Antam: An SOE getting it right

Antam, an Indonesian mining company with a reputation for good corporate governance has just reported strong earnings.

Dedi Aditya Sumanegara, CEO of mining company Aneka Tambang, better known as Antam, is a soft-spokened, gentle man. He's shy and yet, he does his homework about people, finding out what they like and learning a bit about their background before a meeting. And he'll ask the hard questions - in a recent roundtable discussion hosted by JPMorgan in Jakarta - he quietly cornered Sugiharto, the mininster of state owned enterprises, on a point or two. In short, he operates like a CEO of a totally independent company, not an SOE. He talks to Finance Asia about Antam's future plans to use alternative energy, earn more and continue to impress foreign investors in Indonesia.

You had a good third quarter, with net profit up 32% to $73 million in the first nine months, is this sustainable growth?

The increase was because our sales volume increased: 14% for saprolite, 6% for gold, 46% doe silver and 22% for bauxite, while our average sales prices also increased, with the sole exception being bauxite.

Other income also contributed to higher net income. It reached a total of Rp167 billion ($17 million) including Rp88 billion of foreign exchange gains due in part to the rupiah weakening against US dollar...

While we had a good third quarter, we expect to have an even better 2006 performance when we triple nickel production at the back from FeNi I, FeNi II, our upcoming FeNi III and robust commodity prices.

But costs are increasing, what are you doing to keep them maintainable?

While we focus on increasing our revenues, we also strive to meet our major challenge of lowering ferronickel production costs.

We expect that the production unit cost will drop in a range of $3.50-$3.70 per pound in-line with our commercial operation of FeNi III next year, which will more than triple nickel output and boost revenues, and there will be more cost reduction following mine closures.

In the medium and long term, we should lower our exposure to oil prices following international oil price hikes. Antam is exploring the possibility of natural gas and hydropower at Sulawesi. Our new 102MW power plant operated by Wartsila can use natural gas instead of oil. Last year Antam signed an MOU with Medco to supply natural gas and we are studying the best way to deliver CNG (compressed natural gas) to Pomalaa. We also are exploring the possibility of hydro power from Poso lake. We will decide which one is best for Antam. Antam is targeting production cost of $3.00 per pound after implementing an alternative energy plan.

You're a well thought of company and S&P rated. What's your approach to governance?

Thank you for your view. Antam has followed best practice recommendations set by the ASX Corporate Governance Council and we reported the GCG statement in our annual report using the "if not why not" principle.

For example, since 2004 Antam has had two independent commissioners and five board committees. Antam also focuses on transparancy and disclosure. For example, Antam discloses board of commissioners and board of directors remuneration, which is rare in Indonesia.

To provide an objective view, Antam asked S&P to conduct an assessment and issue a Corporate Governance Score. S&P rated Antam 6+, reflecting moderate standards on an international basis.

Antam realises GCG is a very important key to achieve corporate objectives and we are seriously applying and always improving GCG principles in our business practices.

Investors like Antam's level of disclosure and hope always to improve our governance. However, the significant boost to revenues due to FeNi III is also an important aspect of why we've had increased investor interest.

Tell us about your future pipeline of projects?

We have three major pipeline of projects, which will be project financed.

The Tayan chemical grade alumina project is a planned $220 million dollar joint venture with international companies to annually produce 300,000 tonnes of chemical grade alumina from our vast bauxite reserves in Kalimantan. We expect commercial operations at the end of 2008 or beginning of 2009.

FeNi IV is our plan to develop our fourth ferronickel facility, starting in 2010 with a capacity of 30,000 tonnes and at a cost of $650 million dollars. We have signed an MOU with Posco to finalize a bankable feasibility study by the end of next year.

High pressure acid leaching is a process which uses a newer technology to extract nickel from previously uneconomical ores. This $1 billion project is planned for 2010 and we are in discussions with international partners.

All these projects are Antam's organic strategy to grow and boost revenues.

And your outlook on prices?

Several analysts predicted nickel prices in 2005-2007 in a range of $5.25 - $7.00 per pound while gold will rally to $500 an ounce next year. Our nickel prices budget in 2006 is about $5 per pound. The outlook for the prices of our metals puts Antam in a favorable position for further growth accompanied by a strong financial position.

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