We attended BUMI analyst briefing held on Friday (April 8) which provide comfort to our positive view on the company. Major news from the meeting in our view is the management’s confirmation that Bumi Resources (BUMI IJ) will change its auditor to PwC to be in line with Vallar’s for financial year 2011. We believe this is positive for the share price as PwC is perceived to be a more conservative auditor. BUMI will propose the change in the upcoming AGM which is scheduled before end of 1H11. We maintain our Buy call on the stock with a price target of Rp4,300/share.
Other key takeaways from the meeting are:
1. The accelerated payment of CIC loan of US$600mn in October 2011 will be the main focus for the Company. Additional debt reduction is the US$375mn convertible bond, so total expected debt reduction for 2011 is US$975mn. The management highlights that the operating cash flows and sales of assets will be the main source of fund for the debt repayment. At the end of 2010, ratio of debt/adjusted EBITDA was 3.7x and the target will be 2.0-2.5x;
2. Production target for 2011 is 66mn tons, and 28mn tons out of it has been priced (no details on the price). The management guidance for 2011 ASP remains at US$77/ton for now, but they acknowledge that the ASP guidance is conservative, and are thinking of US$80-85/ton ASP for 2011. ASP details will be given later;
3. Production in 1Q11 will be ~14mn tons, ~21% of annual target but that’s expected as 1Q is a wet quarter and production in 1H is usually 40-45% of annual production;
4. BUMI production target for 2013 remains 100mn tons from KPC and Arutmin. Additional production of 13mn tons can be contributed by other two mines (Fajar Bumi Sakti/FBS and Pendopo) which they expect to start commissioning in 4Q12.
5. Total capex for the expansion is ~US$1.1-1.2bn, of which ~US$700mn will be vendor capex
6. BUMI targets conveyor belt work to support the expansion to be ready by end of 2012 (the contractor is Roberts & Schaefer). Power plan is also expected to be ready by 2H12.
source: NOMURA Indonesia(April 8th 2011)