Realign Focus to Maintain Performance
9M21 Sales Volume Overview
• ANTM's gold sales volume increased by +33.58% YoY to 638,867 tOz in 9M21 (vs 478,275 tOz in 9M20) due to economic recovery and easing of activity. On the other hand, ferronickel sales fell -3.30% YoY to 18,880 mt in 9M21. However, we believe that the increase in nickel ASP and gold sales volume will be able to improve FY21E performance on a top line and bottom line.
• INCO's nickel matte sales fell -12.89% YoY to 49,263 mt in 9M21 (vs 56,554 mt in 9M20) which will impact INCO's top line and bottom-line performance in FY21E. We believe this is due to higher costs as well as lower production volumes.
• MDKA gold sales volume decreased -50.64% YoY to 81,913 tOz in 9M21 (vs 164,984 tOz in 9M20) due to a mining incident earlier this year. However, copper sales increased significantly by +151.47% YoY to 10,343 mt in 9M21. We see that the increased contribution of copper to earnings will help offset the decline in gold sales given the +48% YoY gain in the 9M21 copper ASP.
Metal Outlook: Nickel and Copper Demand Boost EV.
• Gold price grew as its slowest pace among other commodities since the global recovery. It is currently at USD1,782/tOz down -4.68% YoY/-6.08% YTD. We see that the Fed's long-term hawkish policy, that causes the USD to weaken, might push the gold price up, followed by a gradual recovery in production. MNCS expects gold to maintain its average price at USD1,800/tOz to USD1,900/tOz in FY21E. Looking ahead, gold price movements will be supported by the emergence of new Covid-19 variant, a fairly tight monetary policy in FY22F, rising inflation, and rising mining geopolitics. So, there is a possibility of the decline of gold prices in FY22F, where the Bloomberg estimates a 3% probability at USD1,799/tOz.
• Nickel is one of the most promising commodities in the long term, as its prices continue to hit a new high at USD20,230/mt up +23.27% YoY/+21.77% YTD. The strong nickel demand was due to: 1) China's nickel-based stainless-steel production fell -20.7% YoY on Oct-21; 2) Increased demand and reduced supply of nickel due to restrictions on electricity production in China's BOP; 3) The domestic electric vehicle (EV) industry is expected to be a long-term catalyst with the target of developing an EV battery supply chain of up to 140 GWh. We expect this sentiment to continue into FY22F – FY23F. Bloomberg estimates nickel price in FY22F at USD19,875/mt.
• Copper is also one of the commodities that performed very well this year. Currently, the copper price is at USD9,535/mt up +22.77% YoY/+23.46% YTD. Similar with nickel, copper is also a commodity of the future due to the demand for EVs. In addition, copper demand will also be driven by wind power and photovoltaic demand in China in FY21E. Inventories are expected to increase rapidly over the FY22F – FY23F, particularly from Indonesian copper which will be the main beneficiary of the energy transition, with expected increase for electric vehicles, charging, renewable energy generation and grid storage. Bloomberg estimates copper price in FY22F at USD9,548/mt.
The Government also Supports The Industry
The Government's policy to convert exports of raw materials into processed products in FY22F has the potential to increase the value of nickel exports in the range of USD20-23 billion. This is supported by the global consumption of refined nickel products, which is estimated at 3 million mt in FY23F.
OVERWEIGHT Outlook with Recommendation ANTM IJ and INCO IJ as our top picks
OVERWEIGHT outlook for the metal mining sector and our top picks are: 1) ANTM (BUY TP: IDR3,100) with a +39% potential upside. We choose ANTM because it has outperformed our 9M21 estimate by 91% and, and the potential for future performance growth driven by increased nickel demand due to the battery industry for EV; 2) INCO (BUY TP: IDR5,800) similar with ANTM which will benefit from increased nickel demand; 3) MDKA (HOLD TP: IDR3,900), since the price is already price in with the potential for increased performance in FY22E after the heap leach problem occurred in FY21.
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