PT Adaro Indonesia
PT Adaro Indonesia (AI) is the Adaro Group’s largest mining company, which mainly runs coal mining operations in South Kalimantan and Central Kalimantan under a Coal Cooperation Agreement (CCA) with the Government of Indonesia until 2022 with the right to extend the contract period based on the terms and conditions in the PKP2B and the applicable laws and regulations. AI is owned by Electricity Generating Authority of Thailand International Company Limited (EGATi), a state-owned electricity company of Thailand, and AE’s subsidiary, with 11.5% and 88.5% ownership stakes, respectively. ATA has direct and indirect ownership of AI.
AI produces sub-bituminous coal of medium calorific value between 4,000 kcal/kg and 5,000 kcal/kg GAR from its three mines: Paringin, Tutupan and Wara. AI’s coal has ultra-low pollutant content, thus trademarked “Envirocoal”. Envirocoal has been developed into several different specifications and widely used by power stations and other industries globally since 1992. It is versatile to use, especially in environmentally-restricted condition, due to its low content of ash, sulphur and nitrogen, which are 2.5%, 0.2%, and 0.9% respectively. Due to its low-pollutant content, Envirocoal is often blended with higher ash and sulphur coals to reduce the cost associated with ash disposal and the capital expenditure required for sulphur and nitrous oxides reducing units. This means Envirocoal delivers high economic values and provides technical alternatives for achieving excellent coal combustion performance with lower expenditure, making it one of the most environmentally acceptable and cost-effective solid fuels available.
Overview of AI’s Operations in 2020
The COVID-19 pandemic has brought about one of the most challenging years for AI. The decline in economic activities, which weakened the demand for energy, put strong pressures to the demand for coal as well as to the global coal reference prices. The sudden drop in global coal demand affected the demand for AI’s coal, and AI’s coal production in 2020 declined by 9% y-o-y to 46.75 Mt. Sales of AI’s flagship Envirocoal product in 2020 reached 51.28 Mt, 10% lower y-o-y. AI’s E4900 and E4700 were the two leading products and accounted for more than 60% of AI’s coal sales.
AI’s total overburden removal volume in 2020 was 191.84 Mbcm, 22% lower y-o-y and strip ratio for 2020 was 4.10x, in-line with our plan to lower strip ratio this year to allow for better cost control, and due to the high rainfall during the most part of the year. Unlike the relatively dry weather in 2019, 2020 was a wet year. We experienced prolonged rainy season, and La Nina, which also caused significantly higher rainfall, began to affect the mine area at the end of 2020. Total rainfall in Tutupan, Wara and Paringin reached 3,766 mm, 2,921 mm and 3,653 mm, respectively, while rain hours totaled 1,286 hours, 1,136 hours and 1,331 hours, respectively.
AI’s Pit-to-Port Activities
AI has three mining contractors, including AE’s subsidiary PT Saptaindra Sejati (SIS). Having multiple contractors creates a level playing field, encourages efficient operations and helps AI obtain good operations performance. Each contractor is responsible for providing its own equipment, supplies and labor requirements to mine within its allocated areas and achieve production targets. AI rewards its contractors based on performance and other efficiency measures. To overcome the challenging condition in 2020, AI worked closely with its contractors to improve business processes and reduce costs through better collaboration.
After the coal is mined, it is hauled along the 80-km hauling road, which is owned and operated by AI, to the Kelanis Dedicated Coal Terminal (Kelanis) at the Barito River. More than 300 doubletrailer trucks with a capacity of 130 tonnes per truck operated by AI’s contractors navigate through this hauling road. Each truck is installed with GPS and tracking system to detect the holdups along the hauling road and make quick responses. AI makes considerable investment to maintain the condition of this hauling road in order to keep it operational 24/7.
Once the trucks arrive in Kelanis, they submit to the designated hoppers categorized based on the quality of the coal carried. There are seven hoppers and six conveyor lines in Kelanis, with annual capacity totaling 60 Mt in normal operating condition. The deep water in Kelanis can accommodate barges with capacity ranging from 8,000 dwt – 18,000 dwt. Kelanis is also AI’s first quality control checkpoint to ensure that all coal loaded to barges is free from contamination. AI also installed metal detector and magnet along the conveyor and conducts checking from time to time.
From Kelanis, the coal is transported by barges to the transhipment facilities at the Taboneo offshore anchorage for the export market or directly to the locations of domestic customers. AI employs four barging contractors, one of which is AE’s subsidiary PT Maritim Barito Perkasa (MBP). Ship-loading operations are primarily undertaken at Taboneo anchorage, while the remaining tonnage was shipped through the IBT terminal on Pulau Laut.
Occupational Health and Safety performance
AI achieved a strong safety performance in 2020. AI had zero fatality, as well as recorded LTIFR of 0.01 and SR of 0.77, out of 74,360,750 total man hours. The achievement improved y-o-y as AI continues to implement AZAM (Adaro Zero Accident Mindset), a group-wide safety programs aimed at strengthening the safety culture in Adaro Group and minimizing human errors that may lead to occupational health and safety hazards. The implementation of AZAM in the Adaro Group is expected to develop mindset and behavior of strong safety culture among all employees to achieve and maintain zero accident.
In 2020, AI’s Health, Safety and Environment (HSE) team, also worked on the prevention and handling of COVID-19. AI strives to protect all workers in by preventing and controlling the transmission of COVID-19 and has imposed a number of initiatives and internal rules to protect all employees and contractors from COVID-19 exposures, which are crucial to ensure the continuity of operations. These initiatives and rules include the formation of COVID-19 handling committee, formulation of medical emergency response plan (MERP) and COVID-19 surveillance system, arrangement of the employees’ departure and arrival from leave days / field break / off time, medical check-up arrangement, and setting up procedure for COVID-19 cases in the operational area.
AI pursues operational excellence through continuous improvements at each level of operations, which is focused on productivity and efficiency improvement to achieve optimum mining costs. Among AI’s initiatives to improve productivity and mining cost efficiency are the application of good mining practices, optimation throughout the coal supply chain, using electricity for dewatering pumps and road lights, conducting speed travel project, and reducing fuel consumption.
We believe that the long-term fundamentals for coal are intact as it is still the most reliable and affordable energy source for baseload power generation especially in developing Asian countries. However, uncertainties and challenges remain, due to, among others, government regulations and import policies. To overcome these challenges, AI strengthened its focus on operational excellence through further improving efficiency to achieve optimum output and lowest costs.
The strategies taken to attain this include optimizing mine planning, hauling distances for both overburden and coal, and strip ratio, while attending to reserves conservation and geotechnical aspects, and coal supply chain by strengthening communication network, and improving effective working hours of production units.
Balangan Coal Companies
PT Semesta Centramas (SCM), PT Laskar Semesta Alam (LSA) and PT Paramitha Cipta Sarana (PCS), on each of which ATA has a 75% equity stake, separately holds an IUP over a total area of 7,500 ha, which makes up Balangan Coal Companies’ deposits. The three coal licenses constitute an important part of the Adaro Group’s coal mine portfolio by providing additional thermal coal sources to support the group’s operations, hence securing supply reliability. With CV range from 200kcal/kg to 4,400kcal/kg (GAR) and characteristics similar to AI’s Envirocoal (low ash and very low sulphur contents of less than 0.1%), the coal produced by Balangan Coal Companies does not only complement AI’s coal but also extends the group’s product diversification. Congruent with the progress of Balangan Coal Companies’ operations, efforts to develop the market for the coal are intensified to respond to the opportunities for growth out of the higher production capacity.
In 2020, Balangan Coal Companies as a whole produced 4.58 Mt of coal, a decline of 8% y-o-y, and removed 12.16 Mbcm overburden, 16% lower y-o-y, taking 2020 strip ratio to 2.65x. The decline in coal production and overburden removal was in-line with AE’s lower coal production and strip ratio guidance to cope with the difficult market condition in 2020
Adaro Metcoal Companies (AMC)
Adaro Metcoal Companies refers to a group of seven companies holding Coal Contract of Work (CCoW) for seven concession areas in Central and East Kalimantan provinces. These CCoWs currently constitute resources of 864 million tonnes and reserves of 89.03 million tonnes of quality metallurgical coal.
AMC recorded coal production of 1.88 Mt in 2020, doubled from its production of 0.93 Mt in 2019. All coal produced in 2020 was hard coking coal from the Maruwai concession which started production during the year. The Maruwai concession contains high quality mid-vol hard coking coal with ultra-low ash and phosporus content.
Overburden removal of 4.21 Mbcm was 41% lower y-o-y, taking strip ratio to 2.24x, as we operate in a low strip ratio mine. Coal sales in 2020 reached 1.41 Mt, 74% higher y-o-y. AMC’s sales destination include China, Japan, India and Indonesia. We continue to build the market for AMC’s coal and intend to grow its production along with demand growth. At the same time, we keep on investing in AMC’s supporting infrastructure. We believe global economic recovery post COVID-19 should continue to support the demand for metallurgical coal in the short term and that the high quality metallurgical coal offered by AMC will offer value to steelmakers.
Metallurgical coal prices reached a low in the middle of 2020 due to the decline in demand on the account of slow global economic growth and low manufacturing activities. Prices began to improve in in the fourth quarter of 2020 as economic activities restarted in many parts of the world.
PT Mustika Indah Permai (MIP)
MIP is an asset that marks our first venture into South Sumatra. ATA 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. We started commercial production from MIP in 2019 and in 2020, we produced 1.31 Mt and sold 1.28 Mt of coal. Total overburden removal from MIP in 2020 was 1.28 Mbcm, which resulted in strip ratio of 0.98x for the year.
MIP has total estimated coal resources of 307 Mt and coal reserves of 213 Mt of a 4,269 kcal/kg (gar) coal. MIP’s coal shares similar low-pollutant traits as AE’s flagship Envirocoal product with relatively low sulfur and ash content. This coal was sold to domestic customers, and we continue to develop the market for this coal.
PT Bukit Enim Energi (BEE)
ATA holds a 61.04% equity interest in BEE which holds an IUP that covers an area of approximately 11,130 hectares that contains the coal-bearing Muara Enim formation. BEE is located about 150 kilometers southwest of the provincial capital of Palembang, South Sumatra. During the year, we continued the geological evaluation and exploration work onthe property as well as exploring the development options for the coal.
PT Bhakti Energi Persada
PT Bhakti Energi Persada (BEP) owns seven subsidiaries which each own an IUP that in total covers about 34,000 hectares in the Muara Wahau district, Kutai Timur, East Kalimantan. AE owns 10.22% of BEP.
The seven IUP’s contain a large contiguous coal deposit close to the surface with an estimated resource of 3.3 billion tonnes. All the coal is low in sulphur and ash but with a high moisture content. The large coal resource provides a number of development options for BEP. Evaluation work of the options continued, including on coal upgrading, coal to chemicals and particularly on a mine mouth power plant to supply electricity to the PLN grid. During the year, we continued to conduct environmental monitoring and social programs at BEP.
Kestrel Coal Mine (Kestrel)
Kestrel is an underground metallurgical coal mine that we acquired in 2018. Adaro Energy (48%) and EMR Capital Ltd (52%) own 80% of Kestrel. Located in Queensland, Australia, the acquisition of Kestrel marked our first venture outside of Indonesia. The acquisition of Kestrel is a significant milestone in our strategic expansion of metallurgical coal portfolio and will strengthen our position in the metallurgical coal market and sustain AE’s growth over the longer term. Kestrel’s product is an established premium high volatile hard coking coal (HV HCC) which has low ash and phosphorus content and high fluidity properties, making it a valued component in coke oven feed blends.
In 2020, Kestrel saleable coal production volume was 5.66 Mt, 16% lower than in 2019. Meanwhile its coal sales in 2020 was 5.97 Mt which was 9% lower compared to 2019. During the year, Kestrel encountered known and expected difficult geological condition which affected its productivity. Kestrel sold its hard coking coal mainly to major customers in the Asian markets with India, South Korea and Japan as its top three sales destination. In 2021, Kestrel’s saleable coal production target is 5.74 Mt.
Coal Resources and Reserves
In 2020, Adaro Group has more than 4 billion of coal resources and 1 billion of coal reserves. . For more details, please click here.