Survival Mode is Name of the Game

ICMA WEBSITES – EDITORIAL (25 AUGUST 2020)

Survival Mode is Name of the Game

The Covid-19 pandemic hit the coal mining industry sector. Even though production activity has been running relatively normally so far, weak demand has pushed prices to drop to their lowest level in the last 10 years. The current condition is even more severe than during the era of low commodity prices in 2013-2016 or during the 1998 and 2008. In the midst of this situation, all coal producers are in a survival mode, struggling to get through this crisis. In order for the company to go through this difficult time, apart from hoping that prices will improve, miners also need a helping hand from the government.

The condition of survival mode is the reality faced by coal producers in the field today. The term survival mode itself, as translated on Wikipedia, is “survival mode, or mob mode, which is a widely known familiar mode in video games where the player has to keep playing as long as possible without dying in an uninterrupted session, while the game presents a wave of challenges that are it's getting harder ”. The situation faced by miners in the field illustrates this, where the wave of challenges facing companies will be increasingly difficult and more uncertain due to the Covid-19 Pandemic.

For some miners who produce 4200 Kcal / Kg GAR calorie coal, the Free-on-Board (FoB) selling price has even been below the $ 26-27 level, the consensus price level for the break event. With these conditions, more than half of the national coal production is already at a minus level considering that our national coal production is mostly in the calories of 4500 Kcal / Kg GAR and below. Miners whose shares are listed on the Indonesia Stock Exchange (IDX) are also significant. According to several studies, it is estimated that the profitability of coal issuers at IDX will fall by 25% -50%. This impact is worrying because almost 70% of national coal is produced from coal companies.

The company's strategy for survival is to be strictly efficient. For large-scale miners who also produce medium and high calorie coal, they certainly have economies of scale so they can still "breathe" a little to survive. However, for those who are small-scale producers are certainly faced with difficult choices. For all producers, of course the most priority is how to comply with the tax financial obligations to the state. In addition, the company also strives to maintain its workforce as far as possible not to lay off employees and to continue to carry out a commitment to empowerment and development of communities around the mine.

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