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Selasa, 12 April 2011

Company Visit Note - PT Timah Tbk - JP Morgan

• J.P. Morgan view on tin price—very bullish; could reach US$35,000/ton: In his recent report, J.P. Morgan’s Head of Metal Strategy, Michael Jansen, reiterated his very bullish view on tin price. From the current spot price of about US$28,500/ton, J.P. Morgan views that it could reach US$35,000/ton in 6-12 months. (Please see the report, “Base and Metal Daily – LME inventory build is normal – don’t panic – not yet anyway,” published on 26 January 2011).

• Highly correlated with tin price: According to management, PT Timah is the second-largest tin producer and contributes about 15% of the global tin production. 90%+ of its annual profit is generated from tin. A regression analysis indicates 0.79/0.92 correlation between Timah’s relative/absolute share price performance and tin price.

• Rare earth potential: In our mine visit, we learned that there is an untapped potential in the form of previously mined ore stockpiles with the tin content extracted out. These stockpiles have been put aside since the Dutch era and contain materials such as zircon, xenotime, monazite and ilmenite. With the rise in metal prices, management believes these stockpiles are now economically feasible. Management expects that the strip ratio will be minimal (if not zero) and the technology to separate rare earths is already available.

• Valuation: Currently Timah is trading at 12.9x consensus FY11E P/E vs. 12.5x for ANTM and 11.6x for INCO (based on J.P. Morgan's estimates). Over the past six months, Timah’s share price has outperformed the JCI index by 9.81% but trailed the JAKMINE index by 11.06%.

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