Central Omega Resources (DKFT IJ)

An Agile Miner Ready to Reap Profits

• Prod/sales posted CAGR 53%/43% since 2021, reaching 2.9wmt/2.6wmt in FY24, and is aiming for RKAB revision to further increase production.
• Based on latest statement, its reserve stood at 14.3wmt, equal to 3-5 years of operation, though it still has premium ore grade of up to 2.1%.
• DKFT owns a 10ktpa FeNi BF, but is dormant due to high coke prices, making it uneconomical, though it is mulling over a heap leach plant.

Expansion mode is underway

In the past 4 years, DKFT recorded a production/sales CAGR of +52%/+43%, and in FY24, it managed to reach a production/sales of 2.9/2.6wmt, above the company’s guidance of 2.2/2.2wmt, despite RKAB issues throughout the year. For the period of 2025-26, DKFT has set a base production target of 2.9wmt, though it has the ambition to gradually expand beyond 7wmt, subject to RKAB approvals. DKFT’s sales consist of c.25% limonite and c.75% saprolite, implying an ASP of c.US$16/wmt for limonite and US$40/wmt for saprolite, with a blended ASP of US$34/wmt in 9M24, posting a GPM/OPM/NPM of 43%/24%/30%. A big chunk of its ore sales goes through traders, though it also sells directly to NCKL (HJF, MSP), MBMA (BSI, CSI), and smelters in IMIP.

Limited ore reserve clouds longevity

Based on the company’s financial statement, DKFT’s reserve stood at c.14.3wmt, which equals to a mine life of 4.9 years at base target and 3 years at max capacity. As it stands, the reserve can be a cause of concern. However, explorations and drillings are underway to increase its base reserve, which should be updated periodically. Furthermore, DKFT’s ore grade averages at 1.6%-1.7%, while it still has areas with grades of 2%-2.1%, which could be sold at a premium.

An idle smelter in the balance sheet

Under its subsidiary CORII, DKFT owns a blast furnace with a capacity of 100kt in FeNi or c.10ktpa in nickel content. The furnace has started producing in 2018 but was then terminated in 2021 due to rising coke price, which made it uneconomical to operate. At this juncture, CORII is left with Rp724bn debt maturing in 2031, (w/ a special interest rate of 0.5% p.a.) whereby the company has reserved cash through investment in debt securities worth Rp538bn per 9M24. Nonetheless, there might be risk of impairments, though the value should not be sizeable, according to management.

Rough calculations for FY25 earnings

Under the assumption of 0%/10%/20%/30% increase in FY25 ore sales ranging from 2.9wmt to 3.8wmt, using 9M24’s ASP of US$34/wmt, our rough estimate arrives at an EPS of Rp69/78/88/97 per share. Though it implies a forward PE of 2.9x-4.0x (versus peers’ of 13.0x), downside risks are its limited reserve and mine life.

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