Metal Mining
Proposed Royalty Hike Will Pressure FY25 Earnings
- The MEMR on Saturday 8th Mar25 officially proposed an increase in royalty rate for Coal, Nickel, Copper, Gold, Silver, and Tin.
- The impact on royalty hike varies, though INCO and TINS are most impacted due to their large exposure to affected products.
- We reiterate our Neutral rating on the metal mining sector with a pecking order of ANTM> NCKL> TINS> INCO> MBMA> MDKA.
Royalty rate hike proposal is officially here
Following the talks on the royalty hike (Link), the MEMR on Saturday 8th Mar’25, officially proposed an increase in tne royalty rate for Coal, Nickel, Copper, Gold, Silver, and Tin, as well as a proposal to add new royalties on Diamond, Silver nitrate, and Cobalt.
INCO and TINS are most impacted due to their large exposure toward affected products
Based on our calculation of metal mining companies under our coverage (Ex.1), the most to least impacted are INCO (-23%) > TINS (-20%) > MDKA (-20%) > MBMA (-12%) > ANTM (-10%) > NCKL (-4%), based on our FY25 earnings assumption. We found that INCO is the most impacted as a majority of its revenue is still driven by nickel matte, which is subject to a 125% rate hike from 2% to 4.5% that was added on top of a weak LME nickel price that brought its GPM to single digit territory. On the other hand, NCKL suffers the least from this proposed regulation as its only exposure is its ore sales. Meanwhile, its NPI is not subject to royalties as it is under IUI (i.e., not IUPK) due to the involvement of a foreign partner. Overall, the companies under our coverage could suffer an avg. -10% earnings decline in their FY25F earnings, based on our calculation.
Maintaining a Neutral stance on the sector
We reiterate our Neutral rating on the sector with a pecking order of ANTM > NCKL > TINS > INCO > MBMA > MDKA based on a mix of valuation and earnings growth potential in FY25F, as well as downside possibility from the proposed royalty rate hike.
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