• 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, Antam (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
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.
analysis by JP Morgan