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BRITMINDO GROUP Professional Mining Services
A TIME TO INNOVATE AND INVEST
MACQUARIE INDONESIAN COMMODITIES
CONFERENCE 23rd September 2014
At the Crossroads – Challenges and Opportunities
• World coal prices have remained depressed for more than two years when compared with the highs of 2008 and 2011, however don’t forget similar low coal pricings were experienced in 2009.
• Indonesian Coal Production will still accrue to ±410 Mt in 2014 which will be in line with 2013 number of 420 Mt – thus demand remains strong despite the current long term low coal prices .
• Indonesia’s coal production based on heat value of Calorific Value (CV) going forward will see average reductions over the next 5 years of around 8%.
• Traditional markets like Japan will have to readjust it’s appetite for better quality Indonesian Coals – do something different or go elsewhere.
• The big seven in Indonesia are still providing nearly 65% of the total production of 260 Mt both domestically and overseas.
• The Indonesian Government is mooting “A Cap” on production quotas to conserve national resources and improve pricings.
At the Crossroads – Challenges and Opportunities
• Legislation is being mooted to charge a standard royalty tax rate (currently 13.5% at CCoW’s) across all coalmines - irrespective of coal quality type.
• Export Licence Requirements newly introduced for all mining companies wishing to sell coal outside of Indonesia (i.e. managing illegal export sales)
• Possible other tariffs on export tonnages.
• China suggesting that caps will be applied on quotas of Indonesian imports of certain low CV quality.
• India is facing massive coal supply issues to both existing and proposed power plants.
• Significant reliance on Kalimantan river systems for much of the coal production transportation from ports to customers.
• In Sumatra other that PTBA (which uses rail) most of the coal transportation relies heavily on public highways using small trucks.
• Industry sources suggest that nearly 70 Mt per year is mined illegally
Estimated Production from Indonesia to 2035
Source IEA South East Asia Energy Outlook Sept 2013 Source IEA South East Asia Energy Outlook Sept 2013
Source IEA South East Energy Outlook Report Sept 2103
1990 2011 2020 2025 2030 2035
2011-2035
Indonesia 8 296 449 489 519 549 2.6% Vietnam 4 36 38 39 40 41 0.6% Rest of ASEAN 6 17 25 26 27 26 1.8%
Total ASEAN 18 348 512 554 586 616 2.4% Share of World 0.6% 6.3% 8.5% 9.0% 9.4 9.7% n.a
Forecast Indonesian Production to 2020
Forecast Indonesian Coal Production by Quality
Year
-
100.0
200.0
300.0
400.0
500.0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
High Rank Medium Rank Low Rank
Mill
ion
To
nn
es
(Mt)
Coal Quality Average Projection to2020
2013 2014 2015 2016 2017 2018 2019 2020
Average Weighted CV (Kcal/Kg) 5,526 5,433 5,351 5,322 5,271 5,222 5,174 5,150
4,900
5,000
5,100
5,200
5,300
5,400
5,500
5,600 C
V (
Kca
l/K
g)
Projected Quality Trends to 2020
The Influence of Transportation and Logistics
• Indonesia Mining Industry is becoming increasingly adversely affected by logistic issues and increasing transportation costs - even the CCoW’s are experiencing longer coal evacuation distances to navigable water.
• In Kalimantan the original mines in the early 1990’s (except Adaro) were generally well below 40 km haul to navigable water but now they are experiencing greater distances, land compensation issues, and operating costs .
• Many recent developing mines are mooting hauling over 100 km to get to a port which at today’s coal pricing structures makes them very marginal.
• The building of new haul roads is being severely curtailed by land acquisition and compensation issues.
• Proposals for the construction of railways and multi user ports have been around for sometime but high capital costs and uncertainty about markets and captive use continue to dog the project do-ability.
Infrastructure Requirements
• Government is still proposing “multi user ports” to handle coals from various locations within coal mining regions.
• For many years railway systems have been mooted in East Kalimantan to provide better and more efficient access to many of the inland coal fields which have previously been inaccessible due to logistical issues.
• PTBA and KAI are upgrading the railway link to Tarahan Port to boost coal tonnage throughput capacity to their port.
• In Sumatra only a number of purpose built non public haul roads have been constructed to accommodate coal traffic (such as the Servo Haul Road at Lahat)
• In Jambi, as previously in South Kalimantan, the use of public roads for coal hauling has in some cases been stopped due to local complaints.
• Similar issues have been noted in the Bengkulu Area with access to Pulau Bai only by continued use of public roads by small trucks.
So what does all of this tell us
• The significant increases experienced by Indonesia in terms of coal production over the last 20 years appears to be slowing down.
• IEA forecasts suggest that Indonesian Coal Production will stabilise somewhere around ±450 Mtpa up to year 2020.
• Government and Industry pressure to cap levels of production will likely underpin this view and will likely impact on any major new coal mining projects coming on line.
• The “sexy” image of coal in 2008 and again in 2011, when significant capital investments were noted, has been diminished by continued over supply issues and low pricing over the last 2.5 years.
• Over time lower CV coals will only be available, thus operating costs and transportation logistics will become more critical for most mine owners.
• Most adjustments in upward coal production will be met by the “major players “ who have large operating mines, with significant coal reserves and infrastructure in place (albeit that it may be creaking in many areas)
• Given the what has been stated before, most likely internal capital investment will only come to existing operations if there is a real case to “improve bottom line by doing something fundamentally different over a long term business case” or “radically improve costs” over short term.
• Without Central Government Intervention by way of an Energy Policy overarching a Coal Mining Policy, there will be little confidence by Mining Companies or Investors to make or financially support significant changes in current mining and transportation methods over the medium tolong term.
• With so much plant and equipment lying around very few mining contractors are investing in new equipment – most are trying to get more operating life hours out of current mining equipment.
• Many companies will try to add value by using coal products for different downstream value adding projects e.g. – local power plants, coal beneficiation, ethanol conversion, coal to gas projects and CBM projects .
So what does all of this tell us
Innovations in Mining Operations
• Indonesia is without doubt a “shovel and truck” environment.
• Only exception is PTBA where they are using Bucket Wheel Excavators.
• Some deep mines have conducted Feasibility Studies into Inpit Crushing, namely Wahana, Kideco, Arutmin and Adaro.
• A number of dragline studies have been commissioned but unless the mine is operating with flat seams and competent material to build stands for safe dragline operations the application is likely not to work.
• Dozer pushing has been tried and tested in some mines where the geometry permits but applications are again limited.
• Throw blasting has been tried but pit dimensions and the need to “sleep “ some major blasts (to be effective) has restricted the potential of this application.
• Auger Mining has been undertaken at some mines but is limited if it conflicts with the overall mine sequencing plan.
• Continuous Miner Underground Systems have been tried in a number of operating mine locations in Indonesia with mixed success outcomes.
• Conveyor systems for coal transportation are being developed in a number of long term mines but these specifically are long term and require small power plants to be constructed to support stable continuous electricity requirements.
• Slurry pipelines for transportation of coal over long distances are used in the USA but the commercial viability of such projects in Indonesia has yet to be established.
• Self propelled barges are becoming more prevalent as they demonstrate better cost effectiveness in moving coals.
Innovations in Mining Operations
Investment and Diversification - Adaro Energy
• One Local Business Unit which has both invested and diversified over the last few years is Adaro Energy which is targeting being a diversified energy supplier and provider with many divisions supporting the corporate objectives.
• Mine Acquisitions last two years
IndoMet Coal Project 25% owned by Adaro
Mustika Indah Permai 75% owned by Adaro
Bukit Enam Energi 61% owned by Adaro
Bhakti Energi Persada 10% owned by Adaro
Balangan Coal 75% owned by Adaro
• Power Plants Planned
PT Bhimasena Power 2 x 1000 MW in Java
PT Tanjung Power 2 x 100 MW in South Kalimantan
PT Makmur Sejahtera 2 x 30 MW at Tanjung South Kalimantan
• Mining Services Contractor
PT SaptaIndra Sejati Provides international class mining services
Investment and Diversification - Adaro Energy
• Infrastructure Upgrades Current and Planned
Adaro Overburden Crusher Adaro Mine
10Km Conveyor Facility Adaro Mine
Kelanis Load out Upgrade Increase capacity from 55 to 80 Mtpa
• Current Other Support Companies and Facilities
PT Indonesia Bulk Terminal Ship Loading Company Sth Kalimantan
PT Maritim Perkasa Coal Barging Company
PT Sarana Dava Mandiri Barito Barging Channel Operator
• Other Opportunities being Explored
Coal to Gas conversion BEP Mine
Coal Liquefaction BEP Mine
Other Diversifications into allied Industries
• Bukit Assam has already constructed a 2 x 100 MW Banjarsari Coal Plant in Lahat and has recently announced that it intends to allocate US$215M in Capital Expenditure for a power plant in Banko Tengah of 2 x 620 MW units capacity.
• Sekawan Intipratama intend to mine coal and use it in a $725 M ethanol plant adjacent to Indowana Coal Deposit in East Kalimantan.
• A number of American Companies are looking at converting coal to bio fuel, coal to gas and coal liquefaction plants and CBM units where some are in the process of constructing trial plants which they believe can be commercially viable.
• A number of coal miners who have large deposits of low CV coals are looking at constructing industrial estates which may use low value coal to create energy for Alumina Plants, Smelters or Significant Industrial Developments in East Kalimantan.
• Coal upgrading on a major commercial basis has yet to be proved but today’s low coal pricing reduces much of the margin in the project.
Likely Innovation and Investment in the future
• Unless the New Administration radically introduces changes in policy on Energy and Coal Mining to suit the needs of the people of Indonesia at large and the professional elements of the Coal Mining Fraternity in general – and introduces sensible legislation which addresses illegal mining, power generation, mine regulation, taxation, security of long term investment regulations and a number of other key issues.
……………..or Coal goes back up to US$120 per tonne FOB Newcastle
• don’t expect any great changes globally from what’s happening currently.
• Expect to see “pockets of excellence” from some Indonesian forward thinking companies who will build their businesses by engaging in “value adding” projects provided that long term coal demand and pricing risks are positive.
• Coal demand from China may wane but India will need more imported coal to fuel it’s expanding coal fired power station demand. Don’t forget that Asia will get 45% of it’s power from coal over the next 20 years so demand is not the issue – its oversupply.
• The opportunity of adding value by creating other products derived from low energy coals are still being aggressively pursued by a number of companies.
• Look to see more investment in bio fuels, coal to synthetic natural gas and coal to ethanol plants and longer term CBM research given Indonesia’s significant coal resources of low grade coal.
• Should the key to upgrading and stabilising low CV coals to power station moisture specification (i.e 30-35% moisture) in large volumes on a commercial basis – then this breakthrough may well totally change the dynamics of the Indonesian Coal Landscape.
• Most established mining contractors will be mitigating investment in new plant and equipment as they amortise the existing fleets by extending machine life.
• Be optimistic, be positive but most of all - be realistic.
Likely Innovation and Investment in the future
BRITMINDO GROUP Professional Mining Services
www.britmindo.com
Graha Britmindo
Jl. Taman Margasatwa Raya No. 14, Ragunan
Jakarta Selatan 12550, Indonesia
Tel. +62 21 7884 9999 (hunting), Fax. +62 21 7884
9998
Email: [email protected]
THANK YOU
www.britmindo.com
Graha Britmindo
Jl. Taman Margasatwa Raya No. 14, Ragunan
Jakarta Selatan 12550, Indonesia
Tel. +62 21 7884 9999 (hunting), Fax. +62 21 7884 9998
Email: [email protected]
