Morgan Stanley ANTM Gold Mine Acquisition Sends Positive Signal

Golden Opportunity for Cash
Up B/S

*Gold Mine Acquisition Sends Positive Signal: *We reiterate our OW recommendation following Antam’s announcement today that it is buying an Indonesian gold project. We see this as attractive for two reasons:
1) Antam is putting its cashed-up balance sheet to work,and
2) the acquisition looks attractively-priced with an average cost (M&A + development cost) of just $120/oz,significantly lower than average EV/oz of most gold companies. On annualized basis, we estimate that the Cibaliuang gold mine could add Rp20-30/sh or 15-20% to our EPS from 2011e onwards. We may adjust earnings after year-end results are released at the end of this month.

*Acquisition Details: *The Cibaliuang gold project is acquired from Arc Exploration (ARX) and ANZ Bank for just US$8m. ARX was the original owner, which ran into difficulties due to cost over-runs and financing difficulties, but listed on the ASX it used to have a market cap of A$30mn in 1H08. The mine requires an additional US$40mn to develop and is estimated to have reserves of 412,000 oz of pure gold with annual production of 70,700 oz. The mine should be commissioned by 2011 and we estimate that it should have similar margins to Antam’s existing gold mine. The transaction is expected to close in 4-6 months.

While we have not adjusted our numbers, we believe this gold acquisition is a step in the right direction and that Antam will continue to its M&A strategy and move toward our Bull Case PT of Rp2,000.