PT Aneka Tambang (Persero) Tbk Gold Will Shine - AAA Securities

Summary
In 2011, we expect ANTM ferronickel and nickel ore performances will be surpassed by gold due to: 1) an overhaul of one of its three ferronickel factories, Feni II, hence flat volume. 2) world supply of nickel will outpace demand, hence, nickel’s ASP to remain relatively unchanged. Meanwhile gold volume and its ASP are set to grow higher. HOLD.

±     Robust Production Volume & Sales on Ferronickel and Nickel Ore in 2010
ANTM which produced nickel ore, ferronickel, gold, silver and bauxite, ended 2010 with production performances of 20% yoy, 49% yoy, -5% yoy, -18% yoy, and -87% yoy respectively. Unlike in 2009, in which major revenue contributor came from gold (47% of total), in 2010, ferronickel stepped forward as the new biggest revenue contributor at 52% of total export. Export accounts for 81% of total sales. Ferronickel is a nickel ore processed through pyrometallurgical technology, and is accounted for two-third of stainless steel production. Higher volume (+49% yoy) and sales (+29% yoy) indicated higher level of world demand of ferronickel following a short supply of it in 2010. ASP for ferronickel rose by 49% yoy to US$10.1/lb, as contrast to FY09’s ASP that decreased 32% yoy to US$6.8/lb.

±     Unsustainable Nickel’s ASP Due to High Inventory
For the 2011, nickel performance will be surpassed by gold due to: 1) an overhaul in one of its three ferronickel factories, Feni II, therefore ferronickel production volume is targeted only at 18,000 tones, slightly lower than 2010 at 18,688 tones. 2) Unsustainable nickel spot price which currently stands at US$12.7/lb in LME, while total world’s stock has reachead 134,442 tones, the highest level of world’s inventory in 2008-2010 which averaged at 100,231 tones, at ASP of around US$8.7/lbs.

±     Gold Will Overtake in 2011
Lower gold production in 2010 at 2,780 kg vs. internal target at 3,080 kg was primarily due to bad weather which hindered exploration activities in Cibaliung site. Nevertheless, in 2011 we believe ANTM gold volume production targeted at 3,804 kg will be back on track as bad weather is predicted to end in 1Q11. Furthermore, in our view, US QE2 policy should sustain gold’s ASP at an average of US$1,300/toz in 2011. Hence higher volume and ASP, should boost revenue from gold to around 35% yoy, as opposed to ferronickel and nickel revenue that will expand by 6.5% in FY11F.

±     Valuation, Limited Potential Upside. HOLD
We reinitiate coverage on ANTM with TP at Rp2,500 which is derived from blended valuation to capture long and short-term valuation. Our TP implies 13.2x PE, slightly below its historical average PE at 14x. ANTM is traded at PE 12.2x FY11F. Since our TP only offers 8% potential upside, we recommend HOLD.