Metal Mining Sector Update 18 January 2021

METAL MINING SECTOR UPDATE

Riding the Blue Wave

Gold is Still Precious, But Nickel Starts to Outshone it

•  Gold might be the champion commodity in FY20, spiking up by 25.12% YoY along with the economic uncertainty.
•  Renown as the safe haven, gold begins lose it's fame in FY21E, dropping by -3.68% YTD to USD1,828/tOz (troy ounce) as vaccination gives hope of a better economic outlook.
•  However, nickel gains pace, already rising by 8.39% YTD to USD18,281/mt (metric ton).
•  Subsequently, by average, nickel grew by 14.88% YoY (5-year average) outpacing gold (+12.71% YoY 5-year average) and tin (+8.74% YoY 5-year average).
•  Tin, on the other hand, increased by 18.34% YoY in FY20 matching the rise of nickel (+18.45% YoY in FY20). But the current growth is slower (+3.81% YTD).
•  MNCS estimates that these metal will still rise with gold reaching USD2,100/tOz in FY21, followed by nickel to USD20,500/mt and tin to USD22,000/mt.

The Blue Tide became a Thruster for Electric Vehicle (EV)

•  A solid win from Democrats ensures a larger stimulus and a clean energy focus. Bidden allocate USD2 trillion in sustainable infrastructure and clean energy over for years of his reign so that the US can reach a clean power grid on 2035.
•  Furthermore, both China and Europe are very ambitious to push the new energy plan. China's road map is to have all-round eco friendly vehicles in 2035 with 50:50 ratios for hybrids and full EV. While Europe targets for 30 million EV in 2030.
•  Data from the Mining Frontier, shows that nickel consumptions has been steadily rising in the past 10 years and estimated to reach beyond 2 million ton in FY20. While GlobalData estimated production to drop by 7.40% YoY in FY20, amounting to 2.2 million ton due to the Covid-19 pandemic and Indonesia's advancement on export ban.
•  With very thin spread and rising demand from the countries mentioned above especially the US, we believe nickel price would shot up in the coming years with tin not far behind to fulfill the need of zero-emission vehicle.

Indonesia: Future Home of EV Batteries

•  Indonesia support the world's vision by establishing an Indonesian Battery Holding taking Pertamina, ANTM, INCO and TINS to downstream nickel into batteries with planned capacity of up to 140 gigawatt hours.
•  The project is backed by LG (South Korea) and CATL (China) as they invested IDR130 trillion and IDR71 trillion respectively.
•  Tesla, a US electric car company, has also stated a plan for constructing a battery plant in Indonesia as well though an official cooperation has not been established.
•  We see that this is align with President's intention through Omnibus Law which is increasing Foreign Direct Investments in Indonesia.

OVERWEIGHT Recommendation with top Picks: ANTM, MDKA, INCO

We gave an OVERWEIGHT outlook for metal mining sectors due to EV boom. We recommend BUY for INCO (TP: IDR7,150) which is currently traded at mean level with 14.66x EV/EBITDA. We also recommend BUY for MDKA (TP: IDR2,720) even though MDKA has reached +3.5STD with EV/EBITDA at 21.61x. However, we recommend SELL for ANTM (TP: IDR2,550) since the stock price has rose by 61.24% YTD and is currently traded at +2STD/27.85x EV/EBITDA.

Disclaimer On

ANTM, INCO, MDKA