Last year was ITM’s first full year as stock exchange listed Company. At a corporate level the focus was on the implementation and streamlining of best practice management, reporting and governance systems.

At an operational level we continued with our programme of productivity improvements and cost reduction schemes. The coal market rally peaked mid-year before falling back in the second half of the year. ITM’s coal output was slightly lower than targeted due to adverse weather conditions, but revenues were up more than 70% compared with the previous year due to higher prices.

Financial performance in 2008

Thanks to the continued coal price bull run in 2008, ITM’s net profit after tax increased to approximately US$ 235 million, more than three times the earnings achieved in 2007 (up 321%). Earnings per share were equivalent to around 21 cents compared to 10 cents in 2007. The Company announced a dividend for the first half of 2008 (Rp 344 per share) and for the third quarter (Rp 295 per share), in total equivalent to nearly 8 cents per share.

Although the total coal sales volume fell from 18.1 million tonnes (‘Mt’) to 17.8 Mt due to slower output, ITM’s total revenues rose 71% to US$ 1,317 million boosted by higher average selling prices (US$ 73.81 per tonne versus US$ 42.29 per tonne in 2007). Despite higher diesel prices for much of the year and higher stripping ratios, stronger prices meant that ITM’s average gross profit margin (‘GPM’) increased from about 27% in 2007 to 36% in 2008. PT Trubaindo Coal Mining’s GPM was higher than the average at 50% in 2008. The Company’s earnings before interest, tax, depreciation and amortization (or ‘EBITDA’, often seen as a proxy for operating cash flow) increased 174% year-on-year to US$399 million.

The fall in coal prices in the second half of 2008 and the global economic crisis has turned our attention to the need for effective risk management systems and financial contingency measures. We have followed the lead from Banpu PLC, our main shareholder, in implementing risk management procedures and are in the fortunate position of having a strong balance sheet, with a net cash position (after deducting all interestbearing debt) at year end 2008 of around US$211 million.

Coal sales in 2008 and the price outlook for 2009

Coal sales of higher grade coal to North-East Asia represented just over half of all sales in 2008 (55%) including 4.0 Mt to Japan, 2.4 Mt to Korea, 1.9 Mt to Taiwan and 1.6 Mt to China. Coal sales to South-East Asia (mid-grade and higher grade coal) accounted for 36% of total sales including 2.1 Mt to Thailand, 1.6 Mt to Philippines, 1.3 Mt to Indonesia and 1.3 Mt to Malaysia. Most of the remainder was sold to a customer in Italy.

The Barlow Jonker spot index for high grade coal from Australia to Japan (the ‘BJI’) rose from around US$90 per tonne in January to a peak of just over US$190 per tonne in July stimulated by coal export supply constraints in Australia and South Africa, fears of further Chinese export cutbacks and oil market speculation. During the second half of the year, the BJI fell off rapidly ending the year at about US$ 80 per tonne. The BJI average for the whole year was around US$128 per tonne, almost double the average in 2007 (US$65 per
tonne).

Going forward, in 2009, the global recession will continue to impact thermal coal demand. Although there is evidence of reduced supply pressure, the lower demand levels combined with increasing quantities of metallurgical coal entering the thermal coal market and fewer short term logistics constraints may result in further price weakness in 2009. Due to extensive forward contracts secured in early and mid-2008, however, we believe the average coal selling price for ITM’s coal sales in the year ahead to be a much higher percentage of the average BJI spot price in 2009 than in 2008.

Operational performance

ITM had originally planned for about 19.5 Mt of coal output from its mines in 2008, but achieved only around 17.6 Mt. This is a disappointing result, due mainly to adverse weather conditions. All mines in Kalimantan experienced heavy rainfall causing problems such as flooding, slippery road conditions for trucks and heavy equipment breakdowns. A split seam at the West Block in PT Indominco Mandiri also impacted output versus targets. Although in the end total saleable output was similar to 2007 (17.6 Mt), it should be noted that PT Trubaindo Coal Mining’s production increased from 3.6 Mt to 4.5 Mt, while PT Indominco Mandiri’s fell slightly from 11.5 Mt to 10.7 Mt.

The investments at Bontang Coal Terminal continued with the objective of increasing shiploading capacity to 20.5 Mt per annum (from 12.5 Mt per annum) in addition to stockyard, barge and truck logistics capacity expansions. In 2008 the port stock yard expansion and in-loading systems were completed. This coming year will see the final phase of the terminal expansion with completion of the barge loader and barge unloader system. The captive coal-fired power project (2 x 7 MW) was affected by problems with the EPC contractor but a new contractor has commenced in November and the plant is due for commissioning in 2009. The various improvements at Bontang are intended to enhance service to customers, reduce costs and enable PT Trubaindo Coal Mining coal to be handled through this terminal.

I am pleased to announce that we have just received the final permit necessary to develop the East Block at PT Indominco Mandiri. This coming year should see first output from East Block – as well as first output from the West Block underground mine for trial-production and the South Block at PT Trubaindo Coal Mining. While these new developments will bring higher costs and some additional operational risks, they should help us to achieve our 2009 target output. At PT Jorong Barutama Greston, we are developing improved water management systems including the purchase of multi-flow pumps. This combined with other improvements should reduce the impact of heavy rainfall in the year ahead.

Looking beyond 2009, we are ultimately targeting up to 24 Mt per annum from our existing Indonesian assets, including around 4 Mt per annum from PT Bharinto Ekatama. We will be working on the infrastructure developments for PT Bharinto Ekatama this year with a view to commissioning the mine by the end of 2010.

Governance, corporate citizenship and stakeholders

As reported by the President Commissioner, 2008 saw the first full year of operation for our new governance related committees and implementation of codes of conduct and management practice. I am encouraged by the performance of these initiatives and hope 2009 will see further improvements. As a listed
Company we have also made a commitment to a professional investor relation programme, including quarterly results presentation meetings with investors and analysts. In the longer term, our objective is to set new standards for effective investor communication and transparent disclosure on the Indonesian Stock Exchange.

As a responsible ‘corporate citizen’, it remains a priority to work closely with the communities around our mining sites. In developing our corporate social responsibility programme, we have been careful to consult with local communities and the local government to assess needs and optimize our support. Our activities this year were focused on education and health care, providing material and training support to teachers, students, health care workers and public health centres. We also provided opportunities for young people to get training in vocational skills and entrepreneurship. In response to the flooding situation in some areas, we worked closely with the local government to provide emergency supplies.

I am pleased to note that in recognition of our contributions to society, ITM subsidiary PT Indominco Mandiri received a Padma Award for its community development programmes from the Department of Energy and Mineral Resources of the Republic of Indonesia.

Concluding remarks

It has been both a great pleasure and an honour to lead ITM in its first year as a stock exchange listed Company – and as a full corporate citizen in Indonesia. While we continue to face a number of performance challenges both operationally and in terms of governance standards, ITM benefits strongly from the support and example provided by its core shareholder and the loyalty, integrity and spirit of its staff. I would like to thank them for their support and hard work in 2008 and look forward to working closely with them again in the year ahead.

Yours sincerely,

Somyot Ruchirawat
President Director