INDONESIA: Scramble for coal assets in Indonesia

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

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

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

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

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

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

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

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

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

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

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

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

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

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