Market News Vol. 57

Content:

1. Indonesia Plans to Double Coal Production by 2025

2. Hindustan Zinc Seeks 200,000 Tonnes of Coal from January

3. Nyutan Mine Targeted for Production by End of 2011

4. Ancora to Buy Raja Kutai Baru Rp 210 Billion

5. Adaro Received Awards in the Asian Level

6. Indonesia to Boost Low Quality Coal Output in 2-3 Years

7. Bumi-Berau Entity Plans Coal Mine Shopping Spree

8. Coal India in Talks with Indonesian Company to Buy Its Coal Mine

9. KKGI Domestic Coal Sales to Rise 300%

10. CIL Told to Scout Mines Abroad to Bridge Coal Deficit

11. CESC Eyes Coal Mines in Indonesia and South Africa

12. AKR Corporindo to Produce Coal in 1Q 2011

13. PT Adaro Tbk (ADRO) Ready for Acquisition of Coal Mine in 2011

14. CIL Shortlists 21 Firms to Import 250 MT Coal

15. Analysis: China’s Coal Production Mismatched with Domestic Demand

16. Kangaroo Resources Buy Indonesian Coal Company

17. Indonesia’s Bayan in Talks with Kangaroo on Coal Deal

18. Bayan Targets 12 Million Tons Coal Sales

19. Arutmin will Supply the Coal for PLN in 2011

20. Coal Production Expected to Exceed 340 Million Tons this Year

21. Taxation for Coal Mining Companies in Indonesia

22. Higher Coal Prices Lift Up Coal Stocks

23. Bukit Asam Targets 20% Buy to Grow Coal Transport Capacity

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Indonesia Plans to Double Coal Production by

2025

A former government official said that Indonesia

plans to more than double coal production to

560 million tonne per year by 2025, of which 300

million tonne per year will be allocated to the

domestic market and the remaining 260 million

tonne per year will be exported.

According to Mr Mangantar Marpaung former

director of mining technique and environment

for mineral, coal and geothermal at Indonesia's

directorate general of mineral, coal and

geothermal, Indonesia's power industry is likely

to consume 50 million tonne of coal this year,

followed by the cement industry with

consumption of 10 million tonne and the

metallurgy and paper industry with 7 million

tonnes.

Indonesia needs an additional 45 million tonne

per year of coal on top of existing power plant

requirements to support its crash electricity

expansion program that aims to add 20,000MW

of generation capacity by 2014.

Mr Marpaung at the McCloskey Asia Pacific Coal

Outlook Conference 2010 in Bali said that “The

45 million tonne per year of coal will be supplied

by about 15 designated mining companies, some

of which are also exporting.”

The three largest suppliers are a Consortium of

PT Arutmin Indonesia & PT Darma Henwa, PT

Hason Energy and a Consortium of PT Kasih

Industri Ind & PT Senamas, which will contribute

about 8.5 million tonne per year, 4.4 million

tonne per year and 3.8 million tonne per year

respectively.

Indonesia produced about 250 million tonne of

coal last year. Heavy rains could cut this year's

production, the country's coal mining association

warned in September.

(Argus Media, December 2010)

Hindustan Zinc Seeks 200,000 Tonnes of Coal

from January

Hindustan Zinc Ltd., India’s largest producer of zinc

and lead, is seeking to import 200,000 metric tons

of steam coal between January and February,

according to a notice in the Economic Times

newspaper today.

The company, part of Indian billionaire Anil

Agarwal’s metals and mining venture Vedanta

Resources Plc, wants to buy coal from South Africa,

Colombia or Indonesia, the tender said.

The spot price of South African steam coal at

Richards Bay port rose 3.7 percent to a two-year

high of $107.11 a ton for the week ended Dec. 3,

according to data from IHS McCloskey. The price of

the coal has risen 22 percent since early

September, according to the data.

Steam coal prices at Australia’s Newcastle port, a

benchmark for Asia, have gained 17 percent to

$109.80 a ton since early September, according to

IHS McCloskey. The spot price of Colombian steam

coal at Puerto Bolivar rose 21 percent to $96 a ton

since early September, the McCloskey data show.

India’s thermal coal imports rose by about 16

percent to 44 million tons in the year ended March

2010, from 38 million tons a year earlier, according

to data from the nation’s coal ministry.

India needs 440 million tons of thermal coal in

the year ending March 2011, while domestic

availability is about 388 million, resulting in a

shortfall of 52 million tons, newsletter India Coal

Market Watch said Dec. 1, citing Coal Minister

Sriprakash Jaiswal.

(Bloomberg, December 2010)

Nyutan Mine Targeted for Production by End of

2011

PT Benakat Petroleum Energy Tbk has target its

Nyutan coal mine in East Kalimantan to be in

production by end of 2011.

Benakat’s Corporate Secretary, Dina Andini, said

the company is conducting exploration on the

9,384 ha Nyutan concession site at West Kutai, East

Kalimantan through one of its subsidiaries, PT Delta

Samudera, controls the Nyutan site.

Coal reserve in the area has a calorie level of

5,011-5,932 kcal. Exploration revealed an

estimated coal resource in excess of 70 million MT,

comprising of 48.94 million MT of measured, 12.86

million MT of indicated and 11.43 million MT of

inferred reserves.

As per March 31, 2010, Benakat's shares is owned

9.56% by Ascention Ltd; 55.37% by PT Indo Perkasa

and 6.2% by PT Inti Permata Nusantara.

(Bisnis Indonesia, December 2010)

Ancora to Buy Raja Kutai Baru Rp 210 Billion

Energy company PT Ancora Indonesia Resources

Tbk will take over 50.6% holding in coal miner PT

Raja Kutai Baru Makmur worth around Rp100

billion-Rp210 billion. President Director of Ancora

Resources Dharma Djojonegoro said the purchase

of coal mine was intended as a diversification of

the company business. The acquisition will be

funded largely from internal cash, and the rest will

be derived from external cash. "About 80% will be

derived from our internal cash and the rest will be

taken from external cash. It is intended to keep our

gearing ratio for not going too high," he said, today.

Raja Kutai is the mining permit holder of the 8,500

hectares mining area. From that area, only 550

hectares had been explored with the production of

30.000 tons to 50,000 tons per month.

According to Dharma, Raja Kutai will be purchased

from the affiliated company, PT Ancora Energy. To

continue the plan, the company will seek

shareholders' approval in extraordinary general

meeting (EGM) of shareholders.

Beyond that plan, Ancora Resources also plans to

re-acquire mining and oil and gas company. It is

estimated that corporate action can be

implemented within the next two years."For now

we are focusing on acquisition of Raja Kutai, and

we are still focusing on mining sector than oil and

gas business," said Dharma.

To support its business expansion, Ancora

Resources will spend capital expenditure between

US$20 million-US$30 million. Most of the capital

expenditure will be absorbed by its subsidiary, PT

Multi Nitrotama Chemistry as much as US$20

million."The funds for our capital expenditure are

largely supplied by the banking loans, such as Bank

Permata. For the acquisition of Raja Kutai, we

allocate US$5 million to US$10 million," said

Dharma.

(Insider Stories, December 2010)

Adaro Received Awards in the Asian Level

The second largest integrated coal producer in

Indonesia, PT Adaro Energy Tbk has received two

awards for Indonesia in the Asia Pacific region. The

company with sites in Tabalong and Balangan,

South Kalimantan, received the international award

in a forum organised by Enterprise Asia.

"The awards were received by President Director of

Adaro Energy, Garibaldi Thohir, on Tuesday (14/12)

at the Ritz Carlton Hotel, Kuningan, Jakarta,"

according to Operational General Manager, Priyadi.

Enterprise Asia is a non profit which mission is to

improve entrepreneurship in terms of responsible

corporate culture for corporations in Asia, based in

Malaysia and listed in Hongkong. "The award from

Asia Pacific Entrepreneurship Award (APEA) 2010

was for Outstanding Entrepreneur and for

Corporate Social Responsibility Clean Water; from

waste mine to community program of PT Adaro

Indonesia," he said.

The award was presented by Enterprise Asia

President, William Ng and the Chairman of the

Indonesian Chamber of Commerce, Suryo Bambang

Sulisto. APEA has been awarded to entrepreneurs

who showed remarkable performance in

communicating corporate vision, strategy and

product to the society. "We have dedicated the

award to the entire management and team of

Adaro Group who have dedicated themselves

towards the company’s improvement," Garibaldi

said.

The second award awarded in the Asia Responsible

Entrepreneurship Award (AREA) 2010 in the Green

Leadership Award category, also organised by

Enterprise Asia. The award was provided from the

Ministry of Cooperation and Small Scaled

Businesses. Green Leadership Award is given to

companies which are able to recognise its own

environmental impact and has launched various

programs to mitigate the impact.

Amongst the programs are energy savings,

recycling, waste reduction and water conservation.

The clean water distribution to the community

program has been carried out by Adaro Indonesia

since 2008 by establishing a Water Treatment Plant

(WTP) T-300, which is capable of treating mine

water into clean consumable water based on clean

water standards.

Clean water is currently distributed through a 10

km pipeline network constructed by Adaro

Indonesia. "The program has been felt and utilised

by the communities in two villages, Padang Panjang

and Dahai in the Paringin regency as well as for

Adaro’s internal use," said Priyadi.

(www.mitraismining.com, December 2010)

Indonesia to Boost Low Quality Coal Output in 2-3

Years

Indonesia, the world's largest thermal coal exporter,

expects production of low-quality coal to surge in

coming years, though technology constraints on

turning it into high-grade fuel may limit sales, the

Indonesian Coal Mining Association said on

Friday.Limited supply of high-quality coal reserves

has forced miners to tap low-quality coal to feed

growing demand, particularly from Asian giants

China and India, which have driven up prices

Indonesia's low quality coal, which makes up nearly

65 percent of total resources in the world's top

thermal coal exporter, had been seen as

uneconomical to extract and an unviable fuel source

because of its high moisture content and low

heating value.

Indonesia's mineable reserves of low-quality coal

may reach 10 billion tonnes or half of current total

reserves of 21 million tonnes, within the next 2-3

years, as more firms are expected to start producing

coal with a low heating value of 3,000-3,400 kcal/kg,

association chairman Bob Kamandanu said.

"Bituminous coal reserves are depleting while

exploration is not being done properly and

comprehensively to discover better resources,"

Kamandanu told Reuters on the sidelines of the

Indonesia Mining Conference in Bali. Lignite or

brown coal with a heating value below 5,100 kcal/kg

now makes up about 29 percent or 6.1 billion

tonnes of the country's total reserves, while high-

quality coal of value above 6,100 kcal/kg accounts

for only about 11 percent. Kamandanu did not give

details of how much production will grow to, but

data shows there are now 16 firms that produce

coal with a heating value below 4,000 kcal/kg, with

combined production estimated at 7.5 million

tonnes.

TECHNOLOGY CHALLENGE Low-quality coal is

estimated to account for 25 to 30 percent of

Indonesia's total coal production by 2015, up from

just 10 percent in 2009, said Somyot Ruchirawat,

president director of miner PT Indo Tambangraya

Megah. "Low-rank coal companies will become

significant producers in the long-term," Ruchirawat

told the conference.

(Reuters, December 2010)

Bumi-Berau Entity Plans Coal Mine Shopping Spree

The Indonesian mining company created last month

by the union of PT Bumi Resources and PT Berau

Coal Energy aims to acquire coal mines around the

world to build itself into a global giant, said

Nathaniel Rothschild, the deal's chief architect.

In an interview, Mr. Rothschild said the combined

entity formed by the deal aims to raise cash starting

next year to help fund acquisitions. He said one

possible investor could be China Investment Corp.,

the Chinese sovereign wealth fund, which is a major

creditor to Bumi Resources, having bought $1.9

billion of its debt last year. "This could become a

global coal company, as opposed to an Indonesia-

focused coal company, and it's certainly institutions

like CIC that we would look to involve in the future

plans, because they are inextricably linked to Bumi

through this debt instrument," Mr. Rothschild said

during a visit to Beijing.

The Bumi-Berau deal was engineered by Vallar PLC,

an investment firm that Mr. Rothschild, scion of the

British banking dynasty, formed last year with

several partners, including veteran mining executive

James Campbell. Vallar listed on the London Stock

Exchange in July after raising about $1.1 billion from

investors for a plan to acquire a major metals or

mining company.

Vallar shares were up 9.1% early Friday in London at

88 pence ($1.38) as they resumed trading for the

first time since the company agreed to buy the

stakes in the Indonesian coal companies.

On Nov. 16, Vallar announced a complicated

"reverse takeover" deal valued at $3 billion in cash

and shares that will result in it owning 25% of Bumi

Resources, Indonesia's biggest coal miner by output,

and 75% of Berau, the country's No. 5 coal miner.

After the deal, the Bakrie family, which controlled

Bumi Resources, will own 43% of Vallar, and Indra

Bakrie will become its chairman. Vallar's original

investors will own 32% of the new company, which

will be renamed Bumi PLC, and Mr. Rothschild will

be its co-chairman. The remaining 25% is to be

owned by another Indonesian investor. The deal is

scheduled to close in April.

The deal represents a bold bet on Indonesia at a

time when the country's economy and stock market

are surging, but when many foreign investors

remain wary over problems with corruption and

corporate governance. "From my perspective, as an

investor, first and foremost you want to look at

relative valuations," Mr. Rothschild said. "In my

opinion... the market is very, very undervalued" in

Indonesia, particularly in comparison to other major

developing countries known as the BRIC nations:

Brazil, Russia, India and China. "And whether the

naysayers like it or not, it's a democracy," he said.

The new Vallar will own several types of mines, but

its focus will be coal. In combination, Bumi

Resources and Berau this year will produce about 78

million metric tons of thermal coal-the kind used in

power plants-making it largest producer in the

world, Vallar says. Vallar expects that to grow to 116

million tons in 2012.

Coal is attractive because it is the main fuel source

for the world's fastest growing economies, including

China and India, said Mr. Rothschild, who until last

year helped to run the hedge fund Atticus Capital

LP. He said he sees an opportunity in coal for the

kind of cross-regional consolidation that has

occurred in other parts of the mining sector."There's

a huge advantage longer term to being diversified

across countries," to hedge against everything from

geopolitical risk to bad weather, he said. "But it

hasn't happened in the coal sector yet." And, he

added, "there are a multitude of transactions

available at the moment."

Coal is also relatively easy to compare from place to

place, based on its quality and its proximity to sea

transport, he said. "What I like about this industry is

that you're effectively selling dirt."

Vallar has some cash available for small acquisitions

already—it spent only $739 million of its cash in last

month's deal—but the company hopes to raise

more. The goal is to persuade existing holders of

shares in Bumi Resources, listed in Indonesia, to

trade their stakes for London-listed shares in

Vallar—or Bumi PLC, once the name is changed.

That will increase Vallar's ownership of Bumi

Resources above its initial 25%, and thereby

increase Vallar's market value.

Mr. Rothschild estimates that if the stake surpasses

35%, Vallar will qualify for membership in the FTSE-

100 stock index, which will trigger an influx of funds

into the shares from index-linked investment

managers. That should push the shares up, enabling

Vallar to raise new cash at a more attractive

valuation, he said.

(Wall Street Journal, December 2010)

Coal India in Talks with Indonesian Company to

Buy Its Coal Mine

APN News reported that, World’s largest coal

producer Coal India is in talks with Indonesia’s Sinar

Mas Group for acquiring coal mines in the island-

nation, a top company official said. Indonesian

conglomerate Sinar Mas Group has interests in coal

mining, logging and wood-pulp production and palm

oil plantations.

Besides, the fourth-largest coal firm in the US,

Massey Energy is also negotiating with Coal India for

sale of some of its assets. “Talks are narrowing

down with Indonesia’s Sinar Mas and also with US-

based Massey Energy Company for acquiring coal

assets in their respective countries,” CMD Coal India

Partha S Bhattacharyya told reporters at a SCOPE

event in New Delhi on Wednesday.However, he

declined to provide further details about the

negotiations.

The Indian coal miner, who has earmarked Rs 6,000

crore this fiscal for acquisition of coal mines abroad,

is also in advanced talks to buy 10 percent stake in

the US-based Peabody Energy Corp’s asset in

Australia. Peabody is believed to have offered the

state-run coal major 10 percent equity in one of

their coal producing mines in Australia.

Meanwhile, private infrastructure company Lanco

Infratech on Wednesday announced its agreement

with Australian firm Griffin Energy Group.

Lanco Infratech Ltd, through its Australian subsidiary

Lanco Resources Australia Pty Ltd, has concluded an

agreement with Griffin Energy Group Pty Ltd and

Carpenter Mine Management Holdings Pty Ltd to

purchase 100 percent shares of Griffin Coal Mining

Company Pty Ltd and Carpenter Mine Management

Pty Ltd (Griffin Coal).

Coal India, NTPC and other state-run companies are

actively scouting for coal mines abroad to secure

their raw material supply.

This is besides the government having floated a

special purpose vehicle, International Coal Ventures

Ltd (ICVL), with NTPC, SAIL, Coal India among others

as members for acquiring coal mines abroad.

(APN News, December 2010)

KKGI Domestic Coal Sales to Rise 300%

PT Resource Alam Indonesia Tbk (KKGI) has signed a

new contract to supply 500,000 metric tons of coal

to PT Perusahaan Listrik Negara (PLN) in 2011.

In the last 3 years, KKGI coal sales for domestic

market is always below 10%, it even only 3.7% in 3Q

2010. In 2010, KKGI has signed a contract with PLN

to sell 120,000 metric tons of coal, its only 5.4% of

KKGI production target.

This contract will jack up KKGI domestic sales about

300% next year and it will contribute around 15% of

its total sales.

With reliable amount of 41 million metric tons

mineable coal deposits which spread in 11 mining

site, the company has promising coal production

ahead.

Currently, the company already operating 6 mining

site out of 11. This 6 mining sites are estimated to

produce about 2.21 million metric tons this year or

more than doubled last year production.

In 2011, Resource Alam plans to open 3 or 4 new

mining site to increase its production to reach 3.42

million metric tons, its about 55% increase from

production target for 2010. "We assumed KKGI will

have 9 operating mining site by the end of next year,

there is still room for another production growth

considering there still 2 not yet operated mining

site," said a company report published by PT

Pemeringkat Efek Indonesia (Pefindo) on December

2010.

Resource Alam was established in 1986, engaged in

adhesive manufacturer for plywood supporting

industry.

When the industry began to decline due to

decreasing of plywood manufacturer activity, KKGI

started its coal mining business in 2006 through its

wholly owned subsidiary, PT Insani Baraperkasa.

The company has coal mining concessions with total

of 41 million metric tons mineable reserves in East

Kalimantan, the areas are; Simpang Pasir, Bayur,

Tani Bakti, Gunung Pinang, Loajanan, Separai,

Perangkat and Maukiri.

In 2009, KKGI succeed to record 1.01 million metric

tons coal production or increase 30.5% YoY, and

KKGI’s coal production already reach 1.56.

(Insider Stories, December 2010)

CIL Told to Scout Mines Abroad to Bridge Coal

Deficit

Economic Times reported that, The government

asked state-owned CIL to look for acquiring assets

abroad to meet the domestic shortfall of coal."Coal

India (LTD) has been asked to look at opportunities

overseas.....from where coal can be brought and

agreements made," Coal Minister Sriprakash

Jaiswal told reporters on the sidelines of national

consultation on MPLADS.

Coal India, and several other state-run companies

are actively scouting for coal mines abroad to

secure their raw material supply. The government

has also floated a special purpose vehicle,

International Coal Ventures Ltd (ICVL), with Coal

India NTPC, SAIL, among others, as members for

acquiring coal mines abroad.

Last week, Coal India Ltd (CIL) had said that it was

in talks with Indonesia's Sinar Mas Group for

acquiring coal mines in that country.

Indonesian conglomerate Sinar Mas Group has

interests in coal mining, logging and wood-pulp

production and palm oil plantations.

Besides, the fourth-largest coal firm in the US,

Massey Energy was also negotiating with CIL for

sale of some of its assets.

The Indian coal miner, which has earmarked Rs

6,000 crore this fiscal for acquisition of coal mines

abroad, is also in advanced talks to acquire a stake

in the US-based Peabody Energy Corp's asset in

Australia.Peabody is believed to have offered the

state-run coal major 10 per cent equity in one of

their coal producing mines in Australia.

At present, the demand-supply gap of coal in the

country is around 80 million tonnes, which is

projected to double in the next few years.The

country had a coal output of about 532 million

tonnes in the last fiscal with CIL producing 431.5

MT of this.

CIL accounts for over 85 per cent of the domestic

production in the country. The state-owned

company saw coal production of 253.26 million

tonnes by November 15 last month (of the current

financial year) compared to 245.89 million tonnes

in the corresponding period of previous fiscal. It

hopes to achieve 460.5 million tonnes production

target for the current fiscal.

(Economic Times, December 2010)

CESC Eyes Coal Mines in Indonesia and South

Africa

Tehelka reported that, CESC Ltd, the flagship

company of the Kolkata-based RPG group, is the

latest to join the list of Indian companies scouting

for coal mines overseas.

The company has already set a target of adding

6,000 MW of power generation by the end of the

12th Plan in 2017 and acquiring these mines will

support and secure supply for the power

generation project. "We are looking for overseas

coal assets mainly in Indonesia and South Africa.

The due diligence is going on. We have not finalised

as yet though we are discussing the matter," P

Neogi, president of Integrated Coal Mining Ltd, an

arm of CESC, told reporters on the sidelines of an

industry conference on Tuesday.

Apart from having one mine in Asansol, CESC has

recently also signed an agreement with an

Australian company Resource Generation Ltd for

the purchase of 37 million tonnes of coal over 20

years.

Presently, the company has an installed capacity of

1,225 MW and plans to add 6,000 MW more to it

through its different projects in Haldia in West

Bengal, Chandrapur in Maharashtra, Jharkhand and

Orissa.

Neogi said: "The construction at Chandrapur, a 600

MW capacity plant, is already under way. We will

soon start construction of the first phase of

another 600 MW plant at Haldia. Apart from these,

we plan to set up 1,000 MW capacity plant each in

Jharkhand and Orissa."He added that while land

acquisition has been completed in Orissa, talks are

on with the Jharkhand government on the same

issue. Neogi said that the supply of coal from the

South African mine is expected to begin from 2013

when the latter gets fully developed.

(Tehelka, December 2010)

AKR Corporindo to Produce Coal in 1Q 2011

PT AKR Corporindo Tbk (AKRA) expects to produce

coal in the first quarter of 2011. In a prospectus

published today, AKR, via a subsidiary called PT

Anugrah Karya Raya, manages 24,388 hectares of

five coal concessions in North Barito, Kalimantan.

AKR acquired 87.5% stake in Anugrah Karya Raya at

end of last year. The company plans to market its

coal to China via its port in Guigang, China.

AKR has four main businesses, trading and

distribution of chemical products and fuels, logistic,

coal mining, and manufacturing.

In June, AKR channelled loan facility worth Rp60

billion to Anugrah Karya Raya. AKR charged 13.5%

of annual interest rate on the fcility, maturing in 3

years. Anugrah will use the facility to acquire assets

and working capital for itself and its subsidiaries in

relation to thriving coal business

(Insider Stories, December 2010)

PT Adaro Tbk (ADRO) Ready for Acquisition of

Coal Mine in 2011

Cite news kontan.co.id today 28/12/2010 preached

that PT adaro Tbk (ADRO) re-enter agenda takeover

of coal mines in 2011. In addition to strengthen

reserves, corporate action was done because of the

liquidity of ADRO still quite thick.

Deputy Secretary of the company ADRO Devindra

Ratzarwin says, issuers of coal that allocate funds

amounting to USD 10 billion for the acquisition of

coal mines. The source of the funding issue is very

diverse.

Currently, ADRO have funds cash amounting to

USD 6 billion. The figure was already includes the

rest of the global bond funds of approximately US

$ 340 million. "We also have a standby facility of

approximately U.S. $ 500 million," said Devindra,

last weekend.

To smooth the plan of acquisition, ADRO was

looking for a profitable assets of mine are rated.

Devindra said, the location of the mines into

collections not limited on the island of Borneo, but

also in Sumatra. It's just that, until now there has

not been one coal mines that according to ADRO

deserves to be acquired.

Devindra said, companies with profile such BEP is

now sought by ADRO. In addition to the

infrastructure of the mine which not too bad, the

coal content also not much differ with ADRO coal.

For instance, BEP has two concessionary coal

mines in Borneo that Block I bulungan Regency

have coal reserves of around 110 million tons and

Kutai Timur with reserves of approximately 5.6

billion tons.Block Bulungan already operates

started years ago. Until the end of the year 2010

production was estimated at about 700,000 tons

of bulungan Regency. While production in the next

year will reach 2 block Bulungan million tons.

Rising global demand for coal is the reason to

increase backup ADRO. Currently the majority of

ADRO coal off into the export market. While for

the local market only 25% will stay at indefinite

large sale to PLN. Devindra said next year supply

of coal to increased approximately 2 million PLN

tons. "We will become the biggest coal suppliers

to PLN," added by Devindra.

(Translated from : http://investasi.kontan.co.id,

December 2010)

CIL Shortlists 21 Firms to Import 250 MT Coal

The Hindu reported that, Coal India plans to import

about 250 million tonnes (mt) over the next 10

years to meet the country's growing

requirement.“We have short-listed about 21 global

companies to import some 250 mt over the next 10

years as part of the long-term-off take deals,” Mr

Partha Bhattacharyya, Chairman, Coal India, told

reporters on the sidelines of an event on mine

safety.

However, Mr Bhattacharyya declined to disclose

the pricing details. As part of the long-term off-take

deals, Coal India expects to start imports from next

fiscal. Shares of Coal India ended marginally lower

on BSE at Rs 312.50 (US$ 6.92) on Thursday.

Mr Bhattacharyya said environmental issues such

as a ban on mining in critically polluted areas would

impact the company's targeted output in the

current fiscal.

The Environment Ministry had imposed a

temporary moratorium on development projects in

some 43 industrial clusters, which were found to be

critically polluted. Such a ban was based on the

Comprehensive Environmental Pollution Index

(CEPI), which mapped the pollution levels in

industrial clusters. Some 17 mines of Coal India

including that of Chandrapur and Korba were part

of the identified critically polluted sectors. “CEPI

was supposed to be reviewed in October, but it has

been extended till March. This would impact our

output by 16 mt,” Mr Bhattacharyya said.

Coal India had set a production target of 460 mt for

the current fiscal. Coal India expects the

shortfall to increase to 39 mt in 2011-12, if the

moratorium continued beyond March 31, 2011.

(The Hindu, December 2010)

Analysis: China’s Coal Production Mismatched

with Domestic Demand

As reported by iStock Analyst, China's coal market

has been trapped in a strange cycle. Large coal

production bases are facing over capacity, while

large coal consumption provinces are in short

supply of power coal.This structural contradiction

between supply and demand in China's coal market

has highlighted heated discussions recently.

Coal producers facing mounting pressure of excess

in output capacity

China is facing severe excess of production capacity

and oversupply of coal in 2010 due to the

expansion of coal production and surging imports

amid sluggish demand, and this situation is

expected to carry on into 2011 as new coal

companies begin operation.

Wang Zhanjun, director-general of the China Coal

(TSXV:CKO) Industry Association, said that China's

coal supply capacity has seen a remarkable

increase in 2010 due to the operation of newly

formed coal companies after mergers and

acquisitions.

In the first 11 months of 2010, the country's

leading coal producing provinces and regions

including Shanxi, Inner Mongolia, Shaanxi, and

Ningxia all saw more than 20 percent growth in

coal output.

According to a report by the association, in the first

11 months of 2010 China's coal output surged 15.5

percent or 418 million metric tons (tonnes) year on

year to 3.039 billion tonnes, while coal sales were

up 13.5 percent or 390 million tonnes to 2.892

billion tonnes. Coal deliveries increased by 15.3

percent year on year to 1.827 billion tonnes during

the same period.

The investment in fixed assets in the coal industry

has continued to increase this year. In the first 11

months of 2010, fixed assets investment in coal

mining and washing saw 22.7 percent year-on-year

growth to 320.7 billion yuan.

Meanwhile, China's coal imports keep rising while

exports keep declining. In January-November,

China's coal exports dropped 13.5 percent to 17.58

million tonnes, and are expected to remain low in

December. Total coal exports are estimated at 19

million tonnes for the whole year.

In sharp contrast to declining exports, coal imports

maintained fast growth in 2010. Net imports of coal

are expected to reach 145 million tonnes in 2010.

However, China's coal demand has remained

sluggish this year. Affected by the measures for

energy conservation and emissions reduction,

electricity consumption growth of high energy-

consuming industries like ferrous metals,

chemicals, non-ferrous metals, and building

materials has fallen back quickly since May of 2010,

which in turn has cut coal consumption severely.

Coal consumption in the steel industry moved

from positive growth to negative growth in 2010

According to official statistics, China's daily crude

steel output saw fast growth in the first half of

2010 but registered three months of negative

growth in the third quarter, and only increased 4.8

percent in November.

Also, coal consumption in the chemicals industry

has also remained sluggish this year. According to

preliminary forecasts, coal consumption in the

chemicals industry in 2010 will stay at the same

level as in 2009, at 140 million tonnes.

The China Electricity Council predicted that

electricity demand in China would not increase

much in 2010 and 2011, estimating the growth at

10 percent in 2010, 14 percentage points lower

than in 2009.

Therefore, coal industry is expected to face

mounting oversupply pressure in 2011 since the

output of majority coal enterprises would double.

Meanwhile, large numbers of coalmines in Shanxi,

Henan, Shaanxi, and Inner Mongolia are scheduled

to begin operation in 2011, and the coal oversupply

will be aggravated by the participation of more

downstream firms in power generation and

metallurgy, said Wang Zhanjun, head of the China

Coal Industry Association.

Wang predicted that coal supply in China would

increase 300 million tonnes in 2011, and China

would face excess in supply of coal.

Short supply of coal at power plants

In sharp contrast with the excessive output and

supply of coal, a number of power plants in parts of

China are suffering from shortages of power coal.

In Guizhou province, coal output capacity is

significantly less than demand. The local coal

output is expected to increase by 160 million

tonnes at most in 2011, which would exacerbate

the tight supply. This is because the output capacity

of newly formed coalmines is inadequate to make

up for eliminated production capacity, and the

newly formed capacity will not come into operation

until the second half of 2011.

At the same time, power plants in Guizhou cannot

afford coal produced outside the province because

of higher coal prices.

Similar short supply of coal has also occurred in

Hubei province. Coal stocks at power plants in

Hubei have remained at critical level since the

beginning of this year, and sometimes were even

not enough for one week's consumption.

The power coal shortage is not only a headache for

power plants in non-coal production areas, but also

hit power plants in major coal production areas like

Shanxi and Henan.

Take the Datang Taiyuan Second Thermal Power

Plant for example. The plant has suffered coal

shortages four times since the beginning of 2010

because its contracted coal supplier supplied only

400,000 tonnes of coal towards meeting the 1.5-

million-tonne coal contract.

As of December 4, power coal stocks of Henan have

slid sharply from 3.84 million tonnes at the

beginning of November to 2.65 million tonnes, far

below the critical level of 3.5 million tonnes.

This has led to a daily supply shortage of 700,000

tonnes. Current coal production system might be

primary cause. The short supply of power coal

against excess of overall output capacity in China is

believed to be caused mainly by system

contradictions existing in the coal industry.

Actually, China's coal industry has trapped in a

strange circle. Coal demand weakens after power

plants stockpile power coal, but after the

stockpiling, coal stocks of coal producers are down.

Therefore, the coalmines produce more coal, which

eventually leads to excess of output and excessive

supply of coal.

Some coal suppliers have complained that if they

carry on supplying coal according to their coal

contracts with the power plants at the contracted

price, the coalmines would all suffer

(OOTC:WLVTQ) losses while the power plants all

make profits.

A senior manager of the Shenhua Group said that it

is difficult to avoid the structural contradictions of

disjointed coal output and demand under the

current government-capped management system.

The outlook of China's coal industry remains

troubled for 2011, and the problem of excessive

output capacity would continue to be widespread

in China, especially in western areas.

According to the manager, branches of the

Shenhua Group in Xinjiang are all in the red due to

heavy coal inventory pressure, while some

provinces in east and south China are suffering

from severe shortages of coal.

An insider with the Shanxi Coking Coal Group said

that the group was ambitiously planning to double

its output capacity during the period of the 12th

Five Year Plan (2011-15), but the current market

environment is very unfavorable for the coal

industry. The cost of acquiring small coalmines has

spiraled far beyond expectations.

Therefore, the mismatch between coal supply and

demand at the turn of the new year is manageable,

and the market is expected to see increasing supply

and decreasing demand soon, noted the insider.

But Wang Xianzheng expressed disagreement. He

believed that China's coal demand would increase

by 200 million to 300 million tonnes in 2011.

Besides which, the government-planned

construction of 10 million units of affordable

housing would drive coal demand by 60 million

tonnes at least. Wang believed that the coal price

would remain buoyant in 2011 but would not rise

much.

(Xinhua News, December 2010)

Kangaroo Resources Buy Indonesian Coal

Company

Australian-listed Kangaroo Resources Ltd. said

Wednesday it will buy 99% of the Pakar thermal

coal project in East Kalimantan, for A$277 million

through the issue of new shares to Indonesian coal

company PT Bayan Resources Tbk.

Bayan, which will emerge with a 57% stake in the

Australian company as a result of the deal, also

signed a memorandum of understanding to

immediately start managing all of Kangaroo

Resources' Indonesian coal operations. The

arrangements are subject to due diligence,

shareholder and regulatory approval, Kangaroo

Resources said in a statement.

Together with Kangaroo Resources' other

Indonesian coal assets, which include the 100%-

owned Mamahak coking coal project now in

production, the Tanur Jaya thermal coal project

and the GPK thermal coal project, this latest

purchase, “will reposition Kangaroo Resources as a

world-scale Indonesian coal producer,“ it said.

Bayan has a market capitalisation of US$4.5 billion,

total coal resources of more than 1 billion metric

tons and reserves of 500 million tons in eight

mining concessions in East and South Kalimantan,

and is a major participant in the Indonesian coking

and thermal coal markets, Kangaroo said.

Bayan is targeting 2010 coal sales of 12 million tons

for nearly US$1 billion in revenues and US$150

million in earnings before interest, tax,

depreciation and amortization. The Pakar project

has total coal resources of 3.8 billion tons and

reserves of 116 million tons.

Kangaroo has been earning a 49% stake in the

Tanur Jaya concession--one of the nine concessions

within the Pakar Project--over the past 12 months

and this position will now be incorporated into the

overall 99% interest that Kangaroo is buying in the

Pakar project. In addition to its mines, Bayan owns

the Balikpapan Coal Terminal, one of the largest

coal terminals in Indonesia with a handling capacity

of 15 million tons a year.

(Kompas, December 2010)

Indonesia’s Bayan in Talks with Kangaroo on Coal

Deal

Indonesian miner PT Bayan Resources has bought

nine coal concessions near its existing Tabang

mines in east Kalimantan which it plans to inject

into Australia's Kangaroo Resources in exchange for

a controlling interest following a new share issue,

Bayan said in a statement. Bayan, Indonesia's

eighth largest coal producer, said the concessions

have combined reserves of around 116 million

tonnes of coal and 3.8 billion tonnes of coal

resources.

While the plan is still subject to due diligence and

shareholders approval, spokeswoman Jenny

Quantero said Bayan would ultimately have a

controlling interest in KRL sometime in the first

quarter of 2011. "This transaction is in line with

Bayan's strategy of growth through acquisition and

expands our resource base while also providing

significant infrastructure and operational

synergies," company president director Eddie Chin

said in a statement.

Indonesian government forecasts see coal

production next year reaching 327 million tonnes,

19 percent more than the 275 million expected in

2010.

(Reuters, December 2010)

Bayan Targets 12 Million Tons Coal Sales

PT Bayan Resouces Tbk (BYAN) is targeting coal

sales for 2010 of about 12 million tons and nearly

US$1 billion revenue. In a public announcement

submitted by Kangaroo Resources Ltd to Australia

Stock Exchange today, Bayan Resources is also

targeting US$150 million EBITDA.

Bayan Resources, in a presentation material,

calculates that production volume in 2010 is

calculated to increase from 11.4 million metric tons

in 2009 to 13.8 million metric tons-Rp15.1 million

metric tons. Demand coming from India, Taiwan,

and Malaysia are calculated to increase.

The company's average cash cost in 2010 is around

US$55-US$60 per metric ton. Gunung Bayan

Pratamavoal Block 1's production is set to increase

to 0.4 million metric tons-0.5 million metric tons.

Gunung Bayan Pratama coal Block II seems to

decrease from 4 million metric tons to 3.5 million

metric tons. PT Teguh Sinarabadi's production will

be stagnant at 1 million metric tons-1.1 million

metric tons.

PT Firman Ketau Perkasa is also stagnant at 0.3

million metric tons-0.4 million metric tons. PT

Perkasa Inakakerta's production forecast this year

will be 2.8 million metric tons-3 million metric tons

from last year's position of 2 million metric tons.

PT Fajar Sakti Prima is set to boost production to

1.3 million metric tons-1.6 million metric tons in

2010 and PT Wahana Baratama Mining will elevate

production to 4.5 million metric tons-5 million

metric tons in 2010 from 2.9 million metric tons in

2009.

(Insider Stories, December 2010)

Arutmin will Supply the Coal for PLN in 2011

Cite news detikfinance.com 28/12/2010 preached

that PT Arutmin PLN and has completed

negotiations of coal supply for the year 2011. This

coal mine which belongs to the Bumi Resources will

be PT supplying 7.2 million tons of coal to PLTU

10.000MW operating in 2011.

According to a press release from PLN, Tuesday

(28/12/2010), it is PLTU Labuan, PLTU Suralaya,

PLTU Lontar, PLTU Indramayu, PLTU Rembang,

PLTU Pacitan and PLTU Paiton with a total capacity

of approximately 4,500 MW.

Based on the regulation of the Minister of MINERAL

RESOURCES no. 17/2010, the coal prices of

reference supplied Arutmin in 2011 is calculated

from the price of coal reference an average quarter

4 year 2010 is published by the Directorate General

of Mineral and Coal. The value of thermal coal

supplied by Arutmin is 4,200 as received (AR).

Currently, PLN is also being complete price

negotiation with company shareholders Agreement

Works concessions of the coal mining (PKP2B)

others including Kideco, Adaro, and Berau. PLN will

optimize the supply of coal from coal company

(PKP2B) in order to guarantee security of supply to

the needs of coal as a fuel for the main plants are

met.

(Translated from: www.detikfinance.com,

December 2010)

Coal Production Expected to Exceed 340 Million

Tons this Year

The Jakarta Post reported that, Indonesian coal

miners expect to produce 340 million tons of coal

in 2011, an increase of 23 percent from 275

million tons last year, to catch up with the growing

demand at domestic and international markets.

Indonesian Coal Mining Association (APBI)

executive director Supriatna Suhala said almost all

coal miners in the country had expressed their

commitments to expanding their production in

2011. “As the global economy recovers, we expect

to see growing demand for coal both at domestic

and international markets next year [2011],” he

told The Jakarta Post over the weekend.

Of the planned 340 million tons of coal produced

in 2011, the association estimates 20 percent of

them – around 70 million tons – will be allocated

to fulfill domestic market demand, while the

remaining 80 percent will be exported. “We

predict that we’ll see soaring demand for coal in

emerging market economies in 2011, particularly

to supply their energy sectors,” Supriatna said,

adding that Japan, India, China and South Korea

would remain the largest importers of Indonesia’s

coal.

(Jakarta Post, January 2011)

Taxation for Coal Mining Companies in Indonesia

Currently, the conduct of Coal exploration,

development and production in Indonesia is

regulated by:

1.The Izin Usaha Pertambangan (IUP)/Mining

Business License; and

2. The Perjanjian Karya Pengusahaan

Pertambangan Batubara(PKP2B)/Coal Contract

of Work (CCoW).

Tax Regime for a Coal Mining Company

The IUP company is subject to prevailing

Indonesian tax laws. Unlike the CCoW, the IUP

regulatory regime does not specify distinct tax

rules. A CCoW company taxation terms in the

Contract is lex specialis– that is, the terms in the

contract override the general tax laws. For

example, when certain specific tax rules are set

out in a Contract, these tax rules take precedence

over the prevailing tax laws. Generally, the tax

rules in a Contract reflect those that are in force at

the time the contract were signed, although there

may be some exceptions. Typically, a Contract

fixes the tax rules for the duration of the contract

(with the exception of second generation CCAs

where they generally follow the prevailing tax

regulations).

Income Tax Rate

Under the prevailing Tax Law Regulations, a

company is subject to corporate income tax on its

net taxable profit. Net taxable profit is calculated

based on gross income minus deductible

expenses. The prevailing corporate tax rate for

2010 and onward is a flat rate of 25% of net

taxable profit. If a Contract stipulates a specific

corporate income tax rate, the Contract company

may not be entitled to 25% corporate tax.

Income

Gross income usually represents sales of mining

products and any other income earned by the

mining company.

General Expenses

In general, deductible expenses are expenditures

incurred to generate, maintain and collect taxable

income and generally include an amount paid or

accrued for all expenditures attributable to the

company’s operations in a year which typically

have a useful life of less than one year. Certain

expenditures may not be tax deductible under the

prevailing Income Tax law, e.g. donations and

benefits-in-kind provided to employees. Some

types of benefits-in-kind provided at the mining

site may be deductible if the mine is located in a

remote area (which is usually the case) and an

approval from the DGT is obtained.

Exploration and Development Expenses

Exploration and development expenses may

include camp construction, drilling, access road,

project communication facilities, etc. On-site

exploration expenses are generally deductible in

the year the expenses are incurred provided the

expenses meet the general deductibility criteria

required. Exploration and mine development

expenses should generally be capitalized and

amortized upon spending rather than production.

Depreciation of Fixed Assets

Fixed assets are categorized into four categories,

depending on the nature of the asset and its

expected useful life. The rate at which the asset

can be depreciated will depend upon the category

of the asset. Assets are generally depreciated over

4, 8, 16 or 20 years and taxpayers may apply a

diminishing balance or straight line approach to

depreciation.

Amortization of Intangible Assets

Intangible assets may include pre-operating costs,

patents, rights, licenses, etc. Costs incurred in the

acquisition of mining rights with a beneficial life of

more than one year should be amortized based on

a production unit method, not exceeding 20% per

annum.

Tax Losses Carried Forward

Tax losses can be carried forward for up to five

years under the Tax Law and are utilized on a first-

in-first-out basis. Tax losses cannot be carried

back.

Reclamation Reserve

For accounting purposes, a mining company is

usually required to maintain a reclamation reserve

for environmental management and reclamation

work during the contract period and at the end of

the life of the mine. The reclamation reserve

amount should be tax deductible provided that it

is calculated in accordance with the prevailing

energy/mineral resources sector laws/regulations.

If the actual cost exceeds the reserve, the balance

is generally tax deductible.

VAT

Under VAT Law No. 42/2009, coal is not subject to

VAT. As a consequence, the input VAT paid to the

company’s suppliers are not creditable. Some

Contracts may adopt a VAT regime different than

the prevailing VAT regulations. For example, there

may be provision that Input VAT may be

creditable/refundable despite the fact that the

coal being produced is not subject to VAT. During

the pre-production stage of the Contract, the

company shall not have any Output VAT due to

there being no delivery of mining product at that

point. Therefore, VAT overpayment is likely as the

company should pay its Input VAT to vendors for

purchases of taxable goods/services. Some

Contract companies should collect and pay VAT

charged by its vendors (i.e. Output VAT) directly to

the State Treasury (act as a VAT collector) as

required by the relevant Contract.

Withholding Tax

The Contract company is obliged to withhold

income tax from payments of dividends, interest,

royalties and most types of services. The

Withholding tax rate will depend on the type of

service and whether the service provider is a

resident or non-resident that stipulated in the tax

rules Contract. The general withholding tax rate

for services is 2%. The Withholding tax on

dividends, interest, royalty paid to Indonesia tax

resident is at 15% while for non-resident is set at

20%, though this rate is reduced by most of

Indonesia’s double tax avoidance

agreements. Some Contracts may provide a

reduced Withholding tax rate into nil or 7.5%.

OTHER TAXES

Royalties

Royalties are payable quarterly to the Government

based on the actual volume of production

according to details set out in the IUP/CCoW. The

royalty is tax deductible.

Land and Building Tax

The company is required to pay land and building

tax as set out in the IUP/CCoW. Dead rent is an

annual charge based on the number of hectares in

the Mining Area. The land and building taxes are

deductible for income tax.

(www.coalspot.com, January 2011)

Higher Coal Prices Lift Up Coal Stocks

Thermal coal price this month has gone up 5.63%

to US$127.70 per ton today from mid last month

at US$120.89 per ton. Thermal coal price for next

month has surged 12.20% to US$125.95 per ton

today from mid last month at US$112.25 per ton.

The uptrend prices have lifted up coal-based listed

companies in Indonesia.

Thermal coal miner PT Adaro Energy Tbk (ADRO),

owned by several businessmen such as Garibaldi

Thohir, Sandiaga Uno, and T.P. Rahmat, today rose

6.54% to Rp2,850 per share from December 15

2010 at Rp2,550. Referring to today's position,

ADRO is traded at 32.80x price to earning ratio

(PER).

Bakrie affiliated coal miner PT Berau Coal Energy

Tbk (BRAU) today surged 7.84% to Rp550 per

share from Rp520 on December 15 last year.

BRAU today is traded at 28.35x PER.

Newly listed PT Harum Energy Tbk (HRUM),

controlled by Indonesian businessman Kiki Barki,

jumped 20% to Rp9,600 per share from Rp8,000

on December 15 last year. The rise also sends a

higher PER to 32.23x.

PT Bumi Resources Tbk (BUMI), owned by Bakrie

family via London-listed company Bumi Plc,

increased 9.32% to Rp3,225 per share today from

Rp2,950 on December 15 2010. Bumi is traded at

263.99x PER, the highest compared to its peers.

Dato's Low Tuck Kwong and Jenny Quantero's coal

miner PT Bayan Resources Tbk (BYAN) jumped

44.31%, the biggest gain among its peers, to

Rp18,400 today from Rp12,750 on December 15

2010.

Coking coal miner PT Borneo Lumbung Energi &

Metal Tbk (BORN), controlled by businessman

Samin Tan, soared 29.46% to Rp1,670 per share

today from Rp1,290 on December 15 2010.

Thermal coal miner PT Indika Energy, controlled by

Sudwikatmono family, increased 22,81% to

Rp5,250 from Rp4,275 on December 15 last year,

sending a 29.08x PER today.

(Insider Stories, January 2011)

Bukit Asam Targets 20% Buy to Grow Coal

Transport Capacity

The Jakarta Globe reported that, Indonesian coal

producer Tambang Batubara Bukit Asam is

considering buying an additional 20 percent stake

in Bukit Asam Transpacific Railway from the

Rajawali Group, a company executive said.“By

increasing ownership in the railway company, we

expect to have an additional 25 million tons of

transport capacity for our coal,” Achmad Sudarto,

corporate secretary of Tambang Batubara Bukit

Asam, said in an interview with the Jakarta Globe.

Bukit Asam has an option to buy an additional 20

percent stake in Transpacific, he said. It currently

holds a 10 percent stake in the railway. “We are

planning to buy the stake from the Rajawali

Group, and we will use our internal funds to

finance the purchase,” he said, adding that Bukit

Asam would need $320 million to buy the

additional 20 percent.

However, Bukit Asam’s president director,

Sukrisno, told Bisnis Indonesia on Monday that the

company would seek $272 million in bank loans to

fund the purchase, a Bloomberg report said.

Bukit Asam Transpacific is 80 percent controlled

by Transpacific Railway Infrastructure, a

corporation owned by the Rajawali Group. The

remaining 10 percent is owned by the China

Railway Engineering Corporation

The railway company plans to build a 307-

kilometer rail line from Tanjung Enim in South

Sumatra to Bandar Lampung in Lampung. Bukit

Asam has a coal mine in Tanjung Enim.

Rajawali Group representatives were not

immediately available for comment.

Ibrahim, a senior commodities analyst for Askap

Futures, said bad winter weather in Europe and

the United States had pushed oil prices higher and

had also affected coal prices since many people

use coal for energy. “Coal prices will continue to

increase in the first half of 2011, at least until the

bad weather in Europe and America ends,” he

said.

Bukit Asam forecast its coal sales would reach 14

million tons by the end of 2010. It sold 9.8 million

tons of coal in the first nine months of last year,

12 percent higher than the 8.7 million tons it sold

the first nine months of 2009, the company said in

November.

The company signed a head of agreement in

August to develop a coal train railroad and a coal

terminal with Adani Global, an Indian company,

and the South Sumatra provincial government.

The HoA covers developing railroads for coal-

carrying trains from Tanjung Enim to Samutra

Tanjung Api-Api Harbour.

(Jakarta Globe, January 2011)

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Ben Line Agencies (Indonesia) – As Agent Only

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Palembang

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