Indonesian state mining concern PT Aneka Tambang (Antam) has mandated ABN Amro to be the lead arranger on a forthcoming bond issue. Officials at Antam and at ABN Amro confirmed the appointment on Monday. The deal is likely to be for a $150 million five-year bond, to be launched sometime in the third quarter, although nothing is yet decided.
ABN Amro beat out perennial Indonesian mandate winners, UBS and CSFB in the race to secure the mandate. It is the second high profile transaction that the firm has won in the republic in recent months. It is presently one of the global co-ordinators of the Bank Mandiri IPO.
Proceeds of the Antam bond issue are to go towards to the cost of building a third ferronickel smelter near the company's main mines in Sulawesi province. Originally the financing for this project was to come from the German export credit agency Hermes. But the terms of that credit demanded that the contract go to German contractors and be denominated in Euros. Due to the strengthening of the Euro that source of finance has made the project unviable.
Despite the clear focus on the use of proceeds, the bond will be backed by the credit of Antam, not by the credit of the project. Antam's credit is backed by its strong position in the Indonesia mining sector, which in turn is benefiting from the global upswing in the commodities market.
Antam's main products are nickel and gold, both of which have enjoyed strong prices of late. In the global nickel market, for the first time in living memory, there is currently demand for 30,000 more tonnes of nickel than the annual global supply of 1.1 million tonnes, which is keeping prices buoyant. This is likely to continue to the end of the current five-year nickel price cycle in 2005-2006.
In the gold market, many are predicting that current prices of between $330 and $350 an ounce are likely to remain for the next few years. Antam has a cash cost of production for its gold of $166 an ounce or a $223 an ounce production cost once depreciation is taken into account. If market prices hold up, such economics could provide credit wary bond investors with the necessary comfort to invest, provided of course the yield compensates for taking the risks.