If we look at the mining index of the Indonesia Stock Exchange (the index that tracks all listed mining companies) and compare it to the Jakarta Composite Index (the index that tracks all listed companies on the IDX) the picture becomes clear. While the benchmark Jakarta Composite Index has only risen 15 percent so far this year (still an impressive performance considering the high degree of global uncertainty with regard to the US Federal Reserve’s monetary tightening as well as to the monetary policies of central banks in the European Union and Japan), the mining index surged 40 percent since the year-start, thus seriously outperforming the benchmark index.

However, not all of Indonesia’s listed coal miners have seen their shares rise this year. Investors remain cautious considering the fragile global economic environment and its impact on commodity prices (particularly the economic slowdown of China). Investors are picky and particularly select those coal miners that have diversified their business. For example, shares of Adaro Energy have surged 126 percent year-to-date. Adaro Energy, one of the biggest coal producers in Indonesia, has been eager to add the power generation segment to its business portfolio (the miner is the driving force behind the ambitious and controversial USD $4 billion Batang Power Plant in Central Java).

Adaro Energy is not the only coal miner that decided to diversify its business activities in order to reduce its dependence on (weak) coal prices. For coal miners the power generation segment is a logical choice as the supply of coal (for power generation) is guaranteed and relatively cheap. However, it remains a costly affair to construct coal-fired power plants and therefore not all of Indonesian coal miners can make this move.

But also those coal miners that decide not to construct power plants should get a boost from power plant development across Indonesia. The central government launched its ambitious program to add 35,000 MW to the nation’s energy capacity by 2019. Coal remains an important energy source for these additional power plants. Moreover, this program will boost domestic coal consumption for a long time to go and therefore it will also boost earnings of coal miners on the long-term (advances in the development of clean energy in Indonesia, for example geothermal energy, go at a slow pace).

Therefore, investors also need to check whether a specific Indonesian coal company is focused on the domestic market or focused on export markets. For example, Indo Tambangraya Megah is a miner that is focused on export markets and may therefore benefit less of domestic developments. On the other hand, Adaro Energy and Tambang Batubara Bukit Asam are coal miners that sell large quantities to the domestic market.

Another long-term (but external) factor is China’s decision to cut its coal production target. Authorities in the world’s second-largest economy are eager to curb industrial overcapacity. The country cut the annual statutory working days for coalmines from 330 days to 276 days and will also close 1,000 mines this year to achieve this target. To offset declining production at home, China will need to import more coal from abroad. This should also boost coal exports from Indonesia.

There are few (neutral) analysts who will claim that coal prices are to remain rising in the period ahead. In fact, China’s ongoing economic slowdown should make it difficult for prices to rise sharply and therefore investing in coal mining companies remains risky, although it has proven to be a lucrative investment so far this year (the “high risk high gain” law). However, it should also be remembered that a higher coal price will encourage mining companies to produce more coal to boost earnings on the short-term after several years of weakening income and therefore put downward pressure on the coal price.