Mandiri Sekuritas Aneka Tambang: increases stake in gold project (ANTM, Rp2,000, Neutral, TP: Rp2,200)

The company has increased its stakes in the Gold Cibaliung project from 5% to 100%after the shareholders of Arc Exploration (ex owners of the gold project) approved its full divestment. Antam acquired the 95% additional stake for US$8mn from internal cash while another US$40mn has been set aside for project development costs. Exploitation is targeted by second half 2010. Estimated reserves is currently at 12.8ton (thus equivalent acquisition cost, excluding development cost is US$0.625/t), while expected production upon commercial operations will be 500kg (2010) and 2,000kg (2011-onwards). We deem this the development as positive as Antam eventually shifts towards gold mining from lower margin gold sales trading despite mine life being relatively short of less than 5 years based on ANTM’s 2008 gold production. In 2008, the company produced 2,833kg of gold while gold sales were at 9,820kg coming mostly from gold trading with third parties. Currently, we have neutral stance on the stock which now trades at PER09-10F of 55.3x and 29.9x, respectively.