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MIND ID records debt jump in Q3, but looks toward $1b dividends

State-owned mining holding company MIND ID's debt skyrocketed 378 percent year-on-year (yoy) in the third quarter of 2019 following a multibillion dollar acquisition and several hefty infrastructure investments

Norman Harsono (The Jakarta Post)
Jakarta
Tue, January 28, 2020

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MIND ID records debt jump in Q3, but looks toward $1b dividends

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span>State-owned mining holding company MIND ID's debt skyrocketed 378 percent year-on-year (yoy) in the third quarter of 2019 following a multibillion dollar acquisition and several hefty infrastructure investments.

Previously called Inalum before it rebranded in August, MIND ID recorded a debt of Rp 78.3 trillion (US$5.75 billion) in the July to September period last year.

The majority of the debt came from $3.85 billion acquisition of mining operator PT Freeport Indonesia inked in October 2018, said MIND ID president director Orias Petrus Moedak. The remaining debt came from early investments in five mineral ore smelters and one coal-fired power plant.

“The acquisition is a promising investment but a long-term one. In the short term, we have to go through this period,” Orias told a House of Representatives hearing on Jan. 23.

The accountant-turned-businessman explained that MIND ID's financial performance was “expected to go down over the next one, two or three years” before it earned annual dividends of around $1 billion from Freeport starting in 2023.

In addition to Freeport Indonesia, the holding company also owns majority stakes in coal miner PT Bukit Asam (PTBA), tin miner PT Timah (TINS) and nickel and gold miner PT Aneka Tambang (ANTAM), as well as aluminum miner PT Indonesia Asahan Aluminium, which has retained the Inalum name.

The government has obligated local mining companies build domestic processing facilities in order to gain more economic value from the country’s mining industry. To support this policy, the government began this year to impose a ban on mineral ore exports to ensure that local smelters would have enough raw materials. Investment in domestic processing facilities require massive upfront capital, but Indonesia is placing its bet on long-term returns.

The government is also in the process of acquiring a fifth of Vale Indonesia — the local subsidiary of Canadian diversified miner Vale — as part of its policy to gain more control in major miners operating in Indonesia, such as Freeport.

Orias said that MIND ID’s revenue increased 25 percent yoy to Rp 60.5 trillion in the third quarter, 2019, but its net profit fell 89 percent to Rp 800 billion in the same period. The holding company was also burdened by investments in six projects to develop smelters and power plants, which would require up to Rp 25 trillion in capital expenditure this year.

The largest project is Freeport’s development of a $3 billion copper smelter in Gresik, East Java. Planned to start operating in 2022, the smelter is expected to produce 2 million tons of copper cathode per year.

The second largest project is Bukit Asam’s $1.68 billion mine-mouth power plant project in Tanjung Enim, South Sumatra, expected to be completed in 2022, which has an installed generation capacity of 2 x 621.72 megawatts (MW).

“It’s a mine-mouth power plant. That automatically means it has a more competitive electricity price,” said Bukit Asam president director Arviyan Arifin, who stressed the project's feasibility.

The power plant is one of Bukit Asam’s four diversified investments. The other three are two coal gasification plants and another mine-mouth power plant in North Maluku, which is to have an installed capacity of 2 x 45 MW and power a ferronickel smelter.

Outside of these projects, MIND ID has a long-term plan to quadruple Inalum's aluminum production to 1 million tons per year by increasing the capacity of its aluminum smelter in North Sumatra and building a refinery in North Kalimantan.

Inalum managing director Oggy Achmad Kosasih said that the company planned to double the capacity of its Kuala Tanjung smelter in Sumatra. The smelter currently produced 250,000 tons of aluminum per year, but was held back primarily by a limited electricity supply.

Oggy added that Inalum also planned to build a $2 billion aluminum refinery in North Kalimantan, which would be self-powered by an hydroelectric dam and was expected to produce 500,000 tons of aluminum annually.

“Building just the North Kalimantan refinery could take six years. We have to build the dam first, then build the hydropower plant, then build the smelter,” he said, but did not provide a detailed timeline for achieving the overall production target of 1 million tons.

The company’s most concrete project is the $107.7 million expansion of its Kuala Tanjung smelter, which is to increase the facility's production capacity to 280,000 tons per year by 2022.

The Indonesian aluminum miner is currently working on a new feasibility study with Emirates Global Aluminium (EGA) in Abu Dhabi on the North Kalimantan megaproject.

EGA managing director Abdulla Kalban said in a statement that it sought to become Inalum’s technology supplier, “potentially even [developing] in the future a vertically integrated alumina refinery”.

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