Day 1 Presentations MACQUARIE

Indonesia Commodities
Conference 2014
Jakarta: 23-24 September
THIS DOCUMENT WAS PREPARED BY SALES & TRADING PERSONNEL OF MACQUARIE AND IS NOT RESEARCH. REFER TO DISCLAIMER FOR IMPORTANT DISCLOSURES.
j~~=cfC`=p~=
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Nizam Idris, Head Strategist, Fixed Income & Currencies
(nizam.idris@macquarie.com)
September 2014
THIS DOCUMENT WAS PREPARED BY SALES& TRADING PERSONNEL OF MACQUARIE AND IS NOT RESEARCH.
REFER TO DISCLAIMER FOR IMPORTANT DISCLOSURES
FIXED INCOME AND CURRENCIES

STRICTLY CONFIDENTIAL
Astute Policy Gambit Needed To Unlock Potential

!Indonesia remains well regarded as a country with massive long term potential and
seems set to match the big EM economies such as the BRIC group of countries
!But positive demographics need to be matched with the right policy mix
!The recently concluded election results presents a platform for change:
The market has moved to price in reform; stocks are no longer cheap, bonds hostage to USD views
What matters in the short to medium term is the policy delivery
!Whereas the market was keen to give President-elect Jokowi the benefit of the doubt
when the global market is awash with cheap liquidity, rise in the costs of funds may
force investors to be more discerning in its investment decision. Fundamentals matter
!We see near term pressure on the IDR to emerge as the Fed normalises interest
rates even as the new government may struggle to find its feet. On the latter, the fuel
subsidy cuts Jokowi sought may be taken as the first test for the new administration
Economic Growth: Indonesia vs the rest of the

world
! Indonesias GDP growth is slowing but until recently the trend has been impressive
Real GDP growth of Indonesia vs the rest of the world (y/y %)

ID
CN
IN
BR
RU
US
EU
JP
15.00
10.00
5.00
0.00
-5.00
-10.00
-15.00
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
Source: Bloomberg, Macquarie
Demographics: Long term positive for Indonesia

! Demographic trend is favorable for Indonesia
Addition to Working Age Population (1564), millions, by 2035E

million
100
207
80
Age Dependency Ratio
India
Japan
Indonesia
100%
China
USA
90%
60
38
80%
40
70%
-60
60%
-20
50%
Source: UN Population database, Macquarie Research, September 2014
40%
2050
2040
30%
1950
China
Russia
Japan
Western Europe
Germany
Korea (Republic)
Singapore
UK
Malaysia
USA
Brazil
Indonesia
India
-40
2030
-11 -12 -14
2020
-10
2010
-5
2000
1990
1980
1970
12
1960
13
20
Source: UN Population database, Macquarie Research, September

2014
Middle Class Surge: Long term positive for

Indonesia
! Large numbers set to enter the Middle class
Lower class accounts for Bulk of the

Population
Middle class
7%
Aspirational
class
2%
In Total Income terms, Indonesia is both

a rising Middle class and exploding
Aspirational class opportunity
US$ bn
450
400
10%
412
380
9%
8%
350
7%
300
6%
250
5%
5%
163
200
136
128
150
100
89
2%
Lower class (household income of US$020,000)

Middle class (household income of US$20,000-50,000)
Aspirational class (household income >US$50,000)
Source: Global Demographics, Macquarie Research, September 2014
4%
3%
2%
50
Lower class
91%
9%
1%
0%
Lower class
2014 Total Income
Middle class
2019 Total Income
Aspirational class
2014-19 CAGR
Source: Global Demographics, Macquarie Research, September 2014
Potential for Indonesia to develop the

manufacturing sector
! Reform to develop the manufacturing sector would be a massive step towards creating jobs for the growing
labour force and youth population
Manufacturing share in GDP
Manufacturing wage gap widening

US$
% of total
8000
29%
Indonesia
China
7000
28%
6000
5000
27%
4000
3000
26%
2000
25%
1000
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
Source: CEIC,Macquarie Research, September 2014
2000
24%
Source: CEIC, Macquarie Research, September 2014
Even Homer is interested ...

But Indonesia is at a crossroads
Source: The Economist, 20th Century Fox

Short Term Distraction Clouding The Path

!USD strengthen could be sustained based on:
Growth leadership; US current account and fiscal deficits are shrinking suggesting improving balance
sheets
Short end rates is being normalised to prepare for an eventual Fed rate hike in early-2015
!Market volatility is likely to pick up, hurting Sharpe Ratios and threatening
withdrawals of funds currently parked in ASEAN assets
!How much Indonesias fundamentals have improved since the taper tantrum in 2013
will be scrutinised. We think as of now, there hasnt been enough improvements in
Indonesias twin deficits
!Local politics have however given foreign investors fresh optimism on Indonesia
!But President-elect Jokowi may not have the luxury of time; gathering more support in
the DPR, the Cabinet make-up and fuel subsidy policy are crucial in reassuring the
market that reform is still on the cards
For discussion purpose only

Almost time for Fed to hike rates

!While US inflation remains relative subdued, arguing against rapid rate hikes, US consumers are back
!Feds Yellen admits that the extent of the economys output gap may be overestimated (Jackson Hole
Symposium, Aug 22). Wage pressure could rise earlier than expected
US consumer credit has been leading the

inflation
Consumer credit (y/y %)
14
CPI (y/y %, rhs)
12
US consumer confidence continue to

pick up
3.5
140
120
2.5
100
US Consumer Conf Index
US Real Retail Sales (y/y %, rhs)

10
8
10
8
6
80
1.5
60
40
0.5
20
4
2
2
0
-2
-4
-2
-4
-6
Jan-01
0
Oct-02
Jul-04
Apr-06
Source: Multlp.com, Shiller website
Jan-08
Oct-09
Jul-11
Apr-13
-6
0
Jan-01
-8
-10
Oct-02
Jul-04
Apr-06
Jan-08
Oct-09
Jul-11
Apr-13

Valuations begin to matter

!When funds are no longer free, valuations matter
!This is where we think market volatility could emerge at least on a knee jerk; both stocks and bonds are no
longer cheap
Shiller P/E for S&P 500
50
45
Shiller PE
1SD above mean
Mean
High yield bonds vs S&P500 total return
US HY Total return
US S&P500 Total return
330
40
280
35
30
230
25
20
180
15
10
130
5
0
04 09 13 18 23 27 32 37 41 46 51 55 60 65 69 74 79 83 88 93 97 02 07 11
Source: Multlp.com, Shiller website, Macquarie
80
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14

10
Will Indonesia be able to withstand USD strength

! Will there be a repeat of taper tantrum?
USDIDR spot
Indonesian government bond 10y yield
13000
23
12500
21
12000
USDIDR
IDGB 10y
19
11500
17
11000
15
10500
13
10000
11
9500
9000
8500
8000
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
5
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
11
Foreign Positioning In Local Bonds

!Real bond yields could anchor these investments onshore, but only Indonesias real yields
have improved meaningfully
!Foreign funds remain heavily positioned in Indonesian government securities
Foreign holdings of outstanding

government bonds (%)
50%
% foreign holdings of outstanding govt bonds
Real yield has improved in Indonesia
ID
Jun-2014
45%
SG
TH
PH
Dec-08
40%
MY
35%
30%
25%
0
20%
15%
-1
10%
-2
5%
-3
0%
KR
ID
Source: CEIC, Bloomberg, Macquarie

MY
TH
-4
Aug-12
Dec-12
Apr-13
Aug-13
Dec-13
Apr-14

12
Foreign funds are still heavily invested in

Indonesian assets
!Foreign portfolio funds are heavily invested in Indonesian assets
!These could be at risk when the Fed normalises interest rates
!Valuation and FX movements could play a big part in determining how these investors behave
Cumulative fund flows into Indonesia since

2013
Indonesia 10y bond total return FX

return was an incentive to hold IDGB
Capital return
Total return
16000
(USD mn)
14000
Cumulative bond flows into Indonesia

Cumulative equity flows into Indonesia
12000
10000
FX return
ID 10y (rhs)
Interest return
100
22
80
20
60
18
40
8000
16
20
6000
14
4000
12
-20
10
2000
-40
-60
-2000
-80
-4000
Jan-13
-100
Apr-13
Source: CEIC, Macquarie
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Jun-08
Jun-09
Jun-10
Jul-11
Jul-12
Aug-13
4
Aug-14

13
This Is Not 1997 External debt remains low

! External debt level has remained well under control after the large post-1997 improvements
External debt
Private external debt by economic

sector
Others
300
250
US$ bn
50%
Long-Term
Short-Term
as % of GDP
Services
40%
Agriculture
8
19
Electricity, Gas, Waterworks
200
30%
150
Building
Mining and Drilling

20%
100
10%
50
27
Transportation, Communication
10
Trade, Hotel, Restaurant
Financial, Leasing, Services
Dec-13
Mar-13
Jun-12
Sep-11
Dec-10
Mar-10
Jun-09
Sep-08
Dec-07
0%
Mar-07
18
Manufacturing
31
0
10
20
30
40

14
FX Reserves adequate
!However, Indonesia stacks up well on the traditional metrics of FX reserve adequacy
FX reserve adequacy
35
Actual
31
Required
30
25
20
20
15
10
5
7.5
3
2.2
0
Import coverage
(months)
M2 money supply coverage

(%)
Short-term
external debt coverage
(x)
Source: CEIC, IMF, Macquarie Research, September 2014

15
But is this 2013 all over again?

Current account a big concern
! Current account has marginally improved but the improvement is less significant when compared to the rest
of Asia
Current account comparison

Latest
Mar-13
Indonesia Current account breakdown
Dec-09
Goods (CA)
Transfers (CA)
12%
20.0%
Services (CA)
Basic Balance
Income (CA)
CA
10%
15.0%
8%
6%
10.0%
4%
2%
5.0%
0%
0.0%
-2%
-4%
-5.0%
Indonesia
-6%
-10.0%
Source: CEIC, Macquarie
Mar 14
Sep 13
Mar 13
Sep 12
Mar 12
Sep 11
Mar 11
IN
Sep 10
PH
Mar 10
TH
Sep 09
MY
Mar 09
ID
Sep 08
TW
Mar 08
SG
Sep 07
KR
Mar 07
-8%
CN

16
Current account hampered by trade

!The falling trade balance is hurting Indonesias current account
!Decline in commodity price weigh on Indonesias exports
Indonesia trade balance
Commodity exports grew faster than

manufacturing exports
YoY%, 3MMA
3-month trailing, as % of GDP annualized
CAGR (2003-11) = 18%YoY
80%
12%
60%
10%
8%
CAGR (2003-11) = 10%YoY
40%
6%
4%
20%
2%
0%
0%
-2%
-20%
-4%
Trade balance
Oil & Gas and Resource based trade balance
Non-natural Resource - Based manufacturing trade balance
Apr-14
Jan-13
Oct-11
Jul-10
Apr-09
Jan-08
Oct-06
Jul-05
Apr-04
Jan-14
Jul-13
Jan-13
Jul-12
Jan-12
Jul-11
Jan-11
Jul-10
Jan-10
Jul-09
Jan-09
Jul-08
Jan-08
-8%
Jan-03
-40%
-6%
Oil & Gas and Resource based exports

Non-natural Resource - based manufacturing export

17
High dependence on Commodities

!Share of non-commodity based manufacturing exports remains too small
Composition of exports
Export basket dominated by 4

commodities
% share
45%
Non-natural
Resource Based
manufacturing
export
31%
Oil and Gas

Export
18%
40%
40%
35%
30%
Agriculture
3%
25%
19%
20%
15%
Natural
Resource
based
manufacturing
export
30%
Mining
18%
Source: CEIC, Macquarie Research, September 2014 (Data as of 2013)
14%
14%
12%
10%
5%
0%
Coal, Coke, Petroleum and Gas; Natural
and Briquettes Petroleum
and
Products
Manufactured
Animal
Vegetable
Oils/fats
Others
Source: CEIC, Macquarie Research, September 2014 (Data as of 2013)

18
Indonesia fiscal deficit has widened

!Only Indonesia has twins deficit problem
!Fiscal budget is getting closer to the 3% deficit ceiling
% fiscal balance of GDP
Current account vs fiscal balance as % of

GDP for EM Asia
4
3
2
1
NZ
0
-1
AU
-2
-3 ID
-4
-5
-6
-7
-5
Fiscal deficit remains wide
-1.6
HK
-1.8
SG
KR
CN
-1.86
-2.2
TW
-2.4
PH
TH
-2.38
-2.6
MY
-2.32
-2.4
-2.8
VN
IN
-2
-1.69
-3
-3.2
10
% Current account of GDP
15
20
2012
2013
% fiscal budget of GDP (revised)
2014
2015
% fiscal budget of GDP (approved)
Source: Reuters, Ministry of Finance - Indonesia, Macquarie

19
Although Government debt to GDP ratio remains

low
!Although admittedly public debt to GDP remains low
% fiscal balance of GDP
Government debt to GDP vs fiscal balance

as % of GDP for EM Asia
Dec 2013
4
3
2
1
0
-1
-2
-3
-4
-5
-6
-7
Dec 2007
250
HK
200
KR
NZ
TW
150
CN
PH
AU
ID
100
TH
MY
VN
15
25
35
45
Government debt to GDP

Government debt to GDP
50
IN
55
65
0
CN
HK
IN
ID
JP
KR
SG
TH
US
MY

20
But work needs to be done: Fuel subsidy diverting

funds away from development spending
!Fuel subsidies continue to rise as a proportion of total spending this is not ideal
Indonesia Central government spending

profile
Fuel subsidy
Electricity subsidy
Non-energy subsidy
Spending for ministries, agencies, debt payments etc
100%
Subsidy bill has increased 2.5 times

since GFC
US$ bn
40
as % of GDP
6%
35
90%
80%
30
70%
25
60%
20
50%
15
40%
5%
4%
3%
2%
10
30%
1%
20%
2012
2013
2014
2013
2012
2011
2010
2009
2008
2007
0%
2006
2004
0%
2005
10%
2015
Source: Jakarta Post, Ministry of Finance - Indonesia, Macquarie
Source: CEIC, BI, Macquarie Research, September 2014

21
Infrastructure spending the biggest loser

!Investments into infrastructure has not kept pace with overall trend
!This is where Jokowi offers hope, but can he deliver?
Investments into infrastructure has not
kept pace with overall trend
Lower subsidies can provide fiscal

space for boosting infrastructure
% share in total expenditure
Subsidies
40%
Capital expenditure
35%
30%
25%
20%
15%
10%
5%
Source: World Bank, Macquarie Research, September 2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
0%

22
Inflation and policy rate outlook

!Indonesia raised policy rate after the taper tantrum
Inflation for ASEAN
Policy rates
Q213
(YoY%)
12m avg
8.0
Current policy rate
Q315 forecasts
Latest
7.0
7
6.0
5.0
4.0
4.94
4.9
4.53
6
5
4
3.3
3.0
1.8
2.0
2.16
2
1
1.0
0
ID
ID
MY

PH
SG
TH
MY
PH
TH
US
VN

23
What to do to set Indonesia on the right path

!Eliminate subsidies
!Improve infrastructure
!Revise the archaic Labour Laws
!Eradicating corruption and cutting red tapes (bureaucracy) to ease doing business
!Develop a manufacturing sector that could capitalise on Indonesias young workforce
and low cost base
!Liberalise the economy to attract better FDI inflows into higher value added
processes than mining
!The theoretical improvement in intensity of these traditional factors of production will
also raise total factor productivity, growth potential and income

24
Jokowis Reform Plan

Jokowi Jusuf Kalla 9 Point Plan
1
Increase the salary of Indonesian Military (TNI) officers, police officers and civil servants gradually over five years and improve their
professionalism.
Allocate an average of IDR1.4 billion in special aid funds to every village. Recruit village officials as civil servants.
Provide IDR 1million in monthly subsidy to poor families should the national economy grow by more than 7% annually.
Offer a land ownership program to 4.5 million families. Establish or revitalize irrigation on 3 million hectares (ha) of farmland. Establish
25 dams and 1 million ha of new agricultural land outside of Java. Establish a bank for farmers and small businesses. Empower the
State Logistics Agency.
Revitalize 5,000 traditional markets and establish fish auction, storage and processing facilities.
Provide 10 million new jobs within five years. Provide every cooperative with IDR 10million annual support fund. Empower and promote
digital and creative industries.
Provide free inpatient and outpatient services with Healthy Indonesia Card (KIS). Provide 6,000 community health centres with inpatient
facilities and clean water.
Improve the education quality of Islamic boarding schools and increase the welfare of their teachers.
Provide education for all citizens with Smart Indonesia Card (KIP). Provide quality education facilities and syllabus. Guarantee teachers
welfare and increase teachers benefit. Continue the teacher certification program.
Source: Media Reports, Macquarie Research, September 2014

25
What are the businesses saying?

! What are the key problematic factors doing business in Indonesia?
The Most Problematic Factors for Doing Business in Indonesia
Corruption
Inefficient government bureaucracy
Inadequate supply of infrastructure
Access to financing
Restrictive labor regulations
Poor work ethic in national labor force
Policy instability
Tax rates
Inflation
Government instability/coups
Inadequately educated workforce
Poor public health
Crime and theft
Tax regulations
Insufficient capacity to innovate
Foreign currency regulations
0
10
15
20
25
% of responses
Source: World Economic Forum, Macquarie Research, September 2014
26
Reform: Capital expenditure and growth

!Liberalising FDI norms and improving infrastructure to ease supply bottlenecks can boost growth potential
Fixed Capex vs. Export Growth
YoY%
YoY%
Gross Fixed Capital Formation

Export of Goods and Services
14%
30%
Cut subsidy to boost Capex
% share in total expenditure

Subsidies
40%
Capital expenditure
35%
12%
20%
10%
10%
30%
25%
20%
8%
0%
15%
6%
-10%
4%
10%
5%
2013
2012
2011
2010
2009
2008
Dec-13
Mar-13
Jun-12
Sep-11
Dec-10
Mar-10
Jun-09
Sep-08
Dec-07
Mar-07
2007
-30%
2006
0%
0%
2005
-20%
2004
2%

27
Reform: Severance Pay for Redundancy Dismissal
Severance Pay for Redundancy Dismissal in Asia

Average for workers with 1, 5 and 10
years of tenure, in salary weeks
70
60
57.8
50
40
31.7
30
23.1
23.1
23.1
17.2
20
11.4
10
1.4
Hong Kong
Singapore
0
Indonesia
Thailand
Korea, Rep. Philippines
China
Malaysia
India
Source: Doing Business (World Bank Group) 2014, Macquarie Research, September 2014
28
Conclusion
!Indonesia remain well positioned on global investors radar screens given its longer
term potential and the promise of reform from the recent election
!But exogenous risk factors could mean incoming President Jokowi would have to
make the right moves to reassure investors that the reform plan remains intact
!Failing which, we anticipate short term pressure on Indonesian assets and the
rupiah ahead, even as the Fed begins to normalise interest rates
!Twin deficits, foreign investors positioning and policy uncertainties will weigh on the
market in the short term
!Longer term outlook is highly dependent on reform; eliminating subsidies,
improving infrastructure, developing a bigger non-commodity manufacturing base,
easing the norms for doing business in Indonesia and changing the labour law are
key measures that would have lasting effect on long term potential growth
!We expect more short term pain, before long term gain. USDIDR could rise to
12,500 before a clearer path towards reform takes shape to attract inflows and
support the currency back to 11,000
29
FX forecasts
Majors
AUDUSD
NZDUSD
EURUSD
USDJPY
GBPUSD
USDCAD
USDCHF
AUDNZD
EURCHF
EURGBP
Asian FX
USDCNY
USDCNH
USDHKD
USDIDR
USDINR
USDKRW
USDMYR
USDPHP
USDSGD
USDTHB
USDTWD
Spot
FORECASTS
1m
3m
6m
0.90
0.89
0.86
0.81
0.80
0.78
1.29
1.28
1.26
109
110
112
1.64
1.65
1.66
1.09
1.10
1.12
0.93
0.94
0.96
1.10
1.13
1.13
1.21
1.20
1.21
0.79
0.78
0.76
% FROM SPOT
1m
3m
6m
0.88
-0.90
-4.24
0.79
-1.83
-4.28
1.24
-0.91
-2.46
114
1.08
2.92
1.68
0.47
1.08
1.14
0.49
2.32
0.98
0.59
2.73
1.13
2.08
2.22
1.22
-0.33
0.20
0.74
-1.37
-3.50
FORECASTS
% FROM SPOT
SPOT
1M
3M
6M
1M
3M
6M
6.1414
6.15
6.17
6.12
0.14
0.47
6.1473
6.15
6.17
6.12
0.04
0.37
7.75
7.75
7.75
7.75
-0.02
-0.02
11983
12250
12500
12000
2.23
4.31
60.85
61.50
62.00
61.50
1.08
1.90
1043.4
1045
1050
1050
0.15
0.63
3.243
3.27
3.30
3.30
0.82
1.75
44.42
45.00
45.50
45.00
1.30
2.42
1.2677
1.275
1.280
1.270
0.58
0.97
32.26
32.50
32.75
32.75
0.76
1.53
30.246
30.30
30.50
30.50
0.18
0.84
% FROM FWD
1m
3m
6m
-2.02
-0.78
-3.70
-3.06
-1.54
-3.43
-4.01
-0.93
-2.55
4.76
1.12
3.01
2.30
0.49
1.10
4.15
0.42
2.10
4.87
0.64
2.89
2.37
1.90
1.90
0.66
-0.29
0.27
-6.16
-1.41
-3.61
-0.79
-1.32
-4.17
4.98
2.44
3.69
5.15
1.83
0.76
-6.45
% FROM FWD
3M
6M
-0.12
-0.07
-0.26
-0.40
-0.02
-0.02
1.54
2.51
0.61
0.62
0.00
0.22
0.57
1.11
0.96
1.90
0.57
0.96
0.59
0.99
0.13
0.93
-1.20
-1.78
-0.02
-3.11
-1.99
-0.11
0.53
0.56
0.18
0.60
1.19
1M
-0.35
-0.44
-0.02
0.14
1.08
0.63
1.75
1.30
0.18
1.53
0.84

30
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32
Conference 2014
MACQUARIE INDONESIA
COMMODITIES CONFERENCE
Jakarta, 23-24 September 2014
THE OUTLOOK FOR INDONESIAN MINING

POLICY & REGULATION AFTER 2014
WHAT CAN WE REALISTICALLY EXPECT?
Presented by:
y
Bill Sullivan
CHRISTIAN TEO PURWONO & Partners
(in association with Stephenson Harwood LLP)
CHRISTIAN TEO PURWONO & Partners 2014
Indonesia Stock Exchange Building

Tower II Floor 16 Suite 1604
Sudirman Central Business District
Jl.Jend. Sudirman Kav.52-53, Jakarta 12190
Tel : 62 21 515 0280 Fax : 62 21 515 0281
Email : bsullivan@cteolaw.com
Mobile: 62 815 8506 0978
OUTLINE OF SESSION
1.
Introduction
2.
2012 to 2014 in review
3.
p
g what has happened
pp
Explaining
4.
Forthcoming change of Government
5.
Implications for foreign investors
6.
p
for miningg industry
y
Implications
7.
Summary and conclusions
MACQUARIE INDONESIA COMMODITIES CONFERENCE
INTRODUCTION
1.
2012 to 2014 has been a disastrous period for

mining companies in Indonesia
2.
Declining commodity prices and increasing

resource nationalism has created the perfect
storm
storm
3.
Many are hoping a new Government in

October 2014 will bring better times for
Indonesias mining industry
4.
Expectations
p
of exponential
p
improvement
p
after October 2014 are probably unrealistic
5.
Incremental improvement after October 2014

may, however,
h
b possible
be
bl
2012 TO 2014 IN REVIEW

1.
Acceleration of divestiture requirement
2
2.
Specification of Investment
Investment Recovery only
only
divestiture price
3
3.
I bilit to
Inability
t rely
l on IDX listings
li ti
4.
Apparent disregard of CoW/CCoW holder rights
5.
Domestic processing and refining chaos
6
6.
Ever greater restrictions on use of Forest Areas
7.
New and increased taxes
8.
Tighter restrictions on Mining Services providers
EXPLAINING WHAT HAS HAPPENED

MAJOR REASONS
1.
Government believes it did not get its fair

share during last commodities boom
share
2.
Perception that Indonesia has been too

accomodating to foreign investors
3.
Government believes foreign investors need

Indonesia and will still be willing to invest
despite increased regulatory burdens
4.
Disconnect
between
who
bears
the
costs/burdens of mining projects and who reaps
the benefits/rewards of mining projects
5.
Growing influence of Provincial and Regional

Governments
EXPLAINING WHAT HAS HAPPENED

MINOR REASONS
1.
Growing emphasis on different values as

Indonesia becomes more prosperous and selfself
confident
2.
Deficiencies in the process of preparing and

implementing new mining laws, policies and
regulations
3.
Inadequate
practical
and
knowledge of mining at all
Government
4.
Opportunistic behavior on the part of certain

local business groups and their political allies
5.
Vote getting in advance of 2014 elections
technical
levels of
ASSESSMENT OF MAJOR AND MINOR

REASONS
1.
4 of the Major Reasons and 2 of the Minor

Reasons are expressions
p
of
resource
nationalism in 1 form or another
2.
1 of the Major Reasons and 3 of the Minor

Reasons are simply statements of fact in
contemporary Indonesia
3
3.
Only
O
l 1 off the
h Minor
Mi
R
Reasons
i directly
is
di
l linked
li k d
to the 2014 Elections and therefore likely to
be transitory
y in nature
4.
Overwhelmingly, the Major Reasons and the

Minor Reasons are systemic and almost
impossible
bl to change
h
in the
h short
h
to medium
d
term
FORTHCOMING CHANGE OF GOVERNMENT

PART I
The optimistic view is:
(a) 2012 2014 developments have been primarily
driven by vote getting initiatives in advance of
2014 elections and exacerbated by weak
e isting Government
existing
Go e n ent
(b) new Government in 2014 will have a policy
horizon of at least 5 years
(c) the importance of foreign investment is well
understood and will not be overlooked by
y new
Government
(d) PDIP and Jokowi will be more favorably
di
disposed
d to
t the
th mining
i i
i d t and
industry
d foreign
f i
investors than are PD/Golkar/PKS and SBY

PART II
The pessimistic view is:
( ) 2012 2014 developments
(a)
d l
are about
b
a lot
l more
than vote getting and a weak existing
Government
(b) PDIP and Jokowi are the ultimate
populists and not favorably disposed at all to
mining
i i and
d foreign
f i investment
i
t
t
(c) Indonesia has come too far down the path of
resource nationalism to quickly change course
after October 2014
(d) Mining law reform is not likely to be high on
the
h new Governments
G
agenda
d

PART III PDI-P
PDI P
PDI-P 2014 economic platform states:
We are facing a situation in which our economic sovereignty
and policies are being dictated by foreign powers
Indonesia must limit foreign ownership in certain sectors
National interests are being harmed as the indirect result of the
influx of foreign capital with national interests taking a back
seat to foreign interests

PART IV JOKOWI
1.
2nd Presidential Debate

A contract is a contract and therefore contracts which
have already been signed need to be respected
2.
Post Presidential Election 22 July

First I want to sit down with stakeholders, investors,
regulators
l
andd withh the
h people
l to know
k
the
h problem
bl
andd
find a good solution for them. I want to know the details.
10

PART V
The balanced view is:
((a)) Be very
y happy
ppy that PDI-P and J
Jokowi,, rather than
Gerindra and Prabowo, will form the next GoI
(b) Recognise that Megawati will still be the dalang
even though she is not the President
(c) Focus on Megawatis past track record as President
from 2001 to 2004 rather than on PDI-P platform
(d) Take comfort in the fact that Megawati has shown
herself to be:
(i))
an avowed secularist
(ii) willing to appoint competent technocrats to
fill key Ministries
(iii) nott overtly
tl anti-mining
ti i i or anti-foreign
ti f i
investment
11
IMPLICATIONS FOR FOREIGN INVESTORS

A PDI-P/Jokowi led GoIwill:
(a) have the support and encouragement of foreign
investors
(b) cause foreign investors to give Indonesia another
chance to meet minimum expectations
( ) generate optimism
(c)
i i that
h Indonesia
I d
i will
ill now move
towards better governance and less corruption
(d) increase
increase, at least temporarily,
temporaril the value
al e of
Indonesian assets
12
IMPLICATIONS FOR MINING INDUSTRY

The mining industry should expect:
( ) no change
(a)
h
to official
ffi i l GoI
G I policy
li re the
h mining
i i
industry and foreign investment
(b) no change to the 2009 Mining Law
((c)) a more competent
p
and experienced
p
MoEMR
(d) better formulation and execution of mining
policy
(e) some changes to the Implementing Regulations
13
CHANGING THE IMPLEMENTING

REGULATIONS-22 CASE STUDIES
REGULATIONS
1. Domestic Processing & Refining
(a)
(b)
2
2.
2009 Mining Law requires local

local value added
activity within 5 years but does not say what level
of processing and refining is required
2012 Implementing Regulation specifics 99%
purity for most metal minerals
Divestiture
(a) 2009 Mining Law requires divestiture of
some shares within 5 y
years of commencingg
exploitation but does not say how much or
at what price
(b) 2012 Implementing Regulation says 51%
divestiture and at replacement cost only
14
SUMMARY & CONCLUSIONS

1.
2.
New GoI will be better incrementally but not

exponentially for foreign investors and the
mining industry
Resource nationalism will continue as official
GoI policy unless there is an economic
meltdown in Indonesia
3
3.
Changes to Implementing Regulations alone

may be sufficient to address some of the current
problems
4.
Indonesia can, once again, become an attractive

destination for mining investment so long as the
related risk is correctly assessed and priced
15
Thank You
16
Conference 2014
Indonesia Commodities Conference

Seaborne thermal coal market outlook
Stefan Ljubisavljevic
+44 20 3037 4247
Stefan.lj@macquarie.com
Macquarie Capital (Europe) Limited
Ropemaker Place
28 Ropemaker Street
London, UK EC2Y 9HD
September 2014
In preparing this research, we did not take into account the investment objectives, financial situation and particular needs of the reader. Before making an investment decision
on the basis of this research, the reader needs to consider, with or without the assistance of an adviser, whether the advice is appropriate in light of their particular investment
needs, objectives and financial circumstances. Please see disclaimer.
Thermal coal price history: spot prices are at a 5year low

6,000 kcal spot price benchmarks
$/t
240
Newcastle
DES ARA
$/t
100
Richards Bay
DES ARA
Newcastle
95
200
90
160
85
120
80
80
75
40
70
Source: globalCOAL, McCloskey, Macquarie Research, September 2014
Page 2
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
65
Jan 13
Jul 13
Jan 14
Jul 14
Presentation outline
A recap of the global thermal coal market today
How are prices determined in the seaborne market
What has gone wrong for the price YTD
A look ahead is it all doom and gloom?
Structural changes in the Chinese coal industry and its seaborne market impact
Policy implications
Page 3
Thermal coal is a 925mt seaborne market

42mt
Russia
23mt
92mt
26mt
135mt
USA
USA
7mt
43mt
EU-28
40mt
10mt
China
15mt
Turkey,
Israel
30mt
224mt
292mt
(139 / 98 / 56mt)
India
4.5mt
Japan, Korea,
Taiwan
132mt
Colombia
130mt
74mt
14mt
112mt
7mt
Other
ASEAN
58mt
48mt
102mt
133mt
Japan 82
Korea 33
Taiwan 18
42mt
Indonesia
Chile
10mt
S Africa
73mt
Major exporter
Major importer
*Including lignite and Vietnamese anthracite. 2013 numbers.
Source: Customs Data, Macquarie Research, September 2014
Page 4
18mt
420mt
Australia
188mt
How are thermal coal prices determined?

There is no natural surplus or deficit in a seaborne market. For every buyer
(importer) you have a seller (exporter).
The Pacific market is key, because it represents 80% of global demand. More
importantly, it contains the marginal producer of coal globally China.
A theoretical seaborne surplus clears through China, by displacing Chinese
domestic production. We model the market with China as the price setter of
Newcastle coal.
In other words, we model China imports as global supply minus ex-China
demand. Chinas overall coal consumption requirement minus this import level
determines a domestic requirement, setting the price.
Relative Atlantic/Pacific basin tightness will then dictate price spreads between
the other key benchmarks, with caps/floors set by price arbitrages.
Page 5
China as the price setter surplus seaborne

market tonnes clear by pricing in to China
RMB/t
950
Chinese domestic thermal coal

prices
5500kcal coal delivered Guangzhou

$/t
155
900
145
850
125
750
115
700
105
650
95
600
85
550
450
Jan 11
Newc 5500kc (Cape f reight)
135
800
500
Shanxi (QHD) 5500kc
5800 NAR
75
5500 NAR
Jan 12
Jan 13
65
Jun 11 Dec 11 Jun 12 Dec 12 Jun 13 Dec 13 Jun 14
Jan 14
Source: SxCoal, McCloskey, Macquarie Research, September 2014
Page 6
Why has thermal coal performed so badly this

year?
Demand globally has been weak
1.05
Supply from key countries

(Australia/Russia) has remained strong
1.00
0.85
0.80
DES ARA
Newcastle
Richards Bay
0.75
Source: globalCOAL, McCloskey, Macquarie Research, September 2014
Page 7
05-Sep
15-Aug
25-Jul
04-Jul
13-Jun
23-May
02-May
11-Apr
21-Mar
28-Feb
The USD has performed strongly
07-Feb
0.70
27-Dec
Crossover tonnes have bled from the

met coal market to the thermal market
0.90
17-Jan
Both the seaborne and China domestic

cost curves have moved lower. At the
best of times, the coal market is not
very efficient
0.95
Demand from key regions has been weak YTD

7M14 YoY change seaborne thermal coal imports
Mt
4
3
2
1
0
-1
-2
-3
-4
Page 8
Other
Pacific
Other
Atlantic
Vietnam
USA
HK
Philippines
Malaysia
Turkey
Taiwan
Korea
EU-28
India
Japan
China
-6
Thailand
-5
Supply from Australia and Russia continues to

grow
7M14 YoY change seaborne thermal coal exports
Mt
10
7
6
2
1
-1
-2
-1
-3
-5
Page 9
Vietnam
Poland
Venezuela
Canada
-8
China
US
SAF
Colombia
Russia
Australia
-10
Indonesia
-7
Sum
-6
-4
Seaborne cost curve, delivered Asia basis. >40%

may be theoretically cash negative, but there are
a number of structural issues preventing cuts
6000kcal-adjusted export supply curve for Thermal Coal
Delivered Asia Cost ($/t) - 6000NAR basis
120
USA
Indo Sub-bit
Other
110
100
Russia
Australia
Colombia
Indo lignite
Spot Price
Indo Bit
South Af rica
90
80
70
60
50
40
30
20
10
Volume (mt)
Source: Macquarie Research, September 2014
Page 10
900
850
800
750
700
650
600
550
500
450
400
350
300
250
200
150
100
50
It has made economic sense for Australian

producers to sell semi-soft coal as thermal YTD
Semi-soft sales into thermal market
40
High ash LV PCI
Rio Tinto SSCC output change

YoY
20%
Semi Soft
35
15%
$/tonne
30
10%
25
5%
20
0%
15
-5%
10
-10%
-15%
-20%
-25%
-5
-30%
-10 Potential bleed to thermal

-15
Jan 12
Jul 12
Jan 13
-35%
Jul 13
Jan 14
Hunter
Valley
Jul 14
Source: Company Data, Platts, globalCOAL, Macquarie Research, September 2014
Page 11
Mount
Thorley
Warkworth
Total
The USD has performed strongly against most

currencies, albeit not against the AUD
DES ARA in USD and EUR terms
(indexed)
1.10
US dollar index
88
1.05
86
1.00
84
0.95
0.90
82
0.85
0.80
DES ARA (USD/t)
0.75
DES ARA (EUR/t)
80
78
05-Sep
15-Aug
25-Jul
04-Jul
13-Jun
23-May
02-May
11-Apr
21-Mar
28-Feb
07-Feb
17-Jan
27-Dec
0.70
76
Jan-12
Source: globalCOAL, McCloskey, Bloomberg, Macquarie Research, September 2014
Page 12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
Looking ahead
Indonesian supply cuts materialising?
Australian export growth when will it slow?
What is going on with Russian supply?
Demand positives: India, Korea
The big black box: China
Policy risks
Macquarie S/D balance
Page 13
Indonesian supply has grown at 17% CAGR over

the past decade
Mt
450
400
Indonesian coal exports

60%
Lignite
Sub-bituminous
350
Bituminous
300
Sub-bit proportion
50%
40%
Mt
450
Indonesian thermal coal exports

Indonesia as % global
400
45%
350
40%
35%
300
30%
250
250
30%
200
150
20%
25%
200
20%
150
15%
100
100
10%
50
0
50%
50
5%
0%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
0%
10%
Source: Indonesian government statistics, Macquarie Research, September 2014
Page 14
It has capitalised well on strong Indian demand

growth
Shares of Indian thermal coal imports
100%
90%
80%
70%
60%
Indonesia
South Af rica
50%
Australia
40%
30%
20%
10%
0%
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Source: Port Data, Macquarie Research, September 2014
Page 15
Jan-11
Jan-12
Jan-13
Jan-14
However on a kcal adjusted basis, costs are

relatively high and signs of supply cuts are emerging
Mt
20
7M14 YoY change in officially

reported Indonesian exports
Implied Indonesian exports (partner

country data)
Mt
6
15
10
-6
-20
Indo Bit
Indo
Indo
Sub-Bit Lignite
Total
Indo
exports
Indo
Met
Total
Indo
thermal
-8
-10
Page 16
Sample total
Italy steam
Spain steam
HK bit
Thailand steam
-15
Taiwan bit
-4
Korea steam
-10
Japan steam
-2
China steam+lignite
-5
China lignite
0
China steam
Macq India port data
Data from mining consultant Salva, shows a similar

trend. Most pressure on new mines.
Salva reported production by
concession type Jan-Jul
YoY
6%
4%
20%
2%
15%
0%
10%
-20%
-14%
Other
Source: Salva, Macquarie Research, September 2014
Page 17
Government
Company
-12%
IUP
-15%
CCOW-3
-10%
TOTAL
-10%
South
Sumatra
-8%
Central
Kalimantan
-5%
South
Kalimantan
-6%
East
Kalimantan
0%
TOTAL
-4%
CCOW-2
-2%
5%
CCOW-1
YoY
25%
Salva reported production by region

Jan-Jul
However that Indonesian production and exports are

falling is far from a consensus view
Output from some key large producers
is still rising (see chart) and others too
(e.g. Kideco) are targeting increased
volumes
Have tighter regulations introduced this
year increased or reduced the black
market?
Implied export data (from partner
countries) should cover illegally
exported material, but some importer
data (e.g India) is laden with error too
Page 18
20%
1H14 YoY production change selected producers
10%
0%
-10%
-20%
-30%
-40%
Adaro
Bumi
Tbk
Harum
ITMG
PTBA
PT
Berau
Australia supply - Take or pays and cost

controls/efficiency drives pushing volumes higher
tonnes
14,000
Whitehaven Coal cash cost trend
New South Wales - saleable coal

output per mineworker per year
AUD/t
FOB
Avg. cash cost
80
12,000
Total production
Mt
8
-A$13/t
30
2,000
20
10
Source: Comapany Data, Coal Services, Macquarie Research, September 2014
2H10
FY14
FY13
FY12
FY11
FY10
FY09
FY08
FY07
FY06
FY05
FY04
Page 19
2H15e
4,000
1H15e
2H14e
40
1H14
6,000
2H13
1H13
50
8,000
2H12
1H12
60
2H11
1H11
70
10,000
Australia supply there is even more growth to

come from new mines ramping up
Mt
200
180
Australian thermal coal exports

Australia as % global
30%
25%
160
YoY
5.0
Potential supply additions from 3

Australian producers
Glencore
Whitehaven
Yancoal
4.5
4.0
140
20%
120
100
15%
3.5
3.0
2.5
80
10%
60
40
5%
20
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
0%
Source: Customs Data, Company Data, Macquarie Research, September 2014
2.0
1.5
1.0
0.5
0.0
2015
Page 20
2016
2017
2018
Russian supply no significant mine capacity

additions. Weak domestic consumption frees up
tonnes for export. Test: hedges will roll off year-end.
YoY
0%
7M14 Russia thermal coal

production and domestic demand
8M14 Power Generation Growth

YoY
8%
-2%
6.01%
6%
-4%
4%
-6%
-8%
2.87%
2.06%
2%
-10%
-12%
0%
-14%
-2%
-16%
Source: Metal Expert, Macquarie Research, September 2014
-4%
Other
Power
Companies
Purchases
f rom:
Domestic
purchases
Thermal
output
-18%
-1.08%
-4.45%
-6%
Total
Page 21
Thermal Nuclear
Hydro
Industrial
Demand Indian growth a key positive

Mt
16
Indian thermal coal imports
Mt
200
India thermal coal annual import

forecast
180
14
160
12
140
10
120
100
80
60
40
20
2011
2012
2013
2014
0
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014F
2015F
2016F
2017F
2018F
2019F
2
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source: Port Data, Macquarie Research, September 2014
Page 22
A key positive because: 1. Domestic supply growth

is weak. Unlikely to change any time soon.
Mt
600
500
India Coal Production Fiscal Year (Apr-Mar)
YoY
20%
2%
CAGR
Other (inc. Captive)

SCCL
CIL
6.5%
Coal India (CIL) supply YOY
Stock
(mt)
60
15%
50
10%
40
5%
30
0%
20
-5%
10
CAGR
400
300
200
100
-10%
0
FY03
FY05
FY07
FY09
FY11
Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14

Production
Dispatches
Stock (rhs)
FY13
Source: CIL, Indian Ministry of Coal, Macquarie Research, September 2014
Page 23
2. Coal reliance still rising, non-coal capacity

development sluggish
Indian power capacity growth
GW
160
MW
25,000
Coal-f ired
All Other
Hydro
140
120
India 12th Plan Coal Capacity

Additions
Bull Case
Bear Case
Actual
20,000
100
15,000
80
10,000
60
40
5,000
20
0
0
FY06
FY08
FY10
FY12
Source: Indian CEA, Macquarie Research, September 2014
FY14
FY13
Page 24
FY14
FY15
FY16
FY17
India thermal coal S/D balance

Fiscal year (Apr-Mar)
FY11
FY12
FY13
FY14
FY15 f FY16 f FY17 f
Coal fired generation (GWh)
534,766 584,193 659,027 713,695 772,236 819,190 860,890
Coal fired capacity (MW)
88,272 106,431 123,865 139,475 149,558 157,049 162,546
Plant load factor
73%
69%
65%
62%
61%
61%
62%
Power generation coal req. (mt)
385
421
474
514
556
590
620
Other sector thermal coal req. (mt)
197
198
190
181
176
173
170
TOTAL 3500 kcal demand
618
665
695
732
763
790
Domestic thermal supply (mt)
483
488
502
511
527
542
559
Implied import demand (3,500 kcal)
130
163
183
206
221
232
Implied import demand (5,000 kcal)
69
91
114
128
144
155
162
YoY change
22
23
15
16
11
8
Page 25
Demand Korea is the other area of key growth.

Significant capacity additions to alleviate power grid
pressure
South Korea's coal capacity
utilisation
100%
GW
40
Anthracite
35
90%
South Korea's coal capacity (yearend)

Bituminous Coal
30
80%
25
70%
20
15
60%
10
50%
Anthracite
Bituminous Coal
40%
1992
1996
2000
2004
2008
2012
2003
Page 26
2006
2009
2012
2015F
Wave of new Korean power plants

Power Company Subsidiary
Unit
Capacity (MW)
Fuel
Start-up
2014
2014
2015
2015
2016
2016
2016
2016
2016
2016
2016
2016
2016
2017
KEPCO
Kosep
Yeongheung 5
870
Bit Coal
KEPCO
Kosep
Yeongheung 6
870
Bit Coal
KEPCO
Kewespo
Dangjin 9
1,000
Bit Coal
KEPCO
Kospo
Samcheok 1
1,000
Low grade
KEPCO
Kewespo
Dangjin 10
1,000
Bit Coal
KEPCO
Kospo
Samcheok 2
1,000
Low grade
KEPCO
Komipo
Sinboryeong 1
1,000
Bit Coal
KEPCO
Kowepo
Taean 9
1,000
Bit Coal
KEPCO
Kowepo
Taean 10
1,000
Bit Coal
STX Electric Power
Bukpyung 1
595
Bit Coal
STX Electric Power
Bukpyung 2
595
Bit Coal
Dongbu Energy
Dongbu 1
550
Bit Coal
Dongbu Energy
Dongbu 2
550
Bit Coal
KEPCO
Komipo
Sinboryeong 2
1,000
Bit Coal
12,030
Source: KPX, Company data, KEPCO, Macquarie Research, September 2014
Page 27
Koreas 6th plan sees even more (mainly nonKEPCO) capacity being added
Total scheduled coal capacity additions
GW
8
7
6
6th plan
5
4
3
2
1
0
2014
2015
2016
Source: KPX, Company data, KEPCO, Macquarie Research, September 2014
2017
Page 28
2018
2019
2020
2021
Korean import tax has not impacted demand, just

supply sources
USD/kWh
0.25
Korean power generation costs

Korean coal import tax implemented 1 July:
Oil
Coal spec
LNG
0.20
(kcal)
Coal
0.15
Jan-11
Source: KPX, Macquarie Research, September 2014
($/t)*
($/t)**
($/t)
Tax as %
Indonesia
17
16.2
51.9
68.9
24%
Indonesia
17
16.2
55.8
72.8
22%
4900 NAR
Indonesia
17
16.2
64.3
81.3
20%
5500 NAR
Australia
19
18.2
60.7
79.7
23%
6000 NAR
Australia
19
18.2
66.1
85.1
21%
6000 NAR
Russia
19
18.2
68.6
87.6
21%
0.05
Jan-09
(KRW/kg)
FOB price Tax. inc price
3800 GAR
** 6,000kcal NAR adjusted
Jan-07
Tax
4200 GAR
* Based on current FX
0.10
0.00
Jan-05
Source
Tax
Jan-13
Page 29
China the cost curve is key but it is flexible. We

now think the top of the curve is no higher than 520
RMB/t, from our start-of-the year 600 RMB/t
Shanxi small
mine rail
700
RMB/t
600
500
Yanzhou
Inner Mongolia
rail
Hebei small
mines trucked
Shanxi small
mine trucked
Inner Mongolia
trucked
Other Shanxi
SOE
VAT
China Coal
Transportation
cost
400
300
Shenhua
200
Tax, fees and

others
100
Cash cost
0
mnt
Source: Company Data, Macquarie Research, September 2014
Page 30
This has put significant pressure on prices and has

not been helped by weak consumption
Mt
30
Chinese seaborne thermal coal

imports
YoY
Modelled Chinese consumption

growth
25%
25
20%
20
15%
10%
15
5%
10
0%
5
2014
2012
-5%
2013
2011
-10%
Jan-11
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source: Customs Data, NBS, Macquarie Research, September 2014
Page 31
Jan-12
Jan-13
Jan-14
Weak consumption due to weak thermal power

generation and improving plant efficiency
Jan-Aug YoY power output growth
YoY
20%
Bn t
2.0
18%
16%
1.9
Chinese coal consumption by power,

cement and fertiliser sectors
Assuming f lat 34.5% ef f iciency
Assuming ef f iciency
improvement of 2% pa
14%
12%
1.8
10%
8%
1.7
6%
4%
1.6
2%
0%
Thermal
Hydro
Nuclear
Wind
Source: NBS, Macquarie Research, September 2014
Total
1.5
2010
Page 32
2011
2012
2013
Medium-term, we see power capacity development

remaining favourable for coal
MW
800,000
700,000
2013 to 2020 China power capacity

additions: Macquarie forecast
Coal-fired share of total power capacity

80%
55%
75%
600,000
70%
500,000
65%
400,000
60%
40%
55%
300,000
200,000
100,000
50%
178%
18%
45%
297% 238%
40%
35%
Page 33
2020E
2019E
2018E
2017E
2016E
2015E
2014E
2013
2012
2011
2010
30%
The major concerns are: 1. A further move lower in

the cost curve (by 30-50 RMB/t) following railway
debottlenecking by 2016
Source: Railway Ministry, CCTD, Macquarie Research, September 2014
Page 34
The major concerns are: 2. Import restrictions.

China to Australia thermal coal trade
Mt
Exportable Australian thermal coal 16% ash 1% sulphur cutoff
70
China imports f rom Australia
60
Australia exports to China
19%
50
Meets threshold
40
Does not meet

threshold
30
20
81%
10
2014
ann.
2013
2012
2011
2010
2009
2008
2007
Source: Wood Mackenzie, Customs Data, Macquarie Research, September 2014
Page 35
To conclude
Market likely to remain under pressure over next 18-24 months
Chinese costs could fall further and policy risk remains
There is more supply from Australia to come
A lack of large-scale supply cuts means that market rebalancing will take time
However, longer-term import demand prospects from India and Korea look good
And Chinese consumption prospects also look positive medium-term
Slowing (maybe negative) export growth from Indonesia will help market
rebalancing. 17% CAGR export growth rates are a thing of the past
Page 36
Macquarie S/D balance assuming steady

Indonesian supply growth. Chinese imports need to
fall for stronger pricing to be realised.
Dem and (m t)
EU-28
Turkey
Other Atlantic
Korea
Taiw an
Japan
India
Other Pacific
Total Ex-China
(Required) Chinese imports
2011
125
19
41
100
55
122
85
78
623
165
2012
138
24
40
98
54
134
107
81
675
215
2013
135
21
34
98
56
139
132
90
703
224
2014F
134
21
40
99
55
142
140
90
721
223
2015F
132
22
40
102
55
142
152
93
739
220
2016F 2017F
130
126
24
26
40
42
115
125
56
58
142
141
161
168
98
105
765
791
218
207
2018F
122
28
44
127
60
141
175
114
810
191
2019F
122
29
47
135
62
141
180
119
834
173
Supply (m t)
Australia
Indonesia
South Africa
Colombia
Russia
USA
Other
Total
2011
148
349
69
76
70
31
49
792
2012
171
380
75
80
85
48
38
877
2013
188
420
73
74
92
43
35
925
2014F
200
430
75
75
98
34
32
944
2015F
209
435
77
82
99
26
31
959
2016F 2017F
214
218
440
445
80
82
92
97
100
100
26
26
31
29
983
997
2018F
220
445
83
99
100
26
28
1,001
2019F
221
445
84
101
100
26
30
1,007
(14)
(3)
Notional Balance
Page 37
Important disclosures:
Recommendation definitions
Volatility index definition*
Macquarie - Australia/New Zealand
This is calculated from the volatility of historic price

movements.
Outperform return > 3% in excess of benchmark return

Neutral return within 3% of benchmark return
Underperform return > 3% below benchmark return
Benchmark return is determined by long term nominal GDP growth
plus 12 month forward market dividend yield.
Macquarie Asia/Europe
Outperform expected return >+10%
Neutral expected return from -10% to +10%
Underperform expected <-10%
Very highhighest risk Stock should be expected to

move up or down 60-100% in a year investors should be
aware this stock is highly speculative.
High stock should be expected to move up or down at
least 40-60% in a year investors should be aware this
stock could be speculative.
Medium stock should be expected to move up or down
at least 30-40% in a year.
Lowmedium stock should be expected to move up or
down at least 25-30% in a year.
Macquarie First South - South Africa

Low stock should be expected to move up or down at

least 15-25% in a year.
Macquarie - Canada
Financial definitions
All "Adjusted" data items have had the following adjustments
made:
Added back: goodwill amortisation, provision for
catastrophe reserves, IFRS derivatives & hedging, IFRS
impairments & IFRS interest expense
Excluded: non recurring items, asset revals, property
revals, appraisal value uplift, preference dividends & minority
interests
EPS = adjusted net profit /efpowa*
ROA = adjusted ebit / average total assets
ROA Banks/Insurance = adjusted net profit /average total
assets
ROE = adjusted net profit / average shareholders funds
Gross cashflow = adjusted net profit + depreciation
*equivalent fully paid ordinary weighted average number of
shares
* Applicable to Australian/NZ stocks only

Recommendation 12 months
All Reported numbers for Australian/NZ listed stocks are

modelled under IFRS (International Financial Reporting
Standards).
Note: Quant recommendations may differ from

Fundamental Analyst recommendations
Macquarie - USA
Recommendation proportions For quarter ending 30 June 2014

Outperform
Neutral
Underperform
AU/NZ
51.67%
33.00%
15.33%
Asia
60.69%
23.93%
15.38%
RSA
34.67%
38.67%
26.67%
USA
42.33%
50.92%
6.75%
CA
55.41%
38.51%
6.08%
EUR
44.84%
35.87%
19.28%
(for US coverage by MCUSA, 6.76% of stocks followed are investment banking clients)
Page 38
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Page 40
Conference 2014
New Paradigm for Coal Producers

PT Toba Bara Sejahtra Tbk (Toba)
Macquarie Conference
Jakarta, 23rd September 2014 1
Presented by: Pandu P. Sjahrir
Content
Snapshot of Global Coal Industry Structural Problem
Cost Management Challenge for Domestic Coal Producers
Regulatory Framework towards Energy Security
Prospects of Domestic Power Demand Market
Business Model for Coal Producers
Snapshot of Global Coal Industry Structural Problem
Structural Issues Causing Protracted Low and

Volatile Coal Prices
Excess supply
Global
Seaborne
Factors
Weaker Chinese import demand

due to domestic factors
(Economic, Environmental &
Regulatory Pressures)
Newcastle coal price declined from ~US$ 93,0

in 1Q2013 to 73,1/ton 2Q2014
This condition leads to survival of the
fittest where only those with lowest cash
cost are able to survive
Costs of renewables &

substitutes on decline
Global
Cost
Factor
Rising global cash cost
Cost Management efforts not commensurate

with weakening coal prices, resulting in
margin squeeze and tougher competition
among seaborne coal producers
And closer to home (Indonesia)
Domestic
Factors
Significant amount of
unaccounted coal volume
ending up in seaborne market
Potential increase in
Royalty and Export Tax
Decrease in profitability and competitive

advantage among seaborne coal producers
4
Excess Supply in Global Coal Expected

to Continue, and Indonesia is Major Supplier
~40% of total
seaborne coal
supply is estimated
to derive from
Indonesian output
Global
projection
indicates supply
is expected
grow at higher
volume than
demand
5
Source: McCloskey, Deutsche Bank Report (January 2014)
Indonesian Coal Production from Unaccounted Coal

Output Reached ~75 Million Tons in 2013, up by 34%
from 2012
2012
BPS
Ministry
of Energy
& Public
Co.
2013
Export (a)
384.4 mln
Export (a)
Domestic
Consumption
67.5 mln
Domestic
Consumption
(b)
424.2 mln
(c)
72.0 mln
TOTAL
451.9 mln
TOTAL
496.2 mln
CCOW and
IUP
395.6 mln
CCOW and
IUP
421.0 mln
Potential Illegal Mining

Identified
56.3 mln tons
Potential Illegal Mining

Identified
75.2 mln tons
Sources:
(a) BPS: Central Agency of Statistics, Export data YTD 2012 & 2013
(b) Kepmen 909.K/30/DJB/2012 d
(c) Directorate General of Ministry of Energy, R.Sukhar, 3 January 2014, www.inilah.com
Cost Management Challenge

for Domestic Coal Producers
7
Existing Cost Reduction Strategies Already at Optimum (i)

Option
1
Reduce SR
Implication
Latest Development
Most producers will have
maximized lowering SR
during 2014
Further push may compromise

long term mine plan (hurting
margins, cash flow, reserves)
Industry SR as largest production cost component bottoming out

Cost to Go Up as SR Downtrend Reverses
Source: Deutsche Bank

Source: Company Data, Morgan Stanley Research. E = Morgan Stanley Research estimates
Source: Result of FGD Analyses
Existing Cost Reduction Strategies Already at Optimum(ii)

Option
2
Reduce Fuel
Cost
Negotiate with
Contractor
Optimize
Production
Latest Development
Implication
Reliance on expensive
diesel fuel consumption
remains high while oil price
is on uptrend
Decline in investment in
greenfield exploration
Lower long term growth of
industry
Most producers have

maximized renegotiation
efforts for lower tariffs
Price war among contractors

may affect productivity and
quality
Significant rise in production

to reach economies of scale
is no longer viable at current
low prices
For smaller producers with low

CV coal and rising costs,
continued weak coal price
should also result in much
lower production growth or
mine closure
Source: Result of FGD Analyses
Capital Expenditure on Downtrend

Historical Capex of 10 Indonesian Listed Coal Companies
1,400
1,200
1,000
800
600
400
200
2009
2010
2011
2012
2013
Decline in CAPEX due to lower coal price, resulting in most coal producers
cutting back on expansion and exploration
10
Source: Bloomberg Based on 10 Listed Companies Data
Regulatory Framework towards Energy Security
11
Government Policies (2009-2014) Emphasized on Securing

Domestic Supply (i)
Since enactment of New Mining Law of 2009, government has been in pursuit of :
Achieving national energy security and ensuring coal supply for domestic
consumption
Targeting higher tax and non-tax revenue from mining sector
2009
NEW MINING LAW NO. 4 of 2009
Several provisions related to securing
domestic supply:
Domestic Market Obligation (DMO):
Coal producers are required to supply coal
to meet domestic needs;
Obligation to process and refine/smelt
mining products domestically;
Renegotiation of CoW in favour of
domestic interests.
2011
OCTOBER 2011
President gave speech reiterating
importance of implementing Energy
Security Policy over next 3 years where
mining industry should contribute more to
countrys economic development.
12
Government Policies (2009-2014) Emphasized on Securing

Domestic Supply(ii)
2013
APRIL 2013
Discussion on Export Tax for Coal
Government contemplated imposing export tax on
coal for first time.
MID 2013
Discussion on Royalty Hike for Coal
Government contemplated implementation of royalty
hike on coal of IUP from existing 3%-7% to 10%13%.
DECEMBER 2013
Production Cut
Government cut production for 2014 by +/-10% (40Mt
and keeping YoY production flat). Rationale: 1)
addressing oversupply issue; 2) preserving coal
reserves. Most CCoW coal producers would be
subject to this cut due to requirement of submitting
annual production plans to government for approval.
2014
JANUARY 2014
Export Ban for raw minerals.
APRIL 2014
Mine Mouth Regulation issued by
Minister of MEMR No. 10 of 2014 on
Procedures of Supply and Coal Pricing for
Mine-Mouth Power Plant. This regulation
provides certainty for coal producers
to enter into mine mouth power
projects.
JULY 2014
Ministry of Trade issued regulation
requiring coal producers to be officially
registered as exporters to conduct export
activity. This is extra red tape for existing
exporters to meet in order to export.
13
Prospects of Domestic Power Demand Market
14
Indonesia Power Sector is Underrated
USA
314 millions inhabitants
1,039 GW capacity installed
3.31 kW/pers
Germany
82 millions /178 GW
2.18 kW/pers
China
1.35 billions / 1146 GW
0.85 kW/pers
France
66 millions/124 GW
1.90 kW/pers
Thailand
67 millions / 33 GW
0.50 kW/pers
X3
Japan
127 millions / 287 GW
2.26 kW/pers
Malaysia
29.6 millions / 25.4 GW
0.86 kW/pers
Singapore
5.5 millions / 10.3 GW
1.87 kW/pers
Indonesia
247 millions / 41 GW
0.17 kW/pers
Source: Wikipedia, CIA, World Bank
15
Low Domestic Coal Consumption for Power

Generation
Comparison Indonesia vs China
Population
Electric Power
Consumption (a)
1:5
Current Domestic
Coal
Consumption:
~1.8 bn Ton
Current Domestic Coal

Consumption: ~70 Mn
ton
Easiest
Solution
Indonesia Scenario:
To increase Electric
Power
Consumption
against Chinas
ratio
Increasing
Electric Power
Consumption
through
empowerment
of coal fired
power plants
by doubling
domestic coal
consumption
Increase electricity power consumption through

coal fired power plant to increase domestic coal
consumption to >150 mn, an increase from current
consumption at ~70 mn tons
Source:
(a) Wordbank.org, data indicator (2012),
- China Electric Power Consumption: 3.298kWh/Capita and Population: ~1.4 bn
- Indonesia Electric Power Consumption: 680kWh/Capita and and Population ~245 mn
Growing Indonesia Electricity Market

Low electrification ratio demonstrates room for growth
Source: PLN , MEMR, World Bank
With higher income levels, electricity demand is

expected to continue to increase
Ongoing transformation in cross-industry sectors

has also increased high electricity demand
Indonesias per capita consumption of electricity,

electrification levels and the installed capacity levels
are amongst the lowest in Asia
Need for substantial increase in generating capacity
is evident by increasing number of power outages in
recent years
With Government aiming to achieve > 90% electrification rate by 2019, PLN Programs such as Fast
Track and IPP are enforced to attract Private Sector to enter into Electricity Sector
Coal as One of Indonesias Major Energy

Sources
Domestic energy demand growth of 9-11% in

2014-15, 8-10% until 2022, and expected to
further surpass ~4-5% export growth due to
continued progress of PLNs Crash-Power
program
Hydro
8%
Indonesias Primary Energy Supply

(2013)
Others
0%
Diesel
12%
Geothermal
4%
213 TwH
Coal
52%
1.8GW of coal fired power plants was

completed in 2013
Gas
24%
PT PLN targets additional 3.3GW in 2014

Existing installed capacity ~40-45 GW and
projected to increase to 110GW in 2022
Indonesia Target Energy Mix

(2022)
Indonesia Coal Demand

Geothermal
11%
Hydro
5%
Gas
16%
Source: PLNs RUPTL
Source: Morgan Stanley Research
Diesel
2%
Others
0%
440 TwH
Coal
66%
18
What Opportunities Lie for Domestic Producers

Coal remains to be cheapest energy source
backed by more than sufficient reserves
Cost Comparison among Different Fuel Sources
Growth in domestic coal demand will be driven

by rise in usage by PLN utility, IPPs, and
industries
Indonesias total electricity consumption/capita
remains low at ~0.7 MWh vs Chinas 3 MWh,
Japans 8 MWh, and Taiwans 10.7 MWh
Source: Bloomberg, Morgan Stanley Research
Industrials Fuel Source Trend
Source: MEMR Handbook of Energy & Economic Statistics 2012, Morgan Stanley
Research
PLN and IPP Power Generation Requirement
19
Source: MEMR Handbook of Energy & Economic Statistics 2012, Morgan Stanley
Research
Business Model for Coal Producers
20
Create Downstream Synergy through Power Sector

Backed by Continuous Reserve
Short -Term
Focus on continuous
improvement in cost
efficiency
Protect and maximize

margin in prolonged
weak & volatile coal
price environment
Run executable mine plan focusing on

profitable production growth
Deploy financial hedging (coal & fuel price)
Source cheaper substitute energy to replace
diesel fuel
VERTICAL DIVERSIFICATION
Short-Medium Term
Generate higher
portion of durable
cash-flow, improving
margin over time
Commercially-viable
Build and operate coal-fired power plant and
optimizing supply for domestic consumption
Medium-Long Term
Commercially-unproven
Identify revolutionary technology to convert
coal to new source of energy or raw material
for industry
Legal Jurisdiction and Govt. incentives needed
Continuous increase in coal reserve via concession acquisition

Build sustainable cash-flow
Increase margin
21
Short-Term Solution Sustainable & Profitable

Production Growth
Operation
!
!
Control costs within production chain

Maintain stable healthy cash flow via optimal AP/AR management
and keep low leverage balance sheet
Deploy hedging program in both fuel and coal prices to
protect margin
Streamline each business unit to become financially independent
Finance
Marketing
Create mine plan executable for the current low coal

price environment
Operate mine plans that maximize coal extraction
Ensure contractors follow and execute mine plans effectively
To switch from diesel fuel to cheaper source of energy
Executed
by
Competent
Human
Resources
Build well-diversified customer base and export market coverage

Generate good quality sales backed by quality buyers and favorable
terms of payment
Maximize ASP via securing tighter discount at given Newcastleadjusted coal price
Urgently relevant in current coal environment

22
Short-Medium Term Move Downstream into Power

Sector for Sustainable and Durable Cash flow
OPPORTUNITY
Having both upstream capacity and financial

resources, power business is natural extension of
existing business
Cash flow certainty in power makes it more
attractive place to invest for commodities players
Great challenge: government policies must promote
existing domestic resources effectively and execute
Land Acquisition Law
Synergy between Coal Producer and Government must be Win-Win
COAL
PRODUCER
GOVERNMENT
Add further value within coal industry value chain

through IPP (Independent Power Producer) or MineMouth
Lower government subsidies on diesel fuel as
electricity source of energy where production cost of
using coal fuel is cheaper
Facilitate coal producer with incentives (reasonable
min IRR) and well-supported procedures in building
power plant
Encourage use of domestic coal for internal
consumption as power plant fuel source
Typical PPA Structure
Power Purchase Agreement

25 years
Long-Term
Off-taker
Coal- Fired
Power Plant
Power Supply
PROS
1 Not susceptible to
fluctuation in coal prices
2 Stable cash-flow
3 Energy independency
CHALLENGES
PROS vs CHALLENGES ANALYSIS

1 Political will
2 Support from ESDM & Local SOE
3 Support from Bank to provide funding

4 Selection Process
5
Credibility
Need Government Support in Land

Acquisition
Medium-Long Term Revolutionary Technology to

Increase Value Add of Coal
In long run, properties of coal should be continually upgraded via
usage of revolutionary technology and become:
OPPORTUNITY
New cleaner and/or cheaper form of energy

Raw material/feedstock for industrial process
Objective: To further enhance coal producers pricing power of coal in
market place, hence maximizing margin
Much of technology remains commercially unproven

Pilot projects depend on initiative of coal producer and technology
owner to assess projects economic viability
CAPEX needed to run feasibility studies/pilot projects
CHALLENGES
Government Role:
Give Incentives: ie. tax holiday
Provide clear-cut legal jurisdiction and one gateway for license/permit
approval
Thank You
26
Conference 2014
Powering Indonesias long term energy needs
Achmad Sudarto, Finance Director of PT Bukit Asam

Presented at Macquarie Indonesia Commodities Conference
Jakarta, 23 September 2014
NATIONAL PRIMARY ENERGY MIX 2011 - 2030
In the future the role of oil and

gas will decline. The decline of
oil and gas share in the national
supply will be substituted by coal
and new renewable energy. Coal
is expected to replace the
dominance of oil in 2020 and the
share of coal rises from 23% (in
2011) to 39% (in 2030).
Source: Indonesia Energy Outlook 2013, Agency For The Assesment and Application of Technology
Page 1
INDONESIAN COAL DISTRIBUTION
Total Coal Resource: 161.34 billion tons

Lignite (20%), Subbituminous (66%), bituminous (14%)
Source: Geological Agency, 2014
Total Coal Reserve: 31.3 billion tons

Lignite (29%), Subbituminous (60%), bituminous (11%)
Page 2
COAL DEMAND 2011 - 2030
Source: Indonesia Energy Outlook 2013, Agency For The Assesment and Application of Technology
Page 3
TARGET OF ENERGY MIX FOR POWER PLANT
Electricity efficiency effort is conducted through diversification of primary energy in

power generation (supply side) by optimising utilisation of gas, reducing oil
consumption, increasing coal utilisation, and developing renewable energy power
generation;
Coal and Gas are priority to reduce dependance on oil in power generation;
Coal wil be mainstay as base load power plant and gas as load follower plant.
Source: The Business Plan of Electricity Supply (RUPTL) PT PLN, 2013 - 2022
Page 4
OVERVIEW OF INDONESIA ELECTRICITY CONDITION

Electricity Consumption (TWh)
Installed Capacity (MW)

104431
386
97958
359
92310
334
85152
310
287
75883
266
246
65310
226
59911
45253
47868
51214
208
53933
39885
134
31959 33983
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2009
147
2010
158
2011
174
2012
188
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Total Installed Capacity (2013): 47,868MW (PLN 74%, IPP 22%, and PPU 4%)
Electricity Consumption (2013): 188 TWh (Household 41%, Industry 34%, Business 19%, Public 6%)
Demand Growth: 7.8% (2013), 10.1% p.a (projected up to 2031)
National Electrification Ratio (2013): 80.51%
Several area are facing limited electricity supply
Energy mix in power production (2013): Coal 51.6%, Gas 23.6%, Oil 12.5%, Hydro 7.9%, Geothermal 4.4%
Total investment in Power Sector (2012): USD 7.16 billion
Source: Projection and Planning based on RUPTL PLN 2013 - 2022
Page 5
FUEL MIX FOR POWER PRODUCTION 2013 - 2022
In terms of production costs, coal has the

highest efficiency when compared to other
fuels. The following is a comparison of coal
relative to others in generating electricity per
Kwh:
Coal (Rp.500); Hydro (Rp.800); Gas (Rp.900);
Diesel (Rp.1800)
Source: PLN, 2014, Company Estimates
Page 6
ELECTRICITY DEMAND GROWTH 2013 - 2022
Source: PLN, 2014
Page 7
COAL DEMAND FOR POWER PLANTS 2014 - 2022
Source: PLN, 2014
Page 8
THE DEVELOPMENT OF TRANSMISSION LINE & POWER PLANTS SUMSEL 8, 9 & 10

PTBA mine operation location
Awarded to PTBA
Tanjung Enim
Converter
In bidding process
Banko
Bogor
Inverter
Source: PLN, 2014
Page 9
PTBA COAL RESOURCES, RESERVES AND INFRASTRUCTURES LOCATIONS

Mining Business License (IUP)
Total Resources
7.29 billion tons
Tanjung Enim Mine
Total Mineable Reserves
1.99 billion tons
66,414 Ha
Ombilin Mine
2,950 Ha
Peranap Mine
18,230 Ha
IPC Mine
PERANAP MINE
Recources : 0.79 billion tons
Mineable : 0.37 billion tons
3,238 Ha
Total
90,832 Ha
OMBILIN MINE
Resources : 0.10 billion tons
Pekan Baru
TELUK BAYUR PORT

Stockpile
: 90,000 tons
Throughput : 2.5 M tpa
Vessel
: 40,000 DWT
Padang
Peranap
Teluk Bayur
Ombilin
KERTAPATI PORT
Stockpile
: 50.000 tons
Throughput : 2.5 M tpa
Barging
: 8,000 DWT
TANJUNG ENIM MINE

Resources
: 6.36 billion tons
Mineable
: 1.59 billion tons
Installed Cap. : 20 M tpa
Palembang
Tanjung Enim
Kertapati
PTBA has huge coal resources of

6.36 billion tons which is located
in single area in Tanjung Enim,
South Sumatera. It is quite
potential to feed more mine
mouth power plants during their
life times which are being
developed in this area.
Samarinda
IPC MINE
Resources : 0.045 billion tons
Lampung
Tarahan
Jakarta
TARAHAN PORT
Stockpile
: 560,000 tons
Throughput : 13 M tpa
Vessel
: 80,000 DWT
Source: PTBA, 2014
PTBA core operations
Page 10
PTBA MINE MOUTH POWER PLANT PROJECTS ACROSS SUMATERA

800-1200MW Power Plant
- Location
: Peranap Riau
- Coal Cons.
: 8.4 M tpa
- COD
: 2018
By 2020, PTBA is going to

supply coal approximately 25
million tons to its mine
mouth power plants with
total capacity of 4,766MW
3x600MW Sumsel 9&10 PP

- Location
: Muara Enim
- Coal Cons.
: 8.4 M tpa
- COD
: 2018
2x110MW Power Plant
- Location
: Banjarsari
- Coal Cons.
: 1.4 M tpa
- COD
: 2014
2x620MW Power Plant

- Location
: Central Banko
- Coal Cons. : 5.4 M tpa
- COD
: 2017
3x10MW Power Plant

- Usage : Internal Mine Sites
- In Operation since Oct 2012
2x8MW Power Plant

- Usage : Internal Port Sites
- In Operation since Dec 2013
Riau
Palembang
Tanjung Enim
Lampung
4x65MW Power Plant

- Location
: Tanjung Enim
- In Operation since 1987
Source: PTBA, 2014
Tender / Cooperation Process

Existing Projects
Page 11
PTBA PROJECTED COAL OUTPUT VOLUME TO 2017 ONWARDS

In Million Ton
44.0
PTBA Projected Coal Sales Volume to 2017

34.0
31.0
TE System Production
25.0
Total Sales
Railways Transportation
12.4
2009(A)
Source: PTBA, 2014
12.9
2010(A)
13.4
2011(A)
15.3
2012 (A)
17.8
2013(A)
2014(F)
2015(F)
2016(F)
2017(F)
Page 12
CLOSING REMARKS:
1. Indonesia has a very large coal resources of about 161 billion tons, with reserves of 31 billion tons. Of
which 53% of the reserves are located in South Sumatra. Going forward, with the large coal reserves,
it should be prioritized to meet the needs of domestic coal supply which continues to increase,
particularly for power generation.
2. The role of coal as fuel for power generation has increased from year to year. Of 51.6% (66 million
tons) in 2013, then 73 million tons in 2014, up to 66% (151 million tons) in 2022, even after 2012,
coal demand for power generation is above 150 million tons per year. Therefore, to fulfill the high
electricity demand over the next 10 years, Coal Fired Power Plant is still dominant to be developed,
including the development of Mine Mouth Power Plant across Indonesia archipelago.
3. PTBA, which is transforming as a leading energy company in the country, with large resources of coal
(7.29 billion tons) and reserves of 1.99 billion tons, has the potential to become a reliable supplier to
the national power generation in the long run. By the year 2020, PTBA has the capacity to supply coal
approximatley 25 million tons per annum to meet the needs of its mine mouth power plants with a
total capacity of about 4,766MW.
Page 13
Conference 2014
A TIME TO INNOVATE
AND INVEST
MACQUARIE
INDONESIAN COMMODITIES
CONFERENCE
23rd September 2014
BRITMINDO GROUP
Professional Mining Services
At the Crossroads Challenges and Opportunities

World coal prices have remained depressed for more than two years when
compared with the highs of 2008 and 2011, however dont forget similar
low coal pricings were experienced in 2009.
Indonesian Coal Production will still accrue to 410 Mt in 2014 which will
be in line with 2013 number of 420 Mt thus demand remains strong
despite the current long term low coal prices .
Indonesias coal production based on heat value of Calorific Value (CV)
going forward will see average reductions over the next 5 years of around
8%.
Traditional markets like Japan will have to readjust its appetite for better
quality Indonesian Coals do something different or go elsewhere.
The big seven in Indonesia are still providing nearly 65% of the total
production of 260 Mt both domestically and overseas.
The Indonesian Government is mooting A Cap on production quotas to
conserve national resources and improve pricings.
At the Crossroads Challenges and Opportunities

Legislation is being mooted to charge a standard royalty tax rate (currently
13.5% at CCoWs) across all coalmines - irrespective of coal quality type.
Export Licence Requirements newly introduced for all mining companies
wishing to sell coal outside of Indonesia (i.e. managing illegal export sales)
Possible other tariffs on export tonnages.
China suggesting that caps will be applied on quotas of Indonesian imports
of certain low CV quality.
India is facing massive coal supply issues to both existing and proposed
power plants.
Significant reliance on Kalimantan river systems for much of the coal
production transportation from ports to customers.
In Sumatra other that PTBA (which uses rail) most of the coal
transportation relies heavily on public highways using small trucks.
Industry sources suggest that nearly 70 Mt per year is mined illegally
Source IEA South East Asia Energy Outlook Sept 2013
Estimated Production from Indonesia to 2035
1990
Indonesia
Vietnam
Rest of ASEAN
Total ASEAN
Share of World
8
4
6
18
0.6%
2011
296
36
17
348
6.3%
2020
449
38
25
512
8.5%
Source IEA South East Energy Outlook Report Sept 2103
2025
489
39
26
554
9.0%
2030
519
40
27
586
9.4
2035
549
41
26
616
9.7%
20112035
2.6%
0.6%
1.8%
2.4%
n.a
Forecast Indonesian Production to 2020

Forecast Indonesian Coal Production by Quality
High Rank
Medium Rank
Low Rank
Million Tonnes (Mt)
500.0
400.0
300.0
200.0
100.0
2011
2012
2013
2014
2015
Year
2016
2017
2018
2019
2020
Coal Quality Average Projection to2020

Projected Quality Trends to 2020
5,600
5,500
CV (Kcal/Kg)
5,400
5,300
5,200
5,100
5,000
4,900
Average Weighted CV (Kcal/Kg)
2013
2014
2015
2016
2017
2018
2019
2020
5,526
5,433
5,351
5,322
5,271
5,222
5,174
5,150
The Influence of Transportation and Logistics

Indonesia Mining Industry is becoming increasingly adversely affected by
logistic issues and increasing transportation costs - even the CCoWs are
experiencing longer coal evacuation distances to navigable water.
In Kalimantan the original mines in the early 1990s (except Adaro) were
generally well below 40 km haul to navigable water but now they are
experiencing greater distances, land compensation issues, and operating
costs .
Many recent developing mines are mooting hauling over 100 km to get to
a port which at todays coal pricing structures makes them very marginal.
The building of new haul roads is being severely curtailed by land
acquisition and compensation issues.
Proposals for the construction of railways and multi user ports have been
around for sometime but high capital costs and uncertainty about markets
and captive use continue to dog the project do-ability.
Infrastructure Requirements
Government is still proposing multi user ports to handle coals from
various locations within coal mining regions.
For many years railway systems have been mooted in East Kalimantan to
provide better and more efficient access to many of the inland coal fields
which have previously been inaccessible due to logistical issues.
PTBA and KAI are upgrading the railway link to Tarahan Port to boost coal
tonnage throughput capacity to their port.
In Sumatra only a number of purpose built non public haul roads have
been constructed to accommodate coal traffic (such as the Servo Haul
Road at Lahat)
In Jambi, as previously in South Kalimantan, the use of public roads for
coal hauling has in some cases been stopped due to local complaints.
Similar issues have been noted in the Bengkulu Area with access to Pulau
Bai only by continued use of public roads by small trucks.
So what does all of this tell us

The significant increases experienced by Indonesia in terms of coal
production over the last 20 years appears to be slowing down.
IEA forecasts suggest that Indonesian Coal Production will stabilise
somewhere around 450 Mtpa up to year 2020.
Government and Industry pressure to cap levels of production will likely
underpin this view and will likely impact on any major new coal mining
projects coming on line.
The sexy image of coal in 2008 and again in 2011, when significant
capital investments were noted, has been diminished by continued over
supply issues and low pricing over the last 2.5 years.
Over time lower CV coals will only be available, thus operating costs and
transportation logistics will become more critical for most mine owners.
Most adjustments in upward coal production will be met by the major
players who have large operating mines, with significant coal reserves
and infrastructure in place (albeit that it may be creaking in many areas)
So what does all of this tell us

Given the what has been stated before, most likely internal capital
investment will only come to existing operations if there is a real case to
improve bottom line by doing something fundamentally different over a
long term business case or radically improve costs over short term.
Without Central Government Intervention by way of an Energy Policy
overarching a Coal Mining Policy, there will be little confidence by Mining
Companies or Investors to make or financially support significant changes
in current mining and transportation methods over the medium tolong
term.
With so much plant and equipment lying around very few mining
contractors are investing in new equipment most are trying to get more
operating life hours out of current mining equipment.
Many companies will try to add value by using coal products for different
downstream value adding projects e.g. local power plants, coal
beneficiation, ethanol conversion, coal to gas projects and CBM projects .
Innovations in Mining Operations

Indonesia is without doubt a shovel and truck environment.
Only exception is PTBA where they are using Bucket Wheel Excavators.
Some deep mines have conducted Feasibility Studies into Inpit Crushing,
namely Wahana, Kideco, Arutmin and Adaro.
A number of dragline studies have been commissioned but unless the
mine is operating with flat seams and competent material to build stands
for safe dragline operations the application is likely not to work.
Dozer pushing has been tried and tested in some mines where the
geometry permits but applications are again limited.
Throw blasting has been tried but pit dimensions and the need to sleep
some major blasts (to be effective) has restricted the potential of this
application.
Auger Mining has been undertaken at some mines but is limited if it
conflicts with the overall mine sequencing plan.
Innovations in Mining Operations

Continuous Miner Underground Systems have been tried in a number of
operating mine locations in Indonesia with mixed success outcomes.
Conveyor systems for coal transportation are being developed in a number
of long term mines but these specifically are long term and require small
power plants to be constructed to support stable continuous electricity
requirements.
Slurry pipelines for transportation of coal over long distances are used in
the USA but the commercial viability of such projects in Indonesia has yet
to be established.
Self propelled barges are becoming more prevalent as they demonstrate
better cost effectiveness in moving coals.
Investment and Diversification - Adaro Energy
One Local Business Unit which has both invested and diversified over the last few
years is Adaro Energy which is targeting being a diversified energy supplier and
provider with many divisions supporting the corporate objectives.
Mine Acquisitions last two years
IndoMet Coal Project
25% owned by Adaro
Mustika Indah Permai
75% owned by Adaro
Bukit Enam Energi
61% owned by Adaro
Bhakti Energi Persada
10% owned by Adaro
Balangan Coal
75% owned by Adaro
Power Plants Planned
PT Bhimasena Power
2 x 1000 MW in Java
PT Tanjung Power
2 x 100 MW in South Kalimantan
PT Makmur Sejahtera
2 x 30 MW at Tanjung South Kalimantan
Mining Services Contractor
PT SaptaIndra Sejati
Provides international class mining services
Investment and Diversification - Adaro Energy
Infrastructure Upgrades Current and Planned

Adaro Overburden Crusher
Adaro Mine
10Km Conveyor Facility
Adaro Mine
Kelanis Load out Upgrade
Increase capacity from 55 to 80 Mtpa
Current Other Support Companies and Facilities

PT Indonesia Bulk Terminal
Ship Loading Company Sth Kalimantan
PT Maritim Perkasa
Coal Barging Company
PT Sarana Dava Mandiri
Barito Barging Channel Operator
Other Opportunities being Explored
Coal to Gas conversion
BEP Mine
Coal Liquefaction
BEP Mine
Other Diversifications into allied Industries

Bukit Assam has already constructed a 2 x 100 MW Banjarsari Coal Plant in
Lahat and has recently announced that it intends to allocate US$215M in
Capital Expenditure for a power plant in Banko Tengah of 2 x 620 MW
units capacity.
Sekawan Intipratama intend to mine coal and use it in a $725 M ethanol
plant adjacent to Indowana Coal Deposit in East Kalimantan.
A number of American Companies are looking at converting coal to bio
fuel, coal to gas and coal liquefaction plants and CBM units where some
are in the process of constructing trial plants which they believe can be
commercially viable.
A number of coal miners who have large deposits of low CV coals are
looking at constructing industrial estates which may use low value coal to
create energy for Alumina Plants, Smelters or Significant Industrial
Developments in East Kalimantan.
Coal upgrading on a major commercial basis has yet to be proved but
todays low coal pricing reduces much of the margin in the project.
Likely Innovation and Investment in the future

Unless the New Administration radically introduces changes in policy on
Energy and Coal Mining to suit the needs of the people of Indonesia at
large and the professional elements of the Coal Mining Fraternity in
general and introduces sensible legislation which addresses illegal
mining, power generation, mine regulation, taxation, security of long term
investment regulations and a number of other key issues.
..or Coal goes back up to US$120 per tonne FOB Newcastle
dont expect any great changes globally from whats happening currently.
Expect to see pockets of excellence from some Indonesian forward
thinking companies who will build their businesses by engaging in value
adding projects provided that long term coal demand and pricing risks
are positive.
Coal demand from China may wane but India will need more imported
coal to fuel its expanding coal fired power station demand. Dont forget
that Asia will get 45% of its power from coal over the next 20 years so
demand is not the issue its oversupply.
Likely Innovation and Investment in the future

The opportunity of adding value by creating other products derived from
low energy coals are still being aggressively pursued by a number of
companies.
Look to see more investment in bio fuels, coal to synthetic natural gas and
coal to ethanol plants and longer term CBM research given Indonesias
significant coal resources of low grade coal.
Should the key to upgrading and stabilising low CV coals to power station
moisture specification (i.e 30-35% moisture) in large volumes on a
commercial basis then this breakthrough may well totally change the
dynamics of the Indonesian Coal Landscape.
Most established mining contractors will be mitigating investment in new
plant and equipment as they amortise the existing fleets by extending
machine life.
Be optimistic, be positive but most of all - be realistic.
THANK YOU
www.britmindo.com
www.britmindo.com
BRITMINDO GROUP
Graha
Britmindo
Graha
Britmindo
Jl. Taman
Margasatwa
RayaRaya
No. 14,
Jl. Taman Margasatwa
No.Ragunan
14, Ragunan
Jakarta
Selatan
12550,
Indonesia
Jakarta Selatan 12550, Indonesia
Tel.
+62
2121
7884
9999
(hunting),
Fax.
+62
2121
7884
Tel.
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9999
(hunting),
Fax.
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7884 9998
9998
Email: bm_jakarta@britmindo.com
Email: bm_jakarta@britmindo.com
Professional Mining Services
Conference 2014

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Indonesia Commodities

FIXED INCOME AND CURRENCIES

Astute Policy Gambit Needed To Unlock Potential

Economic Growth: Indonesia vs the rest of the

Real GDP growth of Indonesia vs the rest of the world (y/y %)

Source: Bloomberg, Macquarie

Demographics: Long term positive for Indonesia

Addition to Working Age Population (1564), millions, by 2035E

Age Dependency Ratio

Source: UN Population database, Macquarie Research, September 2014

-11 -12 -14

Source: UN Population database, Macquarie Research, September

Middle Class Surge: Long term positive for

Lower class accounts for Bulk of the

In Total Income terms, Indonesia is both

Lower class (household income of US$020,000)

Source: Global Demographics, Macquarie Research, September 2014

Source: Global Demographics, Macquarie Research, September 2014

Potential for Indonesia to develop the

Manufacturing share in GDP

Manufacturing wage gap widening

Source: CEIC,Macquarie Research, September 2014

Source: CEIC, Macquarie Research, September 2014

Even Homer is interested ...

Source: The Economist, 20th Century Fox

Short Term Distraction Clouding The Path

For discussion purpose only

Almost time for Fed to hike rates

US consumer credit has been leading the

CPI (y/y %, rhs)

US consumer confidence continue to

US Consumer Conf Index

US Real Retail Sales (y/y %, rhs)

Source: Multlp.com, Shiller website

Source: Bloomberg, Macquarie

For discussion purpose only

Valuations begin to matter

Shiller P/E for S&P 500

High yield bonds vs S&P500 total return

US S&P500 Total return

Source: Multlp.com, Shiller website, Macquarie

Source: Bloomberg, Macquarie

For discussion purpose only

Will Indonesia be able to withstand USD strength

Indonesian government bond 10y yield

Source: Bloomberg, Macquarie

Source: Bloomberg, Macquarie

Foreign Positioning In Local Bonds

Foreign holdings of outstanding

% foreign holdings of outstanding govt bonds

Real yield has improved in Indonesia

Source: CEIC, Bloomberg, Macquarie

Source: Bloomberg, Macquarie

For discussion purpose only

Foreign funds are still heavily invested in

Cumulative fund flows into Indonesia since

Indonesia 10y bond total return FX

Cumulative bond flows into Indonesia

Source: CEIC, Macquarie

Source: Bloomberg, Macquarie

This Is Not 1997 External debt remains low

Private external debt by economic

Electricity, Gas, Waterworks

Mining and Drilling