Factors Affecting the Business Activities and Operation Results
which amounted to 45.9 million tons from 38.3 million tons in 2009.
In future, it is predicted that the demand for coal will continue to rise. In addition to be focused to meet domestic
needs in line with the 33 target fulfillment of the total Energy Mix year 2025 based on Presidential Decree No. 5 Year
2006 on National Energy Policy, increased demand for coal will also be supported by a surge in demand from the Asia market
such as China and India as the major markets of Indonesian coal. The high demand from steel industries and power plants
in China and the lack of domestic coal supply and supply restrictions of coal in India are predicted will push the
sharp rise of coal imports in both countries. Indian coal demand is estimated to reach 696 million tons over this fiscal
year through March 2012, while the domestic supply is approximately only 554 million tons. In other words there is a
shortage of supply of around 142 million tons, with demand forecast that will continue to grow.
Regarding the price, global coal prices is mainly influenced by the dynamics of supply and demand in the world
market. Unlike other commodities, coal does not have a standard single price for the global market. Prices can
fluctuate significantly in different geographical markets and for different types and qualities of coal.
Production and Business Development
The business
development of
the Company
and its
subsidiaries is
determined by
the implementation
of exploration activities, production planning and logistics
management to
support coal
mining activities
and transportation from the mining area to coal processing and
loading location. Historically, the Companys business development could be
seen from the increment of the production in the last 3 three years. Production volume of the Company and its
subsidiaries for the years ended December 31, 2008, 2009 and 2010 and the six-month period ended June 30, 2011 amounted to
1.3 million tons, 1.5 million tons, 1.8 million tons and 1.8 million tons of coal. Through the joint mining operations, the
Company obtained additional coal production for 265 thousand tons of coal in 2010 and 543 thousand tons in the six-month
periodof 2011 from the mining area of TBA, a third party. Accordingly, the Companys total coal production is 2.0
million tons in 2010 and 2.4 million tons in the six-month period ended June 30, 2011. The Company intends to increase
production in the following years.
Coal Mining Contractors
The mining activities of the Company and its subsidiaries are
performed by
the mining
contractors. The
mining
contractors lift and transport the overburden layer, mine and transport coal and reclaim the mine. BIB, TKS and KIM have
contracts with
at least
5 contractor
companies. Those
designated mining contractors are obliged to provide all equipments, machineries, tools and manpower needed to conduct
all mining operations in all mining areas of the Company. The Company believes that by relying on contractors in its
subsidiaries mining activities, the Company might reduce the need for capital expenditures significantly, thus the Company
could focus its resources to strategic activities, such as mining plan, exploration and marketing.
Fluctuations of Prices of Fuel, Spare Parts and Other Supporting Operational Activities Materials
Coal is an internationally traded commodity. Coal prices have quite large fluctuations. Factors affecting coal prices
fluctuations are:
The volume of coal production in the world, which is influenced by several factors such as the opening of new
mines and the closure of old mines, the discovery of new coal reserves, development of current mining operations.
Coal supply constraints which is caused by the disruption
and transportation network limitations, general economic conditions, and weather factors.
Crude oil prices fluctuations which will affect to the
mining costs increment charged by the mining contractors, increasing cost of coal shipping transportation.
Government policy on the export of coal from the country.
The risk of exchange rate fluctuations to the Company is relatively small considering that the Company has a net open
position in foreign currencies which is more or less balanced. The risk of interest rate fluctuations to the Company is
relatively small considering that the payable balance of the Company is small compared with the total net income. In
addition, the Company plans to repay part or all of the payable from the proceeds from the Initial Public Offering.
Weather Conditions
Erratic weather conditions will affect the coal trade. Disruption of the mining process will affect the coal supply.
Poor weather conditions make disruption of mining activity and obstruction in coal distribution.
Government Policy and Legal Changes
In general, the current policy of the Government of Indonesia regarding coal mining industry is oriented on the market.
However, the Government of Indonesia, foreign governments and local governments from time to time might issue new policies
and regulations that might affect the mining operation. The
Government policy that might affect the Companys business includes policy related to mining activities, taxes and the
environment.