Coal Handling and Processing Plant, one of the key infrastructures to develop Adaro Metcoal Companies.

Highlights:

For further information please contact:

Mahardika Putranto, Corporate Secretary & Investor

Relations Division Head

E:mahardika.putranto@adaro.com

Febriati Nadira, Head of Corporate Communications

E:febriati.nadira@adaro.com

  • Adaro Energy produced a total of 54.53 Million tonnes (Mt) of coal in 2020, 6% decline year-on-year (y-o-y) and slightly higher than our guidance of 52-54 Mt. Coal sales volume during the year was 54.14 Mt, 9% lower y-o-y.

  • Strip ratio in 2020 was 3.84x, below our guidance of 4.30x due to unfavorable weather for the most part of the year.

  • Summary of Adaro Energy 2021 guidance:

    • o Coal Production: 52 Mt - 54 Mt

    • o Strip Ratio: 4.8x.

    • o Operational EBITDA: US$750 million - US$900 million

    • o Capital expenditure: US$200 million - US$300 million

REVIEW OF THERMAL COAL MARKET

4Q20 seaborne imported volume increased compared to the previous quarter, driven by economic reopening and higher Chinese coal intake for winter season amid strained supply. China faced supply shortage after domestic mining activities became limited by a series of mine accidents, safety checks and corruption probes which ultimately suppressed output. When winter came in late November, the Chinese domestic market was tight and stocks were declining. China's supply shortage worsened in December, when colder winter temperatures raised coal burn and exhausted coastal power plant stocks to 10 days (from 15 days a year ago). Domestic coal price exceeded the Chinese government's acceptable price ceiling from the beginning of 4Q20.

Ahead of winter restocking, China implemented restrictions on Australian coal import which prompted demand for alternative coal import origins. However, supply from ex-Australian countries were limited as La Nina impacted supply. These events have widely opened the import arbitrage to China and resulted in 4Q20 Indonesian thermal coal exports to China increasing 45% q-o-q and 63% y-o-y.

The Northeast Asia cold snap also drove Japan and South Korea to generate more electricity from coal-fired power plants. Japan's nuclear capacity reduced, with nuclear generation in November down by 76% m-o-m and 66% y-o-y. At the same time, LNG supplies were tight due to supply issues and a vessel bottleneck at the Panama Canal, resulting in surging spot landed prices of LNG to Northeast Asian countries. Colder weather also raised heating demand amid low nuclear and LNG availability and this resulted in power shortages and surging power prices in Japan. The same dynamics pushed South Korea to raise its November 2020 thermal coal imports by 14% m-o-m and eventually allow more coal burn during winter.

From the supply side, major seaborne exporters have experienced inclement weather that impacted coal supply and logistics. In Australia, strong winds November impacted throughput capacity at Newcastle Coal Infrastructure Group by 40%. In addition, weaker demand led to Glencore halting operations over the Christmas-New Year break while contractors were laid off at the Hunter Valley Operations coal mine in New South Wales. Indonesian coal supply was also challenged by La Nina, which brought heavy rains, floods and high swells to Kalimantan from November 2020. Mines and hauling roads were inundated while vessel queues soared at loading ports due to high waves. As a result, most producers were forced to defer cargo deliveries. Operations at the East Russia's ports, which exports cargoes shipped to Northeast Asia, were also hampered by frozen seas in December.

Strong winter demand, weather-driven supply constraints and China's ban on Australian coal have helped to drive a recovery in seaborne coal prices during 4Q20. Average ICI3 and ICI4 indexes rebounded by US$9.78/t (+27%) and US$8.00/t (+33%) q-o-q to US$46.28/t and US$31.97/t respectively. Average gCN price also improved by US$15.10/t (+29%) q-o-q to US$66.64/t, with gCN in the last week of 2020 reaching US$85.31/t.

REVIEW OF METALLURGICAL COAL MARKET

The met coal market was led by Chinese demand in 4Q20, supported by stable crude steel production and expansions in manufacturing sector. China's blast furnace utilization rate stayed above 90% throughout the quarter and the PMI consistently showed expansion from October

(PMI = 51.4) through December (PMI = 51.9). As a result, China's 4Q20 crude steel production improved almost 9% y-o-y, coinciding with an annual crude steel production record high of 1.053bn t. 4Q20 crude steel production also rose by 16% q-o-q in Japan, 8% q-o-q in India and 3% q-o-q in South Korea, supported by strengthening automotive industries and expanding manufacturing activities.

4Q20 also saw global supply reductions, however the impact to balance FOB Australia prices was muted due to lower demand from China after imposed import restrictions of Australian coal. Anglo

American's Grosvenor mine (Australia) continued idling and Queensland experienced rains.

However, the effect of lower production and logistics constraints was minimal. Further, the absence of Chinese demand contributed towards PLV FOB Australia price falling from 3Q20 to around US$100/t starting 13-Nov-20. Platts PLV FOB Australia weakened to US$110.00/t in 4Q20, down by US$3.61/t (-3%) q-o-q.

On the other hand, Chinese end users paid a premium for non-Australian met coals originating from Indonesia, US and Canada. There were noticeable strains in Mongolian supply to China over the nationwide lockdown in November while availabilities of non-Australian coals were limited. China's consumption of met coal in 4Q20 led to Platts PLV CFR China index increasing q-o-q by US$33.55/t (+27%) to US$158.13/t

REVIEW OF PT ADARO ENERGY TBK (AE) OPERATIONS

AE achieved total coal production of 54.53 million tonnes (Mt) in 2020, which was 6% lower year-on-year (y-o-y) compared to 2019. We achieved slightly higher coal production volume compared to our 2020 coal production guidance of 52-54 Mt.

Coal sales volume in 2020 was 54.14 Mt, or 9% lower y-o-y. Total overburden removal in 2020 was 209.48 million bank cubic meter (Mbcm), 23% decline y-o-y, in line with our guidance to lower strip ratio this year. AE's strip ratio in 2020 was 3.84x, below our strip ratio guidance of 4.30x. Unfavorable weather for the most part of the year was a challenge for us in achieving our strip ratio guidance.

In 4Q20, we produced 13.43 Mt and sold 13.39 Mt of coal, 3% and 8% lower compared to 4Q19, respectively. Total overburden removal in 4Q20 was 49.06 Mbcm, 21% lower y-o-y which resulted in a strip ratio of 3.65x. We had a rainy quarter with high rainfall volume and long rain hour at our main mining site since November.

Units

4Q20

3Q20

4Q20 vs. 3Q20

4Q19

4Q20 vs. 4Q19

2020

2019

2020 vs. 2019

Coal Production Sales Volume Overburden Removal

Mt

Mt

Mbcm

13.43 13.39 49.06

13.81 13.62 57.69

-3% -2% -15%

13.91 14.52 62.07

-3% -8% -21%

54.53 54.14 209.48

  • 58.03 -6%

  • 59.18 -9%

  • 272.09 -23%

Our sales portfolio in 2020 was dominated by E4700 and E4900 product supported by the solid demand for these type of coals. Southeast Asia market constituted 49% of our sales in 2020, ledby Indonesia and Malaysia. We also saw demand increase from Thailand and Vietnam on the back of new power plants coming online. The chart below shows our sales breakdown in 2020.

12%

1%

Southeast Asia

East Asia

49%

India

China

Others

25%

*Others include New Zealand, Pakistan, and Europe

We expect coal production in 2021 to be flat to slightly lower y-o-y and target coal production of 52-54 Mt. Strip ratio guidance of 4.8x is higher y-o-y as we follow our mining sequence and has to remove more overburden. We will continue to be discipline in our capital expenditure (capex) and our capex guidance for 2021 is US$200 million-US$300 million. This capex target includes regular maintenance and growth capex. Our guidance for operational EBITDA in 2021 is US$750 million-US$900 million. Although we expect economic recovery to have positive impact on coal, we continue to be careful as uncertainties remain.

ADARO MINING

PT Adaro Indonesia (AI)

AI produced 46.75 Mt of coal in 2020, 9% lower y-o-y compared to 2019. Sales of AI's flagship Envirocoal product in 2020 reached 51.28 Mt, 10% lower y-o-y. AI's total overburden removal volume in 2020 was 191.84 Mbcm, 22% lower y-o-y and strip ratio for 2020 was 4.10x, in-line with our plan to lower strip ratio this year to allow for better cost control.

In 4Q20, total coal production from AI was 11.19 Mt, 10% lower compared to 4Q19. Total coal sales was 12.46 Mt, 8% lower compared to the same period in 2019. Total overburden removal volume from AI's three pits in 4Q20 was 44.59 Mbcm, 21% lower y-o-y, which resulted in a strip ratio of 3.99x for 4Q20. Unfavorable weather in 4Q20 with high rainfall volume and longer rain hours posed challenge for overburden removal activities in the quarter.

Balangan Coal Companies

Total coal production from Balangan Coal Companies in 2020 was 4.58 Mt, 8% decline y-o-y and total overburden removal for the period was 12.16 Mbcm, 21% lower y-o-y, resulting in a strip ratio of 2.65x for Balangan Coal Companies in 2020. In 4Q20, we produced 1.12 Mt of coal from Balangan Coal Companies, 11% lower y-o-y. Overburden removal from Balangan Coal

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PT Adaro Energy Tbk published this content on 16 February 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 16 February 2021 13:26:06 UTC.