Adaro :: 2009 Annual Report

Mine Operations and Contract Mining
Coal is mined from the Tutupan deposit using open-pit mining methods with primary overburden stripping and coal mining being handled by hydraulic excavators and trucks after topsoil has been removed and stockpiled for later rehabilitation of mined out areas. Adaro focuses on marketing, mine planning, production, supervision and exploration, and contracts out all other aspects of its mining operations.

Adaro Indonesia works closely with four contractors, including SIS. Each of these mining contractors is subject to multi-year contracts to undertake overburden removal and transportation, coal extraction and transportation and partial mine reclamation activities. Adaro Indonesia has entered into multi-year coal mining and transportation contracts with each of its contractors. Adaro Indonesia believes that its reliance on contractors allows it to significantly reduce capital expenditures and working capital committed to mining operations and to focus on its value-added activities such as mine planning, exploration and marketing.

Adaro’s mining contractors are responsible for providing all of their own equipment, supplies and labor necessary to mine within Adaro’s concession area. In 2009, PT Pamapersada Nusantara (“PAMA”), owned by PT United Tractors Tbk, was responsible for 43% of Adaro Indonesia’s coal production volumes. PT Bukit Makmur Mandiri Utama (“BUMA”) and PT Rahman Abdijaya (“RAJ”) were responsible for 19% and 12% respectively. Adaro Energy’s subsidiary PT Saptaindra Sejati (“SIS”) was responsible for 26% of total coal production.

The marketing department’s shipping section discuss new requirements for shipping documentation.	Adaro Energy Sales and Production Volumes (‘000 tonnes)

Coal Mining
Adaro Energy maintains its track record of production growth with 40.6 million tonnes production volume in 2009, a 5.5% increase compared to 2008. Despite the global economic turmoil, the Company finished the year strongly with an outstanding second half performance of 22.6 Mt to make up for the slow first half performance. Adaro Indonesia is confident of this improving trend for the year ahead with the increased in-pit inventory level and the proven performance of the contractors to achieve targets.

Historical Production Volumes (Mt)

Overburden Removal
Overburden removal for the year was 208.5 million bank cubic meters (BCM) with a record daily overburden removal of 793,814 BCM on September 5. This performance was 97% against the plan and a 31% increase compared to 2008 as all our contractors performed at or above their targeted plan. The year 2009 began with higher-than-average rainfall which was a continuation from the year before; however, by mid year the average monthly rainfall had fallen dramatically and by year’s end, total rainfall was close to the average annual historical level.

The Wara mine, 5 km to the east of the Tutupan mine, was opened up with the construction of the coal haul road to the first mining area, and commencement of overburden removal. Production started at a relatively low level but will be ramped up during 2010.

Historical Sales Volumes (Mt)

Logistics, Hauling, Barging and Shiploading
The 80 km coal haul road from the mine to Kelanis remained at a high standard with the increased haulage levels. No coal haulage stoppages were recorded. Upgrading and maintenance of the road continued throughout the year.

The new crushing system at Kelanis was completed on schedule early in the year, increasing throughput
capacity to 55 million tonnes a year. The Kelanis operations maintained a high level of throughput and availability, in part a result of a rigorous maintenance program. Development of a port area on the Barito river to the north of Kelanis as a receiving point for heavy equipment and materials for the operations is now being designed.

With the new Barito Channel in full operation, significant reductions in barge cycling were made due to the elimination of barge waiting time at the mouth of the Barito River and a faster transit of the channel itself. This reduction in cycling resulted in a higher tonnage being moved for the year with only a marginal increase to the barge fleet size, which now numbers 71 units with an average barge size of 10,300 dwt. It is now expected that no further increases in barge numbers will be required until 2011.

An additional floating crane began loading operations during the year bringing the total number of ship loading units in operation to 6 comprising 5 floating cranes with a combined loading capacity of 85,000 tonnes per day and a floating loading facility that can load at rates of up to 40,000 tonnes per day.

Terry Ng, General Manager – Supply Chain
Terry Ng is the General Manager - Supply Chain and is responsible for streamlining and improving the entire supply chain of Adaro. He has been with the Group since 2002. Before taking this post he was Customer Support Manager for Adaro and then Marketing Manager for IBT. Prior to joining the Group he worked with Schlumberger as a Technical Support Engineer and subsequently as Regional Marketing Engineer providing support to Asian Pacific power utilities. He holds a degree in Electrical Engineering from McGill University, Canada.

Market Overview
The market for Adaro’s Envirocoal in 2009 was a year of two halves, reduced demand in the first half but strong demand growth in the second half. Almost all of the coal market growth in the year was in Asia, notably in China and India, and to some extent in Indonesia, Korea and Japan.

In contrast to Asia, 2009 saw reduced demand in the America’s and Europe. This was a result of the downturn in economic activity in those regions and competition from low priced natural gas for power generation.

The main story of the international coal market in 2009 was the turn around in the status of China, from that of a net exporter to becoming a major net importer of coal. This, together with steady demand growth from India, resulted in international coal prices, after falling during the first quarter, firming from April onwards.

Domestic market growth continued, in part from the start up of the first power plants in the Indonesian Government program of building 10,000 MW of new coal fired power stations. However the strong growth of Indonesian coal production meant that the domestic coal market was fully supplied in 2009.

Adaro Indonesia’s Sales
The demand for Adaro’s Envirocoal remained strong with all the planned 2010 production already committed under term contracts.

Envirocoal sales for the year increased by 1.28 million tonnes reaching 41.08 million tonnes, or a 3.2% increase over 2008 sales.

Geographic diversity in sales was maintained with Envirocoal being supplied to around 40 customers in 17 countries. However there was a significant change in the sales location with strong growth in Asia with sales up by 32% in the year and considerable reduction in sales to the America’s and Europe and essentially steady sales to the Indonesian market.

Japan became Adaro Indonesia’s largest international destination, taking 4.0 million tonnes in the year, followed by China 3.7 million tonnes and Spain also 3.7 million tonnes. Other major sales were to India with 3.5 million tonnes, to Hong Kong with 3.3 million tonnes, and to Taiwan with 2.6 million tonnes. Adaro’s top ten customers took 24.3 million tonnes, or 59% of the coal sold.

Adaro Indonesia remain the largest supplier of coal to the domestic market delivering 9.5 million tonnes to Indonesian customers of which 5.6 million tonnes went to power plants. PT Paiton Energy’s 1,200 MW plant remained the largest domestic consumer taking 3.2 million tonnes during the year.

During the year, terms were concluded for long term coal supply to a regional power producer with supply scheduled to commence in 2010. A new contract for coal supply to a domestic power producer was also concluded which is expected to result in significant additional long term sales.

Adaro Indonesia’s Sales in 2009 by Region

Region	Tonnes	% of Total Sales	Change from 2008
Europe	5,008,016	12.2%	(2,113,169)
Asia	24,638,872	59.9%	5,079,340
Americas	1,920,359	4.7%	(1,573,514)
Indonesia	9,512,797	23.2%	(110,367)
Total	41,080,044	100%	1,282,290

Sales By Vessel Loading (in Million Tonnes)

Loading Method	Tonnes Loaded	% of Total
Floating cranes	21.8	53%
Direct barging	10	24%
Vessels loading with their own gear and grabs	6.2	15%
IBT	3.1	8%

Improving Performance and Productivity
Projects to improve mining performance and productivity and to prepare for future years increased production continued:

Surfacing of the major ramps used for access in and out the mine. The surfacing material being used is andesite rock from Java which allows all weather use of the road. The road surfacing is producing positive results as coal production and overburden removal can continue during periods of rain, though generally at a reduced rate.
Continuation of extension of the low-wall haul road to the north for mining in the northern part of the Tutupan deposit. After a period of development and overburden removal, initial mining started in the fourth quarter.
Drilling of more deep dewatering wells in the mine to reduce water pressure in and around the walls of the mining area.
Purchasing of more robotic theodolites to provide continuous monitoring around the mine to give early warning of any wall movement so preventive measures can be quickly taken. The new units can provide direct readings from up to 3 kms away.
Completion of fitting of GPS units on all the coal haul road trucks. This has allowed for improved road utilization. Consideration is being given to installing GPS units on the overburden equipment.
Detailed evaluation of an input crushing and conveying system for overburden removal. Significant cost savings appear to be available from such a system and a decision on purchase will be made in the first half of 2010.
Awarding of a contract for construction of an overland conveyor system to run for 38 kms along the coal haul road. This system is designed to handle 40 million tonnes of coal a year and will give reduced haulage costs. Land purchase for the conveyor line continued.
Awarding of a contract for construction of a 2 x 30 MW mine mouth power plant. Land purchase and clearing was done and equipment ordered. This power plant will be fueled by Wara coal and will provide power for the overland conveyor system.
Infill drilling in the North Tutupan and Wara coal areas.
Optimization of the life of mine plan using external consultants.

PT Adaro Indonesia