Merdeka Copper Gold (MDKA IJ)
1H24 Earnings miss, a potential breakeven in FY24
- MDKA managed a net profit of US$2.7mn from its nickel and gold operations, but we expect to see further weakness in 3Q24 earnings.
- Despite a positive cash margin for its copper, Wetar posted a net loss due to higher amortization costs as its mine is near depletion.
- We lowered our FY24-26F forecasts by -72%/+318%/+510% and TP to Rp3,000; reiterate Buy rating on upsides from growth projects.
Turning positive from stronger cash margins
MDKA turned positive in 2Q24 with a net profit of US$2.7mn as cash margins from all segments have improved from a stronger ASP. Nonetheless, MDKA still posted a net loss of -US$12.5mn in 1H24, +75% yoy. Meanwhile, 2Q24 revenue was in line at US$553mn, +2.2% qoq, where the 6M24 revenue reached 51%/50% of our/cons estimate at US$1,094mn, +110.3% yoy.
Net loss on Wetar despite strong copper cash margin
Wetar booked a higher net loss in 2Q24 of -US$1.7mn, +55% qoq, despite it recording a positive cash margin of US$1,761/ton (vs: US$218/ton) and a lower AISC of US$7,518/ton (vs: US$8,135/ton). This was caused by a higher depreciation and amortization expense of US$8.6mn, +69% qoq, as the mine is nearing its end of life in c. FY27. Moving forward, management expects the mine to only breakeven in FY24 from stronger copper sales after a slowdown in 1H24. Furthermore, MDKA announced that it will start selling pyrite ore to AIM project for the next 15-20 years starting in FY25 at c.1-1.1Mtpa, potentially gaining additional revenue of c.US$30-40mn p.a.
Preparing for a higher gold output
Pani project is undergoing smooth progress with initial heap leach operation slated in late FY25 and first gold production early FY26. Once operating, it will be able to process 7Mtpa of ore and produce c.80-85k Oz per annum, gradually growing to its capacity of 140k Oz per annum. Furthermore, the mgmt. guides Pani’s initial cash cost to be relatively low at US$850-900/Oz compared to existing TB gold project of US$1,500/Oz.
Maintain Buy rating with a lower TP of Rp3,000
We lowered our FY24-25F net profit estimates by -72%/+318%/+510% and TP to Rp3,000, as we expect a weaker MBMA performance in 2H24 from the declining nickel prices. We have factored in changes from our latest MBMA earnings downgrade along with adding Pani sales in FY25-26, which resulted in a net profit growth of +318%/+510% to US$109mn/128mn. However, we maintain our Buy rating on valuation upsides from key growth projects. Key risks include a higher cash cost, lower ASP, and project delays.
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