Aneka Tambang - Takeaways from analyst meeting - JP Morgan

We attended an analyst luncheon hosted by the senior management of ANTM. The following are the takeaways:

• Positive takeaways: (1) Ramp up of ore shipment in FY11 by 15% Y/Y from 7MM tons in FY10. (2) Despite budgeting US$750/t.oz, ANTM views that the cost to produce gold could be US$650/t.oz. (3) Ground breaking from Tayan Chemical Grade Alumina should start within weeks. (4) Securement of US$1 bn line of credit line.

• Negative takeways: (1) Conversion from oil to coal based operation using the 2x75MW power plant is cancelled. (2) Major maintainance capex amounting to US$450-500MM and the cost of Feni Halmahera increased from US$1.4 bn to US$1.6 bn. (3) High grade ore is no longer available at Pamola limiting the output ability of ANTM's Pamola's facility.

• Model adjusted: With these we incorporate the following adjustments to our model: (1) Adjust the ore sales volume upwards in FY11E by 39%. (2) Adjust the gold production cost from US$750/t.oz to US$663/t.oz. (3) Increase the capex spending in FY11E to FY16E from Rp15 trillion to Rp24.5 trillion including US$450MM capex spending for the soon to be constructed Tayan Chemical Grade Alumina.

• Maintain UW and Dec-11 PT of Rp2,000: Based on FY10 income being 32% ahead of our forecast and higher ore shipment expected in FY11E, we raise our FY11E income forecast by 34%. Despite the higher earnings and OCF levels, major capex spending works against our FCF and valuations. The adjustments did not result in a significant change to our combination SOTP and DCF method Dec-11 PT. With 13% downside from the current share price, we maintain UW and our Dec-11 PT of Rp2,000. The risks are: (1) Rising precious metal prices generating higher profit. (2) Strong Y/Y profit growth in FY11E.