maruwai concession. Maruwai is currently the first and only producer of HCC in Indonesia.

Lampunut’s HCC is of premium quality, with low ash, low phosphorus and high vitrinite content – making it a superior product for blending. The low ash content reduces waste and carbon emission in the production of pig iron or steel, and the low phosphorus content improves the strength of the steel products.

AMI’s coal has been well accepted by the market and AMI continues to build the market for this product both in the domestic and export market. In 2021, AMI sold its product to customers in China, Japan and Indonesia. The strong demand for AMI’s coal and the positive price environment during the year supported AMI’s ASP and boosted its profitability.

AEI plan to steadily develop AMI’s production along with the growth in customer’s demand under the confidence that the fundamentals for metallurgical coal will remain strong, being a key material in steel production. Positive demand outlook for steel, supported by economic growth, increasing industrial activities, urbanization, and the advent of green economy, will continue to support the demand for metallurgical coal.

Coal Resources and Reserves

In 2021, Adaro Group has more than 4 billion of coal resources and 1 billion of coal reserves. More details can be seen in the 2021 Annual Report, page 72-29.

Last modified on June 13, 2022, 1:08 pm | 425582