Introduction

UOB Kay Hian’s recent analysis dives into the strategic positioning and financial outlook of Merdeka Copper Gold (MDKA IJ), a leading player in Indonesia’s mining sector. This comprehensive report sheds light on MDKA’s growth trajectory, driven by significant projects in gold, copper, and nickel production.

Company Overview

Merdeka Copper Gold, a prominent entity in the Indonesian mining landscape, has garnered attention as the first greenfield mining company listed on the Jakarta Composite Index (JCI) in 2016. With operations commencing in 2017, the company has swiftly positioned itself as a major producer of gold, copper, and nickel.

Stock Data:

• Share Price: Rp1,910
• Target Price: Rp2,430
• Upside: +27.2%
• Market Cap: US\$2,950.0 million
• Bloomberg Ticker: MDKA IJ
• Major Shareholders: Saratoga Investama Sedaya (18.6%), Mitra Daya Mustika (12.1%), Garibaldi Thohir (7.4%)

Strategic Growth Catalysts

MDKA’s growth is poised to be catalyzed by three major projects: PT ESG’s HPAL project, the AIM copper cathode project, and the Pani gold project. These ventures are anticipated to significantly enhance profitability, with an expected profit turnaround of US\$38 million by 2025, largely attributed to rising gold prices and increased project contributions.

Project Details and Timeline

PT ESG’s HPAL Project: MDKA holds an effective stake of approximately 13.5% in this high-pressure acid leach (HPAL) project. The commissioning of Train A is targeted for late 2024, followed by Train B in the first half of 2025.

AIM Copper Cathode Project: With a 40% stake, MDKA is in the final construction phase of this facility, which is poised to mark significant progress in copper production.

Pani Gold Project: Advancements include the release of a final resource model, with commissioning on track for late 2025 and first ore processing anticipated in early 2026.

Financial Outlook

UOB Kay Hian forecasts a robust outlook for MDKA, projecting net profits to rebound to US\$38 million in 2025 from a net loss of US\$19 million in 2024. This turnaround is expected to be driven by higher gold prices and enhanced contributions from ongoing projects.

Nickel and Gold Market Forecast: Nickel prices are expected to reach US\$17,300 in 2025, while gold is projected to rise steadily to an average of US\$2,850, fueled by strong safe-haven demand amid geopolitical and economic uncertainties.

Operational Highlights for 3Q24

MDKA’s unaudited revenue for 3Q24 grew by 4% quarter-on-quarter to US\$552.8 million, driven by higher gold and copper average selling prices (ASPs), increased copper sales volume, and stronger limonite sales. However, lower nickel prices in 3Q24 are expected to impact margins.

Earnings Revision and Risks

The report notes a downward revision in earnings for 2024-2025 due to MDKA’s weak performance in 1H24 and changes in nickel prices. Despite these challenges, the company’s long-term prospects remain promising, underpinned by strategic project developments.

Valuation and Recommendation

MDKA’s valuation, based on the sum-of-the-parts (SOTP) method, yields a target price of Rp2,430. This valuation reflects the company’s strategic expansion in the nickel downstream business through Merdeka Battery Materials (MBMA) and future projects like Pani and Tujuh Bukit Copper.

Recommendation: UOB Kay Hian upgrades MDKA to a ‘BUY’ rating, citing its promising long-term growth prospects and strategic project expansions.