Mining Assets
Building Organic Growth
Giant dump trucks lined up in readiness for despatch to their next load at the Tutupan pit. Orderliness and precision are equally critical in Adaro Indonesia’s physical mining operations.

Giant dump trucks lined up in readiness for despatch to their next load at the Tutupan pit. Orderliness and precision are equally critical in Adaro Indonesia’s physical mining operations.

Adaro Indonesia: Our Core Mining Asset

PT Adaro Indonesia is Adaro Energy’s core operating subsidiary. We began commercial operations mining and producing our trademark Envirocoal in 1992 from our 358km2 concession at Tabalong in South Kalimantan under a first-generation Coal Cooperation Agreement (CCA) with the Government of Indonesia.

In 2015, we produced 50.4 million tonnes of Envirocoal from three pits: Tutupan, Wara and Paringin. We have total resources of 4.9 billion tonnes in this concession, including 873 million tonnes of reserves (reported in accordance with the JORC Code 2012).

Over the past 24 years, we have become known for our consistent coal quality, reliability and dependability. Our trademark Envirocoal, with its low-pollutant characteristics, has earned the reputation of being among the best environment-friendly solid fuel available.

Our customers also benefit from top-class service, with our combustion engineers visiting them to provide technical advice on using Envirocoal.

Adaro Indonesia is currently our largest coal mining operation and we are constantly pursuing organic growth from it, in line with customer demand. However, we are not merely chasing production growth; our focus is to maintain a healthy margin from our coal mining operations.

Adaro Indonesia’s three pits within its South Kalimantan concession — Tutupan, Paringin and Wara — produce sub-bituminous medium heat value coal between 4,000kcal/kg and 5,000 kcal/kg gar. Adaro Indonesia’s coal is branded as Envirocoal, due to its low-pollutant characteristics. Envirocoal has among the world’s lowest ash and sulphur content and has good reception from customers.

In 2015, Adaro Indonesia sold 51.09Mt of its Envirocoal, approximately 66% of which was the E4900 product. This meant Adaro Indonesia remained our largest revenue contributor, generating approximately 90% of Adaro’s revenue in 2015.

Faced with another difficult year in the industry as coal prices remained low, Adaro Indonesia in 2015 trimmed the volume of coal it produced to 50.4Mt, 9% lower than in 2014. Its coal sales volume was correspondingly lower at 51.4Mt, 8.3% lower than 2014.

In the fourth quarter of 2015, we started to sell a blend of our Wara and Balangan product. The Wara Balangan blend improves the quality of Wara’s lower-calorie E4000 product and opens up market in the lower heat value coal category. This product has been well received, especially by our customers in China and India.

Adaro indonesia remains Adaro’s largest contributor to revenue, providing around 90% of Adaro’s revenue. Adaro Indonesia sold 34.1Mt of its E4900 Envirocoal in 2015, approximately 66% of total sales, supported by strong demand for this type of coal from Indonesia, China and Spain.

In line with an Adaro-wide cost-control program, Adaro Indonesia reduced its overburden removal to 261.5Mbcm in 2015, 17% lower than 2014, resulting in a strip ratio of 5.19x. Adaro Indonesia focused on optimizing its mine plans to enable low-cost production expansion while maintaining our commitment to the health and safety of our employees and the environment.

At Adaro Indonesia’s concession, we employ four contractors in mining activities, including our subsidiary PT Saptaindra Sejati (SIS). Although we have subsidiaries working at each part of the coal supply chain, we regard them as third-party contractors and encourage them to engage in healthy competition with other contractors. By having multiple contractors, we create a level playing field and encourage efficient operations. It also helps us to maximize operational performance from all of our contractors.

Each contractor is responsible for providing its own equipment, supplies and labor to operate within its allocated areas and achieve production targets. We reward our contractors based on their performance and other efficiency measures including fuel consumption and coal delivery cycle time. The charts below show the breakdown of overburden removal and coal production activities among Adaro Indonesia’s mining contractors.

In 2015, Adaro Indonesia continued to work with its contractors to improve business process and to find better ways to do the operations in a measure to better control cost.
 

adaro

Adaro Energy holds or has options on 12.8Bt of coal resources and 1.1Bt of reserves, all reported in accordance with the JORC code (2013).

Coal Mining and Overburden Removal
Tutupan remains as our largest mine, producing 41.97Mt of coal in 2015, a decline of 4% from 2014. We had robust demand in 2015 for our E4900 product, which comes from the Tutupan pit. Production from our Wara pit dropped 48% year-on-year to 2.97Mt and production from Paringin dropped 11% to 5.41Mt.

Adaro Indonesia’s lower overburden removal resulted in a strip ratio of 5.19x, 9% lower than 5.69x in 2014. Despite this, Adaro Indonesia was able to maintain its coal reserves due to adjustments in its long-term mining plan. Our prudent investment in overburden removal in previous years also contributed to enabling us to operate at a lower strip ratio during this difficult market.
 

Coal Hauling and Barging
Coal extracted from Adaro Indonesia’s mines in Tanjung, South Kalimantan, is hauled 80 kilometers to the Kelanis crushing, stockpiling and loading facility on the Barito River for barging to the coast.

To improve the cycle time for coal delivery from the mine to our river terminal, we remained committed to investing in road maintenance and upgrades along Adaro Indonesia’s main hauling road.

Our terminal at Kelanis, which handles all coal crushing, stockpiling and barge-loading activities, maintained a high level of availability throughout the year. Kelanis has an annual capacity of 60Mt based on average operating conditions.
 

Image

Trailer trucks arriving at Kelanis from the mine site unload into one of seven hoppers that convey the coal into the facility for crushing and barge-loading.

Marine Logistics
We barge our coal either to trans-shipment facilities at the Taboneo offshore anchorage for the export market or direct to domestic customers. At the end of 2015, we had 64 sets of tugs and barges contracted to serve AI, compared to 68 sets during 2014. The average capacity of these barges was 12,431dwt.

In 2015, 68% of our coal barged from Kelanis was loaded to ships at Taboneo using our floating cranes, 14% was loaded at Taboneo using self-geared vessels and 18% was directly barged to domestic customers.

AI employs four barging and three ship-loading contractors, including our subsidiary PT Maritim Barito Perkasa (MBP). MBP handled the largest volume for AI during the year, accounting for 56% of barging activities and 96% of ship-loading activities. In 2015, the average barge cycle time was 88.5 hours, while the average vessel waiting time at Taboneo was 1.49 days.
 

Leadership team
Garibaldi Thohir, President Commissioner
Christian Ariano Rachmat ,Vice President Commissioner
Sandiaga Salahuddin Uno, Commissioner
M. Syah Indra Aman, Commissioner
Chia Ah Hoo, President Director
Budi Rachman, Operations Director
David Tendian, Finance Director
Edwin Tsang, Marketing Director
Leonard Lembong, Services & Strategic Director
Julius Aslan, Director

Adaro Indonesia’s coal is a moderate-energy, sub-bituminous coal that is one of the cleanest fossil fuels in the world because of its natural ultra-low sulphur, ash and nitrogen contents. It has been trademarked internationally as Envirocoal.

Our coal has been widely used since 1992 across Europe, Asia, the Americas and domestically in power generation, cement manufacturing and industrial applications where environmental restrictions are stringently controlled, or as a blending coal with more common high-ash, high-sulphur coals. Results have consistently shown a significant drop in environmental impact compared to standard coal when it is used.

Because of its rare qualities, Envirocoal also provides excellent economic and technical benefits through lower maintenance and operating costs and improved combustion, ash handling and ash disposal efficiencies, making it the most environmentally acceptable and cost-effective solid fuel available.

For details of our sales in 2015, see our Markets and Customers page.

Envirocoal’s Main Product Specifications

Envirocoal 5000 Envirocoal 4700 Envirocoal 4000
Total Moisture (ar) 26% 30% 38%
Air dried moisture (ad) 14.5% 18% 20%
Gross CV (ar) 5,100 kcal/kg 4,700 kcal/kg 4,050 kcal/kg
Net CV (ar) 4,800 kcal/kg 4,363 kcal/kg 3,700 kcal/kg
Ash (ar) 2.0% 2.5% 3.5%
Total sulphur (ar) 0.10% 0.20% 0.25%
HGI 50 47 65
Carbon (daf) 73.8% 74% 72%
Hydrogen (daf) 4.9% 5.0% 5.0%
Nitrogen (daf) 0.9% 1.0% 1.0%
Oxygen (daf) 20.3% 19.8% 22.0%
Sulphur (daf) 0.1% 0.2% 0.3%
Initial deformation 1,200 C 1,200 C 1,150 C
Hemisphere 1,260 C 1,240 C 1,250 C
Flow 1,340 C 1,270 C 1,310 C
Sizing 0-50 mm 0-50 mm 0-50 mm
To download the full specifications as a PDF, click here
2011 2012 2013 2014 2015
Key Financial Highlights (US$ million)
Total assets 2,699.6 2,884.6 2,874.4 2,614.5 2,334.5
Total liabilities 2,312.1 2,489.0 2,384.3 2,056.2 1,725.9
Interest-bearing debt 1,629.7 1,806.9 1,688.2 1,363.0 1,223.9
Total equity 387.5 395.6 490.2 558.3 608.6
Revenue 3,386.2 3,343.1 2,984.6 3,045.9 2,419.3
Operating Statistics
Coal production (Mt) 47.7 47.2 52.3 55.3 50.4
Coal sales (Mt) 47.2 47.4 52.2 56.0 51.4
Overburden stripping (Mbcm) 299.3 331.5 294.9 314.9 2261.5
Average actual strip ratio (x) 6.27 7.02 5.64 5.69 5.19
Image

Trailer trucks arriving at Kelanis from the mine site unload into one of seven hoppers that convey the coal into the facility for crushing and barge-loading.

The past few years have been difficult for global coal miners as chronic oversupply and macro-economic headwinds have created volatility in the coal industry. We continue to optimize our strategic business plan to manage this volatility, taking calculated measures to preserve and enhance long-term value while adapting to the current cyclical downturn.

We continue to update our mine plans, optimize coal reserves and maximize asset values, with a focus on supply security and efficiency improvement at existing operations.

While our key assets are mature and we have limited room for further cost efficiencies, the key for us is to remain cost-competitive through improving our business operations.

Adaro Indonesia has prioritized cost-efficiency measures in response to the global coal price downturn. A sharp drop in crude oil prices since late 2014 resulted in 38% decline year-over-year in AI’s overall fuel cost to the low 50 cents per litre. Additionally, one of AI’s priorities has been reducing the large amount of fuel consumed in our operations. In 2015, we managed to lower fuel consumption per tonne of coal produced by 11%.

Going forward, Adaro Indonesia will prioritize business improvement projects that focus on increasing efficiency in existing mining equipment and reducing mining production costs.

Another way that Adaro Indonesia has responded to the cyclical downturn has been by lowering strip ratio, given the mining cost’s significant impact on Adaro’s coal cash cost. We are pleased that our investment in overburden removal during the good times has allowed us to lower the ratio during this difficult time.

Nevertheless, Adaro Indonesia continues to mine at a moderate strip ratio in order to ensure the long-term sustainability of the business. We are not high-grading to decrease costs only for the short term.

Adaro Indonesia continues to work closely with mining contractors to realize production efficiencies through operating discipline. We have targeted increased production rates, utilization and availability for haul trucks and major mining equipment. Adaro Indonesia will continue to strive to minimize production costs and increase the efficiency of its capital spending. The current environment is an opportunity to become a more efficient mining company and reset our cost profile to increase the competitiveness of future production expansions.

This downturn’s impact on our use of our coal reserves means Adaro Indonesia must refocus its customer priorities to concentrate on fulfilling coal demand from Indonesia and from premium customers such as in Japan and Taiwan. An Indonesian government-led program to add 35GW of power-generating capacity by 2019 projects that 20GW will be fueled by coal, meaning a significant increase in coal consumption in Indonesia. Adaro Indonesia is committed to supporting the program and participating in building Indonesia.

Our Other Mining Assets

With a focus on creating maximum sustainable value from Indonesian coal and creating returns for shareholders, Adaro has since 2010 invested approximately US$955 million, including capital expenditure, to acquire 16 coal concessions in Kalimantan and South Sumatra.

Our strategy to invest in large, greenfield, low-cost, and expandable assets that will diversify our products, license maturities and locations has created a solid platform in the coal-mining segment of our business.

At the same time, these assets support our mining services, logistics and power segments, further strengthening our vertically integrated coal supply chain.

While we look at all opportunities available, we prefer to acquire undeveloped deposits rather than mines, as the former allows us to take advantage of our specialized knowledge and experience on how to take a deposit and turn it into a profitable, long-term asset. The assets we acquired play to our strength as an expert on inland, low-rank Indonesian coal.

The three main criteria we look for in an asset are location, size and deposit quality. We have no specific minimum resources amount, but we are only interested in deposits that can create substantial value.

Developing large greenfield concessions is not without its challenges, thus the Board of Directors applies a disciplined approach in allocating capital for these assets. We spend money in increments to prepare the concessions for mining readiness.

Our investments in these coal assets mainly support our move downstream into power. At Adaro, we believe that having a pit-to-power portfolio provides a hedge against coal price volatility by giving us a captive market for our coal products.

Although it has taken us longer than expected to develop these assets, we are now able to see a clearer path for them, such as pit-to-power integration by building mine-mouth power plants.

Expanding in South Kalimantan

In April 2013, we added coal resources through the acquisition of 75% three companies with coal-mining licenses (IUPs) at a greenfield coal deposit in Balangan district, South Kalimantan, strategically located 11km southeast of AI’s concession.

Two of the IUPs, belonging to PT Semesta Centramas (SCM) and PT Paramitha Cipta Sarana (PCS), are valid until 2029, and the third, belonging to PT Laskar Semesta Alam (LSA), is valid until 2034. Balangan’s coal has a calorific value between 4,200kcal/kg to 4,400kcal/kg (gar) and shares similar characteristics with Envirocoal.

SCM started commercial operations in the first half of 2014. Through integrating its mining operations into AI’s existing supply chain, we brought SCM to market for a relatively low capital expenditure. Moreover, we employ two of our subsidiaries, SIS and MBP, for all of SCM’s coal production and logistics activities.

In 2015, SCM increased total coal production to 1.11Mt, a 25% increase on 0.89Mt in 2014. Overburden removal in 2015 increased by 32% to 5.50Mbcm, which resulted in an actual strip ratio of 4.95x, 6% higher than 4.69x in 2014.
Market acceptance for SCM’s coal has been extremely encouraging, and we sold 1.07Mt in 2015, a 22% increase from 0.88Mt sold in 2014.
 

Balangan IUPs Coal Resources
IUP

Resources (Mt)

Total moisture
(wt% gar)

Ash (wt% gar)

Volatile matter
(wt% gar)

Total sulphur
(wt% gar)

Calorific value
(kcal/kg gar)

SCM 106 32.2 2.2 33.9 0.07 4,407
PCS 51 31.0 3.5 33.9 0.08 4,359
LSA 178 29.8 1.8 35.3 0.08 4,594

The three IUPs are an important addition to Adaro’s coal mine portfolio as they serve as an additional source of low-rank thermal coal, aside from AI’s E4000 product, while diversifying our product portfolio.

Life-of-mine plans, which form the basis for JORC Coal Reserve estimates, have been completed for all three IUPs.

While we continue to work towards converting additional coal resources into coal reserves reported according to JORC guidelines, land clearing has been conducted at LSA, and it is expected to start commercial operations in the second quarter of 2016.
 

Map of Operations
Our Sumatran Venture

South Sumatra is one of Indonesia’s coal-rich provinces, holding approximately 50% of the country’s total coal resources. However, the province’s coal production accounts for only 5% of Indonesia’s total, mainly because of difficulties with transportation and logistics in the area.

Adaro Energy’s broad strategy to diversify our coal operations and to develop major coal-mining projects and support infrastructure in the coal-rich and strategically located South Sumatra led to three major investments in the province during 2011. Adaro acquired equity interests of 75% in PT Mustika Indah Permai (MIP) and 61.04% in PT Bukit Enim Energi (BEE) for a total of US$290 million.

MIP holds a mining permit (IUP) for a 2,000-hectare coal property located in the Lahat district of South Sumatra, a province that we consider to be a highly strategic growth area chiefly due to its close proximity to Java and to Indonesia’s main population centers.

BEE had received a 20-year IUP in March 2011 for a concession area of approximately 11,130 hectares that contains the coal-bearing Muara Enim formation, about 50 kilometers east of the MIP concession and about 150 kilometers southwest of the provincial capital of Palembang.

When we acquired MIP and BEE, we also bought a 35% stake in Servo Meda Sejahtera (SMS), a logistics company that owns a dedicated coal-hauling road and barge-loading port. In 2014, we divested our stake in SMS but retained the rights to use the hauling road owned by PT Servo Lintas Raya as well as the port facility operated by PT Swarnadwipa Dermaga Jaya. Both companies are controlled by SMS.

Our strategy of vertical integration remains, as we will now focus on pit-to-power integration in South Sumatra.

MIP is particularly suitable for integration with coal-fired power plants due to the nature of the deposit and its location relative to water sources and planned power distribution infrastructure. The low strip ratio and consistent quality of the MIP deposit make it a valuable addition to Adaro’s coal mining asset portfolio.

The concession area contains surface-mineable, medium-energy and low-pollutant sub-bituminous coal in three main coal seams and two minor seams that range from 8 meters to 17 meters in thickness. The structure, thickness and continuity of the seams appear consistent throughout the property with no faulting.

In 2013, we completed an updated resources and reserve report in accordance with the JORC Code 2012, showing total estimated resources of 287.5Mt and reserves of 254Mt of 4,292 kcal/kg (gar) coal.

Construction of a run-of-mine stockpile with an area of 1 hectare and a capacity of 35,000 tonnes, a crushing plant with a capacity of 750 tonnes per hour and a crushed coal stockpile with a capacity of 60,000 tonnes have been completed.

We continue to prepare MIP for mining readiness and are continuing with geological works for BEE.

MIP Coal Resources and Reserves

Total (Mt)

Total moisture
(%)

Ash
(% gar)

Total sulphur
(% gar)

Calorific value
(kcal/kg gar)

Resources 288 34.1 5.1 0.46 4,342
Reserves 254 34.1 5.7 0.4 4,292

At BEE, exploration work done up to the end of 2012 — surface geological and aerial topographic mapping as well as 13,100 meters of drilling and sampling — showed that the concession area has surface-mineable coal in thick, higher-moisture coal seams.

These exploration results already prove that the BEE acquisition would be highly compatible as a long-term, high-volume fuel supply for a dedicated mine-mouth base-load power plant, complementing Adaro’s strategy of downstream power integration.

More exploration was carried out in 2013 by Adaro Eksplorasi Indonesia to provide data for the preparation of a report (in accordance with the JORC Code 2012) on the area’s resources and reserves.

BEE is 61.04% owned by Adaro Energy (through our subsidiary PT Alam Tri Abadi), 20% by PT Pamapersada Nusantara, 13.92% by PT Triputra Utama Selaras and 5.04% by PT Bumi Alam Sejahtera.
 

Location Map
Leadership Teams

MIP
Garibaldi Thohir, President Commissioner
Hasim Sutiono, Commissioner
Christian Ariano Rachmat, Commissioner
Sandiaga Salahuddin Uno, Commissioner
M. Syah Indra Aman, Commissioner
Chia Ah Hoo, President Director
Ariya Somanatta, Director
Budi Rachman, Director
Andri Wijono Sutiono, Director
Freddy Hartono, Director

BEE
Garibaldi Thohir, President Commissioner
Ir. Ellyus Achiruddin, Commissioner
Ir. Dadi Sukarso Yuwono, Commissioner
Ir. Bambang Susanto, President Director
Ruli Tanio, Director
Eldy Ellyus, Director

Low Rank Coal in Kalimantan

Adaro owns 10.22% of PT Bhakti Energi Persada (BEP), which has one of the largest undeveloped deposits of low-rank, low-pollutant thermal coal in Indonesia.

BEP, established in 2002, is located in Muara Wahau, Kutai Timur district, about 250km north of Balikpapan and 120km from the coast. BEP owns seven subsidiaries that each own mining licenses (IUPs) over about 34,000 ha. The seven IUPs cover a large contiguous thermal coal deposit with estimated resources of 7.96Bt.

In May 2012, we entered into a convertible loan and share subscription agreement with the option to provide a loan to BEP of up to US$500 million, convertible to 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 Adaro (Option Two). We have amended the period for these two options up to 2021.

BEP Coal Resources

Total (Mt)

Total moisture (%)

Ash (% gar)

Total Sulphur (% gar)

Calorific Value
(kcal/kg gar)

Resources 7,957 46.9 3.1 0.1 3,354

With such large coal resources, the development options for BEP are numerous. Studies were done by Adaro’s business development, marketing, and mining technology divisions. These included coal enhancement technology such as coal to chemicals and coal-to-gas, as well as developing a mine-mouth power plant to supply electricity to the PLN grid.

As an initial step in the development of BEP, a further memorandum of understanding (MoU) was signed between China Shenhua Overseas Development and Investment Co., Ltd. (Shenhua Overseas), BEP and Adaro Power (AP) to establish a joint venture to develop mine-mouth coal-fired power plants in East Kalimantan with an initial capacity of 2x300MW. The power plants will use BEP coal and will feature the latest, most efficient and environmentally friendly technology.

Shenhua intends to initially acquire a minority equity interest in a BEP subsidiary for the development of a coal mine and for supplying the fuel to the mine-mouth power plant, subject to a satisfactory outcome of its due diligence and evaluation. A comprehensive pre-feasibility study of such plants has been completed.

During 2015, we continued to acquire land required for BEP’s transport corridor and BEP mine readiness studies progressed.
 

Location Map
Leadership Team

Garibaldi Thohir, President Commissioner
Christian Ariano Rachmat, Commissioner
David Tendian, Commissioner
Mayjen Purn. Sutardjo, Commissioner
Irawan Indrarta Poerwo, Commissioner
Jeffrey Mulyono, President Director
Crescento Hermawan, Director
Chia Ah Hoo, Director

IMC: Metallurgical Coal Joint Venture

The IndoMet Coal (IMC) project marked our first venture out of our South Kalimantan home base. IMC is a joint venture formed in 2010 between BHP Billiton (75%) and Adaro Energy (25%).

IMC covers seven Coal Contracts of Work (CCoW) located in East and Central Kalimantan with combined declared resources of 1.27Bt of undeveloped metallurgical coal.

Coal will be transported along a hauling road from the mine to the river port on the Barito River, then barged downriver for loading onto customer vessels for export.

Work during 2015 focused on infrastructure, mining, coal handling and transport studies as well as on environmental and social programs. First production was achieved from the Haju mining area and 100,000 tonnes of coal was transferred to stockpile areas.

This work was a significant step forward in the project development, and the initial production confirmed the result of the studies that have been done to date.
 

Location Map
 

Leadership Team

David Lyle Ruddell, President Commissioner
Gideon Johannes Oberholzer, Commissioner
Edwin Gerungan, Commissioner
Garibaldi Thohir, Commissioner
Mark John Small, President Director
Indra Diannanjaya, Director
Marc Delaney, Director
Stuart Wells, Director
Dina Durardi, Director
Joy Parker, Director
M. Syah Indra Aman, Director
Chia Ah Hoo, Director

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