bukit asam studie vom 23.november

Robert Adair +62 21 515-1330 ext 184 - [email protected]

Tambang Batubara Bukit AsamCoal-powered growth

INDO

NESI

A

COMPANY UPDATE

22 November 2004

BUY Maintained

Rp1,225 @19/11/04

Mkt. cap. Rp2.61tr / US$287m

Shares issued: 2,132m

Mining

G

GKO H

GENERAL INFORMATIONSector .............................................................................................. Coal MiningJakarta Composite Index (JCI) .............................................. 934.03 @22/11/04Bloomberg / Reuters .............................................................. PTBA IJ / PTBA.JKShares issued @Rp500 par ..................................................................... 2,132mMarket capitalisation .............................................................................. Rp2.61trEstimated free float .................................................................................. Rp0.7trBook NAV/share ........................................................................................ Rp744Monthly turnover ............................................................................... Rp175.8bn

FORECASTSFY end Dec 31 2003 2004F 2005F 2006FTurnover (Rp bn) .......................................... 2,285 2,602 2,933 3,212EBITDA (Rp bn) ............................................... 336 601 628 702Pretax Profit (Rp bn) ....................................... 315 528 615 700Net Profit (Rp bn) ........................................... 246 374 432 491EPS (Rp) ......................................................... 107 162 188 213Change (%) ................................................ +28% +52% +15% +14%Dividend/Share (Rp) ......................................... 58 88 102 116Cash Flow/Share (Rp) ..................................... 137 192 217 240Dil. P/E (x) ..................................................... 11.5 7.5 6.5 5.7P/CFPS (x) ....................................................... 8.9 6.4 5.7 5.1EV/EBITDA (x) ................................................. 6.0 2.7 3.0 3.6Dividend Yield (%)) ..................................... 4.7% 7.2% 8.3% 9.2%Net Cash/(Debt) (Rp bn) ................................. 595 997 723 108Net Gearing (%) .............................................. Nil Nil Nil Nil

SHARE PRICE1300 1.45

N D J F M A M J J A S O N500

600

700

800

900

1000

1100

1200

0.90

0.95

1.00

1.05

1.10

1.15

1.20

1.25

1.30

1.35

1.40

TAMBANG BATUBARA BUKIT ASAM TBKREL TO JCI(R.H.SCALE)

Source: DATASTREAM

SHARE PRICE PERFORMANCE (%)Period 1 Month 3 Months 12 MonthsShare price ............................. +29.7 +71.4 +108.7Relative to JCI ......................... +20.4 +47.5 +55.0

Share prices as at –G. K. Goh Research reports are also available on Bloo

■ Excellent growth prospects. PT Tambang BatubaraBukit Asam (PTBA) is Indonesia’s fourth largest coalproducer. It is set for a period of prolonged expansion.Current growth is coming from higher thermal coal pricesand increasing sales to the open market. Further growth willcome from the resolution of railway transportationbottlenecks, with long-term development prospects comingfrom coal sales to mine-mouth power stations.

■ Substantial coal reserves. The company has 350mtonnes of coal reserves with an average quality of 5,950Kcal/kg. In addition, it has 1.5bn tonnes of mineable reservesand an estimated 7.3bn of coal resources. Based on the350m coal reserves, EV/reserve is US$0.50/tonne,substantially below the US$1.80/tonne for Bumi Resources(BUMI IJ, Rp750, Hold).

■ Power station projects will maximise reserveusage. PTBA plans to participate in three mine-mouthpower stations that will enable the company to utilise coalreserves of relatively low quality. Pressure on the balancesheet will be minimised as participation in these projectswill be through minority stakes in JVs.

■ Acquisitions should provide additional growth.PTBA may acquire a domestic coal company with export-quality coal deposits that can be sold on the open market.As the former industry regulator, PTBA has unmatchedknowledge of the domestic market. Our forecasts do notassume any acquisition, but we expect any acquisition willenhance the company’s growth prospects immediately.

■ Inexpensive. Despite the recent rise in PTBA’s share price,the stock remains inexpensive on a P/E, EV/EBITDA, EV/reserve and DCF basis. Our immediate target price ofRp1,900 values PTBA at 10.0x FY05 P/E, still a sizeablediscount to our projected growth rate for the company.

19 November 2004mberg, Research Direct, Multex and www.gohdirect.com

CONTENTS

3 INVESTMENT SUMMARY

5 BACKGROUND

6 PTBA’S COAL OPERATIONS6 Mine sites7 Tanjung Enim8 Ombilin8 Coal reserves9 Transportation9 Long-term contracts10 Potential acquisition10 Mine-mouth power stations11 Coal briquettes

12 FINANCIALS12 Profit forecasts14 Balance sheet15 Capex

17 VALUATIONS

18 APPENDIX: INDONESIA’S POWER REQUIREMENTS

19 DisclaimerBackcover Analysts’ Coverage

INVESTMENT SUMMARY• Solid prospects. PTBA is Indonesia’s fourth largest coal producer, with

substantial coal reserves that can drive volume increases for many years tocome. We project that small volume increases combined with increasing salesto the open market will provide net income growth of around 15% p.a. inFY05 and FY06. While volume increases are likely to be modest over FY04-06, more substantial increases are likely once: 1) railway bottlenecks areresolved; and 2) shipments can be made to new power station projects inwhich PTBA is the minority partner.

• Financially strong. As at Sep 04, PTBA had cash reserves of Rp914bn andno debt. The company has minimal capex requirements, given thatinfrastructure capacity at its main Tanjung Enim mine and port facilities arewell above existing production levels. Going forward, the company has plansto acquire a domestic coal operator, and to participate in power station projects.Our projections indicate that these can be achieved with minimal strain on thebalance sheet. The company’s dividend payout ratio of above 50% will not bethreatened.

• Substantial coal reserves. PTBA currently has 350m tonnes of"transportable" coal, or coal with an average calorific content of 5,950 Kcal/kg. This is the amount of coal that the company believes can be profitablyshipped and sold on the open market. However, PTBA also has 1.5bn tonnesof mineable reserves, predominantly of lignite and low-grade coal, which hasbeen fully explored and qualified. Total coal reserves within its concessionareas are estimated at 7.3bn tonnes. Based on the 350m tonnes of reserve,PTBA trades at an EV/reserve of US$0.50/tonne, substantially below theUS$1.80/tonne for Bumi Resources and the US$1.90-2.30/tonne range forlisted Australian thermal coal producers.

• Power station projects will maximise reserve usage. PTBA plans toparticipate in three mine-mouth power stations that will allow the company totap coal reserves of relatively low quality that may be unprofitable whentransportation costs are factored in. Pressure on the balance sheet will beminimised since participation in the projects is through minority stakes. PTBA’smain role will be to provide fuel to the power stations. If all three projects takeoff, they will eventually provide demand for 13.0m tpa of coal, with the firstincremental sales made in FY08. As two of the power stations are locatedclose to PTBA’s reserves in South Sumatra, power can be easily supplied tothe main domestic power market in Java via the PLN grid.

• Future acquisitions. PTBA is interested in acquiring a domestic coalproducer to boost production. Criteria for any acquisition include: 1) existingproduction should provide a noticeable boost to PTBA’s current production.We take this to mean production above 2.0m tpa; 2) the average quality of thereserves must be above 6,000 Kcal/kg, meaning of sufficient quality to besold on the open market; 3) production should not be committed under existingcontracts. PTBA would like to be free to sell the coal as it likes; 4) the acquisitionshould immediately enhance its earnings growth; and 5) the acquisition shouldideally cost less than US$40m, in order to ensure a low level of gearing.

22 November 2004 • Company update • Tambang Batubara Bukit Asam 3

4 Tambang Batubara Bukit Asam • Compa

The main target group identified by PTBA is companies formed under thefirst- and second-generation Coal Contract of Work (CCOW) agreements. Atotal of 11 companies were formed under first-generation agreements overFY81-91 while 18 were formed under second-generation agreements in FY94.As PTBA was the Indonesian coal regulator until FY95, it has an in-depthunderstanding of the terms and requirements of each contract. PTBA hasidentified a number of target companies but - as there is no firm timetable -our forecasts do not assume any acquisition.

• Undemanding valuations. PTBA is inexpensive on 6.5x and 5.7x P/E,and 3.0x and 3.6x EV/EBITDA for FY05 and FY06 respectively. It is also tradingat a 30% discount to our DCF value of Rp1,741. Its current EV/reserve valuationof US$0.50/tonne based on reserves of 350m is significantly below BUMI’sUS$1.80/tonne. Our price target is Rp1,900, which prices the stock at 10.0xFY05 P/E, still at a sizeable discount to its projected growth rate of 15% p.a.for FY05-06.

ny update • 22 November 2004

BACKGROUNDPTBA is Indonesia’s fourth largest coal producer. It was established by the

Indonesian government in Mar 81, and was subsequently merged with anotherstate-owned coal company in Oct 90 to become Indonesia’s only state-ownedcoal producer.

In addition to its own coal mining operations, PTBA acted as the domesticcoal regulator on behalf of the Indonesian government until FY95. In this capacity,it negotiated and awarded many of the first- and second-generation coal contractsused to kick-start coal mining activity in Indonesia.

PTBA was listed on the JSX in Dec 02, with the government selling 347.4mshares (16.3%) at Rp575 each. Some 173.25m warrants were also issued (onefor every two IPO shares), exercisable at Rp675 until 22 Dec 05. The governmentcompleted a placement of 266.4m shares (12.5%) at Rp650 each in Jul 04.

The Indonesian government currently owns 71.2% of PTBA. This stake willbe diluted to 65.8% upon full conversion of the warrants. PTBA’s warrants are themost actively traded on the JSX.


Exhibit 1: PTBA’s current share ownershipNo. of shares % of shares.........................................................................................................................................................................................................................................................................................................

Indonesian government - Preferred shares 1.........................................................................................................................................................................................................................................................................................................

- Ordinary shares 1,517,627,999 71.2%.........................................................................................................................................................................................................................................................................................................

Public - Ordinary shares 613,872,000 28.8%.........................................................................................................................................................................................................................................................................................................

Total 2,131,500,000 100%Source: Company


Exhibit 2: Location of PTBA’s coal

Source: xxxxxxxxxxxxx

BENGKULU

PEKAN

MEDAN

KUALA LU

Mua

SawahluntoMuaro

BukittinggiPayakumbuh

Bangkinang

Pranap

Duri

Dumai

Padangsidempuan

Sibolga

Tarutung

Kisaran

D. Toba

TebingtinggiBinjai

P. Nias

P. Siberut

Kelang

KedahTHAILA

PADANG PTBA

PTBA’S COAL OPERATIONS

Mine sitesPTBA has two operating coal mines, Tanjung Enim and Ombilin, located in

Sumatra. Tanjung Enim is the larger operation, and is an open pit mine. PTBAalso operated an open pit mine at Ombilin until FY02, when the mine was closedafter 20 years of production. The only production at Ombilin now comes from anunderground mine. Coal from Tanjung Enim is shipped by rail to the Tarahanport and the Kertapati pier. Ombilin is serviced by the port at Teluk Bayur.


operations

SURABAYASEMARANG

Tj. Jati

BANDUNG

JAKARTABANDAR LAMPUNG

PALEMBANG

JAMBI

BARU

MPUR

SINGAPORE

YOGYAKARTA

MetroKotabumi

Baturaja

MuaraenimLahat

Lubuklinggau

Banko

ra Bungo

Rengat

Toboali

PangkalpinangP. Bangka

Bekasi

CirebonPurwakarta

Sukabumi

Indramayu

Kuningan

Tasikmalaya Purwokerto

TegalPekalongan

GombongMagelang

Surakarta

Jepara

TubanGresik

Demak

NgawiMadiun Jombang

KediriMalang

PasuruanProbolinggo

Banyuwangi

Sumenep

SURALAYAPOWER PLANTS (3.400 MW)

PTBAEXPORT

PTBA

EXPORT

ND

PTBA

Mentok

Tanjung EnimTanjung Enim is PTBA’s main mine site, covering an area of 72,230 ha. The

site contains 16 separate mining sites, with the main mining locations located atAir Laya Pit, North Muara Tiga Besar Utara, South Muara Tiga Besar and WestBanko. The existing mining infrastructure at Tanjung Enim can handle productionof up to 16.0m tpa. As the company’s forecast FY04 production is only 9.7mtonnes, mining activity can increase sizeably before further investment in facilitiesis required.

Production at Tanjung Enim is carried out by PTBA’s own staff as well as twocontract-mining companies. PTBA itself uses a continuous rotating bucket systemdeveloped in Germany. An electrically-powered rotary system drives a bucketwheel excavator (BWE), which scoops up the coal and deposits it on a conveyorbelt that transports it to storage areas. This continuous bucket system can move5.0m tpa of coal and is used at the Air Laya site in Tanjung Enim.

Exhibit 3: Forecast PTBA coal production for FY04-06Production FY04 FY05 FY06.........................................................................................................................................................................................................................................................................................................

PTBA 4.5 4.7 5.0.........................................................................................................................................................................................................................................................................................................

Contract Mining 5.2 5.5 5.8.........................................................................................................................................................................................................................................................................................................

Third Parties 0.2 0.2 0.2.........................................................................................................................................................................................................................................................................................................

Total 9.9 10.4 11.0Source: Company

The remaining production at Tanjung Enim is split evenly between PTPamapersada Nustantara, which is owned by United Tractors (UNTR IJ, Rp1,925,Buy) and PT Sumber Mitra Jaya. Both companies use the more conventionalmechanical shovel and dump truck system. In PTBA’s view, this process involvesa higher degree of maintenance and is, therefore, better handled by contract-mining companies with the maintenance and servicing capability. The two contract-mining companies operate at 15 locations within the Tanjung Enim site. SincePTBA is producing near its capacity, any future increase in output is likely tocome from the contract-mining companies. Planned increases for the next threeyears are relatively modest and will not require the contract-mining companies tosignificantly increase their operations.

Overall production costs at Tanjung Enim are very low, mainly because of anaverage strip ratio of 4.0x, and partly because of the BWE system. Current cashproduction costs are US$16 per tonne. In addition, PTBA pays a 4% royalty tothe government.

Output from Tanjung Enim reaches the market via two separate railway linesto the Tarahan port and Kertapati pier, which have a combined handling capacityof 14.5m tpa. The Tarahan port is PTBA’s main transportation hub and can handle12.0m tpa of coal. The bulk of the coal meant for the PLTU Suralaya power plantis shipped from this port. The Kertapati pier was enlarged in FY02 and now hascapacity to handle 2.5m tpa of coal. It handles domestic shipments, as well asshipments to Tenaga Nasional Berhad in Malaysia.



OmbilinOmbilin is located in Sawahlunto, West Sumatra. PTBA operated an open pit

mine at Ombilin until FY02, when the site was closed after 20 years of production.The only production at Ombilin now comes from an underground mine, whichproduces 0.1m tpa of coal with an average calorific value of 6,900 Kcal/kg.Although this coal has a current market value of US$45/tonne, the mine isunprofitable as production costs are Rp0.7m/tonne (US$77/tonne).

PTBA is negotiating with a Chinese contract-mining company to raiseproduction at the underground mine to 0.8m tpa. At this level, the Chinesecompany estimates that production costs would fall below US$30/tonne, turningthe mine profitable. PTBA is negotiating to buy the coal at fixed prices, leavingthe operational risk to the Chinese company. If development of the mine doesoccur, it will take up to four years for production to increase significantly. Wehave not factored any development into our forecasts.

Coal reservesPTBA has total coal resources of 7.3bn tonnes, of which 1.5bn tonnes have

been certified by International Mining Consultants Ltd as being economicallyviable for mining. However, PTBA believes that only 350m tonnes of the 1.5bntonnes are of sufficient quality (> 5,900 Kcal/kg) for sale on the open market. Wehave, therefore, used this figure for our EV/reserve calculation, which provides areserve life of 35 years based on FY04 production levels.

PTBA believes that both the economically transportable and economicallymineable figures could be increased if the company made a concerted effort toraise reserve levels. The company has recently been exploring deposits at itsTanjung Enim site in conjunction with NEDO-Japan.

Exhibit 4: Classification of PTBA’s coal into five major brandsCoal Brand CV TM IM Ash

(Kcal/kg, adb) (%, ar) (%, adb) (%, adb).........................................................................................................................................................................................................................................................................................................

BA58 5,800 28 15.0 8.0.........................................................................................................................................................................................................................................................................................................

BA59 5,850 28 14.5 8.0.........................................................................................................................................................................................................................................................................................................

BA63 6,300 21 11.5 6.0.........................................................................................................................................................................................................................................................................................................

BA67 6,650 18 9.0 6.0.........................................................................................................................................................................................................................................................................................................

BA70 7,000 13 6.5 6.0Source: Company

PTBA divides its coal output into five brands. From the company’s productionprojection of 9.7m tonnes for FY04, we estimate that 7.3m tonnes are BA58 andBA59 coal, and 2.4m tonnes are BA63, BA67 and BA70 coal. PTBA does notprovide a breakdown of reserves by brand, but states that its overall reserveshave a calorific content of 5,950 Kcal/kg. This is identical to the stated averagereserve quality of Bumi’s coal reserves from Arutmin and KPC.

PTBA also has sizeable coal reserves with a calorific content of below 5,800Kcal/kg, including a substantial amount of lignite. These reserves may not becommercially mineable once transportation costs are factored in. The companybelieves that its planned involvement in mine-mouth power stations is ideal formonetarising the reserves. The three mine-mouth power stations that it is interestedin will use low-grade coal, including lignite.


TransportationAlmost all of PTBA’s coal is transported by two railroad lines operated by

Kereta Api Indonesia (KAI), the state-owned railway company. Capacity on the420km Tarahan line is 7.1m tpa, while that on the shorter 120km Kertapati line is1.5m tpa. Traffic at these two lines represents a bottleneck, given that existingfacilities at Tanjung Enim can handle 16.0m tpa, and there is a combined capacityof 14.5m tpa at the two ports of Tarahan and Kertapati.

PTBA is in discussions with KAI and PLN to form a JV to renovate the railwaysand expand capacity. Since KAI cannot fund this work, a JV is the best solution,particularly as 95% of existing shipments are coal-related. PTBA submitted initialplans to the Ministry of State-Owned Enterprises in Jul 04, which have beenapproved. The company has commissioned a detailed feasibility study that willbe re-submitted to the Ministry of State-Owned Enterprises and the Ministry ofTransportation. PTBA is hopeful that this process can be completed by 1H05.This feasibility study will be used to secure debt financing.

Exhibit 5: Work needed on the Tarahan and Kertapati railway linesStage Timing Description.........................................................................................................................................................................................................................................................................................................

I. Upgrade Track Already started Once the JV is finalised, work can be accelerated ontrack replacement and lessening the curve on certainsections of the track.

.........................................................................................................................................................................................................................................................................................................

II. Increase Engine Traction FY05-08 Train locomotives will be repaired or replaced toincrease pulling capacity from 45 wagons to 60wagons. Additional wagons will be provided.

.........................................................................................................................................................................................................................................................................................................

III. Add Long Sidings FY05-08 Both lines are single-tracked. At present, there arecrossing lines at every 30km on average. The numberof crossing points will be increased, up to a frequencyof 15km for certain sections of the track.

Source: Company

The cost for improvements to both lines is estimated at Rp1.6tr. Work isexpected to stretch from Jan 05 to Dec 08, with the lines remaining in use whilethe repairs are in progress. Upon completion, track capacity on the two lines willincrease by 72% to 15m tpa (12.5m tpa + 2.5m tpa).

Long-term contractsThere have been concerns about the high percentage of PTBA’s production

contracted to PLN, Indonesia’s state electricity company. In Jan 94, PTBA enteredinto an agreement to provide coal to the Bukit Asam power station at TanjungEnim, which is 100%-owned and operated by PLN. PTBA currently provides allthe coal (1.2m tpa) required by the power station, at Rp204,000 per tonne. In Oct02, PTBA entered into a 10-year agreement to provide coal to the Suralaya powerstation in West Java, which is operated by PT Indonesia Power, a subsidiary ofPLN. The selling price was Rp234,000/tonne for up to 6.1m tpa of coal for FY03.Selling prices for subsequent years are to be negotiated annually. A rate ofRp244,200 was negotiated for FY04.

At the time of negotiation, these contracts made commercial sense. Forexample, the open market price for coal of 5,900 Kcal/kg was US$19/tonne. Itwas only with the strong uptrend of coal prices in the past two years that thecontracts have become less attractive.


10 Tambang Batubara Bukit Asam • Comp

Exhibit 6: Coal sales by long-term contracts and to the open market (m tpa)FY04 FY05 FY06.........................................................................................................................................................................................................................................................................................................

PLTU Suralaya 5.8 5.6 5.3.........................................................................................................................................................................................................................................................................................................

PLTU Bukit Asam 1.2 1.2 1.2.........................................................................................................................................................................................................................................................................................................

Open market 2.9 3.6 4.5.........................................................................................................................................................................................................................................................................................................

Total 9.9 10.4 11.0Source: GKG estimates

PTBA plans to reduce the amount of coal it sells to Suralaya, by exploitingcertain clauses in the original contract. With a current spread of over US$15/tonne between the contract price and open market price, even a small decreasewould have a beneficial effect on PTBA’s profitability.

In addition to the two domestic contracts, PTBA has contracts to provide 0.5mtpa to Tenaga Nasional Berhad in Malaysia for five years, and 0.5m tpa to TaiwanPower Company. Pricing for both contracts is negotiated annually in the first halfof the year. The coal quality specified in the Tenaga contract is 5,900 Kcal/kg,currently priced at US$38/tonne. The coal quality specified for the Taiwan PowerCompany is 6,700 Kcal/kg, currently priced at US$43.37/tonne.

Potential acquisitionPTBA is actively looking for domestic coal mining companies to acquire, and

currently has a bid for a coal mining company in Kalimantan that could becompleted by Dec 04. Our forecasts have not factored in this acquisition, but webelieve any acquisition would be immediately earnings-accretive. This is becausethe company has stated that it is looking for a coal-mining operation with export-quality (above 6,000 Kcal/kg) coal and free production (i.e. production not lockedin by contracts). The company has enough cash to cover the acquisition and itscapex plans, as well as to maintain its dividend payout at 50%.

Prior to FY95, PTBA was not only a coal producer but was the regulator for allthe coal mines in Indonesia, negotiating many of the first- and second-generationcoal contracts of works. This means that the company has excellent knowledgeof not just the geology of different coal-mining areas, but of the particular featuresof each contract. This should provide an advantage in any negotiation. PTBA’srelationship with the government is another advantage when it comes to resolvingcontractual issues.

Mine-mouth power stationsPTBA currently provides coal to two mine-mouth power stations in which it

does not have any investment. The Bukit Asam power plant has capacity for 4x65MW and consumes 1.2m tpa of coal. The Ombilin power plant has capacity for2x100 MW and consumes 0.5m tpa. Both power stations are 100%-owned byPLN.

PTBA plans to become a JV partner in other power stations, close to its reservesin South Sumatra and Riau Province. The rationale is to utilise coal reserves thatmay be of insufficient quality for sale on the open market, once transport costsare taken into account. Indonesia is already suffering from power shortages, andneeds significant increases in power generation capacity. Increased power is likelyto come from coal and gas projects (see Appendix A).

any update • 22 November 2004

The company currently plans involvement in three power station projects.Our forecasts have factored in the associated investment costs. PTBA will betaking minority stakes in the JVs, with the investments being funded by debt.None of the projects should be consolidated in the company’s financial statements.

Exhibit 7: Prospective mine-mouth power projectsProject Description.........................................................................................................................................................................................................................................................................................................

Banjarsari The Banjarsari power station at Tanjung Enim will be a 2x100 MW plant. PTBA is partof a consortium shortlisted as operator for the power station. PTBA will have a 41%stake, with the other parties being PJB (a PLN subsidiary) and a company calledNavigate Indonesia Innovativ. Estimated cost of the project is US$200m, to be fundedby 70% debt and 30% equity. This would represent an initial investment of US$25m.If accepted as the winning consortium, PTBA believes that it would have to make itsinvestment in 2H05, with construction in 2H05 and completion in 1H08. PTBAestimates that this power station would need 1.0m tpa of coal, of an expected qualityof less than 5,800 Kcal.

.........................................................................................................................................................................................................................................................................................................

Tanjung Enim In Sep 04, PTBA signed a Memorandum of Agreement with PLN and a Chineseelectricity company for a 4x600 MW power station at Tanjung Enim, to produce powerfor the Java grid. The project will be competed in two stages. A detailed feasibilitystudy will not be completed until Dec 05, and any investment would be in FY06, atthe earliest. Total cost for the first stage is estimated at US$2bn (25% equity and75% debt). PTBA’s planned share of the equity is 20%, which means a total investmentof US$100m. We have assumed an initial equity investment of US$50m in 2H06. Thepower station is expected to use lignite quality coal. If it commences in 1H06,completion would be in 1H09, at the earliest.

.........................................................................................................................................................................................................................................................................................................

Cirenti At Cirenti, Riau Province, PTBA has completed a feasibility study for a 2x250 MWpower station which would utilise reserves at its 183,820ha concession in Riau.PTBA will take a minority stake in a JV with Indonesia Power and the Province ofRiau. Estimated cost of the project is US$500m. PTBA will provide the coal, but willnot be involved in day-to-day operations. PTBA estimates that this power stationwould need 3.0m tpa of coal, of lignite quality. Our understanding is that the projectwould be funded through 70% debt and 30% equity. This would represent an initialinvestment of US$50m. We have assumed PTBA makes an initial investment ofUS$25m in 2H05, and a further investment of US$25m in 1H06. Construction maystart in 1H06 and end in 1H09.

Source: Company

If all three projects are initiated, demand for coal from PTBA’s concessionswill rise by 13.0m tpa, of primarily low-quality coal which may not otherwise beutilised. The first incremental shipments could commence in FY08. PTBA believesthat it can earn a gross margin of at least 15% from coal sales made to thesemine-mouth power stations.

Coal briquettesIn FY93, the Ministry of Mines and Energy embarked on an initiative to develop

coal briquettes as an alternative energy source for SMEs and home industries. Tosupport the initiative, PTBA built three plants at Tanjung Enim, Lampung andGresik, with a combined capacity of 135,000 tonnes p.a. However, the use of coalbriguettes has been subdued, and PTBA sold only 21,000 tonnes in FY03. Thebriquette operation has been losing roughly Rp20bn p.a. in recent years. PTBAhas recently diversified into wooden charcoal and coconut shell charcoalbriquettes, and believes the operation will break even in FY04.



FINANCIALS

Profit forecastsRevenue growth will be modest in the next few years through small increases

in volume and a higher percentage of sales to the open market. Our forecastsassume the company sells 9.9m tonnes of coal in FY04, increasing to 10.4mtonnes in FY05 and 11.0m tonnes in FY06. The increases will be made possibleby the addition of rolling stock on the Kertapati line. Our forecasts do not includeany contribution from acquisitions. More substantial increases in volume shouldbecome evident in FY07 and FY08 as the combined capacity of the Tarahan andKertapati lines climbs to 15.0m tpa.

PTBA currently buys 0.2m tpa of low-quality coal from a non-related coalmining company in Kalimantan. It blends this coal with higher-grade coal fromits own mines to bring the average quality to 5,900 Kcal/kg, and sells it to theSuralaya power station. This enables PTBA to maximise the amount of BA67 andBA70 coal it sells to the open market.

Exhibit 8: Revenue assumptions for FY04-06FY04 FY05 FY06.........................................................................................................................................................................................................................................................................................................

Own production 9.7 10.2 10.8.........................................................................................................................................................................................................................................................................................................

Brought in 0.2 0.2 0.2.........................................................................................................................................................................................................................................................................................................

Total 9.9 10.4 11.0Sold to:......................................................................................................................................................................................................PLTU Suralaya 5.8 5.6 5.3.........................................................................................................................................................................................................................................................................................................

PLTU Bukit Asam 1.2 1.2 1.2.........................................................................................................................................................................................................................................................................................................

Open market 2.9 3.6 4.5Selling Price:......................................................................................................................................................................................................PLTU Suralaya Rp244,200/tonne Rp256,400/tonne Rp269,200/tonne.........................................................................................................................................................................................................................................................................................................

PLTU Bukit Asam Rp204,000/tonne Rp208,000/tonne Rp212,000/tonne.........................................................................................................................................................................................................................................................................................................

Open market US$40/tonne US$40/tonne US$40/tonneSource: Company, GKG estimates

For FY05 and FY06, we have used a US$40/tonne price for the thermal coalthat PTBA will sell on the open market. Our assumptions are in line with industryexpectations that thermal coal prices will remain high until supply can respondto the surge in demand. One of the main arguments for higher prices over thelong term is continued economic growth in China, causing the country to gofrom being an exporter to a net importer of thermal coal. The current level of oilprices will also force energy users to shift away from oil usage, as demonstratedin Indonesia’s domestic power generation industry.

We are forecasting total production costs of under US$22 per tonne for PTBA,helped by an average strip ratio of 4.0x, a royalty payment of 4% and relativelylow selling costs. This is the combined cost of PTBA’s own production andpayments to contract-mining companies. Transportation is a major cost at US$4-6/tonne. We are factoring in slightly higher electricity and fuel costs in FY05 andFY06, but these only account for 7% of PTBA’s COGS and 10% of COGS for thecontract-mining companies.


PTBA’s maximum corporate tax rate is 30%, well below the 45% for Bumi onits KPC operations. (Bumi will continue to pay 45% tax until it divests 51% of itsKPC operation to domestic companies.)

PTBA has been working hard to reduce inefficiencies and improve itsoperational profitability. The company cut headcount from 4,510 in FY00 to 4,031at Dec 03. In 9M04, it further cut the number to 3,584. This was done primarilythrough an early redundancy programme, with PTBA taking a Rp51bn charge.The company would like to cut headcount further, not through more redundancyprogrammes but natural attrition. We have not assumed any further charges.


Exhibit 9: Profit forecasts (Rp bn)FY end Dec 31 2003 2004F 2005F 2006F.........................................................................................................................................................................................................................................................................................................

Turnover 2,285 2,602 2,933 3,212.........................................................................................................................................................................................................................................................................................................

First half 1,022 1,119 1,475 1,606.........................................................................................................................................................................................................................................................................................................

Second half 1,263 1,483 1,458 1,606.........................................................................................................................................................................................................................................................................................................

EBITDA 336 601 628 702.........................................................................................................................................................................................................................................................................................................

Depreciation (65) (65) (65) (60).........................................................................................................................................................................................................................................................................................................

Operating profit 271 536 563 642.........................................................................................................................................................................................................................................................................................................

Net interest & invt. income 45 36 43 46.........................................................................................................................................................................................................................................................................................................

Associates - - - -.........................................................................................................................................................................................................................................................................................................

Exceptionals & others (0) (43) 10 12.........................................................................................................................................................................................................................................................................................................

Pretax profit 315 528 615 700.........................................................................................................................................................................................................................................................................................................

Taxation (68) (152) (181) (206).........................................................................................................................................................................................................................................................................................................

Minority interests (1) (2) (2) (2).........................................................................................................................................................................................................................................................................................................

Net profit 246 374 432 491Source: Company, GKG estimates


Balance sheetPTBA’s balance sheet is currently strong, with Rp914bn of cash and no debt

as at 30 Sep 04. Receivables averaged just over 40 days, with the bulk owed byPLN and its subsidiary, Indonesia Power. This has been the average in recentyears, and PTBA has not had a bad-debt problem with either company.

As at Sep 04, PTBA had a provision reverse of Rp101bn relating toenvironmental protection and reclamation at the Ombilin open pit mine. Thecompany believes that all costs associated with the closure of this open pit minewill be settled in FY05, estimated at Rp50bn. This would allow the write-back ofRp51bn. We have not factored this possibility into our forecasts.

The company will be investing in several sizeable projects over FY05-07,through minority stakes in joint ventures. As such, we believe it can maintain anet cash position through to Dec 06. This may change if PTBA acquires anotherIndonesian coal company. We believe that any acquisition will be below US$50min size, and would not require the company to take on significant debt.


Exhibit 10: Balance sheet (Rp bn)FY end Dec 31 2003 2004F 2005F 2006F.........................................................................................................................................................................................................................................................................................................

Receivables 525 376 385 427.........................................................................................................................................................................................................................................................................................................

Stocks 152 122 125 139.........................................................................................................................................................................................................................................................................................................

Cash & near cash 595 997 723 108.........................................................................................................................................................................................................................................................................................................

Other current assets 24 21 21 21.........................................................................................................................................................................................................................................................................................................

Current assets 1,296 1,517 1,255 694.........................................................................................................................................................................................................................................................................................................

Payables 75 79 80 89.........................................................................................................................................................................................................................................................................................................

Debt - - - -.........................................................................................................................................................................................................................................................................................................

Other current liabilities 274 296 307 310.........................................................................................................................................................................................................................................................................................................

Current liabilities 349 374 387 399.........................................................................................................................................................................................................................................................................................................

Net current assets/(liabilities) 947 1,143 868 295.........................................................................................................................................................................................................................................................................................................

Fixed assets 528 508 523 543.........................................................................................................................................................................................................................................................................................................

Investments & associates - - 480 1,280.........................................................................................................................................................................................................................................................................................................

Other LT assets 206 221 216 214.........................................................................................................................................................................................................................................................................................................

Long-term debt - (0) - -.........................................................................................................................................................................................................................................................................................................

Other liabilities (162) (163) (163) (163).........................................................................................................................................................................................................................................................................................................

Total net asset value 1,519 1,708 1,924 2,169.........................................................................................................................................................................................................................................................................................................

Capital 1,066 1,066 1,066 1,066.........................................................................................................................................................................................................................................................................................................

Reserves 446 633 848 1,093.........................................................................................................................................................................................................................................................................................................

Minority interest 8 10 10 10.........................................................................................................................................................................................................................................................................................................

Shareholders’ funds & MI 1,519 1,708 1,924 2,169Source: Company, GKG estimates

CapexWith its existing facilities able to handle production of 16.0m tpa, PTBA believes

that routine capex will amount to only Rp60bn p.a. However, additional investmentcosts will stem from its probable participation in three mine-mouth power stationprojects, and in the joint venture to expand capacity on the two railway lines inSouth Sumatra.


Exhibit 11: Probable PTBA investments during FY05-07Project FY05 FY06 FY07 Description

.........................................................................................................................................................................................................................................................................................................

S. Sumatra Railway JV 15.8 30% equity stake in Rp1.6tr railway JV funded by70:30 debt/equity

.........................................................................................................................................................................................................................................................................................................

Minemouth - Cirenti 25.0 25.0 30% equity stake in US$500m power stationfunded by 70:30 debt/equity

.........................................................................................................................................................................................................................................................................................................

Minemouth - Banjarsari 12.5 12.5 24% equity stake in US$200m power stationfunded by 70:30 debt/equity

.........................................................................................................................................................................................................................................................................................................

Minemouth - Tanjung Enim 50.0 50.0 20% equity stake in US$2bn power stationfunded by 75:25 debt/equity

.........................................................................................................................................................................................................................................................................................................

Total Cost (US$ m) 53.3 87.5 50.0

Source: GKG estimates

Exhibit 12: Cash flow (Rp bn)FY end Dec 31 2003 2004F 2005F 2006F.........................................................................................................................................................................................................................................................................................................

Pretax 315 528 615 700.........................................................................................................................................................................................................................................................................................................

Depn & non-cash adj 65 65 65 60.........................................................................................................................................................................................................................................................................................................

Tax (68) (152) (181) (206).........................................................................................................................................................................................................................................................................................................

Cash from operations 312 442 499 553.........................................................................................................................................................................................................................................................................................................

Chg in working capital (82) 115 (10) (46).........................................................................................................................................................................................................................................................................................................

Investing activities - - - -.........................................................................................................................................................................................................................................................................................................

Fixed assets, net (106) 18 (80) (80).........................................................................................................................................................................................................................................................................................................

Investment, net - - (480) (800).........................................................................................................................................................................................................................................................................................................

Other 33 3 6 1.........................................................................................................................................................................................................................................................................................................

Financing activities - - - -.........................................................................................................................................................................................................................................................................................................

Issue of shares - - - -.........................................................................................................................................................................................................................................................................................................

Dividends (124) (188) (217) (246).........................................................................................................................................................................................................................................................................................................

Minorities & others (21) 13 8 2.........................................................................................................................................................................................................................................................................................................

Change in net cash 12 402 (273) (616).........................................................................................................................................................................................................................................................................................................

Net cash/(debt), b/f 583 595 997 723.........................................................................................................................................................................................................................................................................................................

Net cash/(debt), c/f 595 997 723 108Source: Company, GKG estimates

16 Tambang Batubara Bukit Asam • Company update • 22 November 2004

Exhibit 13: Comparison of PTBA and BUMI

Source: Company, GKG estimates

Factor PTBA BUMI

Annual Production (m tpa) FY04F: 10.0m tpa FY08F: 20.0m tpa

Our FY08 assumption is based on the resolution of PTBA’s transportation bottleneck and the acquisition of a domestic coal company with c. 4m tpa production. If the three planned mine-mouth power stations are completed, PTBA could move to production of 33m tpa by FY2012.

FY04F: 37.5m tpa FY08F: 68.5m tpa

Bumi is underachieving on its original FY04 target of 43.5m tpa. The company is attempting a rapid build-up of annual production, and has given an eventual target of 68.5m tpa.

% of Production exported FY04F: 30% FY08F: 65%

PTBA is currently selling 70% of its production to PLN under long-term contracts. However, this percentage should drop in future years with small decreases in shipments to PLN, additional production from existing mines, and the acquisition of a domestic coal company with export-grade coal.

FY04F: 97% FY08F: 97%

Bumi currently exports nearly all its coal, and we expect this to continue in future years.

Ownership 71.2% Government 28.8% Public

We believe another placement of c.10% of PTBA shares will be completed in FY05, with further placements beyond that. The Indonesian government owns one “Golden Share”.

52.4% Public

Occasional rumours of placements in the market, Long Haul Holdings Ltd is the largest individual shareholder with 42.2% of the company.

Corporate tax rate 30% for all operations

As per the majority of Indonesian companies, PTBA’s maximum tax rate is 30%.The company is not making substantial capex investments that it can offset against tax.

30% for Arutmin 45% for Kaltim Prima Coal

Bumi is currently being taxed at 45% on its KPC operations, since KPC has yet to fulfill the requirement to divest 51% of its shares to domestic parties.

Location Sumatra

Mine-mouth power stations located close to PTBA’s main Tanjung Enim mine in South Sumatra can easily supply the main Java-Bali grid.

Kalimantan

KPC and Arutmin are well-positioned for export markets, through their proximity to ports and their position relative to the North Asian market.

Average strip ratio c. 4.0x

Tanjung Enim currently has a very low strip ratio. Current studies show that this ratio should be maintained.

c. 7.0-9.0x

The average strip ratio is significantly higher at Arutmin and KPC. The company recently announced that development work at the Bengalon, Bendilli and Pit J mines will increase KPC’s strip ratio from 7.25x in FY04 to 8.75x in FY05.

Royalty Payment 4% of coal sales

PTBA has a Mining Authorization title to its concessions, which carry a much smaller royalty rate.

13.5% of coal sales

Both Arutmin and KPC are first-generation CCOWs, and pay a 13.5% royalty rate.

Total cost of production US$21/tonne US$26-27/tonne

“Mine-mouth” cost of production US$16/tonne US$22-23/tonne

% of Mining Done by Contract Mining Co. 55% in FY04

65% in FY04

Reserves 350m tonnes “transportable” 1,500m tonnes “mineable”

1,059m tonnes “transportable”

Average k/Cal of reserves 5,950 Kcal/kg 5,950 Kcal/kg

Reserve life 35-150 years on FY04 production 18-75 years on FY08 production

28 years on FY04 production 16 years on FY98 production

Sensitivity to coal prices 5% change in coal prices = 9% change in EPS 5% change in coal prices = 13% change in EPS

Sensitivity to production output 5% change in output = 13% change in EPS 5% change in output = 5% change in EPS

VALUATIONSPTBA and Bumi are currently the only two coal-mining companies listed on

the JSX. Bumi has received most of the attention over the past year, outperformingthe JCI by a substantial margin. However, PTBA has also performed well, and isnow of sufficient market capitalisation to interest most regional funds. PTBA hadan average daily turnover of US$0.9m in Oct 04.

Exhibit 14: Comparison of PTBA and BUMICompany Rec. Shares Price Mkt Cap Est. FF Cash Debt Equity

(bn) (Rp) (Rp bn) (Rp bn) (Rp bn) (Rp bn) (x).........................................................................................................................................................................................................................................................................................................

PTBA Buy 2.3 1,225 2,612 813 914 - 1,653.........................................................................................................................................................................................................................................................................................................

BUMI Hold 19.4 750 14,553 8,320 463 4,654 1,484Source: GKG estimates, Companies

On a P/E and EV/EBITDA basis, we believe that PTBA is more attractivelyvalued than Bumi. Bumi has the potential to become significantly cheaper if itachieves its production targets in FY05 and FY06. However, investors are alreadypaying a premium for this growth. Bumi has had problems meeting its FY04targets, and recently announced higher production costs in 1Q05 due to theupgrading of its production and shipping infrastructure. By comparison, PTBAcan provide 15%+ growth with significantly less operational and financial risk.Our DCF computations for both companies are subject to change, with ourassumption of a US$40/tonne selling price being the biggest variable. However,we believe that with PTBA’s future involvement in domestic power projects,continued growth is possible beyond FY08, at a time when Bumi’s coal productionmay have peaked.

Exhibit 15: Comparison of P/E, EV/EBITDA, net gearing and DCFCompany Rec. P/E (x) EV/EBITDA (x) Net gearing (%) DCF........................................................ ......................................................... ...........................................................

FY04 FY05 FY04 FY05 FY04 FY05 (Rp).........................................................................................................................................................................................................................................................................................................

PTBA Buy 7.5 6.5 2.7 3.0 0% 0% 1,741.........................................................................................................................................................................................................................................................................................................

BUMI Hold 10.7 6.7 5.5 3.6 135% 15% 1,010Source: GKG estimates

More compellingly, PTBA is substantially cheaper than Bumi on a EV/reservesand EV/production basis. We have widened the comparison to include listedAustralian thermal coal producers, as Australia is Indonesia’s main rival in thethermal coal export market. While Bumi is cheap relative to its Australian peers,PTBA is significantly cheaper at US$0.50/tonne (assuming 350m of transportablereserves). We believe PTBA’s reserve estimate can increase as the companyconducts more exploration on its concession areas.


Exhibit 16: Comparison of EV/reserves and EV/production

Reserves EV/Reserves EV/Production(m tonnes) (US$) (US$)........................................................................ ........................................................................... ..........................................

Company Rec. “Mineable” “Transp” “Mineable” “Transp” FY04 FY05Indonesia......................................................................................................................................................................................................PTBA Buy 1,500.0 350.0 0.1 0.5 17.7 17.0.........................................................................................................................................................................................................................................................................................................

BUMI Hold - 1,059.0 - 1.8 51.7 41.6Australia......................................................................................................................................................................................................Centennial (CEY AU) Lighten 480.0 1.9 58.6 52.3.........................................................................................................................................................................................................................................................................................................

Coal & Allied (CNA AU) Buy 569.0 3.3 83.6 74.4.........................................................................................................................................................................................................................................................................................................

Excel (EXL AU) Spec.Buy 351.0 2.3 160.0 103.9Source: Austock, GKG estimates


APPENDIX: INDONESIA’S POWER REQUIREMENTSIndonesia’s electrical power capacity has stagnated in recent years. Many power

projects were commissioned in the years prior to the resignation of PresidentSuharto in FY97. As there were questions about the transparency of the tenderingsystem, the Indonesian government subsequently canceled 27 of these projects.The fallout from this can still be felt, with the New York State Supreme Courtcurrently holding US$256m of the government’s money relating to the canceledKaraha Boda geothermal power project.

Exhibit 17: Indonesia’s existing power supply (1996-2002)Capacity (MW) 1996 1997 1998 1999 2000 2001 2002PLN Operated......................................................................................................................................................................................................Coal 5,021 6,771 6,771 6,771 6,771 6,900 6,900.........................................................................................................................................................................................................................................................................................................

Diesel oil 2,449 2,416 2,535 2,650 2,550 2,585 2,588.........................................................................................................................................................................................................................................................................................................

LNG 1,033 1,371 1,347 1,516 1,203 1,225 1,225.........................................................................................................................................................................................................................................................................................................

Combined coal/gas 5,053 5,589 6,561 6,282 6,863 6,863 6,863.........................................................................................................................................................................................................................................................................................................

Hydropower 2,184 2,436 3,007 3,014 3,015 3,016 2,942.........................................................................................................................................................................................................................................................................................................

Geothermal 309 363 360 360 360 360 380.........................................................................................................................................................................................................................................................................................................

Sub-total 16,049 18,946 20,581 20,593 20,762 20,949 20,898IPPs......................................................................................................................................................................................................Coal - - 1,200 2,400 2,400 2,400 2,400.........................................................................................................................................................................................................................................................................................................

Diesel oil - - - - - - -.........................................................................................................................................................................................................................................................................................................

LNG - 60 60 60 60 60 60.........................................................................................................................................................................................................................................................................................................

Combined coal/gas 150 150 285 285 285 285 285.........................................................................................................................................................................................................................................................................................................

Hydropower - - - - - - -.........................................................................................................................................................................................................................................................................................................

Geothermal 165 165 165 345 345 405.........................................................................................................................................................................................................................................................................................................

Sub-total 150 375 1,710 2,910 3,090 3,090 3,150TOTAL 16,199 19,321 22,291 23,503 23,852 24,039 24,048Source: Directorate General of Electricity

The increasing frequency of blackouts in nearly all parts of Indonesia indicatethat significant additions of generating capacity are urgently required. Currentcapacity in the main Java-Bali grid is 18,610 MW, with an average peak load of13,300 MW. PLN has acknowledged that as much as 3,500 MW of installedcapacity is regularly down due to the lack of maintenance. The Asian DevelopmentBank estimates that Indonesia needs an additional 2,000 MW of power per yearfrom 2006 onwards, with nearly all new capacity likely to come from coal or gas.

As PTBA’s reserves are located in South Sumatra, the company is in an excellentposition to tap into PLN’s existing infrastructure. PLN already has a mine-mouthpower station at Tanjung Enim, while two of PTBA’s proposed projects are locatedat this site. The new capacity can easily be connected to the main Java-Bali grid.

There is also an estimated 10,000 MW of power capacity currently in thehands of private companies, which generate their own power. As a short-termmeasure, PLN could tap into this supply during peak periods in order to meetdemand.



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....... Chandra S. Pasaribu

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bukit asam studie vom 23.november

Documents

fturnover rp bn

ebitda rp bn

bn of coal resources

net profit rp bn

net cashdebt rp bn

pretax profit rp bn

eps rp

dividendshare rp