Fitch Ratings: APAC Coal Mining – Relative Credit Analysis

(Wed 04 Oct, 2023)--Earnings to Moderate: Fitch expects earnings for the APAC coal sector to moderate over the next four years, following the peak in 2022 and 1H23, factoring in lower thermal coal price assumptions in line with Fitch’s price deck.

In addition, the new royalty and tax framework for Indonesia-based entities has involved a shift from the older coal contracts of work to the IUPK (special mining business permit), including for Adaro and Indika.

This will lead to increased payments to the government from 2023, improving overall free cash flow especially when coal prices are high.

We expect coal prices to remain resilient despite the projected decline in earnings, enough to support the relatively conservative financial profiles and diversification-led investments of Indika and Adaro. Our view is bolstered by the efficient cost positions and ability to manage costs in line with coal prices of most rated entities in the sector.

Divergent Responses to Energy Transition: We expect a varied strategic approach among the region’s coal entities in response to escalating ESG concerns.

Indika has announced a targeted timeline for increasing non-thermal coal earnings, while GEMS and Yankuang do not have similar diversification plans.

Adaro has initiated some projects beyond thermal coal, although it has not formally announced a strategy. (ends)