JP Morgan - Bumi Resources - Batu Hijau's strong performance could lead to earnings upgrade - ALERT

• Batu Hijau pretax income rose more than 500% Y/Y: Newmont Batu Hijau reported 1Q10 pretax profit of US$407MM, up 536% Y/Y from US$64.0 MM in 1Q09. We expect this strong performance to be repeated in FY10 as Batu Hijau's operation should hit the high grade ore area in FY10.

• A higher contribution from Batu Hijau could result in up to 13.4% upward adjustment to our FY10 earnings forecasts: Our BUMI odel currently assumes a US$168.1MM equity income contribution from Batu Hijau for FY10. Based on 1Q10 net income, we estimate FY10E earnings could reach US$204.6MM: a difference of US$36.5MM. Analyzing the numbers, we see about 13.4% potential upside to our FY10 net income forecast, i.e. from US$273MM to US$310MM. In summary, we view Batu Hijau’s performance as positive for BUMI's FY10 earnings.

• BUMI’s 1Q10 net income could come between $75-$100MM: 1Q10 net income could come in between US$75-US$100MM, ahead of our forecast of US$68MM. Assuming a quarterly run rate of US$75-100MM, this would equate to yearly net income between US$350-
US$400MM. This would see FY10E earnings roughly in line with consensus earnings forecast of US$382MM.

• Political developments could be positive for the company: We view the recent developments in the Indonesia political arena as being potentially positive for BUMI. The positive environment could persist in the medium term if Bakrie group continues to be successful in its lobbying for projects and assets, which could be beneficial to BUMI's minority shareholders.

• Maintain OW and Dec-10 PT of Rp3,300: We remain OW on BUMI. We will revisit our model and follow up with more details. Meanwhile, we maintain our SOTP Dec-10 PT of Rp3,300. The risks to our view and PT are: decline in coal price, and continued tax investigation into BUMI.