We visited Timah’s mining sites at Bangka last week. Some of the key takeaways are:
Go offshore, go deeper. The company is not planning to add more onshore mining sites this year, they are intensifying offshore mining. In offshore mining, they will replace old bucket line ships with newer cutter section ships. The new ships have advantages in terms of (1) 40% lower production cost, (2) deeper exploration, and (3) not surrounded by illegal miners’ ships.
So far, smooth transition from subcontracting to outsourcing. With the new regulation, Timah is not renewing expired subcontract, instead, they are going to outsource labor and equipment to the existing subcontractors. Therefore, tin ore cost will switch from variable cost to relatively fixed cost. Based on recent negotiation, it will take 3 years to fully convert subcontracting to outsourcing. If all goes well, it is estimated that this scheme will reduce offshore mining cost
by around 15%.
Illegal mining is getting more difficult. Based on our casual conversation with local people, they told us that illegal mining is getting more difficult. One of the reasons is Timah’s policy to shift to offshore mining. In offshore mining, the number of illegal miners also decreased from around 500 ships to around 300 ships, this is because Timah moved to deeper sea on which illegal miner do not have sufficient mining equipment. Note that either in offshore or onshore, illegal miners are used to mine close to Timah’s site as exploration cost to measure tin ore contents is very costly.
We still maintain our Buy recommendation on TINS which trading at PER10F-11F of 8.9x-5.7x, respectively.
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