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Adaro Energy doubles capex in 2017 to USD200-250 million

JAKARTA (RambuEnergy.com) – PT Adaro Energy Tbk, a diversified energy group, has set capital expenditure (capex) of USD200-USD250 million for 2017 to fund its operation and expansions, both in coal and power sector. The capex doubles from from expenditures set for 2016 at between USD75 million to USD100 million, reflecting the company’s optimism toward 2017.

The company made the announcement after releasing relatively strong fourth quarter activities.

The company said it continued “strong execution” in the quarter across PT Adaro Energy Tbk’s (AE) three engines of growth.

Its first engine, coal mining, produced 13.31 million tons (Mt) of coal from PT Adaro Indonesia (AI), PT Semesta Centramas (SCM) and PT Laskar Semesta Alam (LSA) and PT Lahai Coal in 4Q16, 14% higher compared to 11.64 Mt in the same period last year.

Adaro Energy’s total coal production for 2016 reached 52.64 Mt, a 2% increase year-on-year, and in line with our production guidance of 52 – 54 Mt.

Overburden removal in 4Q16 increased 11% to 59.35 million bank cubic meter (Mbcm) compared to 4Q15. We removed a total of 234.13 Mbcm of overburden in 2016, a decline of 12% y-o-y.

The blended average strip ratio for the quarter was 4.46x and 4.45x for the year.

“Although this was below our 4.71x planned strip ratio for 2016, on average we are still in the range of our life of mine strip ratio and are not affecting our long-term coal reserves. The lower strip ratio in 2016 was mainly due to prolonged rain in our South Kalimantan operations,” it said.

In October, the company experienced substantially higher rainfall volume and rain days. However rainfall and rain days were closer to the historical average figures in November and December.

The fourth quarter of 2016 saw the Global Coal Newcastle price touch a four year high of  US$112.50 due to a combination of supply tightness and seasonally higher demand as customers entered a winter restocking period.

The supply constraint was prompted by the Chinese government policy to curb production and weather-related challenges faced by suppliers in Indonesia, Russia and Colombia. Indonesia experienced heavy rain in some coal producing areas which created supply tightness from the country.

Following the rally in the coal price, the Chinese government relaxed until March 2017 its policy of limiting working days to ensure enough supply in their domestic market. However, the reduced supply and robust demand in China due to uncharacteristic weather (warmer summer and expectation of a colder winter) supported coal import demand into the country.

China increased coal imports, including coking coal, to an estimated 256 million tonnes (Mt) in 2016 despite an initial expectation of lower imports. The majority of China’s imports came from Indonesia followed by Australia, Mongolia and Russia.

“We believe that the coal market fundamentals are gradually improving, propelled by China’s supply side reforms,” it said.

It said imports by India were weak in 2016 due to subdued power demand growth and Coal India’s ability to grow production output by 2.8% y-o-y. Towards the end of the 4Q16, power demand in the country grew slightly and additional coal requirements were fulfilled by domestic production.

Annualized figures for thermal coal imports in the Southeast Asia region were 75 Mt in 2016, a 13 Mt increase y-o-y from 2015. In total, the global seaborne thermal coal market expanded by 23 Mt to 894 Mt in 2016, according to Adaro.

Indonesia’s coal demand in 2016 increased 11% y-o-y following the start-up of several coalfired power plants, including captive power plants, while coal production remained relatively flat.

Highlights of the quarter:

– Adaro Energy’s total coal production in 2016 was 52.64 Mt, in line with its 2016 production guidance of 52 – 54 Mt.
– A strip ratio of 4.46x. The strip ratio for the year was 4.45x, slightly below its guidance of 4.71x due to above average rainfall at our operations.
– Completion of the acquisition of the Indo MetCoal project from BHP Billiton. Coal production from the project’s Haju mine continued.
– Construction of PT Bhimasena Power Indonesia’s (BPI) 2×1,000 MW power plant in Central Java and PT Tanjung Power Indonesia’s (TPI) 2×100 MW power plant in South Kalimantan progressed on schedule.

Adaro Energy’s Guidance for 2017:
– Production: 52 Mt to 54 Mt
– Blended strip ratio: 4.85x
– Operational EBITDA: US$900 million to US$1.1 billion
– Capex: US$200 million to US$250 million

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