We hosted several investor meetings at our annual Verdhana-Nomura Conference on 7-8 Nov 2024. The companies include: 1) mining companies: ADRO IJ, ANTM IJ, HRUM IJ, NCKL IJ, MDKA IJ, and INCO IJ; and 2) Oil and gas companies: MEDC IJ, ESSA IJ, and PGAS IJ. Below are the key takeaways from the meetings:

Indonesia mining: Resilient growth

Companies in the mining space shared insights on expanding production, managing reserves, and enhancing downstream integration while maintaining competitive costs. A prominent theme was the prioritization of metals critical to the energy transition—nickel, copper, and bauxite—as well as strategic partnerships to secure downstream targets.

Mining Industry Indonesia (MIND ID) (unlisted) — As Indonesia's strategic state-owned mining holding company, MIND ID is focused on managing the upstream by expanding reserves, increasing production, and advancing downstream projects to drive Indonesia’s dominance in strategic minerals. The company aims to secure a mine life of 25 years with a sustainable 1:1 reserves-to-resources ratio. Currently, the main sources of revenue are Copper and Coal through Freeport Indonesia (unlisted) and Bukit Asam (PTBA IJ, Buy). The source of growth is the nickel space, mainly from Vale Indonesia (INCO IJ, Neutral) and Aneka Tambang (ANTM IJ, Buy), namely nickel smelters and battery JV. Although not yet a price influencer globally, MIND ID is working towards consolidating production and attracting foreign investments in downstream processes to enhance Indonesia's role in the global mining sector.

Adaro Energy (ADRO IJ, Buy) — The planned IPO (link) will separate ADRO’s thermal coal operations from non-thermal assets, with ADRO as a standby buyer if shares are not fully subscribed. Details of the IPO are expected in the coming weeks. Meanwhile, Adaro Minerals Indonesia (ADMR IJ, Buy) will focus on the domestic sales of metallurgical coal and ensure they meet regulatory compliance, but logistical issues due to river water levels would impact production-sales alignment. Operational expansions include a completed jetty and an aluminum smelter under construction. ADRO’s strategy emphasizes mineral and mineral processing development via ADMR.

Aneka Tambang (ANTM IJ, Buy) — ANTM projects high gold sales trading with potential future margin expansion following the ~30 tonnes of gold offtake agreement with Freeport Indonesia, which is expected to be concluded at the end of 2025E. It expects net margin to stay at 5-6% in FY24E with possible expansion next year. Gold production is expected to decline next year as the gold mine is near the end of its mine life. Moving on, management expects more nickel ore production and sales to be back loaded in 4Q24E. Following the mining permit issuance (locally known as “RKAB”) for North Konawe in September, ANTM expects to reach nickel ore production of 12mn wmt in FY24E (vs 9M24 at 7.3mn wmt). On price, currently ANTM sells ores at a premium of USD7-18/t but expects the premium to stabilize at USD5-10/t. For FY25, ANTM is confident of selling 15mn wmt worth of nickel ore. Weda Bay Nickel (WBN; unlisted, ANTM owns a 10% stake) could sell ~32mn wmt but is targeting 40mn wmt nickel ore in FY25 depending on the RKAB permit (vs 33mn wmt ore sales in FY23). Lastly, the completion of SGA Alumina facility with a capacity of 1mtpa is expected in 2025E.

Bumi Resources Minerals (BRMS IJ, Not rated) — The following discussion and timeline for BRMS as follows: 1) BRMS will announce 3Q indicative numbers in end-Nov to early-December. BRMS reported good q-q and y-y growth in gold production in 3Q24F; 2) unlock more JORC (Joint Ore Reserve Committee) resources data in Palu including an underground project with a much higher gold grade; and 3) announce feasibility studies and capex for the underground project in accordance with bank funding needs (estimated in 1Q25E). While still in discussion, management targets the indicative underground project to commence in 2H27 which should contribute to a substantial gold production increase.

Harum Energy (HRUM IJ, Buy) — HRUM expects a record-high revenue for FY24 despite a y-y coal production decline (-9% y-y) with nickel production from WMI smelter and PT POS nickel mine supporting growth. On the coal side, production was down 4% y-y in 9M24, in line with its long-term target of 6mt, with a stripping ratio target of ~11x. On the nickel side, production from WMI is ramping up; PT POS ore production has started to contribute in 4Q. The ongoing HPAL development will likely need USD200mn in new loans, while the share buyback program of IDR1tn remains.

Merdeka Copper Gold (MDKA IJ, Buy) — Projects in focus include AIM and Pani Gold for FY25F. The following quarter will reflect steady gold and copper productions with higher margins. The company targets gold production of 100-110 koz (flat y-y) and copper production of 14 kt for FY25 (flat y-y), with substantial capex allocations of USD100mn for FY24 and USD150mn for FY25. Strong EBITDA contribution is expected from Merdeka Battery Materialls (MBMA IJ, not rated) (50% of total EBITDA guidance of USD330-350mn), mainly from the commissioning of ESG and Meiming HPAL, following hauling roads optimization to cut costs and improve nickel ore delivery.

Trimegah Bangun Persada (NCKL IJ, Buy) — Production is expected to reach its full- year target across products with incremental volume upside from limonite ore sales on faster- than-expected commissioning of ONC HPAL (producing 65ktpa MHP), which has reached full utilization since August. Margins for FeNi have sustained at high levels while those of MHP (Mixed Hydroxide Percipitate) are expected to decline following the price decline. Following the recent announcement, management is considering to use the remaining IDR1.6tn IPO proceed to acquire more stake in nickel processing, with ONC (Obi Nickel Cobalt) HPAL (High Pressure Acid Leach) as one of the potential candidates for acquisition.

Vale Indonesia (INCO IJ, Neutral) — INCO expects production to remain at 70.8kt in FY25F (flat y-y), focusing on a recovery in nickel prices despite recent declines. INCO’s cash costs for 9M24 stood at USD9,536/ton, impacted by high coal prices. The company’s EBITDA declined in 3Q24, although profitability remained intact. It expects funding needs in FY25E to range USD100-150mn, to support future mining expansion with additional investment for smelter project. INCO is optimistic about increased demand from Japanese EV manufacturers, which offers opportunities for growth as it continues leveraging existing ore stockpiles.

Oil and Gas: Future-proofing demand and infrastructure

Medco Energy (MEDC) and Perusahaan Gas Negara (PGAS) presented a clear focus on meeting Indonesia’s growing energy demands with a transition to cleaner fuel sources like natural gas. MEDC highlighted a steady capex strategy to support significant production capacity increases in oil, gas, and power, while PGAS detailed its continued investment in LNG infrastructure and domestic energy security projects.

Medco Energy (MEDC IJ, Buy) — MEDC is on track to meet the company’s production guidance of 145-150 mboepd with substantial new production capacity ramp-up expected in 4Q24E and 1Q25E, namely from Natuna assets (Forel, West Belut, and Terubuk) that total ~8mboepd, offsetting production decline in Corridor. MEDC plans to maintain the same oil and gas production and a flat capex of USD430mn for FY25F, allocating USD400mn to oil and gas and USD30mn to its power business. A credit rating upgrade, driven by rapid debt repayment, improves MEDC's financial flexibility. It expects major projects, such as the Bulan Project, which involves an undersea cable, to contribute USD50-60mn in net income annually starting from FY28E.

Perusahaan Gas Negara (PGAS IJ, Not rated) — PGAS strategically allocates capital across upstream and downstream projects, focusing on LNG and piped gas. A 9M24 capex of USD157mn was split as 41% upstream and 59% downstream, with key projects like the LNG Hub Arun (commissioning expected in 2025F) and the city gas network underway. Supply declines in Sumatra and Java present challenges, although the company expects increased LNG sourcing to offset these with slightly higher prices. PGAS expects blended margins of USD 1.6-1.8 per MMBTU and minor volume dips in 4Q due to holiday effect.

Essa Industries Indonesia (ESSA IJ, Buy) — ESSA maintains its full-year target and adds it is on track to achieve ammonia production of 750kt and 68-73kt. EBITDA could achieve USD120-130mn in FY24E. Management believes ammonia price should trade better in 4Q given the current global logistic problem due to geopolitical conditions. Management adds blue ammonia is advancing with a targeted feasibility study phase 2 in 2025 following the start of construction and COD in 2027. Currently, ESSA is actively pursuing several new business initiatives, with announcements expected in the near term. Management believes the current share price outperformance reflects investor optimism about future growth, including the potential impact of new business developments.

INVESTMENT RATINGS
A rating of ‘Buy’, indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of ‘Neutral’, indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of ‘Reduce’, indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of ‘Suspended’, indicates that the rating, target price, and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies. Securities and/or companies that are labelled as ‘Not Rated’ or ‘No Rating’ are not in regular research coverage. Benchmark is Indonesia Composite Index (‘IDX Composite’). A ‘Target Price’, if discussed, indicates the analyst’s forecast for the share price with a 12-month time horizon, reflecting in part of the analyst’s estimates for the company’s earnings, and may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market in general. 

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Michael Wildon (michael.wildon@verdhana.id)

Edward Prima (edward.prima@verdhana.id)