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Delivering Positive Energy March 2014 Disclaimer These materials - - PowerPoint PPT Presentation

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Delivering Positive Energy March 2014 Disclaimer These materials have been prepared by PT Adaro Energy (the Company) and have not been independently verified. No representation or warranty, expressed or implied, is made and no reliance

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SLIDE 1

Delivering Positive Energy

March 2014

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SLIDE 2

Disclaimer

2

These materials have been prepared by PT Adaro Energy (the “Company”) and have not been independently verified. No representation or warranty, expressed or implied, is made and no reliance should be placed on the accuracy, fairness or completeness of the information presented or contained in these materials. The Company or any of its affiliates, advisers or representatives accepts no liability whatsoever for any loss howsoever arising from any information presented or contained in these materials. The information presented or contained in these materials is subject to change without notice and its accuracy is not guaranteed. These materials contain statements that constitute forward-looking statements. These statements include descriptions regarding the intent, belief or current expectations of the Company or its officers with respect to the consolidated results of operations and financial condition of the Company. These statements can be recognized by the use of words such as “expects,” “plan,” “will,” “estimates,” “projects,” “intends,” or words

  • f similar meaning. Such forward-looking statements are not guarantees of future performance and

involve risks and uncertainties, and actual results may differ from those in the forward-looking statements as a result of various factors and assumptions. The Company has no obligation and does not undertake to revise forward-looking statements to reflect future events or circumstances. These materials are for information purposes only and do not constitute or form part of an offer, solicitation or invitation of any offer to buy or subscribe for any securities of the Company, in any jurisdiction, nor should it or any part of it form the basis of, or be relied upon in any connection with, any contract, commitment or investment decision whatsoever. Any decision to purchase or subscribe for any securities of the Company should be made after seeking appropriate professional advice.

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SLIDE 3

Agenda

I. Corporate Information II. Adaro’s Strategy III. Industry Outlook

3

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SLIDE 4

I. Corporate Information

4

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SLIDE 5

5

Adaro Energy Snapshot

  • Largest single-concession coal

producer in southern hemisphere

  • Top 5 thermal coal exporter globally
  • Major supplier to domestic market
  • One of the world’s lowest cost coal

producers

  • Envirocoal among the most

environmentally friendly coal

  • Vertically integrated business model
  • Strong credit profile
  • High visibility of future earnings
  • Reputable and experienced

management and controlling shareholders

Production

 2011A: 47.7 Mt  2012A: 47.2 Mt  2013A: 52.3 Mt

Envirocoal

 Sub-bituminous, medium calorific

value, ultra-low pollutants

 Trademark registered in many

jurisdictions Customers

 More than 50 customers in 12

countries

 Blue-chip power generation utilities

Pricing

 Fixed price and about 1/3 index-linked  Adjustment for heat content

JORC reserves / resources

 Reserves: 1.1 Bt as of YE2012  Resources: 12.3 Bt (includes option to

control 7 Bt) as of YE2012 Location

 South, East, Central Kalimantan,

South Sumatra License

 First generation Coal Cooperation

Agreement valid until 2022 (AI)

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SLIDE 6

Adaro’s Operational and Financial Highlights

6

OPERATIONAL FY 2013 FY 2012 % Change Production (Mt) 52.27 47.19 11% Sales (Mt) 53.47 48.62 10% OB removal (Mbcm) 294.86 331.48

  • 11%

FINANCIAL (US$ millions, unless indicated) FY 2013 FY 2012 % Change Net revenue 3,285 3,722

  • 12%

Cost of revenue (2,546) (2,680)

  • 5%

Gross Profit 739 1,043

  • 29%

Net Income 229 383

  • 40%

Core Earnings 284 440

  • 36%

EBITDA 822 1,101

  • 25%

Operational EBITDA 860 1,111

  • 23%

Cash 681 500 36% Net Debt 1,540 1,945

  • 21%

Net Debt to Equity (x) 0.48 0.65

  • Net Debt to EBITDA (x)

1.87 1.77

  • Free Cash Flow

568 235 141% Cash from Operations to Capex (x) 4.01 0.88

  • Basic Earnings Per Share (EPS) in US$

0.00723 0.01205

  • 40%
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SLIDE 7

Key Messages

  • On track to deliver on our long-term strategy to create sustainable value from

Indonesian coal.

  • Delivered on production guidance for 2013 and produced a record of 52.3 Mt of

Envirocoal.

  • Resilient business focused on core assets, operational excellence, risk reduction and

customers.

  • Maintain strong capital structure and margins
  • Monitor and reduce expenses and capital expenditures to preserve cash.
  • Continue to improve efficiency and create reliable, safe, long-term growth.
  • Diversified customer base with long-term contracts mostly with sovereign backed power

companies.

7

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SLIDE 8

8

Recent Performance: We Delivered

  • Liquidity and our Balance Sheet remain

strong with access to cash and undrawn long term fully committed credit facilities

  • f more than US$1.1 billion.
  • We delivered, posting EBITDA of US$822

million in line with our guidance of US$750 million to US$900 million.

  • Our FY13 coal cash cost at US$34.86

beating our FY13 guidance of US$35 to US$38 per tonne.

  • Free Cash Flow surged by 141% to

US$568 million.

  • We achieved record production volume in

FY13 of 52.3 Mt. We delivered on our 2013 production guidance of 50 to 53 Mt.

  • Overburden removal was 294.86 million

bank cubic meters (Mbcm) in FY13, 11% lower y-o-y.

  • AI obtained BBB- rating from Japan Credit

Rating Agency, Ltd. Fitch and Moody’s affirmed rating on Adaro Indonesia at BB+ and Ba1, respectively.

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SLIDE 9

2014 Guidance

9

Production Volumes (Mt)

40.6 42.2 47.7 47.2 52.3 54-56* 2009A 2010A 2011A 2012A 2013A 2014F 5.0 5.5 5.9 6.4 5.75 5.78 2009A 2010A 2011A 2012A 2013A 2014F

Consolidated Planned Strip Ratio (bcm/t) Coal Cash Cost (ex-royalty, US$/t) Capital Expenditure (US$ millions) EBITDA (US$ billions)

1.1 0.9 1.5 1.1 0.82 .75 - 1.0 2009A 2010A 2011A 2012A 2013A 2014 F 27 32 36 39 34.86 35-38 2009A 2010A 2011A 2012A 2013A 2014F 135 287 625 490 165 200-250 2009A 2010A 2011A 2012A 2013A 2014 F * Pending government approval

Operational EBITDA (US$ billions)

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SLIDE 10

Adaro Indonesia (AI) Coal mining, S Kalimantan Balangan Coal mining, S Kalimantan Mustika Indah Permai (MIP) Coal mining, S Sumatra Bukit Enim Energi (BEE) Coal mining, S Sumatra IndoMet Coal Project (IMC), BHP JV Coal mining, C Kalimantan Bhakti Energi Persada (BEP) Coal mining, E Kalimantan 100% 75% 75% 61% 25% 10.2% Saptaindra Sejati (SIS) Coal mining and hauling contractor Jasapower Indonesia (JPI) Overburden crusher and conveyor

  • perator

100% 100% 100% 100% 51.2% 100% Makmur Sejahtera Wisesa (MSW) 2x30MW mine- mouth power plant

  • peration in

S Kalimantan Bhimasena Power 2x1000MW power plant operator in Central Java South Kalimantan Power Project 2x100MW power plant operator in S Kalimantan 100% 34% 65% Maritim Barito Perkasa (MBP) Coal barging and shiploading operator Harapan Bahtera Internusa (HBI) Third-party barging and shiploading Sarana Daya Mandiri (SDM) Channel dredging contractor Indonesia Bulk Terminal (IBT) Coal and fuel terminal

Resilient Business Model Creating Sustainable Value

Pit to Power Integration

10

PT Adaro Energy

Adaro Mining Assets (ATA) Adaro Mining Services Adaro Logistics Adaro Power

*Simplified Corporate Structure

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SLIDE 11

Adaro Indonesia Core Operations

11

Barging to Indonesia Bulk Terminal Indonesia Bulk Terminal, Pulau Laut Coal Cooperation Agreement – Adaro Indonesia Shiploading at Taboneo

  • ffshore

anchorage Barging to domestic customers

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SLIDE 12

Supply Chain Vertical Integration

12

  • Adaro Indonesia (AI) produced 52.3 Mt

in 2013 from a single Coal Cooperation Agreement (CCA) area in S Kalimantan.

  • 921 Mt of Reserves and 4.7 Bt of

Resources in S Kalimantan.

  • Saptaindra Sejati (SIS) provides ~35% of

AI mining and overburden removal.

Coal Mining

  • 80km private paved haul road

improved operational efficiency.

  • More than 350 units of 130 tonnes

capacity truck trailers in operation.

Coal Hauling

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SLIDE 13

Supply Chain Vertical Integration

13

At Kelanis river terminal:

  • Expanding to reach 70 Mt

coal-handling capacity per year.

  • 450,000 tonne stockpile + 80,000 tonnes

ROM capacity.

  • 2 barge loading jetties with a loading

rate of 5,000 tonnes/hr each.

Coal Processing & Barge Loading Barging

  • Supported by our subsidiary,

PT Maritim Barito Perkasa (MBP).

  • 55 sets of tugs and barges used by

Adaro with an average capacity of 11,750dwt, including three sets of 18,000dwt units.

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SLIDE 14

Shiploading and Port

Supply Chain Vertical Integration

14

  • Offshore loading at Taboneo: capacity

up to 165,000 tonnes/day: floating cranes (15,000-20,000t/day), FTU (60,000t/day) and self-loading geared vessels.

  • IBT port and fuel terminal JV with

Shell: coal loading capacity 12 Mt/year, fuel storage capacity 60,000 kiloliters.

  • Sarana Daya Mandiri (SDM), dredged

the river channel in 2008, increasing capacity to 200 Mt per year and now manages and maintains the channel.

  • Adaro owns 51.2% of SDM with the local

port authority and local government

  • wning the remaining interest.

Barito River Channel

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SLIDE 15

Diversified Customer Base with Long-term Contracts

15

Mostly sovereign backed power companies, over 50% have relationship more than 10 years

Customer type by % volume (FY13) Geographical breakdown of customers (FY13) Historical geographical breakdown of customers (2011-2013)

87% 2% 11%

Power Cement Others 0% 5% 10% 15% 20% 25%

Indonesia India China Japan Spain South Korea Hong Kong Malaysia Others United States Taiwan

2013 2012 2011

Indonesia, 19% India, 18% China, 12% Japan, 11% Spain, 9% South Korea, 9% Hong Kong, 6% Malaysia, 6% Others, 5%

United States, 3%

Taiwan, 2%

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SLIDE 16

25.0% 22.0% 20.3% 19.3% 19.1% 18.3% 14.9% 14.9% ADARO* Xstrata Thermal** BHP Thermal Anglo Thermal PTBA* ITMG* Peabody BUMI* 1,125 2,904 1,990 579 476 417 7,782 7,290 1,140 1,008 1,650 Adaro Bumi PTBA Indika Bayan ITMG Resources Reserves 12,287

Significant Scale and Profitability

16

2013 Thermal Coal Production (Mt)

220.0 95.7 77.0 72.0 67.6 29.0 15.1 52.3

Peabody Glencore Xstrata-E Bumi-E BHP Anglo Adaro ITM-E PTBA

Source: Company Filings, Presentations, Analysts Estimates

2013 EBITDA Margin Reserves and Resources Comparison 2013 Largest Producing Concession in Southern Hemisphere (Mt)

Source: Bloomberg, Company Filings, *9M13 Figures **1H13 Figures Source: Company Filings, Presentations, Analysts Estimates Source: Company Filings, *Adaro Energy’s YE2012 consolidated equity adjusted resources and reserves includes option to control 7 billion tonnes

52.3 50.0 37.0 30.0 27.0 23.0 15.2

Adaro Indonesia KPC-E Kideco Loy Yang-E Arutmin-E Berau Indominco-E

* Include 7.9 Bt option

*

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SLIDE 17

Corporate Milestones: Pre-LBO, LBO to Growth

17 

US$400m bonds make-whole call at premium

Refinancing with US$750m bank loans

Acquired SIS (mining contractor)

US$973m LBO by consortium of international investors

US$400m bonds to refinance LBO debt

First ratings upgrade by Moody’s to Ba2

Adaro Energy IPO

  • n IDX, raising

US$1.3bn

Acquired SDM and completed dredging

  • f Barito River

channel mouth

First venture out of South Kalimantan through JV with BHP Billiton in the Indonesian Coal Project

Commenced production at Wara mine

Infrastructure developments post LBO

Increased production nearly by 30% to 34.4 Mt

1982: Coal Cooperation Agreement signed

1990: Envirocoal trademark obtained

1992: First year of commercial production (1 Mt)

2002: Production of 20.8 Mt

First 10 year corporate loan in Indonesia for Adaro Indonesia

Established foothold in South Sumatra through acquisition of MIP, BEE and SMS

Won 2GW coal fired power project along with JPower & Itochu

Second ratings upgrade by Moody’s to Ba1

Acquired MBP (barging contractor)

US$500m RCF signed

Issued US$800m 7.625% Guaranteed Senior Notes due 2019. Largest 10 year US$ private sector corporate bond from Indonesia

Pre LBO Growth LBO

Sole qualified bidder for 200MW coal fired power project in S. Kalimantan

Signed option agreement to acquire up to 90% of BEP

Concluded $380m refinancing facility for AI and was 7.5x

  • versubscribed

Acquired Balangan coal Project

1982-2002 2005 2006 2007 2008 2009 2010 2011 2012 2013

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SLIDE 18

Adaro Group – Journey from LBO

18

*) 2006 and 2007 (AI, IBT and CTI only). 2008 onwards AE figures. **) Only AI, IBT and CTI as per financial covenant calculation Note: In 2010, 2011 and 2012, incl. attributable resources and reserves from acquired concessions in 2010 and 2011 and upon exercise of BEP’s option * 2013 number are being finalized so 2012 numbers are used.

LBO (Jun '05) 2005 2006 2007 2008 2009 2010 2011 2012 2013 Revenue (US$m)

  • 951 1,383 1,512 1,869 2,591 2,718 3,987 3,722

3,285 EBITDA (US$m) 175 202 254 262 506 1,067 883 1,474 1,101 822 EBITDA Margin (%)

  • 21.2%

18.4% 17.4% 27.1% 41.2% 32.5% 37.0% 29.6% 25% Net Debt / EBITDA** 5.27 4.45 2.53 2.43 1.10 0.30 1.10 1.04 1.64 2.24 DSCR** 0.79 0.95 1.59 1.93 4.97 2.90 3.20 6.20 3.85 3.35 2005 2006 2007 2008 2009 2010 2011 2012 2013 Production volumes (Mt) 26.6 34.4 36.0 38.5 40.6 42.2 47.7 47.2 52.3 Resources (Mt) 2,368 2,841 2,803 3,484 3,443 4,622 5,594 12,288 12,288* Reserves (Mt) 448 414 938 930 889 938 1,095 1,125 1,125* R/P (years) 16.8 12.0 26.0 24.2 21.3 22.2 23.0 23.8 21.5*

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SLIDE 19

Manageable average debt repayment schedule of $175 million

Exceptional Access to Capital

19

Key Lenders to the Group

We have more than $1.1 billion of liquidity, consisting of $681 million in cash and $433 million of undrawn long term fully committed credit facilities.

Borrower Loan Type Year Secured Tenor Nominal

(in million USD)

Net Outstanding FY13

(in million USD)

Undrawn as of FY13

(in million USD

AI and CTI Term & Revolver November 2007 8 years 750 188

  • AI

Guaranteed Sr October 2009 10 years 800 800

  • SDM

Term December 2009 5 years 15 5

  • SIS

Term & Revolver February 2011 7 years 400 267 100 AI Term & Revolver July 2011 10 years 750 421 279 MBP Term & Revolver May 2012 7 years 160 145 15 MBP Revolver July 2012 7 years 40

  • 40

AI Revolver May 2013 7 years 380 362

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SLIDE 20

II. Adaro’s Strategy

20

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SLIDE 21

Our Strategy to Create Long-term Value

21

IMPROVE EFFICIENCY

  • f our coal supply

chain and focus

  • n cost control
  • Our overburden

crusher and conveyor (OPCC) and 2x30MW mine- mouth power plant are in a testing phase.

  • Focus on improving

the cycle time in coal hauling, similar to how we reduced barging cycle time by more than one day.

DEEPEN INTEGRATION

by moving downstream into power generation

  • Full integration of
  • ur coal supply

chain from pit to port to power.

  • Partnered with blue

chip power utilities

  • n projects,

including a 2x1000MW in Central Java and a 2x100MW in South Kalimantan.

  • Evaluating
  • pportunities in

South Sumatra.

ORGANIC GROWTH

from our current reserve base

  • Organic growth in

South Kalimantan from our three pits of

  • peration.
  • Focus on long-term,

reliable production from Tutupan and Paringin.

INCREASE RESERVES AND DIVERSIFY

products, locations and licenses

  • Focus on mine

readiness for new coal concessions in Kalimantan and Sumatra.

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SLIDE 22

1.0 1.4 2.4 5.5 8.6 9.4 10.9 13.6 15.5 17.7 20.8 22.5 24.4 26.7 34.4 36.1 38.5 40.6 42.2 47.7 47.2 52.3 54 - 56* 1.0 1.0 2.1 5.4 12.9 30.1 26.8 22.7 24.6 40.4 48.2 56.1 66.0 85.6 122.8 119.9 159.3 208.5 225.9 299.3 331.5 294.9 325.5

  • 50

100 150 200 250 300 350 400 450 10 20 30 40 50 60 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E Tutupan (Mt) Wara (Mt) Paringin (Mt) Overburden Removal (Mbcm)

Proven Track Record of Production Growth

22

Units 2014 Guidance 2013 Actual 2012 Actual

Production volume Mt 54 – 56 52.3 47.2 E5000 Mt 18.0 38.7 39.5 E4900 Mt 29.0 – 31.0 8.4* NA E4000 Mt 7.0 7.9 7.6 Planned strip ratio bcm/tonne 5.8 5.8 6.4

* Pending government approval

*Production volume for E4700

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SLIDE 23

Improving Efficiency and Cost Control

23

MSW steam turbine generator buildings Barge loading at Kelanis River Terminal

Adaro has consistently engaged in cost-reduction projects, including sealing the haul road, dredging the Barito River channel and pioneering the Taboneo offshore anchorage

Engineering works for overburden conveyor

Project Purpose Spend to FY13 Completion Overburden Crusher Conveyor (OPCC) Transport 34 Mbcm of overburden annually US$224.0m 2014 Mine-mouth Power Plant 2 x 30MW Power operations in S Kalimantan and our OPCC US$171.2m 2014 Kelanis River Terminal Expand our capacity to 70 Mt from 55 Mt US$46.9m 2014

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SLIDE 24

Adaro Energy Mining Assets

24

Sumatra: Resources 75.03 Bt Reserves 13.22 Bt Kalimantan: Resources: 85.25 Bt Reserves: 14.80 Bt

Indonesian Coal: Resources 160.65 Bt Reserves 28.02 Bt

Source: Ministry of Energy and Mineral Resources

12 billion tonnes of coal resources are attributable to Adaro across 6 locations and 20 mining concessions, eight of which are CCA and CCoWs and the remaining IUPs.

Adaro Indonesia: Existing, South Kalimantan sub-bituminous Resources 4.7 Bt, Reserves 921 Mt MIP: 75% stake South Sumatra sub-bituminous Resources 282 Mt, Reserves 273 Mt BEE: 61.04% stake South Sumatra sub-bituminous Geological study phase IMC: 25% joint venture with BHP Central Kalimantan coking coal Resources 1.3 Bt*

3 4 5 6 1 3 4 6

BEP: 10.22% stake with option to acquire 90% East Kalimantan sub-bituminous Resources 7.9 Bt

5

Balangan: South Kalimantan sub-bituminous Resources 172 Mt

2 2 1

Due to additional drilling and updated model, IMC increased resources to 1.3 Bt from 774 Mt. Source: BHP Billiton Annual Report 2013, page 76-77

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SLIDE 25

Balangan Acquisition

25

  • Purchased 75% for US$30.4

million enterprise value in 1Q13.

  • Strategically located 11 km

southeast from Adaro’s concession in S. Kalimantan.

  • Initial capex plan to get up

and running is US$15 million and will use our contractor SIS for mining services.

  • We expect the project to

begin production in 2014 with future potential of up to 8 Mt per year.

Total (Mt) Total Moisture % Ash % (GAR) Total Sulfur % (GAR) Calorific Value (kcal/kg, GAR) Resources 172.3 31.9 1.9 0.08 4,436 JORC Compliant Coal Resources and Reserves (Millions of ROM Tonnes)

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SLIDE 26

Deepen Integration by Moving into Power

26

Bhimasena Power 2 x 1000 MW South Kalimantan 2 x 100 MW Stake Acquired 34% 65% Partner(s) J-Power (34%) and Itochu (32%) Korea EWP (35%) Location Central Java South Kalimantan Rationale

  • Commercially and financially attractive with solid IRR and low-cost long-term

project financing

  • Creates a new captive market and helps meet our DMO
  • Helps to lessen volatility in Adaro’s business model
  • Contributes to the development of our country’s energy needs

Development Progress

  • Signed 25 years PPA with PLN
  • Total Capex: US$4 billion
  • Financial closure deadline extended

through Presidential Decree No. 66/2013

  • Acquired more than 85% of the power

block and received the approval of AMDAL

  • Consortium announced as

the sole qualified bidder

  • PPA pending signing

Financing Combination of ECA and commercial loan Expected Debt vs. Equity 80:20 75:25 Diversify and Secure Predictable Long-term Demand for Our Coal

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SLIDE 27

III. Industry Outlook

27

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SLIDE 28

Historical Newcastle Thermal Coal Price

  • The current weak coal price is mainly due to undisciplined supply growth on the back of excess

liquidity and overinvestment made in the recent years. Supply contraction is slowly underway but market has not yet rebalanced.

  • Wood Mac expects the market to continue to rationalize supply with medium term positive demand

fundamentals remaining in-tact. As supply and demand rebalance, a price rebound should occur.

28

192.5 77.16 50 100 150 200 250 Feb-03 Jun-03 Oct-03 Feb-04 Jun-04 Oct-04 Feb-05 Jun-05 Oct-05 Feb-06 Jun-06 Oct-06 Feb-07 Jun-07 Oct-07 Feb-08 Jun-08 Oct-08 Feb-09 Jun-09 Oct-09 Feb-10 Jun-10 Oct-10 Feb-11 Jun-11 Oct-11 Feb-12 Jun-12 Oct-12 Feb-13 Jun-13 Oct-13 Feb-14

McCloskey Newcastle Index

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SLIDE 29
  • Global Coal Newcastle (gCN) price increased from September 2013 to

January 2014, peaking at ~US$85/tonne, but on 14 Feb 2014 has fallen to $77.16. Pacific gCN has come under pressure due to a weaker Australian Dollar and slowing Chinese domestic market, which has caused a drop in prices of QHD 5500NAR.

  • ICI3 slightly decreased in February 2014 due to sluggish demand ahead
  • f the Chinese New Year holidays and high stock levels at ports and

power plants.

  • ICI4 remained weak, arriving at US$38.76/tonne in February 2014. Slow

Chinese trading activity lowered prices, yet became an opportunity for Indian buyers to purchase coal at cheaper prices.

29

Market Update

PRICES

14 Feb 2014 Bituminous (US$/Tonne) gCN 77.16 Aus Off-Spec (Platts) 66.00 Sub-Bituminous Indonesia (US$/Tonne) ICI3 - 5000 GAR 56.98 ICI4 - 4200 GAR 38.76 Qinhuangdao Coal FOBT (US$/Tonne) 5500 NAR 87.46

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SLIDE 30

Global Cost Curve

30

Indonesia’s greatest advantage is its low cost recording 9.5% reduction in 2013 YoY – one of the best among thermal coal exporters world wide Average Indonesian coal production cost is ~US$47/ton. Based on Wood Mac data, the 2013 global weighted average cash cost is about US$60/t (2012: US$64/t) Cash Cost for Global Seaborne Thermal Coal Supply (2013) 2011 - 2013 Average Seaborne Thermal Cash Cost

Source: Wood Mackenzie CMS and CSS Currency in Real terms 2013 50 100 150 200 250 98 196 294 392 490 588 686 784 882 980 Cost (US$/t, Real 2013) Cumulative capacity (Mt) Australia Canada Colombia Indonesia Mozambique Russia South Africa USA Other Source: Wood Mackenzie Coal Market and Coal Supply Services

Adaro Energy’s cash cost (ex. royalty) was U$34.86/ton for FY13

Country 2011 Total cash cost 2012 Total cash cost 2013 Total cash cost Canada 87.11 93.56 87.68 Venezuela 86.54 82.57 81.47 Mozambique 83.14 78.37 79.66 Russia 74.63 76.81 79.04 Australia 74.85 83.38 75.45 United States 72.39 69.49 69.63 Vietnam 58.36 58.48 58.37 South Africa 59.94 59.56 56.21 Colombia 54.17 52.90 52.06 Indonesia 50.97 51.88 46.97 Global weighted average 61.70 64.05 60.11 Note: not adjusted for heat value

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SLIDE 31

Market Update

HEAT ADJUSTED LANDED PRICES IN CHINA - GUANGZHOU

Source: Fenwei Consulting, Argus/Coalindo, Argus/McCloskey, Global Coal, McCloskey, Platts, 2014

31

Origin CV (NAR) FOB cost (Jan-2014) Freight CFR + VAT (For Imports) CFR South China @6000 NAR Indonesia 4700 $ 57.54 $ 9.00 $ 77.85 $ 99.39 Indonesia 3800 $ 38.75 $ 9.00 $ 55.87 $ 88.21 Australia 6000 $ 82.49 $ 16.00 $ 115.23 $ 115.23 USA - PRB Coal 4900 $ 57.03 $ 34.00 $ 106.51 $ 130.41 South Africa 6000 $ 84.63 $ 20.00 $ 122.42 $ 122.42 Colombia 6000 $ 71.82 $ 32.00 $ 121.47 $ 121.47 Qinhuangdao China 5500 $ 97.02 $ 6.00 $ 103.02 $ 103.02

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SLIDE 32

Market Update

HEAT ADJUSTED LANDED PRICES IN INDIA - MUNDRA

Source: Argus/Coalindo, Argus/McCloskey, Global Coal, McCloskey, AXS Marine2014

32

Origin CV (NAR) FOB cost (Jan-2014) Freight CFR CFR West Coast India @ 6000 NAR Indonesia 4700 $ 57.54 $ 11.00 $ 68.54 $ 87.50 Indonesia 3800 $ 38.75 $ 11.00 $ 49.75 $ 78.55 Australia 6000 $ 82.49 $ 20.00 $ 102.49 $ 102.49 Australia 5500 $ 69.20 $ 20.00 $ 89.20 $ 97.31 South Africa 6000 $ 84.63 $ 14.00 $ 98.63 $ 98.63

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SLIDE 33

Market Update

SUPPLY DEMAND BALANCE

Source: Adaro Research, 2014 33

2013 Highlights: Overall seaborne traded volume reached the one billion tonne mark. Demand:

  • India grew by 28 million tonnes,

surpassing China’s growth of 21 million tonnes.

  • China imports ended the year above

200 million tonnes, an increase of more than 20 million tonnes despite the slower economic growth. Supply

  • Indonesia and Australia were the

fastest growing exporters in the world, totaling an additional 60 million tonnes.

  • Australia grew strongly by 15 million

tonnes due to the obligation to fulfill the take-or-pay contracts.

  • Adaro

accounted for 9%

  • f

the seaborne market growth.

  • Colombia dropped by 6 million tonnes

in 2013, mainly due to labor disruptions and environmental issues.

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SLIDE 34

Demand in China and India Still Strong

34

CHINA: Lower but Stable Growth Rate in the Future

  • Chinese coal imports increased 12.2% YTD as of December 2013 to a new high of 212.7 Mt.
  • Increasing coal demand has been mainly driven by the seasonal impact of restocking before winter and CNY.
  • Over the longer term demand in China will be driven by fuel electricity generation to support industrial

expansion. INDIA: Thermal Coal Import to Grow Substantially

  • Indian coal imports increased 27.0% YTD as of December 2013 to 135.9 Mt due additional power

generation coming on-line and a growing shortfall in available domestic coal supply.

  • The power sector is expected to be the major demand driver and remain dependent on coal-fired capacity

for base load requirements.

FY2012 FY2013 % change y-o-y Imports (Mt) 189.6 212.7 12.2%

Source: China Coal Resource

FY2012 FY2013 % change y-o-y Imports (Mt) 107.0 135.9 27.0%

Source: Salva Resources

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SLIDE 35

$1.87 $6.10 1 2 3 4 5 6 7 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14

Gas Price Recovery Likely to Improve US Coal Economics

  • Subsequently, US coal demand was estimated to rebound 40 Mt – 60 Mt in 2013.

– Gas to coal switching in play. – PRB coal is competitive at $2.50 to $2.75, whereas Illinois Basin coal at $3.25 to $3.50

natural gas prices.

– CAPP requires $4.50 or higher gas prices to be competitive.

  • According to EIA estimates, gas prices are expected to average $4.00 to $4.50/mmbtu in 2014.

Illinois PRB

Henry Hub Natural Gas Spot Price

  • Shale gas discoveries weighed on natural gas pricing, hitting a low of $1.87 in April 2012.

However, the natural gas price has strengthened over the past two years.

Source: EIA

CAPP

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Southeast Asia Coal Demand

Source: WoodMackenzie Energy Market Service, Adaro Analysis

Total 360 MT Total 600 MT Total 214 MT

Imports Domestic (Indonesia) Domestic (Other than Indonesia)

Southeast Asia Coal Requirements for Electricity

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Fundamentals Remain Intact

  • Seaborne coal imports into China and India are estimated to grow from 237 Mt and 130 Mt, respectively, in 2013

to 822 and 429 Mt, respectively, by 2035

  • Use of low rank coal (sub-bituminous and lignite) has increased substantially with the ratio to the total import-mix

rising from 21% in 2008 to 37% in 2012 and will likely grow to over 47% by 2035.

  • Wood Mackenzie projected that coal-fired generation capacity will grow in SEA to 89 GW by 2035 from 22 GW in

2013; coal import demand will increase from 55 Mt to 276 Mt in this time-frame. China and India will be the engines of coal import demand growth in the Pacific, developing additional coal-fired capacity of 802 GW and 212 GW, respectively, between now and 2035. China and India have made intensive efforts to widen boiler design specification to increase flexibility in coal purchases from diversified sources and optimize fuel costs.

  • IEA expects coal to rival oil as the world’s top energy source by 2017 and pass oil within a decade.

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Source: Wood Mackenzie (November 2013)

Share of Coal in Electricity Generation in The Pacific Basin (GW) Pacific Basin Seaborne Thermal Coal Import Demand (Mt)

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Key Themes – Market Still Awash with Coal

  • Slow supply contraction, thus oversupply likely to persist

– Highly leverage producers continue to ramp up production to meet their financial obligations. – Australian thermal coal producers continue to supply the market supported by: 1) weaker A$ against US$, lowering production costs; 2) infrastructure take or pay agreements; 3) margin buffer from coking coal operations with thermal coal as a by product; and 4) positive NPV on mines based on long term coal pricing assumptions. – Indonesian producers leverage lower transportation and labor costs to remain competitive despite depressed coal prices. Primarily the Indonesian majors that have remained resilient. – Gas price recovery likely to improve US coal economics.

  • Curtail capex and various cost cutting measures.
  • Compromise long term reserves (i.e. high grading, back filling, etc.)
  • Consolidation of small miners are likely if low price persists.

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Thank You Delivering Positive Energy

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