UBS BUMI RESOURCES: Opportunities, risks and Delta Dunia

􀂄 Opportunities versus risks
Despite the legacy ownership risk, aggressive debt raising and the current tax
investigation, investor interest in Bumi has regained momentum due to recent
acquisitions and coal price momentum. We assess the near-term risks and
opportunities for Bumi Resources accordingly.

􀂄 Strong opportunity for capital generation…
The Bakrie Group’s political influence and strong funding ability has resulted in it
acquiring some of Indonesia’s most valuable mining assets. For Bumi, we estimate
an annual EBITDA of US$1-1.5bn in 2010-12, while estimating potential proceeds
of US$1bn from the potential listing of Bumi’s non-coal assets. We believe capital
constraints may limit governance risk in the short term.

􀂄 … and equally strong investment and earnings risk
Bumi’s overhang risk has increased significantly following aggressive capital
raising over the past 12 months. Additional risks we see include over US$1bn in
back tax and penalties, 10% EPS dilution and the possible acquisition of Delta
Dunia in the medium term. Bumi’s management has no stated intention to carry
out such an acquisition, however, given the Bakrie Group’s reported partial
ownership of Delta Dunia, we outline the potential.

􀂄 Valuation
Our Rp3,700 price target implies a 30% governance discount and a 10% potential
rights issue dilution, but excludes potential back-tax payments and penalties. Our
price target is based on a WACC of 16.4% and a 12-month implied PE of 11.8x.