A consortium of three local governments in Indonesia have appointed PT Multicapital, reportedly to be 100% owned by Bumi Resources, to help finance the purchase of a 10% stake in a unit of Newmont Mining Corp a local mining official The governments of West Nusa Tenggara province, West Sumbawa regency and Sumbawa regency, the three areas where the mine is located, and Multicapital would form a joint venture company to negotiate a price with Newmont, Heryadi Rachmat, the head of West Nusa Tenggara provincial mining office, said. There was an initial agreement for the local governments and Multicapital to split revenue 25% and 75% respectively. In late March, an arbitration court ordered the foreign owners of Newmont Nusa Tenggara (NNT) to sell a 17% stake to the Indonesian government within six months, of which a 10% stake should go to the local governments. The foreign owners began offering NNT shares for sale in 2006, initially offering a 3% stake for $109mn. The following year they offered a 7% stake worth $282mn, and another 7 percent stake worth $426mn in 2008. Newmont has valued the whole of NNT at $4.9bn and has started negotiations with the government over the price. The government said it planned to use an independent appraiser to value the unit. (Reuters).
Newmont’s Batu Hijau mine is located on the island of Sumbawa, approximately 950 miles (1,529 kilometers) east of Jakarta. Batu Hijau is a porphyry copper/gold deposit. In 2008, copper sales were 289.7 mn pounds (130.4 mn equity pounds), while gold sales were 298,900 ounces (134,500 equity ounces). At December 31, 2008, it reported 3,950mn equity pounds of copper reserves and 4.1mn equity ounces of gold reserves at Batu Hijau. The Comp Newmont Corp. owned 45% of the Batu Hijau mine through the Nusa Tenggara Partnership (NTP) with an affiliate of Sumitomo Corporation of Japan. The Company has a 56.25% interest in NTP and the Sumitomo affiliate holds the remaining 43.75%. NTP in turn owns 80% of Newmont Nusa Tenggara (NNT), the Indonesian subsidiary that owns Batu Hijau. The remaining 20% interest in NNT is owned by Pukuafu Indah (PTPI). Newmont is the operator of the Batu Hijau mine (Reuters).
In 2009, NNT plans to produce 455mn pounds of copper and 485,531 ounces of gold. The revenue from copper and gold sales following deduction of concentrate smelting and refinery costs substraction is US$1.149bn or Rp12tn. Expenditures for production costs, shipment costs, royalties, interest expenses, etc. are $657.57mn or Rp6.89tn. As a result, NNT in 2009 is estimated to earn pre-tax profit of $491.92mn or Rp5.16tn. After-tax net profit is expected at approx. $316.95mn or Rp3.32 tn. (newmont.co.id)
Based on US$391mn acquisition price for 7.5% stake, the acquisition will be valued at 10.6x PE09E, much cheaper than Freeport Mc Moran PE09E according to Bloomberg consensus of 32.6x. We have a Buy on Bumi with Rp2,400 target price. At Friday closing price of Rp1,800/share, Bumi is traded at 8.2x and 7.5x, PER09F, and PER10F, respectively.
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