EXECUTIVE SUMMARY

LOW RANK COAL PROJECTS, IN SOUTH SUMATERAREPUBLIC OF INDONESIA

PT BASINDO KARYA UTAMA (BKU)PT SUMBER ALAM MAKMUR UTAMA (SAMU)

2012

2

PT BKU & PT SAMU COAL DEVELOPMENT PROJECTS

1. INTRODUCTION

In Indonesia, coal sector has still played a significance role in meeting the growingenergy demand as well as enhancing the security of energy supply in Indonesia.Furthermore, coal also can be utilized as an important source of national and local revenues, converted to oil and gas form (coal liquefaction, coal gasification), absorb considerable number of manpower, and played as the agent of development for local region. With the total national resources of about 104.7 billion tons, coal is still expected to become the main energy sources to substitute the depletion of oil and gas in the near future.

According to the Indonesian Geological Agency (2009), most of the Indonesian coal resources are distributed mainly in Sumatera (52.4 billion tons), and Kalimantan (51.9 billion tons), while the rests are distributed in Java, Sulawesi and Papua (see Figure1). However, from the total coal resources of about 104,7 billion tons, only 20,99 billion tons can be classified as commercially exploitable reserves, mostly located in South Sumatra, East Kalimantan and South Kalimantan.

Figure 1. Distribution of Indonesian coal potential areas and the status of its reserves. (Yellow arrow denotes location of the BKU and SAMU concessions)

resources and

Therefore, the ratio between total coal resources and total coal reserves is obviouslyincomparable and it will be crucial factors to the government of Indonesia indetermining coal development program accurately. Therefore, coal exploration program should be carried out intensively to improve the national coal resources into reserves.

Majority of coal in Indonesia is a low-rank coal, so that the development of such coal needs also additional technology for up grading and to transform into other commercial products such as coal liquefaction, coal water mixture (CWM), coal

3

gasification and petrochemical products in large-scale of industry is the key of future coal industry. It means that, the demand of low rank coal will be growing rapidly in the near future both in domestic and international markets.

South Sumatera Basin is one of the biggest coal basins in Indonesia where the PT BKU and PT SAMU’s coal concession situated. However, most of the coal occurred in the concession are low in rank ranging from lignite to sub-bituminous coal. The upgrading of lignite by conversion to gas or liquid or electricity form are possibly to be applied to increase the adding value of coal lignite, namely UBC (upgrading brown coal), CWM (coal water mixture), liquefaction and gasification technology. Therefore, it has been projected that coal from PT BKU and SAMU will be utilized as feedstock in the coal gasification and liquefaction industry which will be constructed as the first coal conversion project in South Sumatera Province.

2. THE PROSPECT

PT Basindo Karya Utama (BKU) and PT Sumber Alam Makmur Utama (SAMU) are the holders of Mining Permit (IUP) granted by the Bupati of Banyuasin, South Sumatera Province to develop 4 (four) coal concession areas located in the northern part of Palembang, the capital city of South Sumatera Province (see Figure 2), and covering area of 31,147 Ha, which consists of :

P T BK U 1. DPE- 010 (3,760 Ha)2. DPE-014 (6,387 Ha)3. DPE-027 (4,000 Ha)

P T S AMU 1. DPE-019 (17,000 Ha)

Geologically, those coal concessions are situated within southeastern part of the South Sumatera Basin and the coal occurs in the Muara Enim Formation. During the exploration program in 2010, within those 4 (four) coal concessions about 20 bore holes have been drilled which are divided 16 bore holes at those concessions of PT BKU, and 4 bore holes in DPE-019 of PT SAMU concession. In general, the ratio between number of borehole drilled and the total area of concession is obviously incomparable and not sufficient to provide into coal reserves status yet. Therefore, the number of borehole should be increased to further firm up resources figure and also to estimate coal reserves more accurate.

Based on drilling data, many coal seams have been found where the thickness varies from 0,2 up to 9,4 meters. The thickest coal seams which having thickness from 4,3 to 9,4 meter are found in DPE-014, DPE-027 and DPE-019. Dip of the coal seams seems to be moderate ranging from 10 to 13º. Therefore, DPE-027 and DPE-019 will be prioritized as the target area for detailed exploration in 2011. The 2011 exploration program will be executing accordingly to JORC Standard, including drilling and geophysical logging for more than 5.000 m depth.

3

4

(4,000 Ha)

( ,760 Ha)

(6,387 Ha) (17,000 Ha)

Figure 2. Distribution of BKU and SAMU coal concessions located in Banyuasin Regency, SouthSumatera Province.

3. COAL RESOURCES

Based on the results of preliminary drilling exploration program carried out in 2010, total measured resources of low rank coal in the area of approximately 600 Ha of the PT BKU concessions have been estimated to approximately 104 million tons, andaround 38 million tonnes of coal resources probably occur in the area ofapproximately 200 Ha of PT SAMU DPE-019 concession. These hypothetical figures have been estimated by the local geological consultant company who carried out the exploration program of the area. Below is the table of coal resources of PT. BKU andPT SAMU concession as calculated from 1-100 m depth of mining limit by theGeological Consultant Company (see Table 1)

5

Table 1. PT. Basindo Karya Utama Coal Resources (1-100 m depth of mining limit)

No Mining ConcessionProspective Coal Resources (Tons) within area of 600 Ha only

Measured Indicated Inferred Total1 DPE-010 29,016,941.11 54,800,177,32 55,250,714.75 136,067,833,172 DPE-014 39,065,995,60 47,193,842.03 60,034,378.89 146,294,216.523 DPE-027 35,849,359.20 45,603,280.44 63,818,651.31 145,271,290.94

Total 103,932,295.91 147,597,299.79 179,103,744.95 427,633,340.63

PT. Sumber Alam Makmur Utama Coal Resources (1-100 m depth of mining limit)

No Mining ConcessionProspective Coal Resources (Tons) within area of 200 Ha only

Measured Indicated Inferred Total1 DPE-019 37,895,183.75 53,032,400.18 56,814,657.77 147,742,736.89

From this Table, it can be seen that coal resources of DPE-014, DPE-027 and DPE-019 must be further determined as reserves by increasing the number of bore holes and decreasing the spacing of bore holes.

During the year 2011, an intensive drilling program has been carried out according to JORC (Join Ore Resource Committee) in the BERTAK Block area which is part of the IUP exploration PT SAMU DPE-019 area, and covering about 1,553 Ha. A total of 55 drill-holes have been drilled at the BERTAK Block and four (4) main coal seams were intersected in most of drill-holes and designated as Seam A, B, B1 and B2. The average coal thicknesses vary from 1.6m to 4.7m over the 4 seams within the drill hole intersections. The angles of dip vary from ~5° to ~18°. Based on the results of 2011 drilling exploration program, it has been estimated the total coal resources of BERTAK Block is approximately 190 million tons as shown in Table 2.

Table 2. BERTAK BLOCK Coal Resources of IUP SAMU DPE-019

No Mining BlockProspective Coal Resources (Tons) within area of 1,553 Ha only

Measured Indicated Inferred Total1 BERTAK Block 75,282,942 9,981,857 104,817,825 190,082,624

After the completion of this exploration program, an area for pilot mining (app. 200Ha) will be decided and initial coal mining activity can be started in 2012 as bulk sampling program. Furthermore, in order to get more coal resources and increase the activity of exploration stage to production operations (IUP Operation-Production), detailed exploration program in the whole coal prospect areas of IUP PT BKU and PT SAMU, including feasibility studies and AMDAL, is expected to be completed by mid 2013.

4. LOCATION AND INFRASTRUCTURE

Most of the main coal concession of PT BKU and PT SAMU are generally located close to coastal area or inland waterways. In general, the companies will develop dedicated haul roads from mine-site to river loading facility at some alternative rivers, such as Air Tungkal, Air Calik, Air Lalang, Air Banyuasin and Air Telang. These rivers flow to the Bangka Strait and can be used as media to transport coal by small to medium scale of barge directly to domestic and overseas markets. Barge with capacity up to 5.000 tons can be sailing along these rivers.

6

In general, the whole WUP of PT BKU and one of WUP of PT SAMU, namely DPE-019, are located closely from the existing road network currently used by palm oilplantation and oil and gas companies that having their field operation in thesurrounding area of those WUP. These roads network lead directly to Sungai Lilin city at the Trans Sumatera Highway which located approximately 40 KM from the WUP of BKU, and also to the barge port at Calik River.

The whole WUP of PT BKU and PT SAMU are located in the most strategic areasdue to closely connected with existing inland and waterway networks. Road surveyhas been planned to be carried out during the exploration program in 2011 to find suitable routes for coal hauling and from mine sites to the proposed loading port at the rivers. After surveying the existing and proposed road network, BKU and SAMU have determined to upgrade parts of the road to allow more efficient transportation of coal trucks. This will include hardening and widening parts of the road as well as build new roads which believes it will make more efficient.

Figure 3. Alternative routes to haul the coal from BKU and SAMU concessions through the main rivers (Air Lalang, Air Calik, Air Banyuasin and Air Musi) and transhipment point in the Bangka Strait..

5. COAL QUALITY

The coal founds in the concession area are categorised as High Volatile SubBituminous B-C (US System/ASTM-ASA) or Brown Coal (International System/UN- ECE). The quality of the coal was analysed at the coal chemistry laboratory of PT

7

Geoservices and Sucofindo, and the analysis employed ASTM (American Standard for Testing Material).

Range of the coal quality as described below;

1) Total Moisture (arb) : 47.45 – 69.3%2) Ash (adb) : 2.28 – 6.13%3) Volatile Matter (adb) : 36.75 – 48.55%4) Sulfur (adb) : 0.22 – 1.33%5) Calorific Value (adb) : 4732 – 5598 kcal/kg (adb)6) HGI : 72 – 86

6. BUSINESS OPPORTUNITIES

Even though, the coal of BKU and SAMU are categorized as brown coal or lignite, but the business development of this kind of coal is still promising due to several advantageous factors as follow;

Coal concessions are located at a strategic location and close to main rivers that flow directly to Bangka Strait. These rivers can accommodate barge with capacity up to 5000 tons.

Geologically, the thickness and dip of coal seams are suitable for open pit mine with low stripping ratio.

The coal quality is environmentally friendly with having low in ash and sulfur content, and is a deposit whose characteristics make it suitable for use inIndonesia’s and overseas growing coal market.

Open market, particularly for users in India, Thailand and the Philippines whose plants can handle the higher moisture, lower heat value and have a short transport distance.

Growing demand for coal particularly in China, India and Indonesia. The coal can be used widely as; energy sources of mine mouth power plants,

feedstock in petrochemical industry such as liquefaction, DME, and gasification. The utilization of low rank coal and its beneficiation industry is part of National

Policy and it must be fully supported by the Government, including RegionalGovernment.