2015 Forecast : Towards an Effective and Efficient Mining Service

Effectivity and Efficiency. These two things are the key and strategy to lighten up the mining
service industry in Indonesia in the middle of the slack season of coal and mineral mining in
these recent years.

Coal mining industry has a great effect to the mining industry itself. The link starting from
pre-production, production, and post production is a mining service. Mining service industry
is not only a support function for a mining industry, but it becomes a vital and important part
for coal mining industry all this time and also in the future.

Around 80% of coal mining companies are contractor and a support for coal mining industry.
There are only a small numbers of mining service companies that handle the mining service
and others.

Scope of work in mining service is divided into 4 (four) main sector. They are: (1) Planning
& Development. It covers drilling, reserve modelling, mine design, and mine planning. (2)
Construction of Mine Infrastructure.Consist of hauling road, ROM/crushing/washing
facilities, port facilities, and building facilities; (3) Mining Process,that is pre-stripping,
overburden removal, commodity transport, commodity loading to badge, and pit services; and
(4) Post Mining Services, among other things reclamation, dump profiling, and CSR client
program.

Therefore, the development of the national coal industry and world market trends greatly
affect the performance of mining services in Indonesia. Mining services industry has
fluctuated along with the fluctuating production, market, and the price of coal. The natural
selection is happening in this process, it requires an ability and professionalism that will
create a strong mining industry that has standardization that will survive in the competitive
mining industry and the tight mining services.

The production of Indonesian coal seemingly is not having a reduction. Generally, the coal
production keep increasing along with the increasing of national and world needs in fossil
energy source. However, coal once was an excellent commodity in the year 2010-2011, the
price kept dropping.

Coal production keep increasing along with the growth of national and international coal
needs. In the last five years, coal production is climb up greatly. If in 2009 national coal
production approximately in the number of 283 million ton, in the last 2013 was reached 421
million ton, so in 2014 is estimated as much as 431 million ton.
The coal peak price was in 2011, where coal reference average price reached USD 118.4 per
ton in that year. The price of coal began to decline dramatically in the year 2012 to 2014.
Based on the annual reference average price, the price of coal in 2012 was USD 95.48 per
ton, continues to decline in the following year (2013) to $ 82.92, and still corrected on 2014
where the coal reference price is only USD 64.65 per December 2014.
When compared with the reference coal price (HBA) with the same month in the previous
year, the price of Indonesian coal by the end of 2014 was drop 19% from USD 80.31.
If compared with coal peak price in 2011, present coal price is almost 50% trimmed.

During 2014, coal prices continued to decline, although the decline was not as dramatic as in
2012. Referring to the coal reference price that published by the Ministry of Energy and
Mineral Resources, coal price was opened at USD 81.9 per ton on Januari 2014 and closed at
USD 64.55 per ton.
The details are as follows: HBA January 2014 in the amount of USD 81.9; Februari 2014
USD 80.44; Maret 2014 USD 77.01; April 2014 USD 74.81; Mei 2014 USD 73.6; The HBA
decline was halted in June 2014 which was slightly raised up to USD 73.64; and then the
downward trend continues at HBA Juli 2014 in the amount of USD 72.45; Agustus 2014
USD 70.29; September 2014 USD 69.69; Oktober 2014 USD 67.26; November 2014 USD
65.7; and December 2014 USD 64.65.
Coal Energy Resources
Indonesia is one of the biggest coal producer in the world. World coal production data in
2012 shows the position of Indonesia was on the fourth place, after China (1,825 Mt), United
States (515.9 Mt), Australia (241.1 Mt), Australia (237.4 Mt), and Indonesia (237 , 4 Mt).
If new reserves could not be found, the world's coal reserves is estimated will run out about
112 years into the future. With a production rate that occurred in the present time and if new
reserves could not be found, estimated global coal supplies will be run out approximately 112
years from now. Currently the largest coal reserves are found in the United States, Russia,
China, and India.

Based on the data of coal reserves by 2013, Indonesia has the reserves of 28.97 billion tons,
with coal resources reached 119.82 billion tons. The coal resources consist of measured
resources amounted to 39.45 billion tons, indicated at 29.44 billion tons, amounting to 32.08
billion ton, hypothetical 19.56 billion tons.
Indonesia's coal reserves are expected to run out in the next 50 years. This is assuming that
the current coal production reached 431 million tons per year and assuming a moderate
growth in production.

Government needs to boost up the increment of exploration and technology to raise the status
of resource into reserve through incentive awarding and creating regulations which can
resolve the barrier in coal exploration investment.
Global Coal Needs

Coal is one of the world's energy resources which have a major role in the global economy.
World emergy Outlook 2013 (IEA) predicts that primary energy demand increased by 45
percent in 2013 compared to 2011. In 2011, the needs fossil energy is 10,668 million TOE, or
82 percent of the total demand, will increase to 14,898 million TOE in 2035. Although fossil
energy share dropped into 80 percent (the rest is filled with new energy and renewable
energy), but in the aggregate the production grew quite high. The average growth of energy is
about 14 percent.

In the period 2011 to 2035, coal demand has increased most if compared to other fossil fuels
and from 2020 took over the role of oil or the largest oil or primary energy mix. In 2011, the
use of coal amounted to 3,773 million TOE and will increase 44% in 2035. But on 450
scenario, with the strict implementation of environmental policy, demand for coal decreased
by 33% in the year 2035, this is due to environmental considerations.

In 2011, the use of renewable energy amounted to 1,727 million TOE, or 13% of total energy
use. It is estimated that, up to the year 2035, the renewable energy requirements in
accordance New Policies scenario increased by 44%, and for the BAU scenario by 44%,
while the 450 scenario by 56%.

Increasing need for renewable energy are quite high as a result of the adoption of policies that
consider the environmental aspects. More stringent policy on the scenarios number 450
already calculated the aspects of energy security and environmental regulation. This causes
the penetration of renewable energy on these scenarios number 450 is the highest scenario
compares to other two scenarios.

National Coal Needs

Globally, Indonesia's coal reserves are only 0.8% (BP Statistical Review) of the world's total
coal reserves. However, Indonesia is the largest exporter of coal of which nearly 79.5% of
coal production is used for export purposes.
Approximately 80 percent of Indonesia's coal production is exported, mostly medium-quality
thermal coal between 5100 and 6100 kcal / kg and the low quality one is under 5100 cal /
gram. Most of the market demand is from China and India. Coal exports have been
contributed a significant national income in the mining sector, it is about 85 percent. Coal
along with the palm oil contribute 50 percent of Indonesia's total exports. Therefore, when
the price of coal slumped in 2012, the national economy was also shaken by the weakening of
coal prices.

Indonesian government wants to balance consumption of coal between export and domestic
use. Through the Energy Mix policy, the government will boost up the use of coal for
domestic use, especially for power plant fuel. The government projected the domestic coal
consumption reach 30% from the national energy mix in 2025.

Coal-based Steam power plant is targeted by the government in 2015 will begin the
construction of electricity generating 35,000 MW, where as about 25,000 MW of which are
coal powered. To fulfill the needs it is estimated to be required to meet the needs of about
200 million tons of coal.
Indonesian government conducts a policy that banning the export of raw materials mining.
Policies in force from 2014 that obliges manufacturers of mine build a smelter, to process raw
materials into semi-finished materials, so it has a high added value.

However, the policy does not apply to the coal mine, so it won’t give a significant impact on
the coal industry and coal mining services. However, these policies become new
opportunities for the mining services business, which is building a smelter.

Even so, the government seems to be trying to control the production of coal. This policy is
used for managing the remaining coal reserves so it won’t threaten Indonesia to be a coal
importer in the short term.

This policy also requires coal producers to meet domestic needs, among others, for power
generation and industry. Other policy that government can do is to apply high export taxes for
coal.

The government is trying to control the coal production with moderate growth. This policy is
a coal production control so that national coal reserves can be managed properly. On the
other hand, the government continues to increase the domestic coal market. In addition to
power generation, coal is also used for industries, such as cement, steel, and others.

Efficiency and Productivity of Mining Service

The fall in global coal prices smash the profits of coal producers in the world, including
Indonesia. Specifically Indonesia, coal production costs for all this time is a quite high,
considering the revival of the national coal mining is occurred when the booming coal,
especially high market absorpsion of China and India.

In such situations, the owner of the coal mine suddenly rich with extraordinary income.
However, high prices also has implications for production costs that occurred then. The
impact is when the price of coal fell, many manufacturers of mining and mining service
companies collapsed. They were not able to rationalize the costs that already patterned for
years without innovation, efficiency, and productivity improvement.

While a number of large mining companies and mining services contractor trying to get
around the mine price reduction by doing things fundamental restructuring in the production,
distribution, and optimization of mining.

First, the owner of large mines still perform normal production capacity, it means that there is
no decline in production. It aims to achieve economies of scale. Besides they also have been
tied to contracts with consumers.

Second, technically, the efficiency is done by reducing the stripping ratio, is to reduce
production costs, although this will be the expense of coal reserves owned because it resulted
not being potential.

Third, negotiate a price adjustment contract between the owner of the mine with contractors.
Even negotiating the price could reach 10-15% from the previous price, which of course
would reduce the revenues contracting, mining services.

Faced with this situation, coal contractor must be able to respond with efficiency. This
condition makes the rise of creativity to perform the operation efficiency. But not all
companies can do production efficiency because it depends on the condition of their
respective companies. Efficiency is also helped by the world oil market prices are now falling
by half, in the range of $ 50 per barrel, which can reduce the cost of fuel production mining
services.

For companies that are already established (regardless large or small business). This
condition can be overcome by performing with efficiency, but for they who just emerge, they
will be burdened by cash flow. Many of them are finally out of the market.

The government also interfere the issued benchmark coal production costs that are part of the
national coal production efficiency. Director General of Mineral and Coal Decision No. 479
K staircase May 30, 2014 set the benchmark cost of coal production.

In 2012, there were approximately 875 mining service company which obtained a license
from the Ministry of Energy and Mineral Resources Republic Indonesia could be, the current
reality is only half just added services company that still survive and survive with the amount
of innovation and efficiency.

Value Added & Capacity Improvement

About 60 percent of Indonesia's total coal reserves consist of low quality coal that is cheaper
(sub-bituminous) containing less than 6100 cal / gram, which is mostly in the area of South
Sumatra, South Kalimantan and East Kalimantan.

Rank coal, many rated among, need technology touch to touch so as to provide added value
for Indonesian coal. Besides, can push up the price of coal to become more expensive, it is
also be a part of an ongoing mining (sustainability mining) as well as the issue of clean
energy. In general, Indonesian coal has met the minimum standards clean energy. Indonesian
coal ash content is far below the 10% and low sulfur content.
A growing issue in the world today is to provide value-added coal and upgrading. For a low-
calorie coal technology is needed to improve the calories that can be utilized optimally.
However, the provision of value added is still pros and cons.

Coal is processed into a liquid or in upgrades, is the price will be higher, for example from
USD30 to $ 70 / ton. But the coal that is used to perform the process is twice that. This means
that to produce 1 ton of coal that has been upgraded require two tons of coal, or $ 60, if the
cost of processing USD7, the margin is only $ 3. The added value is not significant amount of
investment and time to the process.

The added value of coal, for the industry, is the government's policy to encourage industry to
build coal fired power plant (power plant). This is an added value that provides broad impact
(multiplier effect). On the one hand, the production of coal utilized optimally, on the other
hand the national electrical energy needs can be met.

The emphasis today is to increase the capacity of the mining services industry. Naturally use
of natural resources will be depleted. So, as long as we have the natural resources, utilization
should base on the concept of improving human capacity, not just to improve the welfare of
society, but also increase national capacity.

Transformation of natural resources to human capacity leads to increased national

competency. One is the set consultant and contractor mining to be a national majority.
Currently, a number of strategic projects are still dominated by foreigners.

In the face of the ASEAN Economic Community (AEC), the Indonesian competitors had
discussed the integrity and quality, while Indonesia is still talking about the regulation of
administrative permits.

To achieve this, the contractor and the consultant should also have a reputation. Mining
Services Association is trying to help develop the attitude and business environment that has
high integrity. Regulation also needs to be reorganized which leads to increased national
capacity and high competitiveness. Aspindo also established Aspindo Standards Institute to
support the regulation which is one of its aims is to increase the capacity and national
competitiveness.

By doing so, Indonesia will have human resources along with the mining company and
mining services of high repute, professional, and have integrity.

NEW EQUILIBRIUM COAL PRICE

The price of coal is expected to find its equilibrium point started in 2015 and towards stable
prices until 2020. For domestic market, the price of coal will be lifted by the increased
demand for steam power plant coal-based targeted by the government in 2015 will begin to
build the construction of 35,000 MW power plant , of which approximately 25,000 MW of
which are coal fired power plants.
Overseas market demand will also re-excited along with the stability of the global economy,
especially the economic stability of countries of the motor of world economic growth, such as
China, India, and a number of developing countries. While developed countries like the
United States and Europe, now has reached saturation point. Economic power will be
increasingly shifted to Asia, Latin America, and Africa region.

The World Bank report (World Bank) and the International Monetary Fund (IMF), which
uses coal reference price trends in Australia, Colombia, and South Africa, predict that the
stability of coal prices started in 2015 at the level of USD 72 per ton and will be stable until
2019 with price around USD73 per ton.

This condition gives great hope for the mining industry and mining services nationwide. With
the increase in the selling price of coal will boost national income. This, in turn will improve
the welfare of the Indonesian people.