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Indonesian Coal

Sunrise to Sunset (part 1) Ross Hilton (ross.hilton@uni.sydney.edu.au

Who has all the coal: USA: 22% Russia: 14.4% China: 12.6% Australia 8.9% India 7% Germany 4.7% Ukraine 3.9% South Africa 3.5% Serbia 1.6% Colombia 0.8% Canada 0.8% Poland 0.7% Indonesia 0.6%

Who is the biggest exporter of thermal coal in the world: Indonesia Who are Indonesias biggest customers: India and China

Why is the 14th largest coal deposit nation the biggest exporter and why do they sell to 3rd and 5th largest deposit nation: Price. Indonesia can sell coal loaded onto a ship for between $30-50/tonne. Australian costs are around $80/tonne. Chinese costs are around $98/tonne

Why is Indonesian coal cheap: It is easy to win, in reasonable yield deposits of reasonable calorific value, located on the banks of the endless wide slow rivers of Kalimantan.

Why is it east to win: The Indonesians use open cut mines and coal washeries, as opposed to longwall mining which has to chase seams of quality coal. An average yield for an open cut mine would be about 1:1, or for every tone of coal extracted there is a tonne of waste. A longwall operation has a far better recovery yield of about 4:1, recovering four tonnes of coal for every tonne of waste, due to the targeted nature of following a coal seam.

But: The coal needs to be separated from the waste (usually shale) in all but the highest yield deposits. This process, called washing, is carried out as close to the extraction site as possible, to avoid shipping waste material. The need to wash even all but the best yielding underground material has given open cut mining a distinct advantage over the last 25 years.

Why is it reasonable calorific value: A typical Australian thermal coal = 6,080 kcal/kg A typical Indonesian thermal coal = 5,500 kcal/kg A typical Chinese thermal coal = 5000 kcal/kg A typical Indian thermal coal = 4000 kcal/kg

Why are the rivers an advantage: In Australia where the coal is transported via rail the transport costs account for around 25% of the cost of a tonne of coal. At $80/tonne this would mean around $20 per tonne just for transport to the port. Rail is also expensive and difficult to establish, involving engineering feats such as bridges, cuttings and tunnels, and is subject to complexities of government and labour control. The Indonesian rivers are free, and they already exist. It gives Indonesia a big competitive and cost advantage.

Why does China import coal: China now imports around 180 million tonnes of coal a year, despite having its own huge resources. The problem is the coal is located in the western and northern inland provinces, however the coal consuming centers are located along Chinas heavily populated eastern and southern coastline, and coal must be transported long distances via railways, roads, inland rivers and via coastal shipping from the west to the east and from the north to the south. This adds considerably to the cost and the railways present a huge bottleneck.

In addition the Chinese mines are mines are small, and are owned by township and village enterprises. They are labour intensive and low productivity underground operations, without the ease of open cut or the high technology of longwall seam mining. Where the resources are suited to open cut, in Inner Mongolia, there is social resistance to the land seizure activities required for mine expansion.

Why does India import coal: Although India has a well developed railway network, transporting the coal from the mines to the population centers adds greatly to the cost and puts tremendous strain on Indias struggling railway system. India doesnt currently have the mining capacity to supply domestic demand especially as the Indian coal is deep underground. Indonesia coal, because it is easy (and cheap) to win and is mined close to the port, is far cheaper. Therefore India is buying cheap coal to supplement local demand and subsidise the economy.

Why the Indonesian mining boom will end: 1. By 2016-17 the mines located near the main rivers will have exhausted the easy to win coal resources. They will have to move fresh deposits by truck or build railways lines, both adding greatly to the cost. Already Russia is negotiating to build a railway line in Kalimantan to move 20 million tonnes of coal a year, at a cost of $2.4 billion. This is bound to push up prices to global levels.

Why the Indonesian mining boom will end: 2. Until 2009 the miners were domestic owned, and sold coal at prices they set. This was usually far lower than the regional spot price which is set at Newcastle Port NSW. The Mineral and Coal Mining Law (No. 4/2009) changed that, forcing miners to sell at a price set by the Indonesian government. The price went up and the tonnage sold went down. Indonesia is no longer relying upon its competitive advantage of cheap production costs and are in open competition with the rest of the world.

Why the Indonesian mining boom will end: 3. The government introduced a new law in 2012 GR24/2012 stipulating that foreign owned mining operations had to divest 51% interest by the 10th year of commercial production. For many mines that will occur around 2008.