Posted on 13 Jun 2016
Despite a global decline in coal prices, Indonesian coal miner Adaro Energy has expressed optimism over the outlook of the local coal industry following its recent acquisition of mining firm IndoMet Coal from BHP Billiton, the world’s biggest miner.
Melbourne-based BHP recently decided to sell 75 percent of its stake in IndoMet Coal for US$120 million to its joint venture partner Adaro, which already has a 25 percent stake in the project that it acquired in 2010 for $335 million.
BHP is looking to preserve cash after suffering a $5.7 billion half-year loss amid a prolonged commodities downturn.
Adaro president director Boy Garibaldi Thohir, however, remains upbeat about the acquisition, as coking coal, also known as metallurgic coal, has become a compulsory, irreplaceable element in steel production and most of the current supply in the country is imported.
“There are 65 million [Indonesian] middle-class people, which will increase to 130 million in the next 10 years. Their need for property and other things will grow exponentially and such development will apparently need steel,” Boy said on Thursday in a gathering with reporters.
Indonesia imports almost 100 percent of its coking coal needs from Australia, and hence Adaro plans to simply sell the coal to the local market first before expanding to overseas markets.
“The local market still needs a huge supply of coking coal. We have [state-run steel giant] Krakatau Steel as the country’s biggest steel maker and [South Korean steel maker] Posco here,” he said.
Boy said Adaro had also benefited from relaxed competition in the niche segment, as the amount of reserve coking coal is not as deep as that of thermal coal, which is used in power plants, leaving it with a very few competitors.
Furthermore, a lower supply of coking coal causes its price to be higher than thermal coal. “Though the coking coal price has also dropped, it’s higher than thermal and will creep up faster.”
The Newcastle thermal coal price, an Asian benchmark, has dropped from its 2011 peak of around $135 per metric ton to around $50 at present.
The IndoMet Coal project was started by BHP in 2010 after it discovered 1.27 billion tons of coking coal reserves. The project covers seven sites in Central and Eastern Kalimantan. However, the mining only begun last year at Haju mine, with a 1 million ton capacity per year. Adaro plans to improve productivity to reach full capacity at Haju as the latter only produces 50 percent of its capacity at present.
Revenue and profitability from the project, meanwhile, will only be seen clearly from next year, Boy said.
Adaro’s financial report for the first quarter of the year shows that it booked $586.4 million in revenues, a 17.5 percent drop from the $710.9 million it booked in the corresponding period last year due to a falling coal price. Sales volumes, however, went up a little to 13.47 million tons from 13.45 million tons. Net profits increased slightly by 1 percent to $59.6 million from $56 million due to lower operational costs.
The firm expects to produce 52 to 54 million tons of thermal coal and to sell all of it.
