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BHP Billiton sells RI coal asset to Adaro for a bargain

The world’s biggest mining company, BHP Billiton, is selling the whole of its 75 percent stake in a joint venture, IndoMet Coal, to its partner, local coal miner Adaro Energy, for the bargain price of US$120 million amid plunging global coal prices

Fedina S. Sundaryani (The Jakarta Post)
Jakarta
Thu, June 9, 2016

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BHP Billiton sells RI coal asset to Adaro for a bargain

T

he world’s biggest mining company, BHP Billiton, is selling the whole of its 75 percent stake in a joint venture, IndoMet Coal, to its partner, local coal miner Adaro Energy, for the bargain price of US$120 million amid plunging global coal prices.

That compares with the $335 million Adaro paid for a 25 percent stake in IndoMet Coal back in 2010, signifying a drastic price cut amidst persistently low coal prices caused by decreasing global coal demand, especially from major importer China, which has been hit by much slower economic growth.

“After a detailed review of IndoMet Coal, we concluded that although the project could support a larger scale development, BHP Billiton has a range of other growth options in its portfolio that are more attractive for future investment,” IndoMet Coal asset president James Palmer said in a statement.

The asset sale took place only one year after IndoMet Coal began production. Indomet Coal has seven working contracts located in Central and Eastern Kalimantan.

The Haju mine, located on Borneo Island, has an annual capacity of 1 million metric tons, mostly consisting of coking coal. Coking coal, also known as metallurgic coal, is an essential ingredient in steel production.

The statement also went on to explain that the Melbourne-based BHP Billiton would continue to work together with Adaro to facilitate a smooth transfer of ownership while awaiting the fulfilment of customary regulatory approvals.

Adaro confirmed the buy-out and was currently evaluating the potential for the coking coal and thermal coal reserves in IndoMet Coal.

“We continue to improve the mining readiness of all our mining assets. While the coal market continues to be challenging, we believe that coal is cyclical and our coal mining business plays a key role in Adaro’s three-engine strategy for future growth,” Adaro spokesperson Febriati Nadira told The Jakarta Post.

The Newcastle thermal coal price, an Asian benchmark, has dropped from its 2011 peak of around $135 per metric ton to $54.25 per ton at present. Meanwhile, the country’s Energy and Mineral
Resources Ministry mineral and coal office set the Indonesian coal reference price (HBA) at $51.81, down from $59.59 during the same period last year.

Adaro had previously stated that it wishes to decrease its reliance on coal production and increase their ventures in coal-fueled power plant projects because of the sluggish coal prices. The firm’s sales volume slumped by 7 percent year-on-year to 53.11 million tons last year, dragging down its revenues by 19.52 percent to $2.68 billion.

However, Adaro’s future seems brighter as its 2x1000 megawatt (MW) power plant project in Batang, Central Java, finally reached financial closure last week following years of legal problems over land acquisition. The power plant is set to be the biggest in Southeast Asia.

The Energy and Mineral Resources Ministry’s spokesperson, Sujatmiko, said that the ministry had already heard the news and called on BHP Billiton to immediately submit a request to revise their company budget, as stipulated by several ministerial decrees.

Furthermore, the ministry has requested that Adaro absorb IndoMet Coal’s 60-person workforce as many would be expecting Idul Fitri holiday bonuses.

Following the news, shares in Adaro dropped by 4.4 percent to Rp 870 apiece on Wednesday’s trading close. The stocks have soared 60 percent so far this year, outperforming the broader Jakarta Composite Index’s (JCI) 7 percent gain.

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