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INDONESIA: Scramble for coal assets in Indonesia

by Sundeep Tucker and John AglionbyFinancial Times
June 7th, 2009

Some of the world’s largest energy groups are scrambling to acquire coal mining assets in Indonesia as family-run conglomerates consider divestments to raise cash.

People familiar with the matter said the most advanced example involved Berau Coal, a leading producer, whose majority owner is seeking indicative bids for its stake, with valuations expected of up to $1.5bn.

The stake sale could be combined with an market listing, with a final decision on whether to seek a flotation expected next month.

Peabody Energy, the US coal miner, and Xstrata, the Anglo-Swiss miner, are believed to be among those interested in becoming a cornerstone investor in Berau Coal, according to people familiar with the matter.

Industry analysts said Chinese, South Korean, Indian and Middle Eastern companies were also scouring Indonesia, the world’s largest exporter of thermal coal, for assets. Many are, however, waiting for the publication of implementing regulations to a new mining law before signing deals.

Benchmark thermal coal spot prices are at their highest level in three months and 2011 futures are at $95, their highest level in six months as global demand, particularly from China, starts to revive.

Indonesia’s coal production in the first quarter of 2009 was 30m tonnes, well below the 50m-tonne target. But officials are confident that as the weather improves the full-year target of 220m tonnes should still be achievable.

The majority stake in Berau Coal is owned by Armadian Tritunggal – an investment company controlled by Indonesian businessman Rizal Risjad – with the sale auction run by Deutsche Bank, Merrill Lynch and PacBridge Capital Partners, a boutique advisory firm.

Berau Coal has a 1,200 sq km concession in Indonesia’s East Kalimantan province and produced 13.2m tonnes of coal in 2008. It aims to increase this figure to at least 15m tonnes this year.

People familiar with the matter said the owners of Buma Coal, a coal services provider, were also looking for a buyer and had hired Merrill Lynch to consider the options.

Indonesia’s two largest coal companies, Adaro Energy and Bumi Resources, have recently acquired coal services companies to integrate their operations further.

Adam Worthington, a resources analyst with Macquarie Securities, said: “We believe that consolidation is going to be an ongoing theme and China is going to play a prominent role.”

Dealmakers said they had been in talks with the owners of at least four Indonesian coal groups that were at various stages of seeking foreign investment.

“We think that a lot of deals will be struck in the second half of this year,” said one dealmaker.





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