Aneka Tambang It’s a mixed - Danareksa

Hold recommendation warranted due to: (1) nickel pricing on the weak side, (2) negative cash outflow from significant capex, (3) weaker than expected gold mine operation. More nickel supply to exceed its demand by the introduction of new nickel investments and steady world stainless steel production. Both derived our FY11-FY12E price assumption of US$ 23,500-23,000/ton, respectively. Heavy capex burdens its cash flow assuming no other external funds. Aside, the unavailability high grade veins and higher cash cost are seen to be the reason for lower gold production. We trim our TP to Rp 2,000 incorporating our latest price, production, cash cost assumptions into our model. Our new TP implies of FY12-FY13E P/E 9.5-9.7x.

More nickel supply to ramp up world nickel capacity
ANTAM is yet still a nickel player despite any increase in total gold sales. Contributed an approximately 40% of the total revenue for the past 5 years, nickel products are expected to cover over than 50% of the total revenue in the coming years with the help of new commercially operated Ferronickel (FeNi) Halmahera. The next wave of investments (for laterite and sulphide ore, a different type of nickel ores) in 2011-2013 could add an approximately of 500kt to the world nickel capacity. New major mines include Ambatovy, Goro, Koniambo, and Onca Puma are expected to optimally operate in 2013-2015 with an average of 15 – 30 years mine life. On the demand side, global nickel consumption as reflected on the stainless steel production is expected to increase at a steady rate, amounted only 5% CAGR from 2001-2010p. With these new mines accumulate the stocks and steady demand growth rate, it is estimated that the nickel production forecast overhang by 2012; hence, will give a downward pressure on nickel price. Nickel price should be sustained in the range of US$ 23,500-23,000/ton for FY11-FY12E, and remain stable at US$ 22,500/ton for the longer time. All things considered, ANTM’s earnings squeezed is expected in the coming years.

Heavy capex spending
More development projects underway aligning with Indonesia ’s new Mineral and Coal mining law released in 2009 that prohibits mining companies from exporting unprocessed ore starting in 2014. With FY11F and FY12F eyeing on Tayan CGA, FeNi Halamahera, Modernization and optimization of Pomala FeNi smelters-Development of coal fired power plant, an aggregate of US$ 1,925 million value projects are seen to burdening ANTM’s book in the next four years. Negative cash appears during the periods of FY12-FY14E as long as no other external funds to finance its capex. We adjust our FY11-12E nickel production to 17,920-18,400 ton Ni aligning to company’s maintenance planned. The overhaul will cause to shut down FeNi smelter #2 over 2 months falling at the end of FY11 and the rest in FY12.

Weaker than expected gold mine operation
Aside any increase in the global gold price, ANTM new mine, Cibaliung, has not yet operated as it planned. The unavailability high grade veins and higher cash cost are seen to be the reason for lower gold FY11 production. We adjust our FY11-FY12E refined gold production to 3.704 – 3.888 kg lower than ANTM FY11 guidance 3.804 kg. Nonetheless, higher FY11E total gold sales are mainly due to higher expected ASP.