Indonesian tin miners have had a very short peak season for production this year, as a late-ending monsoon in 2Q10 has been followed by the early onset of a new rainy season from late August. Adverse weather will negatively impact tin production as tin miners have to pump out water from onshore mining and they find difficulty in exploiting deeper seas for offshore mining. The positive side is strong tin price as Indonesian tin export is predicted to fall by around 20%yoy (note that Indonesia is the biggest tin exporter in the world).
Our tin price assumption for 2010-2011 is US$17.5k-18.4k/ton while actual current price is US$23.5k/ton, leading to ytd average of US$15.5k/ton.
We estimate the net impact for Timah is an estimated strong result in 2H10 as the company has enough inventories to take advantage of rising tin price. However, should this rainy season prolonged, tin production in 4Q10 could fall considerably and at the same time purchased tin ore cost from independent small miners could rise following the rise in global tin price. We still have to reassess long term impact (year of 2011) from this phenomenon.
Currently we have Neutral recommendation on TINS which currently is trading at PER10-11F of 17.1-11.3x.
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