Company

Update
Merdeka Copper Gold Tbk (MDKA) Commodities
Gold opens all locks
Feb 19, 2020
TB Oxide - the cash cows that keep things rolling
TB Oxide mine exceeded expectations with 223k oz gold produced in FY19. The
successful commissioning of 2nd CIC train (doubling its ore preparation plant
capacity) after Jun’19 allowed TB Oxide to mine 7.4m ore for FY19. With an
average gold price of slightly below US$1,400/oz (after hedging), this should
translate to ~US$312m revenue (+33% YoY). Fears on potential impact inflicted
by the Covid-19 outbreak sent gold price to ~US$1,600/oz (its highest level in 7
12M rating BUY (Maintain)
years) and ETF gold holding to an all-time record high. MDKA should see 12M TP IDR 1,700 (Prev
IDR 1,750)
potential upside on its earnings if this continues. Upside 37%
Wetar - declining contribution but remains important Stock Data
On the flip side of the coin, copper price has fallen ~6% YTD, as concern grew JCI (Feb 18) 5,887
on China (which represents ~50% of global demand). Inventory seems to Stock price (Feb 18, IDR) 1,245
stagnated at 330m tonnes level and historically, there seems to be a support on Market cap (IDR bn) 27,263
copper price at US$4,750/tonne level (or US$2.15/lbs). MDKA’s Wetar project hit Shares outstanding (m) 21,898
a production snag in FY19 with 16.8k tonnes (-1.7% YoY) due to a slower ramp- 52-week high/low (IDR) 660 / 1,335

up in Lerokis pit. We forecasted a similar production rate for Wetar in FY20, 6M avg. daily turnover (IDR bn) 80.4
Free float (%) 42.6%
pending drilling results on Partolang pit (which should extend Wetar mine life by
Major shareholders (%)
another 3-5 years). Wetar project contributes ~20% of MDKA’s revenue.
Saratoga Investama Sedaya Tbk 22.8%
A sign of things to come
Provident Capital 22.9%
In the past 3 months, MDKA signed 1) CSPA with J-Resources (PSAB) to Garibaldi Thohir 8.9%
develop Pani (COW), adjacent to existing MDKA’s Pani (IUP) gold mine in
Gorontalo, Sulawesi and 2) MoU with Tsingshan to develop a pyrite processing
plant at Indonesia Morowali Industrial Park (IMIP). Those potential projects
Performance
should boost MDKA’s earnings from 2022 (at the earliest dependent on the
1M 6M 12M
execution of CSAP & MoU) and have a potential to add conservatively ~20% to
Absolute (%) 3.8 8.3 75.8
our current MDKA’s valuation based on our-back-to-envelope calculation. Relative to JCI (%p) 9.5 14.8 85.2
A stock to keep - reiterate BUY recommendation
We rolled forward our assumptions considering the latest FY19 operational MDKA stock price
achievement. We value MDKA using SOTP given the different stages of MDKA’s IDR MDKA - LHS US$/oz
Gold price - RHS 1,700
asset development. Maintain BUY with 37% potential upside. 1,250
1,600
Risks to our call include the possibility of TB Porphyry resources being deemed 1,050 1,500
1,400
not mineable in the future and lower gold & copper price. 850
1,300
650
1,200
2017A 2018A 2019F 2020F 2021F
450 1,100
Sales (US$ m) 129 294 407 395 381
250 1,000
GP (US$ m) 82 139 178 204 208
Apr-16

Apr-17

Apr-18

Apr-19
Aug-15
Dec-15

Aug-16
Dec-16

Aug-17
Dec-17

Aug-18
Dec-18

Aug-19
Dec-19

OP (US$ m) 75 123 155 182 187

NP (US$ m) 43 52 86 110 118 Source: Bloomberg
EBITDA (US$ m) 91 142 197 213 207
Net debt (US$ m) 95 237 180 86 24
OP margin (%) 57.6% 41.9% 38.1% 46.1% 49.1%
ROE (%) 24.7% 17.2% 17.5% 17.9% 16.1%
Dividend yield (%) 0.0% 0.0% 0.0% 0.0% 0.0%
EPS (IDR) 163,1 182,6 55.3 70.7 76.0
chg. (%, YoY) 12% 51% 28% 8%
BPS (IDR) 717,4 1.469,1 358.6 432.8 514.0
DPS (IDR) - - - - -
PE (x)
Edward Tanuwijaya
35,7 31,9 22.5 17.6 16.4
PB (x) 8,1 4,0 3.5 2.9 2.4
edward.t@kisi.co.id
EV/EBITDA (x) 21.8 14.0 10.7 9.5 9.5

Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the U.S.
PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS AT THE END OF THIS REPORT.
Merdeka Copper Gold Tbk
Company update

Fig 1 Gold price breaches US$1,600/oz (a level last seen in 2013)

US$/oz
2,000

1,800

Syrian Covid-19
civil war US begins to outbreak
1,600 taper QE
The start of
Arab Spring US QE3
1,400 US - Iran
frictions
Peak of economic
India - Pakistan
1,200 crisis in Greece
Brexit Syria crisis standoff
US QE2 Iraqi decision deepens
civil war
Yemen China - US
US QE1
1,000 civil war trade frictions

800

600
Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10

Jan-11

Jul-11

Jan-12

Jul-12

Jan-13

Jul-13

Jan-14

Jul-14

Jan-15

Jul-15

Jan-16

Jul-16

Jan-17

Jul-17

Jan-18

Jul-18

Jan-19

Jul-19

Jan-20
Source: Bloomberg, KISI Research

Fig 2 ETF Holdings of Gold at all-time high

m oz
85

75

65

55

45

35

25
Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10

Jan-11

Jul-11

Jan-12

Jul-12

Jan-13

Jul-13

Jan-14

Jul-14

Jan-15

Jul-15

Jan-16

Jul-16

Jan-17

Jul-17

Jan-18

Jul-18

Jan-19

Jul-19

Jan-20

Source: KISI Research

1
Merdeka Copper Gold Tbk
Company update

Fig 3 Copper price movement against LME inventory

US$/tonne m tonnes
Copper price - LHS Copper LME inventory (RHS)

8,750 900

8,250 800

7,750 700

7,250 600

6,750 500

6,250 400

5,750 300

5,250 200

4,750 100

4,250 -
Jan-13

Jan-14

Jan-15

Jan-16

Jan-17

Jan-18

Jan-19

Jan-20
Jul-13

Jul-14

Jul-15

Jul-16

Jul-17

Jul-18

Jul-19
Source: Bloomberg, KISI Research

Fig 4 Summary of assumptions changes

New Old
Assumptions Unit
FY20F FY21F FY20F FY21F
Gold volume k oz 198.9 182.3 205.4 192.5
Change (%) -3% -5%
Copper volume k tonnes 15.1 15.6 28.1 10.4
Change (%) -46% 50%
Revenue US$m 395.2 381.1 462.4 352.3
Change (%) -15% 8%
COGS US$m 191.1 173.1 231.4 162.3
Change (%) -17% 7%
EBITDA US$m 212.6 207.3 237.3 190.3
Change (%) -10% 9%
Net profit US$m 109.9 118.2 117.2 98.1
Change (%) -6% 21%
Equity value (SOTP) / share IDR 1700 1750
Change (%) -3%
Recommendation BUY BUY

Source: KISI Research

Fig 5 Sensitivity analysis

Gold price Copper price
Base case Units Value Remarks
-10% +10% -10% +10%
Assumptions
Gold price US$/oz 1,550
Copper price US$/lb 2.7
Output
Avg EBITDA US$m 161 until 2025 146 177 156 156
Equity Value US$m 2,600 IDR 1,700 per share 2,540 2,666 2,577 2,577
FY20F EBITDA US$m 213 198 228 205 205
FY21F EBITDA US$m 207 185 232 200 200
FY20F net profit US$m 110 100 121 105 105
FY21F net profit US$m 118 102 135 113 113

Source: KISI Research

2
 Merdeka Copper Gold Tbk
Company update

Fig 6 MDKA SOTP valuation

Stakes Value
Assets Method
(%) (US$m)
Producing Assets:
Tujuh Bukit Oxide 99.9%
256 DCF
Wetar - incl. Partolang 67.0%
Assets under development:
Tujuh Bukit Porphyry 99.9% 2,374.7 NPV + EV/R&R
Pani (IUP) 66.7% 55.0 Acq. Cost
Net cash (debt) (85.6)
Total Equity Value 2,599.8
No. of shares (bn) 21.90
Equity Value per share (IDR) 1,700
USD/IDR assumed 14,084.5

Source: KISI Research

Fig 7 MDKA valuation vs peers

Market cap PE (x) EV/EBITDA (x) ROE
Company Bloomberg code
US$m FY20F FY21F FY20F FY21F %
Merdeka Copper Gold MDKA IJ Equity 1,991 17.6 16.4 9.5 9.5 17.9
J-Resources Asia Pacific PSAB IJ Equity 437 N/A N/A N/A N/A 10.2
Freeport McMoran Inc FCX US Equity 17,760 30.4 10.2 10.1 5.4 (2.5)
Barrick Gold Corp GOLD US Equity 35,061 28.3 27.0 9.0 9.2 27.3
Newmont Goldcorp NEM US Equity 36,765 34.5 23.4 10.9 8.5 14.0
BHP Group Ltd BHP AU Equity 122,826 13.1 14.5 5.9 6.3 19.1
Rio Tinto Ltd RIO AU Equity 92,684 10.5 11.7 5.1 5.7 32.7
Newcrest Mining Ltd NCM AU Equity 14,080 19.0 18.3 8.5 8.3 7.5
Glencore PLC GLEN LN Equity 40,988 14.1 10.8 6.2 5.6 6.3
AngloGold Ashanti Ltd ANG SJ Equity 8,298 9.2 9.1 4.5 4.3 26.8

Source: Bloomberg, KISI Research

Fig 8 Pani (COW) project Fig 9 Iron ore spot price index
US$/tonne RMB/tonne
Iron Ore Spot US$ Iron Ore Spot RMB - RHS
180
1,180
160
1,080
140 980
880
120
780
100 680
80 580
480
60
380
40 280
Feb-15
May-15
Aug-15
Nov-15
Feb-16
May-16
Aug-16
Nov-16
Feb-17
May-17
Aug-17
Nov-17
Feb-18
May-18
Aug-18
Nov-18
Feb-19
May-19
Aug-19
Nov-19

Source: Company’s press release 16Dec2019, KISI Source: Bloomberg, KISI Research
Research Note: US$ price exclude VAT and under FOB, while RMB
price include VAT

3
 Merdeka Copper Gold Tbk
Company update

Company Overview
PT Merdeka Copper Gold Tbk (MDKA), formerly known as PT Merdeka Serasi Jaya, was
established in 2012 and listed on the IDX in 2015. This Indonesian-based mining
company currently owns four mining projects namely; Tujuh Bukit (Oxide & Porphyry) in
Banyuwangi (East Java), Wetar (West Nusa Tenggara) and Pani (Gorontalo). Currently,
TB Oxide (producing gold and silver) and Wetar (producing copper) are two producing
mines, while the others are under development. MDKA has total mineral resources of
~2,100 m tonnes.

Fig 10 MDKA corporate structure

Source: Company’s 2018 annual report , KISI Research

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Merdeka Copper Gold Tbk
Company update

Balance sheet Income statement

FY-ending Dec. (US$ m) 2017A 2018A 2019F 2020F 2021F FY-ending Dec. (US$ m) 2017A 2018A 2019F 2020F 2021F

Current assets Sales 129 294 407 395 381

Cash & cash equivalent 46 24 64 57 102 COGS (48) (155) (229) (191) (173)

Accounts & other receivables - 1 4 5 3 Gross profit 82 139 178 204 208
Inventories 31 87 150 111 104 SG&A expense (7) (16) (22) (22) (21)
Others 17 38 41 46 48 Operating profit 75 123 155 182 187
Non-current assets
Financial income 0 0 1
Fixed assets 121 270 316 339 355
Interest income 0 0 (18) (14) (10)
Intangible assets - - - - -
Financial expense (14) (10) (7)
Investment properties 147 323 376 441 500
Interest expense (9) (17) 155 182 187
Investment in shares 0 - 20 35 65
Other non-operating profit (3) (20) 0 0 1
Other non-current assets 9 26 66 59 58
Earnings before tax 63 87 124 158 170
Total assets 371 770 1,038 1,092 1,235
Current liabilities Income taxes (20) (29) (31) (40) (43)

Accounts & other payables 6 42 69 58 52 Net profit 43 58 93 119 128

ST debt - - - - - Non-controlling interest (0) (5) (7) (9) (10)

Current portion of LT debt 67 95 103 66 16 Other comprehensive profit - - - - -

Others 15 30 62 60 58 Total comprehensive profit - - - - -
Non-current liabilities Total comprehensive profit of
- - - - -
controlling interest
LT debt & financial liabilities 64 159 134 68 102
EBITDA 91 142 197 213 207
Employee benefits liability 5 7 8 9 9
Other non-current liabilities 9 26 104 160 198
Total liabilities 166 360 480 419 436
Controlling interest
Key financial data
Capital stock 29 33 35 35 35
FY-ending Dec. 2017A 2018A 2019F 2020F 2021F
Additional paid-in capital 142 229 288 288 288
per share data (IDR)
Other Reserves (10) 12 0 1 5
EPS 33 37 55 71 76
Retained earnings 29 81 167 277 395 BPS 143 294 359 433 514
Minority interest 0 67 67 73 76 DPS - - - - -
Shareholders' equity 190 422 557 673 799 Growth (%)
Sales growth 127% 39% -3% -4%
Cash flow
OP growth 65% 26% 17% 3%
FY-ending Dec. (US$ m) 2017A 2018A 2019F 2020F 2021F NP growth 22% 64% 28% 8%
C/F from operating EBITDA growth 57% 51% 28% 8%
Profitability (%)
Net profit 43 52 86 110 118
OP margin 57.6% 41.9% 38.1% 46.1% 49.1%
Depreciation 16 19 42 30 20 NP margin 33.3% 17.9% 21.1% 27.8% 31.0%
Net incr. in W/C (27) (28) (21) 19 0 EBITDA margin 70.2% 48.5% 48.4% 53.8% 54.4%
ROA 12.8% 9.0% 9.4% 10.3% 10.2%
Others 40 7 52 65 45
ROE 24.7% 17.2% 17.5% 17.9% 16.1%
C/F from investing - - Dividend yield 0.0% 0.0% 0.0% 0.0% 0.0%
CAPEX (62) (59) (122) (100) (82) Dividend payout ratio 0.0% 0.0% 0.0% 0.0% 0.0%
Stability
Others (20) (15) (30)
- (56) Net debt (US$ m) 95 237 180 86 24
C/F from financing Int.-bearing debt/equity (%) 68.6% 59.4% 42.0% 19.7% 14.6%
Incr. in equity - 91 61 - - Valuation (X)
PE 35,7 31,9 22.5 17.6 16.4
Incr. in debts (0) (31) (18) (103) (16)
PB 8,1 4,0 3.5 2.9 2.4
Dividends - (0) - - -
EV/EBITDA 21.8 14.0 10.7 9.5 9.5
Others (19) (18) (18) (14) (10)

C/F from others

Increase in cash (8) (22) 40 (8) 46

5
Merdeka Copper Gold Tbk
Company update

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