Moody's rates Cherosh notes

Moody's Investors Service said it has assigned a Ba2 local currency issuer rating to PT Kaltim Prima Coal.

At the same time, Moody's has assigned a Ba3 foreign currency long-term rating to the proposed U.S. dollar-denominated guaranteed notes of Cherosh Holding BV, which is wholly owned by Kaltim Prima Coal. The Ba3 rating is based on the unconditional and irrevocable guarantee provided to the notes by Kaltim Prima Coal.

The outlooks are stable.

Moody's said the Ba2 local currency issuer rating reflects Kaltim Prima Coal's substantial reserves base and its position as one of the world's lowest cost producers of thermal coal. The rating also recognizes the company's production track record, the favorable environment expected for thermal coal over the next 12-24 months, and Moody's expectation of continued free cash flow generation over at least the medium term.

At the same time, the Ba2 local currency issuer rating considers the company's currently high financial leverage - reflected in a debt/capital ratio of 64% at December 2003 - the risks associated with the company's plan to substantially increase coal production over the next several years, uncertainty regarding its immediate and ultimate ownership structure, and its exposure to a single commodity.

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