Home > Investments, Market change > Indonesia’s Indika to Expand Coal-Mining Capacity

Indonesia’s Indika to Expand Coal-Mining Capacity

June 15, 2011

“Coal miner PT Indika Energy will expand capacity at least 25% in the next three years to meet the growing demand for fuel in expanding Asian economies, the company’s chief executive said. Indika plans to boost the capacity of the mines it controls through PT Kideco Jaya Angung to 50 million metric tons in the next two to three years from 40 million tons, said Arsjad Rasjid, Indika’s CEO and president director. The company hopes to lift capacity at least in part through acquisition.

The Jakarta-based company, which had revenue of around $440 million last year, is seeking to keep up with rising demand for thermal coal to fuel the power plants of India, China and in Indonesia. Indika is Indonesia’s third-largest coal miner, behind PT Adaro Energy and PT Bumi Resources.”

Source: Wall Street Journal, June 14 2011

Observations:

  • Indonesia is located close to China and India, both of which depend on thermal coal imports. At the same time the economic development in Indonesia (with over 240 million inhabitants) is driving the domestic demand. As a result the coal mining sector in the country is recently getting strong international attention.
  • The Indonesian coal mining industry was strongly reshuffled last year after Vallar combined the assets of domestic champions Bakrie and Bumi. Part of the this deal, which results in a FTSE-listed Bumi plc., is executed this week by Vallar issuing convertible bonds to Bumi resources.
  • Coal India is also looking to invest in Indonesian coal mines, using part of the funds raised through last year’s IPO, which had the company enter the global mining top 10 in terms of market capitalization.

Implications:

  • Indonesian coal reserves are rather small compared to Chinese and Indian reserves. With the strong rise of domestic demand it is foreseen that Indonesian exports are not going to be much higher than current levels. However, as most of the reserves are located on the island Kalimantan and demand is mainly on Java and Sumatra export facilities will be built anyway, linking the Indonesian market to the global seaborne coal market.
  • Indonesian government is trying to find a balance in regulating production and exports, looking at the conflicting perspectives of energy requirements for own development and income from coal exports. High export tariffs and/or production caps could possibly hurt the international investors.

©2011 | Wilfred Visser | thebusinessofmining.com

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