Goldman Sachs - ASEAN Coal Initiation - Jun 2OO8 by Denny Setiady

June 19, 2008

ASEAN: Metals & Mining: Coal

June 19, 2008

ASEAN: Metals & Mining: Coal

Bullish on cycle, earnings momentum; initiate 4 cos, Banpu to CL Initiate on ASEAN coal sector with an attractive stance We believe thermal coal is at the cusp of a stronger and longer upcycle as continued robust demand from emerging markets, unceasing supply constraints and relative attractiveness of coal to oil underpin high prices till 2010E/2011E. We initiate coverage on the ASEAN coal sector with an attractive stance on the back of our bullish outlook for thermal coal. As the largest exporters of seaborne thermal coal, we believe that Indonesian coal producers will emerge as major beneficiaries of the thermal coal price rally as they enter a new phase of unprecedented earnings growth.

Major themes supporting our bullish view 1) We believe that incremental coal supply from Indonesia is likely to be regimentedâ&#x20AC;&#x201D;given underinvestment in exploration over the past few years, infrastructure and equipment constraints, and rising domestic demandâ&#x20AC;&#x201D; which would support regional prices, 2) At the same time, prices of Indonesian coal are breaking out from their historical trends given rising pricing power in the export market and strong demand drivers in the domestic market, 3) We are positive on the domestic upcycle driven by higher substitution demand for coal, 4) Strong cost inflation on rising diesel prices will lift marginal costs of production and provide a floor to regional prices, in our view, and 5) Valuations of ASEAN coal companies also stack up favorably as compared with its global peers at 16%-29% discount over its China and US peers, respectively, on a 12-month forward P/E basis.

Banpu (BANP.BK, TP: Bt745, Buy, on Conviction List) Key Data Price (Bt) Market cap (Bt mn /US$ mn) EPS growth (%) P/E (X) EV/EBITDA (X) ROE (%)

12/07 57.9 12.4 10.9 17.7

12/08E 79.7 15.3 11.1 24.5

Current 504 136,961.0 / 4,126.0 12/09E 12/10E 49.5 (13.5) 10.3 11.9 5.2 5.7 30.2 22.1

TB Bukit Asam (PTBA.JK, TP: Rp20,500, Buy) Key Data Price (Rp) Market cap (Rp bn /US$ mn) EPS growth (%) P/E (X) EV/EBITDA (X) ROE (%)

12/07 56 12.7 7.4 29.9

12/08E 173 16.3 9.9 56.9

Current 14,650 33,755,531.6 / 3,625.7 12/09E 12/10E 76 6 9.2 8.8 5.4 4.9 62.9 47.5

PT Indo Tambangraya (ITMG.JK, TP: Rp49,500, Buy) Key Data Price (Rp) Market cap (Rp mn /US$ mn) EPS growth (%) P/E (X) EV/EBITDA (X) ROE (%)

12/07 -19.1 5.9 19.3

12/08E 81.8 18.6 10.5 42.5

Current 33,800 18,043,792.0/1,938.1 12/09E 12/10E 106.2 (13.2) 8.8 10.2 5.2 5.7 68.7 47.4

Bumi Resources (BUMI.JK, TP: Rp9,700, Neutral) Key Data Price (Rp) Market cap (Rp mn /US$ mn) EPS growth (%) P/E (X) EV/EBITDA (X) ROE (%)

12/07 66.8 40.2 26.9 42.8

12/08E 152.0 21.4 9.2 57.6

Current 8,200 159,112,800.0 / 17,090.5 12/09E 12/10E 38.2 (18.9) 15.1 18.7 5.7 7.2 52.5 30.8

Straits Asia Resources (STRL.SI, TP: S$4.70, Neutral)

Banpu is our top pick, we also like TB Bukit Asam Yoke Fong Chee is assuming primary coverage of Banpu. We upgrade Banpu to Buy from Neutral, add it to our Conviction list, and raise our 12-m SOTPbased TP to Bt745 (from Bt258), implying 48% potential upside. Banpu has been the sector laggard as its coal exposure has been overlooked, in our view. We believe Banpu offers cheaper coal exposure via its Indocoal subsidiary ITMG, which has the highest upside potential to rising coal prices. We initiate on ITMG with Buy and 12-m TP of Rp49,500 (13X FY09E P/E), implying 46% potential upside. We initiate on TB Bukit Asam with a Buy (12-m DCF-based TP of Rp20,500, 40% potential upside) based on its long-term growth prospects and exposure to the growing domestic sector, and Bumi Resources and Straits Asia Resources both with Neutral and 12-m TPs of Rp9,700 (18X FY09E P/E) and S$4.70 (13X FY09E P/E), respectively, on lower relative risk-reward. Risks: Regulatory risks (new Mining Bill) and decline in coal prices. Yoke Fong Chee +65-6889-2486 | yokefong.chee@gs.com Goldman Sachs (Singapore) Pte Song Shen +852-2978-1131 | song.shen@gs.com Goldman Sachs (Asia) L.L.C.

The Goldman Sachs Group, Inc.

Goldman Sachs Global Investment Research

Key Data Price (S$) Market cap (S$ mn /US$ mn) EPS growth (%) P/E (X) EV/EBITDA (X) ROE (%)

12/07 (42.6) 68.4 83.6 16.2

12/08E 355.8 20.9 18.7 42.5

Current 3.95 4,309.2,/3122.8 12/09E 12/10E 101.8 (7.7) 10.8 11.7 8.9 9.4 62.8 45.3

Note: Our target prices are based on a 12-month horizon. Source: DataStream, Goldman Sachs Research estimates.

The Goldman Sachs Group, Inc. does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. For Reg AC certification, see the text preceding the disclosures. For other important disclosures go to www.gs.com/research/hedge.html. Analysts employed by non-US affiliates are not required to take the NASD/NYSE analyst exam.

Global Investment Research

June 19, 2008

ASEAN: Metals & Mining: Coal

Table of contents Stronger, longer upcycle drives next leg of outperformance

New phase of the upcycle merits peak valuation

Solid fundamentals continue to drive prices; we expect further upside to thermal coal cycle

Indonesian producers poised to benefit significantly as earnings momentum picks up

Risks: Spotlight will be on the long-delayed mining laws

Banpu (Buy, on Conviction List): Forgotten, misunderstood gem

Indo Tambangraya (Buy): Higher leverage to pricing upcycle

TB Bukit Asam (Buy): Domestic proxy, long-term positive

Bumi Resources (Neutral): Led bull run, risk/reward less appealing

Straits Asia Resources (Neutral): Cautious on ST&LT earnings risks

Disclosures

EXPECTED NEWS FLOW/EVENTS DATE

EVENT

COMMENT

3Q2008

Release of the new Indonesian mining laws

The long-delayed new mining laws should provide more clarity on the legislative framework for investment.

2H2008

IPO of PT Adaro and other coal companies

The IPO provides investors with alternatives to gain exposure to the Indonesian coal industry, in our view.

Jul-Aug 2008

Interim earnings announcement

We forecast stronger qoq earnings as 2Q2008 results should reflect higher thermal coal spot prices. We expect management to provide guidance on FY2008 realized contract prices.

Source: Bloomberg, Company data, Goldman Sachs Research estimates. The prices in the body of this report are based on the market close of June 13, 2008.

Stronger, longer upcycle drives next leg of outperformance The rally in the regional thermal coal spot prices has boosted the performance of ASEAN coal stocks over the past 12 months (+35%/+270% ytd and over the past 12 month). We believe the price rally is justified given the positive regional thermal coal fundamentals. We initiate coverage on the ASEAN coal sector with an attractive stance as we still see room for outperformance. High crude price, robust demand for coal-fired power plants in emerging markets and persistent supply-side constraints will continue to act as cornerstones of spot price strength, underpinning the potential for a longer-and stronger phase of supernormal profits for the ASEAN coal producers, in our view. We expect emerging domestic demand—which is fast evolving into a key growth engine— to constrain export growth as we believe underinvestment in exploration, infrastructure and equipment over the past decade has hampered Indonesia’s ability to simultaneously manage overwhelming exports and domestic demand. We believe rising pricing power in both the export and domestic markets should also drive higher returns. Although the producers need to combat cost inflation, we do not think that this will derail the path of their earnings acceleration which is driven by rising contract prices. We believe regulatory risks will continue to be a key concern, but adopt a more sanguine view on their impact on incumbents such as Bumi Resources and Indo Tambangraya.

Goldman Sachs Global Investment Research

June 19, 2008

ASEAN: Metals & Mining: Coal

Banpu is our top pick in the sector While the strong coal cycle will benefit all five ASEAN coal stocks under coverage, we believe that the best opportunities exist in companies that offer significant potential upside to higher coal prices, and have low production and regulatory risks. Exhibit 1: Summary of ratings, 12-month target prices and valuation methodologies of the ASEAN coal sector

Banpu Bukit Asam Indo Tambangraya Bumi Resources Straits Asia Resources

Target price 745 20,500 49,500 9,700 4.70

Curr Bt Rp Rp Rp SGD

Share price 504 14,650 33,800 8,200 3.95

Upside/ P/E downside (%) 2008E 48% 15.3 40% 16.3 46% 18.6 18% 21.4 19% 20.9

P/E 2009E 10.3 9.2 8.8 15.1 10.8

EV/reserves 2008E 10.6 3.0 19.5 10.2 67.0

EV/production 2008E 226.3 379.7 244.1 312.8 440.8

Valuation Methodology SOTP DCF 13X FY09 PE 18X FY09 PE 13X FY09 PE

Note: EV/reserves and EV/production are in US$/t. * denotes stock is on our regional Conviction list.

Source: DataStream, Goldman Sachs Research estimates.

•

Our top pick is sector laggard Banpu, underperforming its peers over the past 3, 6 and 12 months. We believe the Street has underfocused on its exposure to coal as it has been misunderstood to be a power play, given that the power segment was historically the dominant earnings contributor (57% in 2007). However, we believe Banpu’s fortunes have reversed as we now estimate the coal segment will contribute 79%/92% to overall earnings in 2008E/2009E, driven by its Indo coal subsidiary Indo Tambangraya (ITMG). ITMG has the highest leverage to prices and offers the highest upside potential from current levels if the regional benchmark price moves up to US$155/t in 2008E and 2009E (versus our base case assumptions of US$125/t in 2008E/2009E). We believe ITMG is subject to higher regulatory risks than Bumi Resources, but lower than others under our coverage as only one of its concessions operate under CCOW Gen I which is protected from any unilateral changes in regulations. However, we believe its diversified portfolio could mitigate production risks.

•

While we like ITMG, we believe Banpu offers cheaper exposure to the Indonesian coal upcycle given its more attractive valuations at 15X/10X 2008E/2009E vs. the sector average’s of 20X/13X. We upgrade Banpu to Buy and add it to our Conviction List, from Neutral, with a revised 12-month target price of Bt745 (implying 48% potential upside). We also initiate on ITMG with Buy with a 12-month target price of Rp49,500 based on 13X FY2009E P/E.

•

We like TB Bukit Asam for its attractive long-term growth prospects and exposure to the domestic market. We are positive on the progress it has made in railway debottlenecking in Sumatra, allowing PTBA to monetize its large resource base. In our view, TB Bukit Asam should also benefit from structurally higher prices and higher substitution domestic demand for coal. Given the lack of listed coal stocks which are leveraged to the domestic market at present, we believe TB Bukit Asam could arguably command a scarcity premium. We initiate coverage on TB Bukit Asam with a Buy rating and 12-month DCF-based target price of Rp20,500. Our estimates are 21%/36% above consensus on higher domestic price assumptions.

•

We initiate coverage on Bumi Resources with a Neutral rating and 12-month target price of Rp9,700 based on 18X FY2009E P/E. Bumi led the share price bull run as the sector proxy and we view that at current levels, a large part of its leverage to the coal cycle has been priced in into the stock. Our estimates for Bumi are below consensus (9%/26% in 2008E/09E) as we are cautious over potential earnings cracks from cost inflation on higher diesel prices. We do not favor Bumi at its current peak cycle

Goldman Sachs Global Investment Research

June 19, 2008

ASEAN: Metals & Mining: Coal

valuation given better opportunities elsewhere. Nonetheless, we believe there will be trading interest in Bumi as a traditional beneficiary leveraged to the Indonesian thermal coal sector if spot prices continue to climb.

•

We initiate on Straits Asia Resources (SAR) with a Neutral rating and 12-month target price of S$4.70 based on 13X FY2009E P/E. Although SAR has the strongest volume growth potential among ASEAN coal stocks under our coverage (due mainly to maiden contribution of Jembayan in 2008E), we are cautious over its short reserve life and production risks related to the pending regulatory approvals on the extension of boundary line at the Northern Sebuku concession. Based on our estimates, we believe that SAR’s 2008 results are likely to disappoint on the back of relatively weaker realized prices (on an energy-adjusted basis) than its peers. SAR’s large forward coal sales position (88% of contracts were priced by 1Q2008) may make it vulnerable to cost inflation, in our view. We are also not convinced that an M&A premium is justified at this stage, relative to its peers given its higher EV/ton (reserves) of US$67/t versus recent transacted acquisitions of a maximum EV/ton (reserves) of US$3/t. We note that SAR also has the weakest balance sheet among the ASEAN coal stocks under our coverage.

Exhibit 2: Summary of operational metrics of ASEAN coal companies ASP (US$/t, FOB, ex royalties) Bumi Resources Ex-Ecocoal Ecocoal TB Bukit Asam Export Domestic (US$/t, CIF) Banpu Indo Tambangraya Straits Asia Resources

2008E 80.4 85.8 23.3 65.8 83.6 53.8 71.2 71.5 68.7 34.3 2008E 34.2 35.4 37.8 34.6 33.1

2009E 95.5 105.5 26.8 81.4 108.8 61.7 95.6 95.3 88.0 39.2 2009E 37.3 40.7 50.7 38.5 40.2

Yoy change Bumi Resources Ex-Ecocoal Ecocoal TB Bukit Asam Export Domestic (US$/t, CIF) Banpu Indo Tambangraya Straits Asia Resources

2007 1% 9% -6% 5% 7% 4% 15% 12% 2%

2008E 90% 90% 11% 63% 76% 43% 67% 70% 52%

Unit cash cost (US$/t, ex royalties) Bumi Resources TB Bukit Asam Banpu Indo Tambangraya Straits Asia Resources

2007 42.2 45.2 21.1 40.3 47.5 37.7 42.7 42.0 45.1 26.2 2007 26.9 29.3 24.0 25.2 23.6

Yoy change Bumi Resources TB Bukit Asam Banpu Indo Tambangraya Straits Asia Resources

2007 5% 0% 11% 9% 17%

2008E 27% 21% 57% 37% 40%

2009E 07-09ECAGR 19% 50% 23% 53% 15% 13% 24% 42% 30% 51% 15% 28% 34% 50% 33% 51% 28% 40% 0.2 2009E 07-09ECAGR 9% 18% 15% 18% 34% 45% 12% 24% 21% 31%

Unit cash cost (US$/t, incl royalties) Bumi Resources TB Bukit Asam Banpu Indo Tambangraya Straits Asia Resources

2007 32.5 30.7 24.0 30.5 30.8

2008E 44.3 38.7 37.8 43.0 39.4

2009E 51.7 44.8 50.7 49.8 46.3

Yoy change Bumi Resources TB Bukit Asam Banpu Indo Tambangraya Straits Asia Resources

2007 8% -1% 11% 32% 7%

2008E 36% 26% 57% 41% 28%

2009E 07-09ECAGR 17% 26% 16% 21% 34% 45% 16% 28% 17% 23%

2007 55 51 4 92% 8% 11 4 7 37% 64% 19 18 17 1 94% 6% 3 3 0 100% 0%

2008E 59 54 5 92% 8% 12 5 7 40% 60% 20 19 17 2 92% 8% 9 8 1 89% 11%

2009E 66 58 8 87% 13% 15 6 9 42% 58% 20 20 17 4 83% 18% 12 10 2 83% 17%

Yoy change Bumi Resources Ex-Ecocoal Ecocoal Export (%) Domestic (%) TB Bukit Asam Export Domestic Export (%) Domestic (%) Banpu Indo Tambangraya Export Domestic Export (%) Domestic (%) Straits Asia Resources Export Domestic Export (%) Domestic (%)

2007 6% 6% 0%

2008E 6% 5% 19%

2009E 07-09ECAGR 13% 10% 8% 7% 67% 41%

9% 25% 2%

13% 24% 7%

25% 32% 21%

19% 28% 14%

-11% -6% -3% -35%

1% 5% 3% 41%

3% 5% -5% 119%

2% 5% -1% 76%

-2% -2% NA

160% 131% NA

28% 19% NA

82% 66% NA

Sales volume (mn tons) Bumi Resources Ex-Ecocoal Ecocoal Export (%) Domestic (%) TB Bukit Asam Export Domestic Export (%) Domestic (%) Banpu Indo Tambangraya Export Domestic Export (%) Domestic (%) Straits Asia Resources Export Domestic Export (%) Domestic (%)

Bukit Asam’s unit cash cost includes freight for domestic volumes. Banpu’s 2009 operating metrics include China Daning Mines (higher cash costs in 2009 is due to China Daning) Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research

June 19, 2008

ASEAN: Metals & Mining: Coal

Exhibit 3: Summary of financial metrics of ASEAN coal companies Gross Profit per ton of sales (US$/t) Bumi Resources TB Bukit Asam Banpu Indo Tambangraya Straits Asia Resources Gross margin Bumi Resources TB Bukit Asam Banpu Indo Tambangraya Straits Asia Resources Recurring net profit (US$) Bumi Resources TB Bukit Asam Banpu Indo Tambangraya Straits Asia Resources Recurring net profit EPS growth Bumi Resources TB Bukit Asam Banpu Indo Tambangraya Straits Asia Resources ROIC Bumi Resources TB Bukit Asam Banpu Indo Tambangraya Straits Asia Resources ROE Bumi Resources TB Bukit Asam Banpu Indo Tambangraya Straits Asia Resources

2007 14 17 16 11 17 2007 33% 40% 35% 27% 23% 2007 317 83 148 57 29 2007 67% 56% 58% NA -43% 2007 25% 25% 12% NA 5% 2007 43% 30% 18% NA 16%

2008E 40 35 31 28 29 2008E 53% 54% 39% 40% 45% 2008E 791 223 270 221 149 2008E 152% 173% 80% 82% 356% 2008E 42% 46% 17% 36% 17% 2008E 58% 57% 24% 42% 43%

2009E 51 47 50 46 44 2009E 57% 57% 48% 48% 51% 2009E 1,093 384 404 455 302 2009E 38% 76% 50% 106% 102% 2009E 39% 51% 27% 58% 39% 2009E 53% 63% 30% 69% 63%

YoY change Bumi Resources TB Bukit Asam Banpu Indo Tambangraya Straits Asia Resources YoY change Bumi Resources TB Bukit Asam Banpu Indo Tambangraya Straits Asia Resources YoY change Bumi Resources TB Bukit Asam Banpu Indo Tambangraya Straits Asia Resources YoY change Bumi Resources TB Bukit Asam Banpu Indo Tambangraya Straits Asia Resources YoY change Bumi Resources TB Bukit Asam Banpu Indo Tambangraya Straits Asia Resources YoY change Bumi Resources TB Bukit Asam Banpu Indo Tambangraya Straits Asia Resources

2007 30% 13% 11% NA -9% 2007

2008E 192% 112% 98% 148% 76% 2008E

2009E 07-09ECAGR 27% 93% 33% 68% 60% 78% 62% 100% 52% 63% 2009E 07-09ECAGR

2007 67% 55% 68% NA -41% 2007

2008E 149% 169% 83% 285% 423% 2008E

2009E 07-09ECAGR 38% 86% 72% 115% 50% 66% 106% 182% 102% 225% 2009E 07-09ECAGR

2007

2008E

2009E 07-09ECAGR

2007

2008E

2009E 07-09ECAGR

Banpu’s 2009 financial metrics include contribution from China Daning Mines. Source: Company data, Goldman Sachs Research estimates.

Exhibit 4: Earnings sensitivity of ASEAN coal companies to change in volume, price and unit costs Earnings sensitivity to 1% change in : 2008E Volume ASP Export contract prices Export spot prices Domestic prices Unit cost

Banpu

PTBA

ITMG

Bumi

SAR

1.2% 2.6% 2.5% 2.1% 0.2% -1.5%

2.0% 1.6% 0.2% 0.1% 1.0% -1.5%

1.3% 3.5% 3.3% 0.5% 0.2% -1.9%

1.4% 2.3% 1.8% 0.4% 0.1% -1.2%

4.4% 2.6% 2.4% 2.1% 0.0% -1.4%

Earnings sensitivity to 1% change in : 2009E Volume ASP Export contract prices Export spot prices Domestic prices Unit cost

Banpu

PTBA

ITMG

Bumi

SAR

0.9% 2.0% 1.8% 1.5% 0.1% -0.9%

1.4% 1.1% 0.2% 0.1% 0.8% -1.2%

1.0% 2.4% 2.2% 0.3% 0.2% -1.1%

1.4% 2.0% 1.5% 0.4% 0.1% -0.9%

1.3% 2.2% 2.0% 1.8% 0.3% -1.1%

Unit Cost – Production cash costs ex royalties. For Banpu, earnings sensitivity is based only on 1% volume, price or unit cost change of Indonesia’s coal assets Source: Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research

2008E-2009E EPS, P/E and target price sensitivity to changes in thermal coal price assumptions

145

155

2009

2008 P/E sensitvity to contract price (US$/t)

115

125

135

145

155

2008 P/E sensitvity to benchmark contract price (US$/t)

2009 115

125

135

145

155

2008 P/E sensitvity to benchmark contract price (US$/t)

2009 115

125

135

145

155

17.7

115

16.8

115

22.7

115

23.8

125

15.3

125

16.2

125

18.6

125

21.5

135

13.5

135

15.7

135

15.8

135

19.1

145

12.1

145

15.2

145

13.7

145

17.6

155

10.9

155

14.8

155

12.1

155

16.0

2009

2009 P/E sensitvity to benchmark contract price

2009

2009 P/E sensitvity to benchmark contract price

2009

155 21.0

125

20.9

23.9

135

20.7

145

20.7

155

20.6

2009 P/E sensitvity to benchmark contract price

2009

145

155

115

125

135

145

155

10.1

8.5

7.9

7.3

115

10.8

9.9

8.9

8.3

7.6

115

18.0

15.7

14.2

12.7

11.5

115

13.0

11.5

10.3

9.4

8.5

125

11.0

10.3

9.6

9.0

8.5

125

10.1

9.2

8.5

7.9

7.3

125

9.7

8.8

8.1

7.6

7.0

125

17.3

15.1

13.5

12.3

11.2

125

12.2

10.8

9.7

8.9

8.1

135

10.2

9.5

8.9

8.4

7.9

135

10.1

9.2

8.5

7.9

7.3

135

8.7

8.1

7.4

7.0

6.5

135

16.3

14.4

13.1

11.8

10.8

135

11.5

9.7

9.3

8.5

7.8

145

9.4

8.8

8.3

7.9

7.5

145

10.0

9.2

8.5

7.8

7.3

145

8.0

7.4

6.8

6.5

6.0

145

15.7

13.9

12.5

11.5

10.5

145

10.9

8.9

8.2

7.5

155

8.8

8.5

7.9

7.5

7.1

155

9.9

9.1

8.4

7.8

7.3

155

7.3

7.0

6.5

6.0

5.7

155

14.9

13.5

12.2

11.1

10.3

155

10.4

8.1

8.5

7.9

7.3

115

125

2009 155

2009 115

125

135

145

155

2009 115

125

135

145

155

Valuation sensitvity to benchmark contract price

2009 135

145

155

115

647

687

739

779

832

115

18602

18653

22240

24059

25877

115

40755

44460

49400

53105

58045

115

8208

9405

10431

11628

12825

115

3.95

4.46

4.98

5.49

6.01

125

697

745

792

832

885

125

18653

20500

22227

24020

25800

125

45448

49500

54340

58045

62985

125

8550

9700

10944

11970

13167

125

4.22

4.70

5.27

5.80

6.33

2008

145

2008

135

2008

125

2008

135

10.2

2008

125

115

2008

115

9.1 2008

155

115

155

21.0

9.7

155

145

135

21.0

135

125

135

10.4

Valuation sensitvity to benchmark contract price

115

21.0

125

2009

155

21.0

11.2

125

145

115

125

115

135

23.8

2009 115

12.1

Valuation sensitvity to benchmark contract price

125

2009 P/E sensitvity to benchmark contract price

2008 P/E sensitvity to benchmark contract price (US$/t)

115

Valuation sensitvity to benchmark contract price

115

2008

17.7

2008

17.7

2008

17.7

2008

135

750

792

845

885

937

135

18757

20511

22265

24033

25787

135

50351

54340

59280

62985

67925

135

9063

10260

11286

12483

13680

135

4.46

5.27

5.53

6.04

6.57

145

802

845

898

937

990

145

18886

20627

22356

24084

25813

145

55254

59280

64220

67925

72865

145

9405

10602

11799

12825

14022

145

4.72

5.80

5.77

6.30

6.81

155

854

885

937

990

1038

155

19053

20756

22472

24175

25890

155

60169

62985

67925

72865

77397

155

9918

10944

12141

13338

14364

155

4.96

6.33

6.01

6.54

7.00

115

125

135

145

155

28%

36%

47%

55%

65%

125

38%

48%

57%

65%

76%

135

49%

57%

68%

76%

86%

Upside (%) from current share price 115

115

125

135

145

155

27%

52%

64%

77%

125

27%

40%

52%

64%

76%

135

28%

40%

52%

64%

76%

Upside (%) from current share price 115

2009 115

125

135

145

155

21%

32%

46%

57%

72%

125

34%

46%

61%

72%

86%

135

49%

61%

75%

86%

101%

Upside (%) from current share price 115

2009 115

125

135

145

155

15%

27%

42%

56%

125

18%

33%

46%

61%

135

11%

25%

38%

52%

67%

Upside (%) from current share price 115 2008

115

2009

2008

Upside (%) from current share price

2009

2008

135

Straits Asia Resources

Bumi Resources

17.7

Valuation sensitvity to benchmark contract price

2008

125

Indo Tambangraya

115

2009 P/E sensitvity to benchmark contract price

2008

2009 115

2008

2008 P/E sensitvity to benchmark contract price (US$/t)

TB Bukit Asam

2008

Banpu

June 19, 2008

Goldman Sachs Global Investment Research

Exhibit 5: ITMG has the highest potential share price upside if benchmark thermal coal price reaches US$155/t in 2008/2009; Banpu offers the cheaper option to gain exposure to ITMG

2009 115

125

135

145

155

13%

26%

39%

52%

125

19%

33%

47%

60%

135

13%

33%

40%

53%

66%

145

59%

68%

78%

86%

96%

145

29%

41%

53%

64%

76%

145

63%

75%

90%

101%

116%

145

15%

29%

44%

56%

71%

145

19%

47%

46%

59%

72%

155

70%

76%

86%

96%

106%

155

30%

42%

53%

65%

77%

155

78%

86%

101%

116%

129%

155

21%

33%

48%

63%

75%

155

26%

60%

52%

66%

77%

Source: DataStream, Goldman Sachs Research estimates.

ASEAN: Metals & Mining: Coal

June 19, 2008

ASEAN: Metals & Mining: Coal

New phase of the upcycle merits peak valuation While ASEAN coal equities have outperformed the broader market, we believe that the upcycle could last longer and be stronger than expected, underpinning another leg of out-performance. GSJBW Commodities Research team has recently raised long-term price assumptions for thermal coal, which we view as positive for ASEAN coal stocks that trade in tight correlation with regional spot pricing. We believe that the positive coal fundamentals and improved pricing in the export and domestic markets have placed ASEAN coal companies at the cusp of an earnings acceleration cycle. Given good earnings visibility, we have used the P/E methodology as the primary valuation metric for pure coal companies (i.e. excluding Banpu), except for PT Bukit Asam where we use DCF methodology to capture its strong long-term growth prospects. We value ASEAN coal equities using peak-cycle earnings multiples in 2009E, which is when we expect the Indonesian coal cycle to peak. Exhibit 6: Banpu is the sector laggard while Bumi Resources outperformed on 12-m basis Absolute and relative share price performance of ASEAN coal equities under our coverage

Banpu (1) Bukit Asam (2) Indo Tambangraya (2) Bumi Resources (2) Straits Asia Resources (3)

Curr Bt Rp Rp Rp SGD

Share price 504 14,650 33,800 8,200 3.95

1-mo 15 30 36 8 7

Absolute performance (%) 3-mo 12-mo ytd 08 17 107 26 43 131 22 48 NA 79 37 346 37 35 178 27

1-mo 21 30 37 9 14

Relative performance (%) 3-mo 12-mo ytd 08 21 99 35 45 116 35 49 NA 91 38 331 49 29 192 41

Note: (1) Relative to SET index, (2) relative to JCI Index and (3) relative to STI index. Source: DataStream, Goldman Sachs Research estimates.

Exhibit 7: Historical trading range and target prices of ASEAN coal equities under our coverage

Banpu Bukit Asam Indo Tambangraya Bumi Resources Straits Asia Resources

Curr Bt Rp Rp Rp SGD

Ratings Buy* Buy Buy Neutral Neutral

Target price 745 20,500 49,500 9,700 4.70

Share price 504 14,650 33,800 8,200 3.95

Upside/ TP implied downside (%) 2009E PE 48% 15X 40% NA 46% 13X 18% 18X 19% 13X

Historical 12-m forward PE range 8-16X 6-16X 7-15X 5-20X 8-20X

* This stock is on our Conviction List. Source: Reuters, Bloomberg, DataStream, Company data, Goldman Sachs Research estimates.

â&#x20AC;˘

We expect further upside in thermal coal spot prices in 2008E/2009E. Given the high contract exposure of Indonesian coal producers, we believe the peaks of the earnings and pricing cycle will coincide in 2009, and these peak levels will provide downside support for any correction in spot prices when supply constraints in Australia start to ease. We value ASEAN coal stocks at their peak P/E multiples, in line with the valuation methodology adopted by our regional teams.

â&#x20AC;˘

We see premium valuations of ASEAN coal stocks to the Indonesia broader market as reasonable given their superior growth prospects. P/E multiples are generally at midcycle, barring Bumi Resources which is currently trading near the peak of the cycle. As compared with global peers, ASEAN coal stocks are trading at a historical discount of 16%-29% to their China and US coal peers, respectively (see Exhibit 10).

Goldman Sachs Global Investment Research

June 19, 2008

ASEAN: Metals & Mining: Coal

Exhibit 8: Valuation comparables of ASEAN coal companies (calendarized financials)

ASEAN Bumi Resources Banpu PCL Indo Tambangraya Tambang Batubara Bukit Asam Straits Asia Resources Average of ASEAN coal sector China China Shenhua Energy Yanzhou Coal Mining China Coal Energy Co Australia Xstrata PLC Centennial Coal Co MacArthur Coal Ltd Felix Resources Ltd

Weightd mkt cap for P/B

Market cap (US$mn)

Average daily trading volume (US$ mn) 6-mos

EPS growth (%) 2008E 2009E

P/E (X) 2008E 2009E

EV/EBITDA 2008E 2009E

P/B (X) 2008E 2009E

ROE (%) 2008E 2009E

Div yield (%) 2008E 2009E

Ticker

GS rating

Curr

Price 13-Jun

BUMI IJ BANPU TB ITMG IJ PTBA IJ SAR SP

Neutral Buy* Buy Buy Neutral

IDR THB IDR IDR SGD

8,200 504 33,800 14,650 3.95

53% 13% 13% 11% 10%

17,091 4,128 4,102 3,626 3,127 32,073

111.5 30.1 NA 16.4 15.2

152 80 82 173 356 156

38 50 106 76 102 59

21.4 15.3 18.6 16.3 20.9 19.6

15.1 10.3 8.8 9.2 10.8 12.6

9.2 11.1 10.5 9.9 18.7 10.6

5.7 5.2 5.2 5.4 8.9 5.8

10.2 3.5 7.2 7.5 7.8 8.4

6.5 2.8 5.3 4.7 5.8 5.6

57.6 24.5 42.5 56.9 42.5 49.9

52.5 30.2 68.7 62.9 62.8 53.9

0.9 3.3 3.2 3.1 2.9 2.0

1.3 4.9 6.8 5.4 5.5 3.3

1088 HK 1171 HK 1898 HK

Buy* Buy* Buy

HKD HKD HKD

31.65 15.50 14.44

17% 12% 9%

13,765 9,756 7,589

155.5 45.8 93.8

65 96 70

33 21 45

16.7 11.7 16.0

12.6 9.7 11.0

10.7 6.9 8.5

8.1 5.7 5.2

4.2 2.6 2.7

3.6 2.2 2.2

25.8 24.9 23.8

28.6 23.3 20.6

2.5 2.1 0.4

2.1 2.4 0.5

XTA LN CEY AU MCC AU FLX AU

Neutral NC NC NC

GBp AUD AUD AUD

4,160 5.46 19.68 18.39

95% 2% 5% 4%

77,956 1,753 3,700 3,385

55,267 11.7 20.1 6.0

36 83 293 347

20 46 131 -14

10.6 19.9 20.9 17.9

8.8 13.6 9.1 20.9

6.4 8.1 13.1 12.7

5.5 6.3 5.7 14.5

2.5 16.0 5.2 6.0

2.0 13.0 3.9 4.7

0.0 3.6 0.7 1.6

0.0 4.8 2.4 3.0

13.0

10.9

7.4

6.1

2.9

2.5

JCI

25.4 19.4 30.0 39.6 23.5

23.9 33.1 49.6 42.4 24.7

2.9

3.4

*This stock is on our Conviction List. Note: For important disclosures, please go to http://www.gs.com/research/hedge.html. Source: Bloomberg, Goldman Sachs Research estimates, GSJBW estimates.

Exhibit 9: Regional thermal coal spot price is the key share price driver for ASEAN coal equities

Exhibit 10: ASEAN coal stocks are trading at a discount of 16%/29% to China and US peers, respectively

Market capitalization of Bumi, Banpu and Bukit Asam vs. regional coal spot price

12-mo forward P/E of ASEAN coal equities vs its global peers

Regional coal spot price (US$/ton) 160

Market cap of Banpu (LHS) Market cap of Bukit Asam (LHS) Regional NEWC coal spot price (RHS)

140

120

100

21X 18X

15X

10 80 8

R2 = 79%

ASEAN

Source: DataStream.

Mar-08

May-08

Jan-08

Nov-07

Sep-07

0 Jul-07

Apr-08

Jan-08

Jul-07

Oct-07

Apr-07

Jan-07

Jul-06

Oct-06

Apr-06

Jan-06

Jul-05

Oct-05

Apr-05

Jan-05

Jul-04

Oct-04

Apr-04

Jan-04

Mar-07

May-07

R2 = 72%

Jan-07

Nov-06

Sep-06

R2 = 89%

Jul-06

Mar-06

PE (X) 35

May-06

Market cap of Bumi Resources (LHS)

Jan-06

Market capitalisation (US$bn) 18

China

Source: Company data, DataStream, Goldman Sachs Research estimates.

•

We value Bumi using 18X FY2009E P/E peak multiple and, for ITMG and SAR, we apply 13X FY2009E P/E based on 27% discount to Bumi’s target multiple. We believe a discount is appropriate to reflect ITMG and SAR’s lower production volumes, shorter reserve life and smaller market capitalization relative to Bumi. The 27% discount is based on ITMG’s historical trading discount over Bumi since its IPO in December 2007. We believe SAR’s historical trading premium to the sector is unjustified and have assigned a similar target multiple (as ITMG) of 13X FY2009E P/E accordingly.

•

As for TB Bukit Asam, we believe DCF methodology is the most appropriate as it explicitly accounts for the company’s strong long-term growth prospects. We believe DCF valuations are less relevant for other companies as share prices are driven by spot prices rather than long-term price assumptions in an upcycle, but we have used DCF to back-test our pricing assumptions with market expectations. We believe the higher implied 2009E and long-term regional price versus our base case assumptions

Goldman Sachs Global Investment Research

June 19, 2008

ASEAN: Metals & Mining: Coal

are in light of rising spot coal prices which are backed by positive coal fundamentals. We see upside risks to our base case assumptions and believe the best opportunities exist in companies with the largest potential upside to higher benchmark prices.

•

As for Banpu, we apply a SOTP methodology: 1) for the Indocoal segment, we use ITMG’s target price based on 13X FY2009E P/E, 2) for the China coal segment, we assign a 20% discount to target multiple (16X FY2008E P/E) of Yanzhou Coal Mining covered by Goldman Sachs analyst Song Shen, and 3) for non-coal assets, we use a combination of market values and present values computations.

Exhibit 11: DCF-implied 2008E/2009E contract prices and long-term coal prices Target price 745 20,500 49,500 9,700 4.70

Curr Bt Rp Rp Rp SGD

Banpu Bukit Asam Indo Tambangraya Bumi Resources Straits Asia Resources

DCF

Share price 504 14,650 33,800 8,200 3.95

% difference

439 20,500 21,217 5,967 3.38

-13% 40% -37% -27% -14%

Implied 2009 regional coal price 139 NA 154 150 133

Implied LT regional coal price 77 58 86.5 84 75

Note: Our 2009E regional coal price assumption is US$125/t and LT regional coal price assumption is US$70/t. Source: DataStream, Goldman Sachs Research estimates.

Exhibit 12: Banpu is trading close to mid cycle

Exhibit 13: Bukit Asam is trading above mid cycle

Banpu’s P/E

Bukit Asam’s P/E

PE (X) 18

PE (X) 16 Average + 2 sd = 15.8X

15.7X Average + 2 std deviation = 13.8X

15.8X

13.6X 11.9X

12 12.6X

Average = 11.6X

Average = 10.1X

8 8.3X

Average - 2 std deviation = 6.4X 6

Average - 2 sd = 7.3X

7.5X 6.4X

May-08

Mar-08

Jan-08

Nov-07

Sep-07

Jul-07

May-07

Mar-07

Jan-07

Nov-06

Sep-06

Jul-06

May-06

Jan-06

4 Mar-06

May-08

Jan-08

Mar-08

Nov-07

Jul-07

Sep-07

May-07

Jan-07

Mar-07

Nov-06

Jul-06

Sep-06

May-06

Jan-06

Mar-06

Nov-05

Jul-05

Sep-05

May-05

Jan-05

Mar-05

Source: Company data, DataStream, Goldman Sachs Research estimates.

Exhibit 14: Bumi Resources is trading at its peak cycle P/E multiple

Exhibit 15: SAR is trading above its historical average trading range

Bumi Resources’ P/E

Straits Asia Resources’ P/E

PE (X) 24

PE (X) 20

19.5X Average + 2 sd = 17.7X

20.2

Average + 2 sd = 18X

18.4X 16

14.3X

16 Average = 12.8X 12

Average = 11X

8 8

Source: DataStream, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research

Jun-08

Apr-08

May-08

Mar-08

Feb-08

Jan-08

Dec-07

Nov-07

Oct-07

Sep-07

Aug-07

Jul-07

Jun-07

May-07

Apr-07

Mar-07

Jan-07

4 Feb-07

May-08

Jan-08

Mar-08

Nov-07

Sep-07

Jul-07

May-07

Mar-07

Jan-07

Nov-06

Sep-06

Jul-06

Mar-06

May-06

Jan-06

Average - 2 sd = 8X

Dec-06

Average - 2sd = 3X

Nov-06

5.3X

Source: DataStream, Goldman Sachs Research estimates.

June 19, 2008

ASEAN: Metals & Mining: Coal

Exhibit 16: Bumi Resources is trading at a premium to peers and market, offering a relatively attractive opportunity for smaller companies such as ITMG, Bukit Asam to catch up ASEAN coal equities’ PE premium/(discount) to MSCI 60%

Bumi Resources Bukit Asam Indo Tambangraya Straits Asia Resources Banpu

40%

20%

9% 5%

-3% -9%

-20%

-40%

May-08

Apr-08

Mar-08

Feb-08

Jan-08

Dec-07

Nov-07

Oct-07

Sep-07

Aug-07

Jul-07

Jun-07

May-07

-60%

Note: We use MSCI Indonesia for Bumi Resources, Bukit Asam and Indo Tambangraya, MSCI Thailand for Banpu and MSCI Singapore for Straits Asia Resources. Source: DataStream, Goldman Sachs Research estimates.

Solid fundamentals continue to drive prices; we expect further upside to thermal coal cycle Risk/reward for the regional thermal coal market remains on the upside in our view as the pricing upcycle is supported by: confluence of strong demand drivers and incessant supply side risks, relative attractiveness of coal to crude oil on a heat equivalent basis, and higher long-term thermal coal prices driven by elevated marginal costs of production.

Crude oil price upside will drive coal price higher Against the backdrop of an uncertain long-term supply environment arising from “the revenge of the oil political economy” and continued robust demand growth from BRICs, our GS Global Commodities Research team (refer to Goldman Sachs Energy Watch report A lesson from long-dated oil: A steadily rising price forecast, dated May 16, 2008) believes that the current oil market is experiencing a structural repricing with long-dated oil prices driving the market until a new equilibrium is attained. The team believes that WTI crude will come in 14% above current levels at US$141/bbl in 2H2008, US$148 bn for full year 2009 and long-term oil price of US$75/bbl. As oil prices advance, coal prices should catch up. Although coal prices are at a

historical high level, coal is still cheaper than oil on a heat equivalent basis. And if crude oil reaches the GS projected “super spike” level of US$200/bbl, the ratio drops to a trough level of 17%.

Goldman Sachs Global Investment Research

June 19, 2008

ASEAN: Metals & Mining: Coal

Exhibit 17: Regional coal spot price is at a new high of US$160/t (+79% ytd) but has lagged oil over the past 10 years

Exhibit 18: Thermal coal prices are still undervalued at 25% of oil prices, below historical average of 26% and Februaryâ&#x20AC;&#x2122;s high of 30% on a heat equivalent basis

WTI Crude oil price vs. regional coal spot and contract prices

Regional coal price (NEWC Index) as % of Brent oil (FOB) on heat-equivalent basis

Source: Globalcoal, DataStream, GSJBW Research estimates.

10%

17%

15%

17% now If Oil = $200/bbl

Oil: $38/bbl Coal: $26/t

Current Oil: $132/bbl Coal: $160/t

14% 14%

Oil: $35/bbl Coal: $25/t

Oil: $59/bbl Coal: $39/t

Nov-07

May-08

Nov-06

May-07

Nov-05

May-06

5% Nov-04

Jun-08

Apr-07

Nov-07

Sep-06

Jul-05

Feb-06

Dec-04

Oct-03

May-04

Mar-03

Jan-02

Aug-02

Jun-01

Apr-00

Nov-00

Sep-99

Jul-98

Feb-99

Dec-97

Oct-96

May-97

Mar-96

Aug-95

15%

May-05

17%

Nov-03

25% 24% now If Oil = $141/bbl

May-04

20%

Nov-02

25%

May-03

Average = 26%

Nov-01

30% 30%

May-02

37%

34%

35%

Nov-00

100 80

Oil: $88/bbl Coal: $125/t

40%

May-01

120

100

Oil: $36/bbl Coal: $63/t

Oil: $17/bbl Coal: $28/t

45%

Nov-99

140

May-00

Australia/Japanese coal contract price (RHS)

Nov-98

120

51%

50%

May-99

160

Nov-97

Regional NEWC coal spot price (RHS)

May-98

WTI crude oil price (LHS)

140

Oil: $10/bbl Coal: $23/t

55%

Nov-96

180

May-97

US$/ton

160

May-96

US$/bbl

Source: Goldman Sachs Commodity Research estimates, GSJBW Research estimates.

Exhibit 19: Our thermal coal contract price and WTI crude oil forecasts

Thermal coal contract prices (US$/ton) WTI crude oil prices (US$/bbl) YoY change in thermal coal (%) YoY change in WTI crude oil (%)

2008E 2009E 2010E 2011E 2012E 2013N 125 125 100 90 90 70 125 148 0% -20% -10% 0% 18%

Source: Goldman Sachs Commodities research and GSJBWere research estimates.

Demand and supply-led upcycle underpins the perfect storm in medium term The current bull run in thermal coal cycle is largely attributed to the remarkably tight market as a consequence of the confluence of strong demand momentum, driven by rapid upsurge in coal-fired power generation capacity expansion in Asia (China, India, Indonesia, Malaysia, etc) and supply side constraints (see Exhibit 23) such as logistical bottlenecks in Australia, South Africa and China. We see India and China as key drivers of seaborne thermal coal demand over the next 1020 years as both countries will account for 80% of the growth in coal related energy demand growth, according to IEA. On the back of robust market demand, the tight energy market is exceptionally sensitive to any supply disruptions (eg, news on delays to coal infrastructure investment in Australia and/or a sharper-than-expected slowdown in Indonesian and Colombia coal export growth) which presents key upside risks to our medium-term price outlook for thermal coal. We believe that the delicate demand-supply model of thermal coal is likely to persist till 2010E/2011E when rail or port expansions in NSW (Australia) are expected to significantly add to export supply and when South African coal export resumes following an inventory rebuilding programme by Eskom by 2011.

Goldman Sachs Global Investment Research

June 19, 2008

ASEAN: Metals & Mining: Coal

Exhibit 20: Global thermal coal imports likely to grow at least 3% pa in line with consumption growth % yoy changes in global thermal coal consumption and seaborne trade

Exhibit 21: Supply constraints in most exporting countries are unlikely to alleviate; Indonesia (the largest exporter) should benefit in a big way, in our view Major exporters and importers of thermal coal mn tons 800

YoY changes in global consumption YoY changes in seaborne thermal trade

Vietnam USA

Exports

China

600

Russia S. Africa Colombia

15%

400

Australia

200

10%

Major exporters

20%

Indonesia

Japan India

-200

S. Korea

Malaysia

0% 1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

20082012

Europe

-600

2006

Source: IEA, Clarkson Research studies, McCloskey’s, TEX report, ABARE, GSJBW Research estimates.

Others

Imports

-800

-5%

Major importers

Taiwan China

-400

2007

2008E

2012E

Source: IEA, Clarkson Research studies, McCloskey’s, TEX report, ABARE, GSJBW Research estimates.

Exhibit 22: Regional thermal coal imports driven by India and China Major importers of seaborne thermal coal (mn tons)

Major Coal Importers Japan India S. Korea Taiwan China Malaysia Other Asia Total Asia Imports YoY change (%) Total global imports YoY change (%)

2003 101 12 51 45 8 8 22 247 6% 453 11%

2004 109 14 54 48 12 10 21 268 9% 475 5%

2005 112 20 56 53 19 10 22 292 9% 493 4%

2006 119 24 60 58 33 11 27 332 14% 635 29%

2007 122 29 65 61 44 13 33 367 11% 673 6%

2008E 122 34 70 63 50 15 33 391 7% 699 4%

2012E 130 55 82 74 65 20 48 474

YoY growth rate of key import markets Japan 5% 8% India 20% 17% S. Korea 2% 6% Taiwan 7% 7% China -20% 50%

3% 43% 4% 10% 58%

6% 20% 7% 9% 74%

3% 21% 8% 5% 33%

0% 17% 8% 3% 14%

1% 10% 3% 3% 5%

790

Source: IEA, Clarkson Research studies, McCloskey’s, TEX report, ABARE, GSJBW Research estimates.

Goldman Sachs Global Investment Research

June 19, 2008

ASEAN: Metals & Mining: Coal

Exhibit 23: Illustration of supply constraints in the seaborne thermal coal market Major Coal Exporters Indonesia

Australia

Ch. (% pa) Ch. (% pa) 2000-2007 2007-2012 Comments 18.3% 3.5% Weaker rate of increase in exports due to (1) strong domestic demand from newly-constructed coal-fired power generators and need to rebuild inventories at domestic power stations (2) increasingly-congested export channels 3.9% 6.9% Rail and port infrastructure bottlenecks have constrained growth in coal production and exports. Turning point over 2010-2012 when a third coal terminal at port of Newcastle is scheduled to be completed.

Colombia South Africa

8.9% 0.0%

5.2% 5.9%

Expanding exports but mainly supply to US market Structural underinvestment in new power generating capacity and worsening power shortage could result in a fall in coal exports. Rail and port constraints as well as an inventory rebuilding programme by Eskom will negatively impact export over next two years but expect resumption of upward trend in exports beyond

Russia

19.4%

1.3%

China

0.1%

-7.8%

USA Vietnam

0.7% 43.5%

-7.8% -16.7%

Expect flat thermal coal exports given strong domestic demand and infrastructure constraints Uncertainty involved in coal export market as (1) need to rebuild inventories at domestic generators; (2) delays in issuance of export licenses and (3) inadequate rail infrastructure to transport coal Assumed 8% fall in coal exports from US. Strong domestic demand could result in a fall in coal exports to China.

Source: IEA, Clarkson Research studies, McCloskeyâ&#x20AC;&#x2122;s, TEX report, ABARE, GSJBW Research estimates, Goldman Sachs Research estimates.

Elevated long-term coal prices given higher marginal costs of production The GSJBW Commodities team has recently raised long-term price assumptions for thermal coal to US$70/t on the basis of a higher long-term oil price and the team believes that coal is likely to remain the fuel of choice for many emerging markets for the foreseeable future (refer to GSJBW Daily Cable of June 12, 2008, for GSJBW Commodities report Coal and Iron Ore- Raising long term prices). The team also believes that in an era of BRICs induced elevated demand growth, the long-term price has to be high enough to induce marginal projects to come onstream. Costs of future coal supply are likely to increase given higher transportation and infrastructure costs as coal fields are developed further inland as compared with existing sources of export supply. We believe the upward adjustment of long-dated thermal coal prices increases upside risks to our near-term pricing assumptions of US$125/t through 2008E/2010E and US$100/t in 2010E/2011E for ASEAN coal companies under our coverage.

Goldman Sachs Global Investment Research

June 19, 2008

ASEAN: Metals & Mining: Coal

Indonesian producers poised to benefit significantly as earnings momentum picks up We believe the environment is conducive for a stronger and longer Indonesian thermal coal cycle. Our constructive view of Indonesian thermal coal is predicated on a positive view of the regional seaborne thermal coal sector as 74% of Indonesiaâ&#x20AC;&#x2122;s production is for the export markets. We believe incremental coal supply from Indonesia is likely to be regimented on rising domestic demand, and infrastructure and regulatory constraints, which add to support high regional thermal coal spot prices. At the same time, we believe that prices of Indonesian coal are breaking out from historical trends given rising negotiation power in the export market and strong demand drivers in the domestic market. We believe that the stronger-than-expected increase in realized prices will be more than sufficient to offset the elevated production costs in line with higher diesel prices, bringing about significantly higher returns in the industry. Regulatory risks remain a key concern but we adopt a more sanguine view on export controls and actual impact of any regulatory changes introduced by the new Mining Law on the existing big Indonesian coal producers.

Investment theme #1: Constrained export growth will keep regional prices up Given the very tight thermal coal seaborne market, growth in Indonesian exports will be critical in satisfying global import demand over the next few years. We believe a ramp-up in export volumes is unlikely given underinvestment in exploration over the past few years, infrastructure and equipment constraints and rising domestic demand. We estimate Indonesian exports to witness a 6% CAGR over 2007-2010E from 167 mt to 199 mt in 2010E.

Regulatory uncertainty has discouraged large-scale greenfield exploration which is essential to drive growth. Despite Indonesiaâ&#x20AC;&#x2122;s rich resource base which presents significant commercial opportunities to the global resource players, the less robust regulatory framework has hampered prospects for major new investments. Although small-scale projects have been awarded to existing industry players over the past few years, they are unlikely to contribute to significant growth as substantial capital is required for developments of new coal fields which are located further inland.

Goldman Sachs Global Investment Research

June 19, 2008

ASEAN: Metals & Mining: Coal

Exhibit 24: Greenfield exploration spending has been below 5% of Indonesiaâ&#x20AC;&#x2122;s total mining investment over the past decade Mining investment in Indonesia Investment in mining (US$mn)

Fixed assets

2500

Other exploration and feasibility

62% 2000

60%

Greenfields exploration spending 52%

1500

70%

Development

35%

% of investment over world exploration and feasibility

50%

40%

39%

30%

1000 20% 500

18%

20%

19% 15%

13%

10%

0% 1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Source: PricewaterhouseCoopers Mine Indonesia 2007.

Transportation capacity in Kalimantan is likely to stay tight in the near term; railway de-bottlenecking in Sumatra is long-term positive. The Indonesian government has given TB Bukit Asam the green light to upgrade the carrying capacity of its existing rail lines to 20 mt by 2013 (phase 1: +15 mt by 2010 and phase 2: 5 mt by 2013) and construction of a new rail line (20 mt by 2012) with state railway company PT Kereta Api Indonesia (KAI). Barges and trucks remain as the main mode of coal transportation in Kalimantan where the coal action lies. Although the bigger coal producers are expanding their dedicated ports and ship handling facilities, which could help to alleviate the tight logistical supply, we remain cautious and believe the leap in domestic consumption in 2010 may cause bottlenecks along the main river ways in Kalimantan. There had been historical interest by foreign investors (eg: Itochu) in building railway tracks in Kalimantan but under the prevailing law then, no private investor was allowed to handle railway projects without cooperating with PT Kereta Api Indonesia. We believe that the end of state monopoly on national infrastructure such as port and railway ownership could underpin greater efficiency and increase in investments. Based on our channel checks, transportation by trucks and barges are about US$0.13/t/km and US$0.05/t/km respectively, which are 4X and twice as more expensive than rail at about US$0.03/t/km.

Goldman Sachs Global Investment Research

June 19, 2008

ASEAN: Metals & Mining: Coal

Exhibit 25: Railway capacity expansion is an important milestone in monetizing coal resources in Sumatra

Exhibit 26: Underinvestment in equipment capacity since 2006 has resulted in surge in equipment sales

Bukit Asam’s railway capacity

QoQ increase in Komatsu mining equipment sales QoQ, 12mma 25%

Railway capacity (mn tons) 45

20%

15%

10%

-5%

-10%

-15%

Source: Company data, Goldman Sachs Research estimates.

1QFY08

4QFY07

3QFY07

2QFY07

2013E

1QFY07

2012E

4QFY06

2011E

3QFY06

2010E

2QFY06

2009E

1QFY06

2008E

4QFY05

2007

3QFY05

2006

2QFY05

-20%

Source: United Tractors.

Longer lead time to delivery of heavy equipment machinery on the back of a global resource boom. Based on our channel checks, the wait could be as long as 8 months, which provides mine producers little leeway to expand production overnight. Rising domestic demand may slow, but not cap, export increase The contrarian view is that the majority of Indonesia’s coal exports are of bituminous quality which may arguably not affect supply of (deemed-to-be non exportable) lower-rank coal (of 4,000-4,500 kcal/kg) that are consumed by the new coal-fired domestic power plants. We have our reservations on conforming to such an argument because: 1) demand for sub-bituminous coal is rising regionally owing to dwindling reserves of high quality coal. For example, there has been growing interest in Indonesia’s low rank coal from India which have requested for trial supplies; 2) domestic volumes will compete with exports on transportation and equipment capacity; and 3) higher coal prices should attract coal upgrading technologies, which we believe are already under study by South Africa’s Exxaro and Australia’s White Energy.

Goldman Sachs Global Investment Research

June 19, 2008

ASEAN: Metals & Mining: Coal

Exhibit 27: We forecast that robust domestic consumption could slow export growth significantly beyond 2010E Indonesia thermal coal demand/supply model (mn tonnes)

Production Key producers Bumi Resources Adaro Kideco Indo Tambangraya Berau Coal PT Bukit Asam Straits Asia Resources Others

2004 132 11 36 24 17 9 10 3 22

2005 153

2006 194

2007E 216

2008E 230

2009E 257

2010E 289

45 27 18 9 9 4 41

51 34 19 20 11 9 4 46

54 36 21 18 12 9 4 62

60 38 22 19 14 10 9 57

68 40 24 20 17 12 12 64

78 42 26 21 20 15 15 72

Consumption Power Cement Others % of overall production

36 23 6 8 27%

41 26 5 11 27%

49 28 5 16 25%

49 31 6 13 23%

58 38 6 14 25%

65 44 6 15 25%

91 68 7 16 31%

Net exports % of overall production

94 73%

108 73%

144 75%

167 77%

172 75%

192 75%

199 69%

YoY change Production Consumption Net exports

16% 18% 9%

15% 15% 15%

27% 18% 33%

11% 0% 16%

6% 18% 3%

12% 13% 12%

12% 39% 3%

Source: Ministry of Energy and Mineral Resources, Bloomberg, Factiva, Company data, Goldman Sachs Research estimates.

Also difficult to rule out risks of export controls, but implementation may be tricky We believe that the authorities are not favoring export controls, be it export levy, domestic market obligations (DMO) or enforcing payment of royalties in kind instead of cash, in principle, given that low-rank coal is actually abundant in supply. We believe the crux is how to get the coal out of the ground. Given the higher costs of production (due to rising diesel prices) and lower domestic coal prices, production of low rank coal is uneconomical to many mine producers. The government tried to impose export taxes of 5% on export prices (FOB) in 2005 but this was subsequently revoked by the court in 3Q2006 given that coal miners, which operate under the Coal Contract of Work (CCoW) First Generation are not subject to fiscal regulations other than those stated explicitly in their contract agreements; Indonesiaâ&#x20AC;&#x2122;s production is dominated by this group of producers which have a market share of >70%. With Indonesia veering more towards nationalist policies, export controls could hurt the countryâ&#x20AC;&#x2122;s income, in our view. We note that the Directorate General of Minerals recently announced that the country has no plans to reintroduce coal export taxes. We believe mine-mouth power plants are possible alternatives to circumvent the deadlock. In any case, even if any export controls are to be proposed, we believe they will only kick in after 2010, when we expect an upsurge in domestic demand.

Goldman Sachs Global Investment Research

June 19, 2008

ASEAN: Metals & Mining: Coal

Exhibit 28: 2009E revenue and earnings sensitivity of ITMG, Bumi and SAR if domestic market obligations (DMO) are imposed 20% of total sales volumes Revenue Earnings 30% of total sales volumes Revenue Earnings

ITMG 2.3% 5.7% ITMG 1.2% 3.3%

Bumi -0.5% -0.9% Bumi -3.6% -7.6%

SAR -0.3% -0.7% SAR -4.1% -9.4%

Note: Assume domestic selling price of US$61.67/t at CV5,850kcal/kg based on PTBAâ&#x20AC;&#x2122;s price. Source: Goldman Sachs Research estimates.

Exhibit 29: Snapshot of key coal producers and their export contribution in Indonesia Major Mining Producers Bumi Resources

Coal quality Production (mn tons) (kcal/kg) 2007 2008E 2009E 54 60 68 Kaltim Prima Coal CCOW Gen I 5,690-7,100 39 43 48 Arutmin CCOW Gen I 4,252-6,800 15 17 20 PT Adaro Adaro Indonesia CCOW Gen I 5,900 36 38 40 Kideco Jaya Agung Kideco Jaya Agung CCOW Gen I 5,500-6,250 21 22 24 Indo Tambangraya 18 19 20 Indominco Mandiri CCOW Gen I 6,250 12 12 12 Trubaindo CCOW Gen II 6,500-7,300 4 5 5 PT Kitadin KP 5,800-6,700 0 1 Jorong CCOW Gen II 5,300 3 3 3 Bharinto CCOW Gen III 6,500-7,300 Berau Coal Berau Coal CCOW Gen I 5,000-5,819 12 14 17 PT Bukit Asam Tanjung Enim KP 5,900-7,000 9 10 12 Straits Asia Resources Straits Asia Resources 4 9 12 Sebuku CCOW Gen II/KP 6,200 4 4 6 Jembayan KP 5,700 NA 5 6 Concessions

License

Sales (mn tons) 2007 2008E 2009E 55 59 67 40 42 48 16 17 19 36 38 40 21 22 24 18 19 20 12 12 12 4 5 5 0 1 3 3 3 12 14 17 11 12 15 3 9 12 3 4 6 NA 5 6

Export (mn tons) 2007 2008E 2009E 48 54 58 37 42 48 11 12 10 21 22 23 14 16 17 17 17 17 12 12 12 4 5 5 1 1 1 6 7 9 4 5 6 3 8 10 3 4 6 NA 4 4

Reserves Resources Reserves/ (mn tons) (mn tons) Pdn 1,844 6,730 31 1,382 4,333 32 462 2,397 27 406 2,069 11 19 416 1,280 237 1,495 12 94 609 8 58 296 13 27 167 NA 13 124 4 46 298 NA 229 2,667 16 1,270 6,160 125 59 435 7 20 387 5 39 48 8

CCOW: Coal contract of work and KP: Mining authorization holder. Source: Ministry of Energy and Mineral Resources, Indonesia Coal Mining Association, Bloomberg, Factiva, Company data, Goldman Sachs Research estimates.

Exhibit 30: Sub-bituminous coal is the most dominant coal type in Indonesia

Exhibit 31: General coal properties in Indonesia

Breakdown of Indonesiaâ&#x20AC;&#x2122;s coal quality by calorific value in cal/gm, adb

Coal properties <5100 24%

> 7100 1%

6100-7100 13%

Moisture

10-45%

Volatile Matter

25-45%

Fixed Carbon

30-50%

Ash

<10%

Total Sulfur

<2%

5100-6100 62%

Source: Ministry of Energy and Mineral Resources.

Goldman Sachs Global Investment Research

Source: Ministry of Energy and Mineral Resources.

June 19, 2008

Goldman Sachs Global Investment Research

Exhibit 32: Resources are concentrated in Kalimantan and Sumatra Indonesia coal resources and reserves and illustration of the major coal mines and infrastructure facilities

Key coal mine producers

Coal Resources: 90.5bn tons Coal Reserves: 18.7bn tons

1. PT Bumi Resources Mines: 1A - Kaltim Prima Coal 1B - Arutmin Infrastructure: P1: Tanjung Bara P2: North Pulau Laut 2. PT Bukit Asam : Mines: 2A - Tanjung Enim (TE) 2B - Cerenti 2C - Ombilin Infrastructure: P3: Tarahan Port P4: Kertapati Pier Railway TE to Tarahan Raiway TE to Kertapati

SUMATRA Resources: 53,831MT Reserves: 13,903MT

3A 1A 3B 3D 2C

3. Indo Tambangraya Megah Mines: 3A - Indominco-Bontang 3B - Kitadin 3C - Jorong 3D - Trubaindo 3E - Bharinto Infrastructure: P5: Bontang Coal Terminal 4. Straits Asia resources : Mines: 4A - Sebuku 4B - Jembayan Infrastructure: P6: Sebuku Port 5. PT Adaro

KALIMANTAN Resources: 36,225MT Reserves: 4,809MT

MALUKU/WEST IRIAN JAYA/ PAPUA Resources: 155MT Reserves: 0MT

P5 P1

4B 7 6

3C P4

4A P6

JAVA Resources: 14MT Reserves: 0MT

SULAWESI Resources: 233MT Reserves: 0MT

6. PT Kideco Infrastructure: P7: Tanah Merah Coal Terminal 7. Berau Coal

ASEAN: Metals & Mining: Coal

Source Indonesia Agency of Geology, Handbook of Energy and Economic Statistics of Indonesia, Indonesia Coal Mining Association, Bloomberg, Factiva, Company data, Goldman Sachs Research estimates.

June 19, 2008

ASEAN: Metals & Mining: Coal

Investment theme #2: More upside to realized prices with rising pricing power in the export and domestic market •

Stronger negotiation power in the export market given tight supply and high freight rates: FOB prices of high rank Indonesian coal exports to Japan have improved from a prior discount to FOB prices of coal exports from Australia (of similar calorific values) to a premium of US$3-4/t. We believe that the more competitive pricing arises as the Japanese power producers are passing through (partially) their freight savings to the Indonesia producers who are deemed (by Japanese power producers) to be more reliable in supply given current infrastructure constraints in Australia. While the devil’s advocate view is that such premium will only be applied when freight rates are high and supply is tight, we expect the premium pricing to stay in the near term as we expect constraints in Australia to persist till 2010E/2011E, hence making positives from lower freight cost even more valid in view of higher long-term oil prices.

Exhibit 33: We believe that narrowing of the discount of Indonesia’s overall export price to Australia’s price is due to better relative pricing for high rank coal on delivered basis Comparison of Indonesian export price versus regional spot and Australian contract prices

ASP (US$/t, FOB) Regional average spot price Australia contract price Indonesia export price (US$/t, FOB)

2005 47.3 50.3 41.2

2006 49.0 52.7 40.4

2007 65.5 54.8 44.4

2008E 123.3 102.0 80.8

1. Regional average spot price for 2008E is ytd. 2. Australia contract price is calculated based on 8 months of current contract prices and 4 months of prior year to account for 1 month lag of contract negotiation for Indonesian producers 3. Indonesia export price in 2006-2008E is based on production-weighted average of Bumi Resources, Indo Tambangraya and Straits Asia Resources. Source: Ministry of Energy and Mineral Resource, Company data, Goldman Sachs Research estimates.

•

Room for domestic price increase given widening gap with international prices and higher substitution demand for coal: While the domestic price increase was mainly a function of inflation historically, we believe this will change going forward with record export prices and a shift in energy structure. Over the past quarter, TB Bukit Asam had announced an upward price revision for two of its long-term domestic contracts. Based on latest domestic spot price settlements, ITMG will be supplying 0.5 mt of coal of calorific value 5,900kcal/kg to PLN at US$110/t. According to PLN, new domestic contracts are expected to be priced above US$110/t. We believe that the latest award to ITMG implies that coal inventories at domestic power plants may be at low levels and PLN is prepared to pay for market prices to secure supplies, supporting our view that domestic prices could move towards export prices in light of tight supply. We note that 80% of PLN’s coal requirement is met by long-term contracts. Based on our estimates, the gap between domestic price on CIF basis and export price on FOB is estimated to widen to 67% in 2008E. We believe risks to our 45%/17% increase in domestic price assumptions are on the upside.

Goldman Sachs Global Investment Research

June 19, 2008

ASEAN: Metals & Mining: Coal

Exhibit 34: Domestic prices have room to catch up given the sharp surge in international spot prices Indonesian coal’s export and domestic prices

Selling price (US$/t) 140

100%

Regional contract price (US$/t, FOB) Export price (US$/t, FOB, ex royalties) Domestic price (US$/t, CIF) YoY change in export price YoY change in domestic price

120 100

80% 60%

80 40% 60 20%

-20%

0 2005

2006

2007

2008E

2009E

2010E

Export price is based on production-weighted average of Bumi Resources and Indo Tambangraya. Domestic price is based on TB Bukit Asam’s blended average selling price. Source: Company data, Goldman Sachs Research estimates.

Investment Theme #3: Domestic coal upcycle drives second phase of growth We believe that domestic demand for coal is boosted by its relative attractiveness to diesel (on a heat equivalent basis), which should further anchor the nation’s policy of a switch in its dominant fuel from oil to coal. The government targets to decrease dependence on oil to 20% by replacing it with coal, which is expected to account for 33% energy share by 2025. This is made possible by an increase in coal-fired electricity generating capacity of 10,000MW under the Fast Track Program (a government-led initiative) by 2009/2010 in addition to the progressive conversion of 7,752MW of diesel-fired power plants. The government expects that the rise in coal-fired electricity capacity would more than double domestic coal demand by 2013. However, due to lack of bidders and hiccups in land acquisition (as they overlap with protective forest areas), we expect the 10,000MW capacity expansion program to be delayed by 6-10 months. Therefore, we do not expect domestic demand to ramp up till 2010E when we estimate that 65%-70% of the planned 10,000MW will come onstream. We estimate that domestic demand will witness 23% CAGR over 2007-2010E.

Goldman Sachs Global Investment Research

June 19, 2008

ASEAN: Metals & Mining: Coal

Exhibit 35: Coal will overtake oil as the dominant fuel by 2025 Indonesiaâ&#x20AC;&#x2122;s energy mix by fuel type (%) 2%

1% 3%

100%

5% 5%

90% 80%

20%

70%

52%

60% 30%

50% 40% 30%

Coal Liquefaction GeoThermal Biomass Hydropower Crude Oil Natural Gas Coal

29%

20%

33%

10%

15%

0% 2006 Energy mix

2025 Mix

Source: Ministry of Energy and Mineral Resources, Directorate General of Oil and Gas.

Exhibit 36: The 10,000MW Fast Track Program underpins strong growth in coal-fired power generation

Exhibit 37: Cement production growth rate has been in single digits since 2001

Yoy total power generation growth vs coal-fired power generation growth (%)

Cement production in Indonesia, 1996 to 2007

mn tons 40

60%

Cement production (LHS)

YoY growth (RHS)

20%

YoY % change in total power generation 50%

50% YoY % change in coal-fired power generation

15%

10%

40% 34%

30%

0% 20 -5%

21%

20%

15%

-10%

15% 8%

10% 5% 0%

9% 8%

-15%

-20%

-3%

-25%

0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

-10% 2001

2002

2003

2004

2005

2006

2007

2008E

2009E

Source: PLN, Ministry of Energy and Mineral Resources, Goldman Sachs Research estimates.

2010E

Source: CEIC.

Investment Theme #4: Higher production costs on rising diesel prices lift floor for regional thermal coal to US$80/t Since the price hike in 2005, Indonesian mine producers have been paying market prices for their diesel consumption. In line with the rising crude price, diesel prices have

Goldman Sachs Global Investment Research

June 19, 2008

ASEAN: Metals & Mining: Coal

increased by 40% ytd, including the latest 15% hike announced by Pertamina wef June 2008 together with the nationwide fuel price increase. Fuel price now accounts for at least 30% of production cash costs and we expect cost pressures from fuel to intensify in 2009E. We estimate a 29% yoy increase in 2008 unit production cash costs on the back of diesel price increases (we assume 91% yoy increase in 2008E), which translates to higher contractorsâ&#x20AC;&#x2122; mining costs (c. 20% yoy increase including higher equipment costs) and transportation costs We believe that existing coal producers are still cost competitive despite higher production cash costs. Indonesian producers remain the most cost efficient producers in the world given their adoption of underground mining methods, shorter transportation distance and lower labor cost. The elevated production cash costs of Indonesian producers have lifted the floor for regional thermal coal price to US$80/t Australia FOB, supporting our thesis of further upside to spot pricing.

Exhibit 38: Higher diesel prices have been driving production costs over the past 5 years

Exhibit 39: We estimate production cash costs to increase by 29%/11% in 2008/2009E

Indonesian diesel prices vs. cash production costs for coal

Indonesia unit cash cost and yoy increase

(Rp/liter)

(US$/t)

12,000

US$/t 40

Indonesian diesel prices (LHS)

30.3

25%

20% 20

24.4

15%

21.7

4,000

10%

16.7

2,000

30%

8,000

23.9

35%

10,000

6,000

Unit cash cost (US$/t, ex royalties) YoY change in unit cash cost (%)

Indonesian coal cash production costs per tonne (RHS)

5 13.5 12

Source: CEIC, Pertamina, Company data, Goldman Sachs Research estimates.

Apr-08

Jan-08

Jul-07

Oct-07

Apr-07

Jan-07

Jul-06

Oct-06

Apr-06

Jan-06

Jul-05

Oct-05

Apr-05

Jan-05

Jul-04

Oct-04

Apr-04

Jan-04

Jul-03

Oct-03

Apr-03

Jan-03

2006

2007

2008E

2009E

Source: Company data, Goldman Sachs Research estimates.

Exhibit 40: We believe ITMG has the highest earnings sensitivity to diesel prices due to its low operating leverage Cash costs and earnings sensitivity of ASEAN coal companies to changes in diesel prices Cost sensitivity to 1% change in : 2008 diesel prices 2009 diesel prices Earnings sensitivity to 1% change in : 2008 diesel prices 2009 diesel prices

Banpu 0.1% 0.1% Banpu -0.4% -0.2%

PTBA NA NA PTBA NA NA

ITMG 0.3% 0.3% ITMG -0.9% -0.6%

Bumi 0.3% 0.3% Bumi -0.5% -0.4%

SAR 0.4% 0.4% SAR -0.6% -0.5%

Our base-case assumption of diesel prices is US$1.11/litre and US$1.31/litre in 2008E and 2009E respectively. Note than PTBA relies more on electricity. Source: Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research

June 19, 2008

ASEAN: Metals & Mining: Coal

Investment Theme #5: M&A should continue to fuel interest Rising energy prices have spurred a flurry of domestic and foreign interest in acquisition of prime coal assets. According to the Head of the Indonesia Coal Mining Association, there are at least 15 foreign companies currently exploring acquisition opportunities in coal mines in Indonesia, with particularly strong interest from China and India steel and energy producers. Leading India power producers such as Tata Power and Reliance Power have bought stakes in Indonesia coal mines. According to a Reuters news report dated May 12, 2008, Indiaâ&#x20AC;&#x2122;s state-run National Thermal Power Corporation is also looking at potentially buying majority stakes in Indonesian coal mines with reserves of up to 300 mt to secure supplies and manage costs. Local companies such as United Tractors and Straits Asia Resources have also been successful in acquisitions recently, although the scale is much smaller at about 40 mt of reserves. We believe the consolidation theme will accelerate, but given significant cost inflation, both at the capital and operating costs levels, new mining operations will be entering the industry in the upper portion of the cost curve. Hence, ASEAN coal equities which rely on acquisitions to extend production life may see lower returns in comparison with existing producers, in our view. Exhibit 41: Recently concluded M&A deals in the Indonesian coal sector Acquirer Tata Power Reliance United Tractors Straits Asia Resources PT Indika Energy Emco

Reserves (mt) 4,206

Acquisition cost (US$mn) 1,100

2,000 40 39

565 116 350

47 105

100 NA

Cost/reserves (US$/ton) Acquired concessions 0.26 30% of KPC and Arutmin Coal Mine in South Sumatra: Bintangtiga Energy, Bryayan 0.28 Bintangtiga Energy and Sugico Pendragon Energy 2.89 PT Tuah Turangga Agung in Kalimantan 8.97 Jembayan in Kalimantan Acquisition targets not disclosed and the deal will only be 2.13 concluded in end July 2008. NA PT Bina Insan Sukses Mandiri

Source: Factiva, Reuters, Tex Report.

Risks: Spotlight will be on the long-delayed mining laws Uncertain regulatory framework; awaiting new mining bill for more clarity The Indonesian coal mining industry is full of skeptics who believe that the legal framework is far from robust, which reflects the valuation discount versus its global peers, in our view. According to a survey by Pricewaterhouse Coopers (covering more than 85% of the companies operating in Indonesia) published in 2007, the top five impediments to investment in mining sectors are: 1) conflict between mining and forestry regulations; 2) duplication or contradiction between central and local governments; 3) taxation issues such as tax incentives, VAT, etc; 4) delay in finalization of new mining law; and 5) unfairness in divestment of foreign interests and mine closures. According to channel checks, the delay in passing of the new Mining Bill was due to a long-standing deliberation of the validity of the current contracts of work. We believe that if existing contracts would not be subjected to the new legislation, mines that operate under the first-generation CCOW would be most protected. We expect the long-awaited Mining Laws to be announced in 2H2008, as we believe an announcement is likely before the 2009 elections (in line with market expectations). Such an announcement could provide some recourse to the long-standing regulatory issues, in our view.

Weaker-than-expected fundamentals of regional thermal coal market Our constructive view on the Indonesian thermal coal sector is predicated on a positive stance on the regional seaborne thermal coal market. Any unexpected decline in regional

Goldman Sachs Global Investment Research

June 19, 2008

ASEAN: Metals & Mining: Coal

demand (for example due to environmental (carbon controls) and technological influences (such as advanced combustion technologies)) or earlier-than-expected recovery in supply constraints could derail our positive outlook.

Unpredictable weather can disrupt production The rainy season in Indonesia typically runs from October/November through February/March. Normal production can decrease by 5%-30% depending on the mineâ&#x20AC;&#x2122;s topography, supporting infrastructure, and mining machinery and equipment. Heavy rainfall in the coal producing region of Kalimantan had affected production for some coal mines such as PT Kideco and PT Adaro in 1H2008 and in 2H2007, whereas Indo Tambangraya and Straits Resources had to declare force majuear on their shipments. Given unexpected weather conditions, we believe that producers with diversified mine locations are better protected against weather-related risks.

Proliferation of illegal mining Inconsistent legislative interpretations at the regional and central government levels have resulted in an increase in the issue of illegitimate permits issued by the local governments. Holders of these illegal KPs (mining permits) account for c. 20 mt of illegal coal exports every year. The government is reviewing the licensing structure in Indonesia and the new Mining Bill should seek to address this issue, in our view.

Goldman Sachs Global Investment Research

June 19, 2008

ASEAN: Metals & Mining: Coal

Banpu (Buy, on Conviction List): Forgotten, misunderstood gem Investment view We upgrade Banpu to Buy (on Conviction List) from Neutral and raise our 12-month TP to Bt745, implying 48% potential upside.

Sector laggard, market has underfocused on its coal exposure Banpu has underperformed its peers on a 1, 3, 6 and 12-month basis (see Exhibit 6). We believe that Banpu’s lackluster performance relative to the ASEAN coal sector is attributable to the Street’s misunderstanding of Banpu as a power play given that the power segment contributed 57% to overall earnings in 2007. In 2008E/09E, we estimate the coal segment to account for 79%/92% of overall earnings.

Key Data Price (Bt) 12 months Price target (Bt) Market cap (Bt mn /US$ mn) 12/07 18.28 57.9 24.49 18.28 12.4 1.8 10.9 3.8 17.7

EPS (Bt) EPS growth (%) EPS (dil) (Bt) EPS (basic) (Bt) P/E (X) P/B (X) EV/EBITDA (X) Dividend yield (%) ROE (%)

12/08E 32.84 79.7 33.68 32.84 15.3 3.5 11.1 3.3 24.5

Current 504 745 136,961.0 / 4,126.0 12/09E 12/10E 49.10 42.48 49.5 (13.5) 49.10 42.48 49.10 42.48 10.3 11.9 2.8 2.5 5.2 5.7 4.9 4.2 30.2 22.1

Price performance chart

Coal upside is undervalued. We believe the market has not fully discounted its subsidiary ITMG’s coal leverage. Our analysis indicates that ITMG has the highest leverage to prices and offers 129% upside if the regional benchmark price goes up to US$155/t in 2008E and 2009E (see Exhibit 5). Given its more attractive valuations and higher liquidity, Banpu offers a cheaper option to gain exposure to ITMG, in our view.

600.00

1,000 900

500.00

800 700

400.00

600 500

300.00

400 200.00

300 200

100.00

100

Stub value looks attractive. At ITMG’s current share price, our

0.00 Jun 07

Sep 07

Dec 07

Mar 08

Jun 08

valuation for Banpu is Bt573, still 14% above current share price. Banpu Public Company (L)

Low expectations priced in power business already—we see little room for disappointment as we have already assumed potential losses from its China power business. Any potential recovery, which we deem imminent, could provide potential earnings upside, in our view. We are comfortable with our BLCP (a Banpu power subsidiary) estimates which should underpin a regular earnings stream.

Share price performace (%) Absolute Rel. to Bangkok S.E.T. - Price Index

Bangkok S.E.T. - Price Index (R)

1 Month 3 Month 12 Month 14.5 16.7 106.6 22.8 21.4 91.8

Source: Company data, Goldman Sachs Research estimates.

Catalysts 1) Higher contract prices: we estimate a 1% increase in contract prices could raise earnings by 2.5%/1.8% in 2008E/2009E; 2) volume growth through resource upgrades or acquisitions of new mines could mitigate impact of higher inflation on earnings in 2008E/2009E, in our view. Banpu and ITMG have set aside US$120 mn and US$50 mn, respectively, for acquisition of new coal assets in China and Indonesia, respectively in 2008; and 3) tariff increase in China could remove overhang on losses from the power segment.

Valuation We derive Banpu’s 12-month TP of Bt745 by applying an SOTP methodology (see Exhibit 46). Our target price implies a valuation multiple of 15X FY2009E P/E, which is in line with the peak of its historical trading range. We view valuations of Banpu as undemanding at 15X/10X 2008E/2009E P/E vs. ASEAN coal average of 20X/13X. We have adjusted our earnings by +49%/110% in 2008E/2009E and introduce our 2010E estimates.

Key risks Decline in thermal coal price, higher than expected production cash costs, and regulatory risks. Goldman Sachs Global Investment Research

June 19, 2008

ASEAN: Metals & Mining: Coal

Exhibit 42: Coal back in favor, at 79%-92% in 2008E-09E

Exhibit 43: Coal business returns are increasing

EBIT breakdown by segment

ROIC breakdown by segment

EBIT (Bt mn) Coal (including equity income) Power (including equity income) Total (including equity income from BLCP) EBIT breakdown Coal Power (including equity income from BLCP)

2006 4,771 1,291 6,062 593

2007 3,936 5,073 9,009 938

2008E 12,310 3,282 15,592 923

2009E 25,611 2,285 27,896 923

2010E 22,369 1,793 24,162

79% 21%

44% 56%

79% 21%

92% 8%

93% 7%

923

Coal (Bt mn) EBIT (1- tax rate) NOPAT Invested capital ROIC - Coal

2006 4,771 70% 3,340 23,089 14%

2007 3,936 70% 2,755 37,336 7%

2008E 12,310 70% 8,617 52,787 16%

2009E 25,611 70% 17,927 61,179 29%

2010E 22,369 70% 15,658 63,708 25%

Power (Bt mn) EBIT (including equity income from BLCP) (1- tax rate) NOPAT Invested capital (including investment in BLCP) ROIC - Power

2006 1,291 70% 904 5,567 16%

2007 5,073 70% 3,551 8,825 40%

2008E 3,282 70% 2,297 8,825 26%

2009E 2,285 70% 1,600 8,825 18%

2009E 1,793 70% 1,255 8,825 14%

Overall (Bt mn) EBIT (including equity income from BLCP) (1- tax rate) NOPAT Invested capital (including investment in BLCP) ROIC - Company

5,469 70% 3,829 28,656 13%

8,071 70% 5,650 46,161 12%

14,669 70% 10,268 61,612 17%

26,973 70% 18,881 70,004 27%

23,239 70% 16,267 72,533 22%

Source: Company data, Goldman Sachs Research estimates.

Exhibit 44: Banpu’s 12-m forward P/B, 2006-2008ytd

Exhibit 45: Banpu’s 12-m forward EV/EBITDA, 20062008ytd Price (Bt)

Price (Bt) 600

3.4X

11.0X

600

500

2.7X

500

400

2.2X

400

1.7X

300

1.2X

200

10.0X 9.0X 8.0X 7.0X

300 200 100

100

Source: Company data, DataStream, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research

Apr-08

Jan-08

Oct-07

Jul-07

Apr-07

Jan-07

Oct-06

Jul-06

Apr-06

0 Jan-06

Apr-08

Jan-08

Oct-07

Jul-07

Apr-07

Jan-07

Oct-06

Jul-06

Apr-06

Jan-06

Source: Company data, DataStream, Goldman Sachs Research estimates.

June 19, 2008

ASEAN: Metals & Mining: Coal

Exhibit 46: SOTP valuation of Banpu (Bt mn, unless otherwise stated) Coal segment Indo Tambangraya Megah China coal mines Implied equity value Power segment China (Peak) BLCP NPV of project, 2008E Total equity value of Peak and BLCP

Methodology P/E 13X 2009E earnings 13X 2008E earnings

DCF NPV

EV 144,508 28,444 172,952

-1,631 21,603 19,972

Listed assets Ratchaburi (Ratch) Share price (Bt) No. of shares listed (mn) Banpu's stake Attributable value - Ratch Total equity value of listed assets

Market value

Total equity value of Banpu No. of shares outstanding (mn) Target price (Bt) Current share price (Bt) Implied upside (%)

SOTP

Market value

42 1,450 15% 9,183 9,183 202,108 272

Per share % of total 532 105 636

71% 14% 86%

-6.0

-1%

79.5 73.5

11% 10%

33.8 33.8

5% 5%

744

100%

745 504 48%

Note: We value its China coal assets using 13X 2008E P/E, which is at 20% discount to target multiple for Yanzhou Coal Mining. Source: Reuters, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research

June 19, 2008

ASEAN: Metals & Mining: Coal

Exhibit 47: Summary financials of Banpu (Bt mn) Profit model (Bt mn)

12/07

12/08E

12/09E

12/10E

Total revenue

32,441.8

55,281.8

80,572.0

78,571.7

Cost of goods sold

(20,963.9)

(33,598.2)

(42,129.0)

(43,539.5)

(8,390.2)

(12,371.6)

(15,521.7)

(15,244.6)

0.0

6,476.4

13,895.6

27,853.4

24,672.1

(3,388.7)

(4,583.6)

(4,932.2)

(4,884.5)

3,087.7

9,312.0

22,921.3

19,787.5

SG&A R&D Other operating profit/(expense) EBITDA Depreciation & amortization EBIT Interest income Interest expense Income from unconsolidated subsidiaries

123.4

224.8

333.3

440.7

(1,160.4)

(1,335.1)

(1,506.8)

(1,334.7)

4,504.4

3,059.3

Balance sheet (Bt mn)

12/07

12/08E

12/09E

12/10E

Cash & equivalents

13,304.3

19,696.1

29,225.9

35,464.5

Accounts receivable

3,655.6

5,914.9

8,620.9

8,406.8

Inventory Other current assets

1,850.9

2,941.4

4,384.8

4,262.0

4,201.1

6.6

23,011.9

32,931.6

46,027.4

51,698.0

14,786.1

17,345.1

17,556.1

17,615.1

3,050.0

5,028.1

4,055.8

3,021.1

21,744.6

18,237.8

24,821.1

25,791.0

Total current assets Net PP&E Net intangibles Total investments Other long-term assets Total assets

4,874.4

3,595.0

Others Pretax profits

1,859.8

709.6

456.7

392.0

8,414.8

13,785.7

25,799.6

22,344.9

Income tax

(1,491.7)

(2,393.1)

(6,424.4)

(5,535.9)

(268.7)

(2,241.1)

(6,032.6)

(5,265.4)

6,654.4

9,151.6

13,342.6

11,543.6

Other long-term liabilities

0.0

4,967.3

8,924.7

13,342.6

11,543.6

Total long-term liabilities Total liabilities

1,687.2

226.9

0.0

6,654.4

9,151.6

13,342.6

11,543.6

Minorities

Accounts payable Short-term debt Other current liabilities Total current liabilities Long-term debt

Net income pre-preferred dividends Preferred dividends Net income (pre-exceptionals) Post-tax exceptionals Net income

Common stock & premium

2,458.2

11,502.1

65,050.8

85,044.8

103,962.4

109,627.2

939.7

1,044.0

1,309.1

1,353.0

4,086.2

5,538.8

5,600.0

5,800.0

6,762.6

8,788.7

14,255.0

13,381.7

11,788.5

15,371.5

21,164.2

20,534.7

14,435.0

24,327.4

20,321.1

16,114.8

330.0

14,765.0

24,657.4

20,651.1

16,444.8

26,553.5

40,028.9

41,815.3

36,979.5

7,775.8

26,533.2

30,810.7

41,909.4

47,144.5

34,309.0

38,586.5

49,685.2

54,920.3

4,188.3

6,429.4

12,462.0

17,727.4

65,050.8

85,044.8

103,962.4

109,627.2

BVPS (Bt)

126.3

142.0

182.8

202.1

Ratios

12/07

12/08E

12/09E

12/10E

EPS (basic, pre-exceptionals) (Bt)

18.28

32.84

49.10

42.48

Other common equity Total common equity

EPS (basic, post-exceptionals) (Bt)

24.49

33.68

49.10

42.48

Minority interest

EPS (diluted, post-exceptionals) (Bt) DPS (Bt)

24.49

33.68

49.10

42.48

8.50

Total liabilities & equity

16.51

24.68

21.35

Dividend payout ratio (%) Free cash flow yield (%)

34.7

49.0

50.3

(3.2)

(6.1)

12.8

(0.5)

Growth & margins (%)

12/07

12/08E

12/09E

12/10E

(2.8)

70.4

45.7

(2.5)

(14.4)

114.6

100.4

(11.4)

25.1

30.2

22.1

201.6

146.1

(13.7)

ROE (%) ROA (%)

23.7

(25.0)

11.6

12.2

14.1

10.8

Net income growth

84.3

37.5

45.8

(13.5)

ROACE (%)

17.7

24.5

30.2

22.1

EPS growth Gross margin

84.3

37.5

45.8

(13.5)

(3,044.1)

26.0

31.7

36.2

35.4

39.2

47.7

44.6

Inventory days Receivables days

4,308.9

31.6

32.9

39.6

EBITDA margin EBIT margin

20.0

25.1

34.6

31.4

(1,134.2)

10.8

10.2

11.2

9.5

16.8

28.4

25.2

Payable days Net debt/equity (%)

15.2

26.4

(6.7)

(24.7)

3.0

8.4

19.5

22.1

12/07

12/08E

12/09E

12/10E

12.4

15.3

10.3

11.9

1.8

3.5

2.8

2.5

10.9

11.1

5.2

5.7

3.8

3.3

4.9

4.2

Sales growth EBITDA growth EBIT growth

Interest cover - EBIT (X) Cash flow statement (Bt mn) Net income pre-preferred dividends DD&A add-back

12/07

12/08E

12/09E

12/10E

6,654.4

9,151.6

13,342.6

11,543.6

3,388.7

Valuation

4,583.6

4,932.2

4,884.5

P/E (analyst) (X)

Minorities interests add-back Net inc/(dec) working capital

268.7

2,241.1

6,032.6

5,265.4

(3,625.2)

(3,416.6)

(3,292.4)

628.5

P/B (X) EV/EBITDA (X)

Other operating cash flow Cash flow from operations

(3,315.8)

(11,395.8)

2,579.7

(3,447.3)

3,370.8

1,163.8

23,594.6

18,874.7

(2,983.9)

(4,292.8)

(2,171.0)

(146.1)

0.0

(2,988.2)

0.0

8,278.4

0.0

2,089.4

Capital expenditures Acquisitions Divestitures Others Cash flow from investments Dividends paid (common & pref) Inc/(dec) in debt

(1,396.6)

(4,120.3)

(1,209.8)

(905.1)

(4,526.5)

(134.7)

(6,369.0)

(986.7)

(2,153.9)

(3,270.2)

(5,466.4)

(6,308.5)

(402.6)

11,345.0

(3,945.0)

(4,006.3)

0.0

Common stock issuance (repurchase) Other financing cash flows Cash flow from financing

12,328.6

(2,712.2)

1,715.7

(1,334.7)

9,772.1

5,362.7

(7,695.7)

(11,649.4)

Total cash flow

8,616.4

6,391.8

9,529.9

6,238.6

Dividend yield (%)

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research

June 19, 2008

ASEAN: Metals & Mining: Coal

Indo Tambangraya (Buy): Higher leverage to pricing upcycle Investment view We initiate coverage on Indo Tambangraya (ITMG) with a Buy rating and 12-month TP of Rp49,500, implying 46% potential upside.

Leverage to pricing cycle undervalued. We believe that ITMG has been ignored relative to its peers in the pricing upcycle given its flat volumes. We believe that ITMG is most capitalized to pricing because: 1) its coal asset portfolio has a higher calorific value; and 2) the main bulk of its uncontracted volumes as of 1Q2008 are of higher rank coal, which we see improving pricing power relative to the benchmark. Based on our sensitivity analysis, a 1% change in contract prices will lift ITMG’s 2008E/2009E earnings by 3.3%/2.2%.

Strong earnings growth. We estimate ITMG’s earnings to register a 182% CAGR over 2007-2009E. We forecast ROIC to increase from 36% in 2008E to 58% in 2009E, the highest in our coverage universe.

Key Data Price (Rp) 12 months Price target (Rp) Market cap (Rp mn /US$ mn) 12/07 0.11 -0.11 0.11 19.1 2.3 5.9 3.1 19.3

EPS ($) EPS growth (%) EPS (dil) ($) EPS (basic) ($) P/E (X) P/B (X) EV/EBITDA (X) Dividend yield (%) ROE (%)

12/08E 0.20 81.8 0.20 0.20 18.6 7.2 10.5 3.2 42.5

Current 33,800 49,500 18,043,792.0 / 1,938.1 12/09E 12/10E 0.40 0.35 106.2 (13.2) 0.40 0.35 0.40 0.35 8.8 10.2 5.3 4.4 5.2 5.7 6.8 5.9 68.7 47.4

Price performance chart 40,000.00

3,000

35,000.00

2,500

30,000.00

Highest earnings upside among sector universe. We estimate that

25,000.00

if benchmark contract prices hit US$155/t in 2008E/2009E, ITMG offers 129% potential upside from current levels (see Exhibit 5). We also note that ITMG’s exceptional strong earnings growth are on the back of low operating leverage. We believe volumes increases on resource upgrades or acquisitions may bring significant earnings surprise.

20,000.00

Cheaper to gain exposure through Banpu. While we believe that ITMG has the strongest set of company fundamentals (relative to other stocks under our coverage), its lower liquidity may encourage investors to buy into Banpu for leverage to Indonesia coal instead.

Catalysts

2,000 1,500

15,000.00

1,000

10,000.00 500

5,000.00 0.00 Dec 07

0 Jan 08

Feb 08

Mar 08

PT Indo Tambangraya Megah Tbk (L)

Apr 08

May 08

Jakarta SE Composite - Index (R)

Share price performace (%) 1 Month 3 Month Absolute 36.3 47.6 Rel. to Jakarta SE Composite - Index 36.4 48.7

12 Month

Source: Company data, Goldman Sachs Research estimates.

1) Higher spot and contract prices; 2) volume growth through resource upgrades or acquisitions of new mines can mitigate impact of higher inflation on earnings in 2008/2009. ITMG has set aside US$50 mn for acquisition of new coal assets in Indonesia in 2008 /2009.

Valuation We arrive at Rp49,500 for ITMG’s 12-month TP based on 13X FY2009E P/E, which is at a 30% discount to sector proxy Bumi Resources’ target multiple of 18X FY2009E P/E. We believe a discount is justifiable given its lower production volumes, shorter reserve life and smaller market capitalization. ITMG is trading in-line at 19X FY2008E, but cheaper valuations of 9X versus the ASEAN coverage universe of 13X and JCI’s 11X in 2009E.

Key risks Decline in thermal coal price, higher-than-expected production cash costs, and production misses (which should be mitigated by diversified operations) in our view.

Goldman Sachs Global Investment Research

June 19, 2008

ASEAN: Metals & Mining: Coal

Exhibit 48: Although we expect volumes from Indominco to stay flat, growth in higher ranked coal from Trubaindo should help raise blended ASP

Exhibit 49: Returns are improving significantly as stronger increase in ASP offsets rising production costs ITMGâ&#x20AC;&#x2122;s average realized prices and production cash costs

ITMGâ&#x20AC;&#x2122;s sales volume, 2006-2010E Sales volumes (mn tons)

120

Production cash costs (RHS)

100 0.5

15 3.3 1.6

4.5

3.6

3.0

2.7 0.1

4.5

5.0

3.0

1.0

30 80

20 15

40 5

10.3

11.5

US$/t

4.4

US$/t, FOB

Average selling price (LHS)

11.5

10 20

0 2006

2007

2008E

Indominco - Bontang

Kitadin

2009E Jorong

2010E Trubaindo

Source: Company Data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research

Bharinto

2006

2007

2008E

2009E

2010E

Source: Company Data, Goldman Sachs Research estimates.

June 19, 2008

ASEAN: Metals & Mining: Coal

Exhibit 50: Summary financials of PT Indo Tambangraya (US$mn) Profit model ($ mn)

12/07

12/08E

12/09E

12/10E

Total revenue

771.8

1,360.2

1,911.1

1,839.2

Cost of goods sold

(564.5)

(820.4)

(992.8)

(998.0)

(81.6)

(208.2)

(254.9)

(270.8)

(3.7)

(6.5)

(9.1)

(8.8)

163.0

374.7

712.0

625.0

(41.0)

(49.6)

(57.7)

(63.5)

122.0

325.1

654.3

561.6

1.7

4.5

5.6

7.9

(15.6)

(14.2)

(9.6)

(5.3)

0.0

SG&A R&D Other operating profit/(expense) EBITDA Depreciation & amortization EBIT Interest income Interest expense Income from unconsolidated subsidiaries

Balance sheet ($ mn)

12/07

12/08E

12/09E

12/10E

Cash & equivalents

226.0

243.4

343.5

478.9

Accounts receivable

79.1

145.3

204.2

196.5

Inventory

28.1

34.7

39.6

39.8

Other current assets

47.4

6.6

380.7

439.3

603.2

731.0

Net PP&E

268.6

355.8

374.3

387.6

Net intangibles

122.6

210.2

236.6

232.6

0.0

15.2

787.1

1,020.5

1,229.3

1,366.4 181.6

Total current assets

Total investments Other long-term assets Total assets

Others

(18.7)

0.0

Accounts payable

72.8

147.5

179.3

Pretax profits

89.4

315.4

650.3

564.2

Short-term debt

43.5

46.1

40.5

19.1

Income tax

(32.0)

(94.6)

(195.1)

(169.2)

Other current liabilities

122.7

202.4

224.3

222.6

0.0

423.4

Minorities Net income pre-preferred dividends Preferred dividends

57.4

220.7

455.2

Total current liabilities

239.0

396.0

444.2

Long-term debt

48.7

21.7

0.2

394.9

Other long-term liabilities

31.6

Total long-term liabilities

0.0

Net income (pre-exceptionals)

57.4

220.7

455.2

394.9

Post-tax exceptionals Net income

(0.6)

0.0

56.8

220.7

455.2

394.9

Total liabilities Common stock & premium Other common equity

EPS (basic, pre-exceptionals) ($)

0.11

0.20

0.40

0.35

Total common equity

EPS (basic, post-exceptionals) ($)

0.11

0.20

0.40

0.35

Minority interest

EPS (diluted, post-exceptionals) ($)

0.11

0.20

0.40

0.35

DPS ($)

0.06

0.12

0.24

0.21

Dividend payout ratio (%)

60.0

2.8

5.2

10.7

9.8

Free cash flow yield (%) Growth & margins (%)

Total liabilities & equity BVPS ($) Ratios

80.4

53.3

31.8

319.3

449.3

476.0

455.2

408.1

59.6

163.1

345.2

503.2

467.7

571.2

753.3

911.2

0.0

787.1

1,020.5

1,229.3

1,366.4

0.9

0.5

0.7

0.8

12/07

12/08E

12/09E

12/10E 47.4

12/07

12/08E

12/09E

12/10E

Sales growth

76.2

40.5

(3.8)

EBITDA growth

129.8

90.0

(12.2)

ROE (%)

42.5

68.7

EBIT growth

166.5

101.3

(14.2)

ROA (%)

24.4

40.5

30.4

Net income growth

288.8

106.2

(13.2)

ROACE (%)

19.3

42.5

68.7

47.4

EPS growth

83.7

106.2

(13.2)

Inventory days

14.0

13.7

14.5

Gross margin

26.9

39.7

48.1

45.7

Receivables days

30.1

33.4

39.8

EBITDA margin

21.1

27.5

37.3

34.0

Payable days

49.0

60.1

66.0

EBIT margin

15.8

23.9

34.2

30.5

Net debt/equity (%)

(28.6)

(30.7)

(40.2)

(50.4)

8.8

33.4

162.6

12/07

12/08E

12/09E

12/10E 10.2

Interest cover - EBIT (X) Cash flow statement ($ mn)

12/07

12/08E

12/09E

12/10E

Net income pre-preferred dividends

57.4

220.7

455.2

394.9

DD&A add-back

41.0

49.6

57.7

63.5

Minorities interests add-back

0.0

Net inc/(dec) working capital

286.0

48.5

(5.6)

19.1

18.6

8.8

2.3

7.2

5.3

4.4

11.7

EV/EBITDA (X)

5.9

10.5

5.2

5.7

Dividend yield (%)

3.1

3.2

6.8

5.9

(252.6)

37.1

(0.4)

(6.1)

Cash flow from operations

131.8

355.9

506.9

464.0

Capital expenditures

(58.9)

(126.0)

(65.0)

Acquisitions

(26.0)

(10.7)

(11.2)

(11.8)

Others Cash flow from investments Dividends paid (common & pref)

2.3

0.0

(37.3)

(45.9)

(20.8)

11.8

(119.9)

(182.6)

(97.0)

(64.9)

(85.0)

(132.4)

(273.1)

(236.9)

(101.7)

(24.4)

(27.1)

(21.5)

Common stock issuance (repurchase)

366.7

0.0

Other financing cash flows

(19.6)

0.9

(9.6)

(5.3)

Cash flow from financing

160.3

(155.9)

(309.8)

(263.7)

Total cash flow

172.2

17.4

100.1

135.4

Inc/(dec) in debt

P/E (analyst) (X) P/B (X)

Other operating cash flow

Divestitures

Valuation

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research

June 19, 2008

ASEAN: Metals & Mining: Coal

TB Bukit Asam (Buy): Domestic proxy, long-term positive Investment view We initiate coverage on TB Bukit Asam with a Buy rating and 12month TP of Rp20,500, offering 40% potential upside.

Buy for leverage to domestic demand. We believe that the relative lackluster share price performance of PTBA was due to its lower exposure to the export market where the rally in international prices has widened the pricing gap with the domestic sector. This opens up a buying opportunity into PTBA as we believe the market has sidelined the domestic cycle which is still in its infancy. We expect domestic prices to catch up driven by strong demand drivers from power sectors and supply shortages due to infrastructure constraints and competition from exports.

Key Data Price (Rp) 12 months Price target (Rp) Market cap (Rp bn /US$ mn) 12/07 330 56 330 330 12.7 3.5 7.4 1.1 29.9

EPS (Rp) EPS growth (%) EPS (dil) (Rp) EPS (basic) (Rp) P/E (X) P/B (X) EV/EBITDA (X) Dividend yield (%) ROE (%)

12/08E 902 173 902 902 16.3 7.5 9.9 3.1 56.9

Current 14,650 20,500 33,755,531.6 / 3,625.7 12/09E 12/10E 1,585 1,674 76 6 1,585 1,674 1,585 1,674 9.2 8.8 4.7 3.7 5.4 4.9 5.4 5.7 62.9 47.5

Price performance chart

Capacity utilization should pick up with government’s approval in railway debottlenecking. We view this as a critical milestone in monetizing PTBA’s huge resource base as its sales volumes should increase with higher transportation capacity. We believe the strategic benefits of an expanded infrastructure for coal transportation in Sumatra are higher now in view of a stronger push to switch to coal given the spiraling diesel prices.

Upside to realized prices, driven by export sales in 2008E and domestic sales in 2009E, underpin very strong ROIC and ROE. As PTBA has been exporting bituminous coal of CV 6700-7000 kcal/kg (adb) on spot prices, we believe that realized prices in 2008E could surprise on the upside. Domestic price strength has also been underestimated in our view, and we see PTBA as the biggest beneficiary for structurally higher domestic prices. Based on our estimates, every 1% increase in domestic prices will boost PTBA’s earnings by 1%/0.8% in 2008/2009E.

18,000

3,000

16,000

2,800

14,000

2,600 2,400

12,000

2,200

10,000

2,000

8,000

1,800

6,000

1,600

4,000

1,400

2,000

1,200 1,000

0 Jun 07

Sep 07

Dec 07

PT Tambang Batubara Bukit Asam (L)

Mar 08

Jun 08

Jakarta SE Composite - Index (R)

Share price performace (%) 3 Month 6 Month 12 Month Absolute 42.9 24.7 130.7 Rel. to Jakarta SE Composite - Index 45.4 43.3 100.9

Source: Company data, Goldman Sachs Research estimates.

Most attractively valued on EV/t (reserves) basis of US$3 as compared with Bumi’s US$10 and highest among our coverage – SAR’s US$67.

Catalysts 1) We believe that the smooth and timely advancement in the key milestones of its railway capacity expansion plans should boost investor confidence that its growth plans are intact (Exhibit 25 shows the railway capacity increase of PTBA); 2) announcement on domestic price increase over the next few quarters.

Valuation We believe that the DCF methodology is the most appropriate valuation method for TB Bukit Asam as value of the company will only be realized in the longer term with the ramp up in railway capacity. Our 12-month target price of Rp 20,500 translates to 13X FY2009E P/E versus its historical trading range of 6X-16X.

Key risks 1) Construction and financing risks; 2) weaker-than-expected increase in domestic prices; 3) delay or cancellation of the 10,000MW Fast Track Program; and 4) restructuring of the mining state-owned enterprises.

Goldman Sachs Global Investment Research

June 19, 2008

ASEAN: Metals & Mining: Coal

Exhibit 51: We expect % of exports to increase gradually to 50% by 2013E

Exhibit 52: We believe domestic prices will catch up beyond 2010E

TB Bukit Asam’s sales volumes

TB Bukit Asam’s average coal selling prices

20.0

120

Export volumes Domestic volumes

18.0

100 8.3

14.0

80 Price (US$/t)

Volumes (mn tons)

16.0

6.5

12.0 10.0

4.9 4.0

3.2

8.0

6.0 4.0

8.9

7.4

6.9

6.8

10.6 20

2.0

2006

2007

2008E

2009E

2010E

2007

2008E

2009E

Average domestic selling prices

Source: Company data, Goldman Sachs Research estimates.

2010E

Average export prices

Source: Company data, Goldman Sachs Research estimates.

Exhibit 53: DCF valuation of TB Bukit Asam Calendar year EBIT Depreciation Change in working capital Taxes paid Others Capital expediture Free cash flows 1 DCF valuation (S$mn) NPV of cash flows (2008E to 2018E) PV of terminal cash flows Enterprise value Net debt/cash Investments in associates and JV Minority interests Equity value Shares outstanding (mn) Value per share (S$) Target price (S$)

2008E 0 3,002 99 (667) (519) (30) (509) 1,375 3 End 08 27,602 15,049 42,651 (3,053) 1,578 14 47,268 2,304 20,514 20,500

2009E 1 5,221 139 (429) (1,145) 37 (802) 3,020

2010E 2 5,508 185 (132) (1,598) 44 (729) 3,279

2011E 3 5,154 221 (28) (1,613) 48 (434) 3,346

2012E 4 11,023 238 (995) (2,193) 139 (159) 8,054

2013E 5 9,110 244 286 (3,096) 199 (40) 6,703

2014E 6 7,699 246 263 (2,577) 177 (40) 5,767

WACC calculation Cost of debt (Kd) Interest tax shield Cost of equity (Ke) Risk free rate Equity risk premium Beta Target D/E WACC

11.0% 30.0% 16.2% 9.0% 6.5% 1.10 30.0% 13.6%

Terminal growth (%)

3.0%

2015E 7 7,607 248 22 (2,299) 157 (40) 5,695

2016E 8 7,587 251 (9) (2,280) 140 (40) 5,648

2017E 9 7,507 253 21 (2,267) 124 (40) 5,598

2018E 10 7,494 255 (10) (2,251) 110 (40) 5,558

Source: Company data, Goldman Sachs Research estimates.

Exhibit 54: TB Bukit Asam’s 12-month forward P/B, 2001-2008ytd

Exhibit 55: TB Bukit Asam’s 12-month forward EV/EBITDA, 2001-2008ytd Price (Rp)

Price (Rp) 6.5X

16,000

29.0X 23.0X

16000

18.0

14000

14,000

5.0X

12.0X

12000

12,000 4.0X

10,000

10000 8000

Source: Company data, DataStream, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research

Apr-08

Jan-08

Oct-07

Jul-07

Apr-07

Jan-06

Apr-08

Jan-08

Oct-07

Jul-07

Apr-07

Jan-07

Oct-06

Jul-06

0 Apr-06

0 Jan-06

2000 Jan-07

4000

2,000

Oct-06

1.5X

4,000

6.0X

6000

Jul-06

2.5X

6,000

Apr-06

8,000

Source: Company data, DataStream, Goldman Sachs Research estimates.

June 19, 2008

ASEAN: Metals & Mining: Coal

Exhibit 56: Summary financials of TB Bukit Asam (Rp bn) Profit model (Rp bn)

12/07

12/08E

12/09E

12/10E

Total revenue

4,123.9

7,523.3

11,910.2

13,657.4

Cost of goods sold

(2,474.5)

(3,497.6)

(5,071.2)

(6,294.7)

(698.1)

(1,016.2)

(1,608.8)

(1,844.8)

(5.7)

(7.3)

(9.4)

(10.3)

1,015.8

3,100.8

5,359.4

5,693.0

(70.3)

(98.7)

(138.6)

(185.5)

945.5

3,002.1

5,220.8

5,507.5

SG&A Other operating profit/(expense) EBITDA Depreciation & amortization EBIT Interest income Interest expense

79.1

0.0

Income from unconsolidated subsidiaries

(1.9)

0.0

5.0

Others Pretax profits

35.4

(22.6)

0.0

1,058.1

2,979.5

5,220.8

5,512.6

(297.3)

(900.6)

(1,566.2)

(1,652.3)

(0.6)

(1.9)

(3.3)

(3.5)

Income tax Minorities

Balance sheet (Rp bn)

Cash & equivalents Accounts receivable Inventory Total current assets

760.2

Preferred dividends Net income (pre-exceptionals)

0.0

760.5

2,077.3

3,651.5

3,857.1

Post-tax exceptionals Net income

2,077.0

3,651.2

3,856.8

0.0

760.5

2,077.3

3,651.5

3,857.1

Net PP&E

360.6

775.8

1,444.1

1,993.4

Net intangibles Total investments

211.2

259.8

316.4

335.9

83.0

194.2

366.3

578.7

Other long-term assets Total assets Accounts payable Short-term debt Other current liabilities Total current liabilities Other long-term liabilities Total long-term liabilities Total liabilities

8.0

12.2

14.1

17.4

20.9

3,928.1

6,151.3

9,474.8

11,777.6

BVPS (Rp)

1,215

1,951

3,085

3,967

Ratios

12/07

12/08E

12/09E

12/10E

ROE (%) ROA (%)

29.9

56.9

62.9

47.5

21.6

41.2

46.7

36.3

ROACE (%) Inventory days

29.9

56.9

62.9

47.5

39.3

36.8

40.2

42.6

59.4

42.8

43.3

46.2

8.5

9.4

7.2

7.7

(79.0)

(67.7)

(67.4)

(65.7)

12/07

12/08E

12/09E

12/10E

Total liabilities & equity

205.3

72.8

6.2

217.5

73.9

5.5

Net income growth EPS growth

56.5

173.1

75.8

5.6

56.5

173.3

75.8

5.6

Gross margin

40.0

53.5

57.4

53.9

Receivables days

EBITDA margin EBIT margin

24.6

41.2

45.0

41.7

22.9

39.9

43.8

40.3

Payable days Net debt/equity (%) Interest cover - EBIT (X)

Other operating cash flow Cash flow from operations Capital expenditures Acquisitions Divestitures

70.3

98.7

138.6

185.5

0.0

269.6

(666.8)

(428.8)

(131.6)

205.4

375.9

461.1

96.6

1,305.5

1,884.7

3,822.2

4,007.3

(52.1)

(509.3)

(801.8)

(728.7)

(130.0)

(111.2)

(172.1)

(207.3)

0.0

Others Cash flow from investments

62.4

(52.9)

(61.5)

(25.4)

(119.8)

(673.4)

(1,035.4)

(961.3)

Dividends paid (common & pref)

(242.8)

(380.1)

(1,038.6)

(1,825.8)

Inc/(dec) in debt

0.0

(0.9)

0.0

Common stock issuance (repurchase) Other financing cash flows Cash flow from financing

0.0

(15.1)

0.0

(257.9)

(381.0)

(1,038.6)

(1,825.8)

927.8

830.3

1,748.2

1,220.3

Total cash flow

528.5

9,140.5

44.0

Minorities interests add-back Net inc/(dec) working capital

491.3

7,109.2

39.4

3,856.8

460.1

4,496.3

EBITDA growth EBIT growth

12/10E

0.0

421.8

2,799.1

14.7

3,651.2

2,087.7

0.0

1.2

58.3

12/09E

1,856.9

0.0

5.9

12/09E

2,077.0

1,180.9

0.0

1.2

82.4

12/08E

695.0

3.3

12/08E

760.2

1,941.1

1.2

16.7

12/07

1,738.8

1.6

12/07

Cash flow statement (Rp bn)

1,099.4

1.2

Sales growth

Net income pre-preferred dividends DD&A add-back

0.0

595.0

Common stock & premium

Minority interest

12/10E

146.6

0.0

528.5

1,674

Growth & margins (%)

118.1

0.0

2,616.2

1,674

8.7

81.5

0.9

491.3

1,585

8.1

99.1

2,348.2

1,585

3.6

197.5 11,777.6

460.1

902

8.8

197.5 9,474.8

1,640.9

902

837

197.5 6,151.3

421.8

330

50.0

193.0 3,928.1

1,116.8

330

792

1,827.3 785.8

EPS (basic, post-exceptionals) (Rp) EPS (diluted, post-exceptionals) (Rp)

50.0

6,021.6

1,626.4

8,672.1

1,674

451

4,801.4

1,200.6

685.2

1,585

50.0

3,053.2

563.9

7,150.4

902

165

2,222.8

432.8

330

50.0

12/10E

4,723.9

EPS (basic, pre-exceptionals) (Rp)

Dividend payout ratio (%) Free cash flow yield (%)

12/09E

271.5

Other common equity Total common equity

DPS (Rp)

12/08E

3,080.4

Long-term debt Net income pre-preferred dividends

12/07

Valuation P/E (analyst) (X)

12.7

16.3

9.2

8.8

P/B (X) EV/EBITDA (X)

3.5

7.5

4.7

3.7

7.4

9.9

5.4

4.9

Dividend yield (%)

1.1

3.1

5.4

5.7

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research

June 19, 2008

ASEAN: Metals & Mining: Coal

Bumi Resources (Neutral): Led bull run, risk/reward less appealing Investment view We initiate coverage on Bumi Resources with a Neutral rating and a 12month TP of Rp9,700, implying 18% potential upside.

Sector proxy, positives largely priced in. With c.10%/30% market share in the seaborne thermal coal market and exports from Indonesia respectively, we expect Bumi’s share price to trade in tight correlation to regional coal prices. Over the last 12mo, Bumi’s share price has outperformed its peers by around 3X (on a relative basis). We do not favor Bumi at peak cycle valuations, especially with more attractive alternatives available.

Risk/reward less appealing, even if we stress-test our pricing assumptions. Assuming benchmark prices of US$155/t in 2008E and 2009E, Bumi’s 2009E P/E stands at 10X vs ITMG’s 6X and the potential upside is 75% from current levels vs 129% for ITMG.

Key Data Price (Rp) 12 months Price target (Rp) Market cap (Rp mn /US$ mn) EPS ($) EPS growth (%) EPS (dil) ($) EPS (basic) ($) P/E (X) P/B (X) EV/EBITDA (X) Dividend yield (%) ROE (%)

12/07 0.02 66.8 0.04 0.02 40.2 11.0 26.9 1.8 42.8

12/08E 0.04 152.0 0.04 0.04 21.4 10.2 9.2 0.9 57.6

Current 8,200 9,700 159,112,800.0 / 17,090.5 12/09E 12/10E 0.06 0.05 38.2 (18.9) 0.06 0.05 0.06 0.05 15.1 18.7 6.5 5.1 5.7 7.2 1.3 1.1 52.5 30.8

Price performance chart 9,000

3,000

8,000

2,500

7,000 6,000

2,000

5,000

Our 2008E/2009E net profit estimates are 9%/26% below consensus mainly on higher fuel price assumptions. Management is still maintaining its guidance of US$0.80/litre for diesel price in 2008. However, based on our in-house energy assumptions, we forecast that diesel price will increase by 91% yoy to US$1.1/litre in 2008E from US$0.58/litre in 2007. 1Q2008 production cash costs increased by 32% yoy to US$30.7/t, largely on the back of higher diesel price from US$0.50/l to US$0.81/l. We are cautious that Bumi could keep its production costs below US$30/t over the next few years (before benefits of its cost reduction projects kick in) in the current environment of high oil prices.

1,500

4,000 3,000

1,000

2,000

500

1,000 0 Jun 07

0 Sep 07 Bumi Resources (L)

Dec 07

Mar 08

Jun 08

Jakarta SE Composite - Index (R)

Share price performace (%) 1 Month 3 Month 12 Month Absolute 7.9 36.7 345.7 Rel. to Jakarta SE Composite - Index 8.0 37.6 278.6

Source: Company data, Goldman Sachs Research estimates.

Catalysts 1) Higher contract prices—we estimate a 1% increase in contract prices will raise earnings by 1.8%/1.5% in 2008E/2009E; 2) disappointing earnings on higher energy costs—we estimate a 1% increase in diesel prices will lower earnings by 0.5%/0.4% in 2008E/2009E

Valuation Our 12-month target price of Rp9,700 is based on its peak cycle multiple of 18X FY2009E P/E. Bumi is currently trading at premium valuations of 21X/15X 2008E/2009 P/E to its regional peers and the broader Indonesian market.

Key risks Decline in thermal coal price and regulatory risks.

Goldman Sachs Global Investment Research

June 19, 2008

ASEAN: Metals & Mining: Coal

Exhibit 57: We estimate sales volume to increase by 11% over 2007-2010E (3-year CAGR)

Exhibit 58: We estimate recurring net profit to grow by 86% CAGR over 2007-2009E driven by higher ASP

Bumi Resources’ sales volume breakdown

Bumi Resources’ average selling price and production cash costs 120

Arutmin KPC

Average selling price (LHS)

Production cash costs (RHS)

100

70 60 50

16 15

40 30 20

30 60

25 20

19 US$/t, FOB

Volumes (mn tons)

US$/t

15 10

0 2006

2007

2008E

2009E

2010E

2006

2007

2008E

2009E

Source: Company data, Goldman Sachs Research estimates.

Exhibit 59: Bumi Resources’ 12-m forward P/B, 20052008ytd

Exhibit 60: Bumi’s 12-m forward EV/EBITDA, 20052008ytd Price (Rp)

Price (Rp) 9.0X

9,000 8,000

7.0X

7,000

9000

10.0X

8000 8.5X

7000 4.5X

6,000 5,000

6000

7.0X

5000 3.0X

4,000 3,000

1.5X

2,000 1,000

4000

5.5X

3000

4.0X

2000 1000

Source: Company data, DataStream, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research

Jun-08

Dec-07

Jun-07

Dec-06

Jun-06

Dec-05

Jun-05

0 Dec-04

Apr-08

Jan-08

Jul-07

Oct-07

Apr-07

Jan-07

Oct-06

Jul-06

Apr-06

Jan-06

Jul-05

Oct-05

Apr-05

Jan-05

Source: Company data, DataStream, Goldman Sachs Research estimates.

June 19, 2008

ASEAN: Metals & Mining: Coal

Exhibit 61: Summary financials of Bumi Resources (US$ mn) Profit model ($ mn)

12/07

12/08E

12/09E

12/10E

Total revenue

2,265.5

4,414.3

5,921.5

5,659.4

Cost of goods sold SG&A

(1,511.2)

(2,065.6)

(2,555.8)

(2,932.3)

(347.9)

(627.3)

(822.8)

(859.2)

(17.6)

0.0

488.4

1,825.4

2,674.4

2,005.6

(99.7)

(104.0)

(131.5)

(137.7)

388.7

1,721.4

2,542.9

1,867.9

10.6

42.1

106.4

161.5

(49.5)

(38.5)

(47.4)

(36.3)

R&D Other operating profit/(expense) EBITDA Depreciation & amortization EBIT Interest income Interest expense Income from unconsolidated subsidiaries Others Pretax profits Income tax Minorities Net income pre-preferred dividends Preferred dividends Net income (pre-exceptionals) Post-tax exceptionals Net income

2.7

3.0

502.4

0.0

854.9

1,728.1

2,604.9

1,996.0

(14.6)

(420.7)

(748.6)

(549.5)

(51.3)

(516.4)

(762.9)

789.0

790.9

1,093.4

Balance sheet ($ mn)

12/07

12/08E

12/09E

12/10E

Cash & equivalents Accounts receivable Inventory

143.7

1,655.5

3,623.8

4,642.1

298.4

592.6

794.9

759.8

94.2

362.8

486.7

465.2

Other current assets Total current assets Net PP&E

668.2

6.6

1,204.4

3,089.1

5,388.7

6,355.2

668.1

1,182.3

1,147.9

1,111.2

Net intangibles Total investments

469.8

535.6

582.4

599.2

127.3

157.9

188.6

219.2

Other long-term assets Total assets

349.8

2,819.4

5,314.8

7,657.3

8,634.6

536.4

1,067.2

1,456.5

1,440.3

143.1

147.6

113.1

115.3

170.2

634.0

1,013.0

853.0

(560.4)

Accounts payable Short-term debt Other current liabilities Total current liabilities

849.6

1,848.8

2,582.6

2,408.7

Long-term debt Other long-term liabilities

48.0

508.7

384.3

213.7

886.2

520.0

538.8

592.5

673.6

Total long-term liabilities Total liabilities

568.1

1,047.5

976.8

887.3

1,417.7

2,896.3

3,559.4

3,296.0

1,400.7

(278.8)

221.6

1,138.2

1,818.5

1,122.0

1,622.4

2,538.9

3,219.2

279.8

796.2

1,559.0

2,119.4

2,819.4

5,314.8

7,657.3

8,634.6

0.1

0.2

12/07

12/08E

12/09E

12/10E

106.5

57.6

52.5

30.8

29.6

19.4

16.9

10.9

42.8

57.6

52.5

30.8

36.2

40.4

60.7

59.2

50.2

36.8

42.8

50.1

119.4

141.7

180.2

180.3

0.0

317.4

790.9

1,093.4

886.2

471.6

0.0

789.0

790.9

1,093.4

886.2

EPS (basic, pre-exceptionals) ($)

0.02

0.04

0.06

0.05

Common stock & premium Other common equity Total common equity

EPS (basic, post-exceptionals) ($) EPS (diluted, post-exceptionals) ($) DPS ($)

0.04

0.06

0.05

Minority interest

0.04

0.06

0.05

0.01

Dividend payout ratio (%) Free cash flow yield (%)

28.5

20.0

24.8

7.4

14.4

8.9

Growth & margins (%) Sales growth

12/07

12/08E

12/09E

12/10E

22.4

94.9

34.1

(4.4)

15.0

273.8

46.5

(25.0)

23.9

342.9

47.7

(26.5)

254.9

0.2

38.2

(18.9)

254.9

1.4

38.2

(18.9)

33.3

53.2

56.8

48.2

21.6

41.4

45.2

35.4

17.2

39.0

42.9

33.0

EBITDA growth EBIT growth Net income growth EPS growth Gross margin EBITDA margin EBIT margin

Cash flow statement ($ mn) Net income pre-preferred dividends DD&A add-back

12/07

12/08E

12/09E

12/10E

789.0

790.9

1,093.4

886.2

99.7

104.0

131.5

137.7

0.0

Minorities interests add-back Net inc/(dec) working capital Other operating cash flow

222.5

(32.0)

63.1

40.6

(854.0)

983.2

1,128.3

348.1

Cash flow from operations

257.2

1,846.1

2,416.2

1,412.6

(58.5)

(607.6)

(82.6)

0.0

1,183.5

0.0

(374.8)

181.1

17.7

99.0

750.3

(426.6)

(64.9)

16.3

(163.7)

(48.8)

(176.8)

(205.9)

(1,051.6)

421.3

(158.8)

(168.4)

Capital expenditures Acquisitions Divestitures Others Cash flow from investments Dividends paid (common & pref) Inc/(dec) in debt Common stock issuance (repurchase) Other financing cash flows Cash flow from financing Total cash flow

(66.0)

0.0

366.3

(280.2)

(47.4)

(36.3)

(915.0)

92.3

(383.0)

(410.6)

92.5

1,511.8

1,968.3

1,018.3

Total liabilities & equity BVPS ($) Ratios ROE (%) ROA (%) ROACE (%) Inventory days Receivables days Payable days Net debt/equity (%) Interest cover - EBIT (X)

3.4

(41.3)

(76.3)

(80.8)

10.0

12/07

12/08E

12/09E

12/10E

P/E (analyst) (X)

40.2

21.4

15.1

18.7

P/B (X) EV/EBITDA (X) Dividend yield (%)

11.0

10.2

6.5

5.1

26.9

9.2

5.7

7.2

1.8

0.9

1.3

1.1

Valuation

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research

June 19, 2008

ASEAN: Metals & Mining: Coal

Straits Asia Resources (Neutral): Cautious on ST&LT earnings risks Investment view We initiate coverage on Straits Asia Resources (SAR) with a Neutral rating and 12-month TP of S$4.70.

Disappointing 2008E earnings on large forward coal sales and cost inflation. As SAR has contracted and priced 7.9 mt of coal as of 1Q2008, we estimate that 2008E realized contract prices will be lower than that of its peers on a heat-adjusted basis. As a result, higher production costs on rising diesel prices will have a stronger impact on their bottomline than peers which are cushioned by higher realized prices, in our view.

Key Data Price (S$) 12 months Price target (S$) Market cap (S$ mn /US$ mn) EPS ($) EPS growth (%) EPS (dil) ($) EPS (basic) ($) P/E (X) P/B (X) EV/EBITDA (X) Dividend yield (%) ROE (%)

12/07 0.03 (42.6) 0.03 0.03 68.4 6.4 83.6 0.9 16.2

12/08E 0.14 355.8 0.14 0.14 20.9 7.8 18.7 2.9 42.5

Current 3.95 4.70 4,309.2 / 3,122.8 12/09E 12/10E 0.28 0.26 101.8 (7.7) 0.28 0.26 0.28 0.26 10.8 11.7 5.8 4.9 8.9 9.4 5.5 5.1 62.8 45.3

Strong near-term volume growth, but not without risks. We estimate volumes to increase by 160%/28% to 9 mt and 11.5 mt with Jembayan registering its maiden contribution of 5 mt and 6 mt, and Sebuku accounting for 4 mt and 5.5 mt in 2008E and 2009E, respectively. We note that Sebuku production volumes are premised on government’s approvals of the shift in boundary line at the Northern Concession and if approval is not granted, production volumes at Sebuku may fall short of our earlier estimates and stand at 2 mt-3 mt.

Concerned over longer-term earnings growth prospects as well. As we estimate that SAR only has a mine life of 7 years based on current reserves, its ability to grow inorganically is even more important than the other ASEAN coal peers under coverage. We believe newly acquired coal mines may lift blended cash costs resulting in lower margins as opportunities of coal fields are likely to be further inland, thus raising operating and capital costs, in our view. SAR also has the weakest balance sheet within our coverage, which translates to higher funding costs for acquisitions.

Price performance chart 5.00

4,500

4.50

4,000

4.00

3,500

3.50

3,000

3.00

2,500

2.50

2,000

2.00

1,500

1.50 1.00

1,000

0.50

500

0.00 Jun 07

0 Sep 07

Dec 07

Straits Asia Resources (L)

Share price performace (%) Absolute Rel. to Singapore Straits Times

Mar 08

Jun 08

Singapore Straits Times (R)

3 Month 6 Month 12 Month 34.8 32.6 178.2 35.9 59.8 214.2

Source: Company data, Goldman Sachs Research estimates.

Disagree with a takeover and scarcity premium. We find it hard to conceive SAR as a takeover target at current EV/reserve of US$67/t, which compares unfavorably with valuations of recent acquisitions of US$3/t (high-end) in the sector. We also do not subscribe to a scarcity premium for being the only listed coal proxy in Singapore, given that 100% of its operations are in Indonesia.

Catalysts 1) Higher contract prices—we estimate a 1% increase in contract price could raise earnings by 2.4%/2% in 2008E/2009E, 2) disappointing earnings in 2008E (our estimates are 12% below consensus) , 3) resource upgrades at Sebuku and Jembanyan (longterm catalyst), 4) accretive acquisitions of Brunei and Madagascar coal assets from parent Straits Resources (Straits Resources is currently applying for the relevant approvals with ASX).

Valuation Our 12-month target price of S$4.70 is based on 13X FY2009E P/E. SAR is currently trading at 21X/11X 2008E/2009E P/E versus the ASEAN coal average of 20X/13X and ITMG’s 19X/9X which is a more comparable peer.

Key risks Failure to secure approvals at the Northern Concession, regulatory risks and decline in thermal coal price.

Goldman Sachs Global Investment Research

June 19, 2008

ASEAN: Metals & Mining: Coal

Exhibit 63: Rising cash costs are catching up with selling prices

100 90

Jembayan Sebuku

Average selling price (LHS)

Production cash costs (RHS)

40 35

8.0 10 US$/t, FOB

Volumes (mn tons)

6.0

8 5.0

50 20

30 4

7.0 5.5

3.5

4.0

2006

2007

2008E

0 2009E

2010E

2006

2007

2008E

2009E

2010E

Source: Company data, Goldman Sachs Research estimates.

Exhibit 64: SAR’s 12-m forward P/B, 2007-2008ytd

Exhibit 65: SAR’s 12-m forward EV/EBITDA, 20072008ytd Price (S$)

Price (S$) 5.00

8.0X

US$/t

Exhibit 62: Strong volume growth but visibility in Sebuku is tinted by the pending approvals for the shift in boundary line at Northern Concession

12.0X

5.00

10.5X 9.0X

1.00

1.5X

Apr-08

Jan-08

Oct-07

Jul-07

Apr-07

Jan-07

0.00

Source: Company data, DataStream, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research

2.00

1.00 0.00 Apr-08

3.0X

6.0X

Jan-08

2.00

3.00

Oct-07

4.5X

Jul-07

3.00

7.5X

Apr-07

6.0X

4.00

Jan-07

4.00

Source: Company data, DataStream, Goldman Sachs Research estimates.

June 19, 2008

ASEAN: Metals & Mining: Coal

Exhibit 66: Summary financials of Straits Asia Resources (US$ mn) Profit model ($ mn)

12/07

12/08E

12/09E

12/10E

Balance sheet ($ mn)

12/07

12/08E

12/09E

12/10E

Total revenue

251.0

578.4

989.0

1,100.6

Cash & equivalents

29.1

165.7

81.4

44.3

Cost of goods sold

(193.7)

(316.6)

(482.1)

(637.3)

Accounts receivable

90.4

90.5

154.8

172.2

(21.6)

(47.0)

(58.6)

(63.1)

6.5

10.1

13.5

Inventory Other current assets

3.7

6.6

2.3

6.1

7.8

10.1

129.8

262.7

246.3

230.1

42.9

248.3

501.4

460.0

149.9

212.1

240.2

228.4

(4.8)

(27.4)

(45.2)

(49.6)

440.0

651.4

639.1

626.2

38.1

220.9

456.1

410.4

1.9

2.0

0.7

1.1

1.4

0.7

1.8

1.5

(0.9)

(8.6)

(26.7)

(13.4)

723.5

1,129.7

1,129.0

1,088.1

0.0

Accounts payable

124.8

135.7

201.7

261.3

Short-term debt Other current liabilities Total current liabilities

220.3

252.0

50.0

4.2

22.2

43.9

40.6

349.3

409.8

497.6

351.9

0.2

252.0

0.0

69.8

SG&A R&D Other operating profit/(expense) EBITDA Depreciation & amortization EBIT Interest income Interest expense Income from unconsolidated subsidiaries

0.0

Others Pretax profits

0.8

0.0

38.7

213.4

430.8

397.7

Income tax

(10.2)

(64.0)

(129.2)

(119.3)

0.0

Minorities

Total current assets Net PP&E Net intangibles Total investments Other long-term assets Total assets

Long-term debt Net income pre-preferred dividends

28.6

Preferred dividends Net income (pre-exceptionals)

0.0

28.6

149.4

301.5

278.4

Post-tax exceptionals Net income

0.0

28.6

149.4

301.5

278.4

149.4

301.5

278.4

Other long-term liabilities Total long-term liabilities Total liabilities Common stock & premium

EPS (basic, pre-exceptionals) ($)

0.03

0.14

0.28

0.26

Other common equity Total common equity

EPS (basic, post-exceptionals) ($)

0.03

0.14

0.28

0.26

Minority interest

EPS (diluted, post-exceptionals) ($) DPS ($)

0.03

0.14

0.28

0.26

0.02

0.08

0.17

0.15

Dividend payout ratio (%) Free cash flow yield (%)

58.3

60.0

(30.1)

(3.3)

9.9

11.1

Growth & margins (%)

12/10E

12/07

12/08E

12/09E

Sales growth

(10.0)

130.5

71.0

EBITDA growth EBIT growth

(30.0)

478.2

101.9

(8.3)

(34.2)

479.9

106.5

(10.0)

Net income growth

(40.7)

423.0

101.8

EPS growth Gross margin

(42.6)

355.8

101.8

22.8

45.3

51.3

42.1

17.1

42.9

50.7

41.8

15.2

38.2

46.1

37.3

EBITDA margin EBIT margin

Cash flow statement ($ mn) Net income pre-preferred dividends DD&A add-back Minorities interests add-back Net inc/(dec) working capital Other operating cash flow Cash flow from operations Capital expenditures Acquisitions

69.8 421.7

276.2

276.3

27.9

121.7

285.2

390.1

304.2

398.0

561.6

666.4

0.0

723.5

1,129.7

1,129.0

1,088.1

0.3

0.4

0.5

0.6

12/07

12/08E

12/09E

12/10E

16.2

42.5

62.8

45.3

7.0

16.1

26.7

25.1

(7.7)

ROACE (%)

16.2

42.5

62.8

45.3

(7.7)

Inventory days Receivables days

5.4

5.9

6.3

6.8

90.8

57.1

45.3

54.2

Payable days Net debt/equity (%)

151.3

150.1

127.7

132.6

62.9

85.0

30.4

0.9

Interest cover - EBIT (X)

198.4

29.5

18.0

32.4

12/07

12/08E

12/09E

12/10E

68.4

20.9

10.8

11.7

6.4

7.8

5.8

4.9

83.6

18.7

8.9

9.4

0.9

2.9

5.5

5.1

12/07

12/08E

12/09E

12/10E

28.6

149.4

301.5

278.4

4.8

27.4

45.2

49.6

0.0

(5.3)

7.9

(1.8)

38.7

5.0

25.8

47.0

9.4

33.1

210.4

392.0

376.1

(75.0)

(49.0)

(13.0)

(226.0)

(12.0)

0.0

(0.5)

1.1

1.4

0.7

(325.4)

(299.8)

(59.6)

(24.3)

Dividends paid (common & pref)

(16.6)

(55.6)

(138.0)

(173.6)

Inc/(dec) in debt

216.0

283.5

(252.0)

(202.0)

Common stock issuance (repurchase) Other financing cash flows Cash flow from financing

100.7

0.1

0.0

(0.9)

(2.0)

(26.7)

(13.4)

299.1

226.0

(416.7)

(388.9)

6.8

136.5

(84.3)

(37.1)

Total cash flow

Ratios

69.8 567.4

ROE (%) ROA (%)

(16.9)

Others Cash flow from investments

BVPS ($)

321.8 731.6

11.3

(308.0)

Divestitures

Total liabilities & equity

70.0 419.3

Valuation P/E (analyst) (X) P/B (X) EV/EBITDA (X) Dividend yield (%)

Source: Company data, Goldman Sachs Research estimates.

Goldman Sachs Global Investment Research

June 19, 2008

ASEAN: Metals & Mining: Coal

Other disclosures Clarkson Research Services Limited (CRSL) have not reviewed the context of any of the statistics or information contained in the commentaries and all statistics and information were obtained by Goldman Sachs & Co. from standard CRSL published sources. Furthermore, CRSL have not carried out any form of due diligence exercise on the information, as would be the case with finance raising documentation such as Initial Public Offerings (IPOs) or Bond Placements. Therefore reliance on the statistics and information contained within the commentaries will be for the risk of the party relying on the information and CRSL does not accept any liability whatsoever for relying on the statistics or information. Insofar as the statistical and graphical market information comes from CRSL, CRSL points out that such information is drawn from the CRSL database and other sources. CRSL has advised that: (i) some information in CRSLâ&#x20AC;&#x2122;s database is derived from estimates or subjective judgments; and (ii) the information in the database of other maritime data collection agencies may differ from the information in CRSLâ&#x20AC;&#x2122;s database; and (iii) whilst CRSL has taken reasonable care in the compilation of that statistical and graphical information and believes it to be accurate and correct, data compilation is subject to limited audit and validation procedures and may accordingly contain errors; and (iv) CRSL, its agents, officers and employees do not accept liability for any loss suffered in consequence of reliance on such information or in any other manner; and (v) the provision of such information does not obviate any need to make appropriate further enquiries; and (vi) the provision of such information is not an endorsement of any commercial policies and/or any conclusions by CRSL; and (vii) shipping is a variable and cyclical business and any forecasting concerning it cannot be very accurate.

Goldman Sachs Global Investment Research

June 19, 2008

ASEAN: Metals & Mining: Coal

Reg AC I, Yoke Fong Chee, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.

Investment profile The Goldman Sachs Investment Profile provides investment context for a security by comparing key attributes of that security to its peer group and market. The four key attributes depicted are: growth, returns, multiple and volatility. Growth, returns and multiple are indexed based on composites of several methodologies to determine the stocks percentile ranking within the region's coverage universe. The precise calculation of each metric may vary depending on the fiscal year, industry and region but the standard approach is as follows: Growth is a composite of next year's estimate over current year's estimate, e.g. EPS, EBITDA, Revenue. Return is a year one prospective aggregate of various return on capital measures, e.g. CROCI, ROACE, and ROE. Multiple is a composite of one-year forward valuation ratios, e.g. P/E, dividend yield, EV/FCF, EV/EBITDA, EV/DACF, Price/Book. Volatility is measured as trailing twelve-month volatility adjusted for dividends.

Quantum Quantum is Goldman Sachs' proprietary database providing access to detailed financial statement histories, forecasts and ratios. It can be used for in-depth analysis of a single company, or to make comparisons between companies in different sectors and markets.

Disclosures Coverage group(s) of stocks by primary analyst(s) Yoke Fong Chee: ASEAN, Asia Commodities Companies. ASEAN: Asiatic Development, Astra Agro Lestari, Astra International, Bangkok Expressway, Bumi Resources, ComfortDelGro, Ezra Holdings, Genting, Genting International, Holcim Indonesia, Hong Leong Asia, Indocement Tunggal Prakarsa, Indofood Agri Resources, IOI Corporation, Jardine Cycle & Carriage, Keppel Corp, KNM Group, KS Energy Services, Kuala Lumpur Kepong, London Sumatra Indonesia, PLUS Expressways Berhad, PT Indo Tambangraya Megah Tbk, PT Indofood, PT Tambang Batubara Bukit Asam, Resorts World Bhd, SapuraCrest Petroleum, Sembcorp Industries, Sembcorp Marine, Semen Gresik (Persero), Siam Cement, Siam Cement (foreign), Siam City Cement, Sime Darby Bhd, SMRT Corporation, Straits Asia Resources, Tat Hong Holdings, Wah Seong, Wilmar International, Yongnam Holdings. Asia Commodities Companies: Aluminum Corporation of China (A), Aluminum Corporation of China (H), Angang Steel (A), Angang Steel (H), Anhui Conch Cement (A), Anhui Conch Cement (H), Banpu Public Company, Baoshan Iron & Steel, China Coal Energy (A), China Coal Energy (H), China National Building Material, China Shenhua Energy (A), China Shenhua Energy (H), Hindalco Industries, Hindustan Zinc, Hunan Nonferrous Metals, Jiangxi Copper (A), Jiangxi Copper (H), Lingbao Gold, Maanshan Iron & Steel (A), Maanshan Iron & Steel (H), National Aluminium Company, Sterlite Industries (India), Wuhan Iron and Steel, Yanzhou Coal Mining (A), Yanzhou Coal Mining (H), Zhaojin Mining Industry, Zhejiang Glass, Zhongjin Gold, Zijin Mining.

Company-specific regulatory disclosures The following disclosures relate to relationships between The Goldman Sachs Group, Inc. (with its affiliates, "Goldman Sachs") and companies covered by the Global Investment Research Division of Goldman Sachs and referred to in this research. Goldman Sachs has received compensation for non-investment banking services during the past 12 months: Banpu Public Company (Bt532.00) Goldman Sachs had a non-investment banking securities-related services client relationship during the past 12 months with: Banpu Public Company (Bt532.00) Goldman Sachs had a non-securities services client relationship during the past 12 months with: Banpu Public Company (Bt532.00) There are no company-specific disclosures for: Bumi Resources (Rp8,050), PT Indo Tambangraya Megah Tbk (Rp33,050), PT Tambang Batubara Bukit Asam (Rp15,500) and Straits Asia Resources (S$3.76)

Distribution of ratings/investment banking relationships Goldman Sachs Investment Research global coverage universe Rating Distribution

Global

Investment Banking Relationships

Buy

Hold

Sell

Buy

Hold

Sell

28%

57%

15%

51%

44%

41%

Goldman Sachs Global Investment Research

June 19, 2008

ASEAN: Metals & Mining: Coal

As of Apr 1, 2008, Goldman Sachs Global Investment Research had investment ratings on 2,975 equity securities. Goldman Sachs assigns stocks as Buys and Sells on various regional Investment Lists; stocks not so assigned are deemed Neutral. Such assignments equate to Buy, Hold and Sell for the purposes of the above disclosure required by NASD/NYSE rules. See 'Ratings, Coverage groups and views and related definitions' below.

Price target and rating history chart(s) Currency: Indonesian Rupiah

Banpu Public Company (BANP.BK)

Goldman Sachs rating and stock price target history 8,000

2,500

6,000

Currency: Thai Baht

Goldman Sachs rating and stock price target history 3,000

500

950 900

400

850

2,000

Stock Price

1,500

800 1,034

840

1,000

Apr 17

500

Aug 15 IL

M J

J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M 2005 2006 2007 2008 Source: Goldman Sachs Investment Research for ratings and price targets; Reuters for daily closing prices as of 04/02/08.

Apr 17, 2005 to IL from OP

155

200

137

800

216

750

258

700

150

100

Stock Price

2,000

300

1,002

850 900

Index Price

4,000

193 179

650 600

Jun 26 IL

M J

Index Price

PT Bumi Resources (BUMI.JK)

Rating

Covered by current analyst

Rating

Covered by Song Shen, as of Aug 15, 2006

Price target

Not covered by current analyst

Price target

Not covered by current analyst

Price target at removal

New rating system as of 6/26/06

Price target at removal

New rating system as of 6/26/06

Jakarta SE Composite Index; pricing by FactSet

The price targets shown should be considered in the context of all prior published Goldman Sachs research, which may or may not have included price targets, as well as developments relating to the company, its industry and financial markets.

Bangkok S.E.T. - Price Index; pricing by FactSet

Regulatory disclosures Disclosures required by United States laws and regulations See company-specific regulatory disclosures above for any of the following disclosures required as to companies referred to in this report: manager or co-manager in a pending transaction; 1% or other ownership; compensation for certain services; types of client relationships; managed/comanaged public offerings in prior periods; directorships; market making and/or specialist role. The following are additional required disclosures: Ownership and material conflicts of interest: Goldman Sachs policy prohibits its analysts, professionals reporting to analysts and members of their households from owning securities of any company in the analyst's area of coverage. Analyst compensation: Analysts are paid in part based on the profitability of Goldman Sachs, which includes investment banking revenues. Analyst as officer or director: Goldman Sachs policy prohibits its analysts, persons reporting to analysts or members of their households from serving as an officer, director, advisory board member or employee of any company in the analyst's area of coverage. Distribution of ratings: See the distribution of ratings disclosure above. Price chart: See the price chart, with changes of ratings and price targets in prior periods, above, or, if electronic format or if with respect to multiple companies which are the subject of this report, on the Goldman Sachs website at http://www.gs.com/research/hedge.html. Goldman, Sachs & Co. is a member of SIPC.

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Goldman Sachs Global Investment Research

June 19, 2008

ASEAN: Metals & Mining: Coal

Return potential represents the price differential between the current share price and the price target expected during the time horizon associated with the price target. Price targets are required for all covered stocks. The return potential, price target and associated time horizon are stated in each report adding or reiterating an Investment List membership. Coverage groups and views: A list of all stocks in each coverage group is available by primary analyst, stock and coverage group at http://www.gs.com/research/hedge.html. The analyst assigns one of the following coverage views which represents the analyst's investment outlook on the coverage group relative to the group's historical fundamentals and/or valuation. Attractive (A). The investment outlook over the following 12 months is favorable relative to the coverage group's historical fundamentals and/or valuation. Neutral (N). The investment outlook over the following 12 months is neutral relative to the coverage group's historical fundamentals and/or valuation. Cautious (C). The investment outlook over the following 12 months is unfavorable relative to the coverage group's historical fundamentals and/or valuation. Not Rated (NR). The investment rating and target price, if any, have been removed pursuant to Goldman Sachs policy when Goldman Sachs is acting in an advisory capacity in a merger or strategic transaction involving this company and in certain other circumstances. Rating Suspended (RS). Goldman Sachs Research has suspended the investment rating and price target, if any, for this stock, because there is not a sufficient

fundamental basis for determining an investment rating or target. The previous investment rating and price target, if any, are no longer in effect for this stock and should not be relied upon. Coverage Suspended (CS). Goldman Sachs has suspended coverage of this company. Not Covered (NC). Goldman Sachs does not cover this company. Not Available or Not Applicable (NA). The information is not available for display or is not applicable. Not Meaningful (NM). The information is not meaningful and is therefore excluded.

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Definitions Outperform (OP). We expect this stock to outperform the median total return for the analyst's coverage universe over the next 12 months. In-Line (IL). We expect this stock to perform in line with the median total return for the analyst's coverage universe over the next 12 months. Underperform (U). We expect this stock to underperform the median total return for the analyst's coverage universe over the next 12 months. Coverage views: Attractive (A). The investment outlook over the following 12 months is favorable relative to the coverage group's historical fundamentals and/or valuation. Neutral (N). The investment outlook over the following 12 months is neutral relative to the coverage group's historical fundamentals and/or valuation. Cautious (C). The investment outlook over the following 12 months is unfavorable relative to the coverage

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Goldman Sachs Global Investment Research

June 19, 2008

ASEAN: Metals & Mining: Coal

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Goldman Sachs Global Investment Research