Antam’s
consolidated first quarter sales revenues dropped 12% to Rp2,092 billion from
Rp2,386 billion, due to lower ferronickel sales volume as well as lower nickel
prices. Nickel, including exports of ferronickel and nickel ore, remains Antam’s
biggest sales revenue component, accounting for 72% followed by gold segment
which accounted for 27%. The contribution of gold segment increased from a 7%
share of sales revenue in the first quarter of 2007, due to stronger sales from
trading activities conducted by Antam’s Logam Mulia unit. However, while these
trading activities boosted revenues, the small operating margins did not
generate a similar boost to operating income. Antam remains an export oriented
mining and metals company. In the first quarter of 2008, exports contributed
92% of Antam’s total net sales. All of Antam’s nickel products are sold abroad
while exports accounted for 73% of the sales from Antam gold segment.
Ferronickel
In the first quarter of 2008,
sales volumes dropped 62% from 3,345 tonnes to 1,267 tonnes of contained nickel
in ferronickel and generated Rp325 billion, a 69% decline from the Rp1,063
billion generated in the first quarter of 2007. The
decrease of sales volumes in the first
quarter of 2008 was due to ferronickel shipments still in transit to Europe and
so were still accounted for as inventories. Total shipments of nickel contained
in ferronickel during the March quarter amounted to 5,975 tonnes. However, of
that amount 4,708 tonnes departed at the end of March and is expected to arrive
in April. Antam matches its ferronickel shipments with each customer’s request.
During the March quarter, Antam delivered 1,159 tonnes to a customer in Korea
and 108 tonnes to a customer in Japan. Lower sales volumes coupled with a 20%
lower average achieved selling price of US$12.69 per pound resulted in a 69%
decrease of revenues to Rp325 billion. Although only reaching 7% of the target,
Antam remains hopeful to meet its 2008 ferronickel sales target of 17,000 tonnes.
Not related
to lower sales volumes during the March quarter, ferronickel
production was relatively similar to the first quarter of 2007, as Antam
produced 4,362 tonnes of contained nickel in ferronickel compared to 4,352
tonnes. With this result, Antam reached 26% of the 2008 17,000 tonnes target.
The operation of FeNi III and FeNi II smelters was stable, while production
from the FeNi I smelter was reduced due to a routine maintenance overhaul. FeNi
I, FeNi II and FeNi III produced 752 tonnes, 1,758 tonnes and 1,851 tonnes,
respectively. This compares to the same quarter of 2007 when FeNi I, FeNi II and
FeNi III produced 1,089 tonnes, 1,565 tonnes and 1,697 tonnes respectively. The
production of FeNi II was above capacity due to higher ore grades and the
maximization of the concentrates from the slag treatment plant at the kiln.
To produce
4,362 tonnes Antam used 18,094 wmt from its own mines at Pomalaa and Halmahera
Island and 276,463 wmt from PT Inco’s East Pomalaa deposit. Antam has an
agreement to source +/- 1 million wmt of ore feed from PT Inco. Antam currently
is in talks with PT Inco to extend the agreement.
As part of the routine
maintenance of its ferronickel smelters, Antam switched off the FeNi I smelter
on February 19th. Antam usually overhauls its smelters every 8-10
years. Antam expects the overhaul to be complete in the middle of the second
quarter of 2008. Despite the overhaul of FeNi I smelter, Antam expects to
achieve its 2008 ferronickel production target of 17,000 tonnes. Antam last
completed a routine overhaul of FeNi I smelter at the beginning of 1999. In
2005, Antam completed an overhaul of FeNi II smelter, which included the
installation of a new copper cooling system. However, the overhaul of FeNi I
will not include the installation of a similar system. After having recently
been repaired following a leak that occurred in July of 2007,
the operation
of FeNi III was stable and Antam successfully increased the load of the smelter
above 25 megawatts at the end of February. Despite the current load of 30-32 MW,
Antam could need to lower the power load of the FeNi III smelter to maintain the
stability of the plant. FeNi III has a greater capacity than FeNi II, yet only
just outpaced FeNi II due to the low power load and due to the above average
output from FeNi II.
Nickel Ore
Beginning in 2008, with regards to the
marketing of its ore products, and not the estimation of reserves and resources,
Antam began to implement a new classification of its nickel ore. Previously,
nickel ore known as low grade saprolite ore (LGSO), with a nickel grade between
1.5% and 2%, was included in the classification of saprolite. It is now included
in the classification of low grade ore, which also includes limonite ore with
grades below 1.5%. Ore grading above 2% is simply classified as high grade ore.
|
Old
classification |
New
classification |
|
Saprolite:
o
High grade (Ni above 2%)
o
LGSO (Ni between 1.5% and 2%) |
High Grade (Ni
above 2%) |
|
Limonite (Ni
below 1.5%) |
Low grade:
o
LGSO (Ni between 1.5% and 2%)
o
Limonite (Ni below 1.5%) |
The new
classification has changed Antam’s annual export targets for 2008. Rather than
5.8 million wmt of saprolite, Antam is now targeting 3.2 million wmt of high
grade ore and 2.6 million wmt of low grade ore, or more specifically 2.4 million
wmt of LGSO and 0.2 million wmt of limonite. Antam’s production target for high
grade of 3.65 million wmt is the same as the export target plus and additional
450,000 wmt for ore feed. Antam’s production target for low grade is the same
as the sales target.
As the
reclassification of Antam’s ore was only applied to Antam’s 2008 ore output, the
only figures that represent an accurate reflection of the company’s performance
are the production and sales volumes, price and revenues of total combined high
grade and low grade nickel ore. In the first quarter of 2008, Antam’s total ore
production volume increased 33% to 2,313,299 wmt, while Antam’s total ore sales
volume held steady at 2,005,706 wmt. The combined average achieved selling price
of all of Antam’s nickel ore, which is sold free on board (FOB) amounted to
US$63.26 per wmt, slightly higher than the US$62.76 per wmt of the same period
last year. Combined nickel ore revenue increased 6% to Rp1,173 billion from
Rp1,102 billion.
Antam’s
nickel ore is sold to Japan, Eastern Europe and China, with the high grade
generally going to Japan and Eastern Europe and low grade to China. During the
first quarter of 2008, 73% of Antam’s high grade was sold to Japan with the rest
sold to Europe. Antam’s ore prices are determined according to the spot price
on the London Metal Exchange, as well as the grade, moisture content and
specified recovery rate.
Due largely to
the ore reclassification for 2008 (2007 was not reclassified), whereas Antam had
no production of low grade in the first quarter of 2007, production of low grade
ore amounted to 1,354,770 wmt, including 1,211,895 wmt of LGSO and 142,875 wmt
of limonite. For the same reason, production
of high grade nickel ore decreased 45% to 958,529 wmt during the first quarter.
Antam thus achieved 52% of the low grade production target for 2008 (50% of the
LGSO target and 71% of the limonite target) and 26% of the high grade production
target.
Combined high
grade nickel ore sales amounted to 975,693 wmt, a 51% decrease compared to the
first quarter of 2007, due to the reclassification of ore in 2008. For the same
reason, consolidated high grade sales revenue decreased 40% to Rp720 billion.
Meanwhile, whereas there were no sales in 2007, low grade nickel ore sales of
1,030,013 wmt, including 926,476 wmt of LGSO and 103,537 wmt of limonite,
brought in sales revenues of Rp453 billion. Antam achieved 29% of its high
grade sales volume target and 40% of its low grade target (39% of the LGSO
target and 52% of the limonite target).
Gold and
Silver
Antam’s gold
production increased 21% to 935 kg, or 31% of the 2008 target of 2,980 kg. The
stronger production was due to higher gold ore production as well as higher gold
grades. Gold ore production increased to 105,952 wmt from 99,428 wmt in the
first quarter of 2007 while the average gold grade was 10.80 grams per ton (gpt)
during the first quarter of 2008 or 15% higher than the 9.38 gpt achieved during
the first quarter of 2007.
Gold sales
increased by 112% in the first quarter of 2008 to 1,580 kg, or 26% of the 2008
target of 6,000 kg, as Logam Mulia continued its extensive gold trading that
began at the beginning of last year. Antam’s trading activities mostly consist
of buying scrap gold and reprocessing it into pure gold bars for sale. Exports
accounted for 75% of gold sales in the March quarter. Logam Mulia’s .9999 fine
gold products are internationally accredited. Strong sales volumes coupled with
a 38% increase in the average achieved selling price of gold of US$901.57 per
troy ounce, increased gold revenues by 269% to Rp528 billion compared to Rp143
billion in the first quarter of 2007. However,
Antam’s materials costs also increased significantly related to the higher cost
of using gold scrap to produce gold bars. In the first quarter of 2008, Logam
Mulia bought 1,109kg of gold compared to 56kg of gold in the same quarter of
2007. Antam made smaller margins on its trading activities than selling gold
refined from bullion produced by the Pongkor gold mine.
Sales of silver
increased 40% to 7,289 kg supported by the 23% increase in silver production to
7,633 kg. Inline with higher silver sales volume as well as a 33% increase in
the average achieved selling price of silver to US$17.81 per troy ounce, revenue
from silver amounted to Rp30 billion, a 49% increase compared to the first
quarter of 2007. Exports accounted for 69% of total silver sales. Domestic
silver sales increased 46% to Rp12 billion while exports increased 124% to Rp26
billion.
Revenue from the
precious metals refinery services decreased 15% to Rp6 billion. Antam’s gold
segment, including gold, silver and refinery services, generated Rp575 billion,
an increase of 243% from the Rp167 billion in the first quarter of 2007.
Bauxite
Despite a 24% higher
average achieved bauxite price of US$20.41 per wmt, revenue from bauxite fell
70% to Rp14 billion. This was due to lower demand for Antam’s low quality high
silica bauxite ore still remaining at the nearly depleted Kijang bauxite mine.
As such, bauxite sales volume decreased 76% to 73,866 wmt, or 5% of the 1.5
million wmt 2008 target. In line with lower demand, Antam’s bauxite production
decreased 59% to 181,141 wmt or 12% of of the 2008 production target of 1.5
million wmt.
HEDGE BOOK
According to Antam’s Corporate Policy
Manual, healthy financial management will drive growth and create value. It must
also reflect good risk management practices and balanced management of assets
and liabilities. Antam’s diverse portfolio of commodities provides a natural
hedge against commodity price fluctuations. However, Antam will conduct
selective and prudent hedging activities in nickel, gold and foreign exchange,
if necessary, primarily to protect revenues and budgets.
In the first quarter of 2008, Antam did not
have any outstanding commodity hedge positions and did not engage in any
commodity hedging activities. However
Antam
conducted foreign currency hedging to an amount not exceeding 30% of its monthly
working capital requirements, as allowed by Antam’s foreign currency hedging
policy,
using derivative instruments
which
provide In The Money strike rates which are more attractive than the forward
rates. However
the strike rates are only valid as long as
the spot rates do not trade at or below the pre-determined
knock-out
rates upon maturity..
During 1Q08, most of Antam’s hedging transactions were favorable to Antam as the
exchange rate fluctuated mostly above the pre-determined knock-out rate upon
maturity.
As per March 31st 2008, Antam
realized forex hedging profit of Rp1.07 billion.
Production and Sales
Summary of First Quarter 2008 and 2007
|
DESCRIPTION |
|
1Q |
1Q |
1Q08/ 1Q07 |
|
|
2007 |
2008 |
(%) |
|
PRODUCTION VOLUME |
|
|
|
|
|
Ferronickel |
Ton Ni |
4,352 |
4,362
|
0
|
|
Nickel Ore: |
|
|
|
|
|
Total High Grade |
Wmt |
1,735,424 |
958,529
|
(45) |
|
Total Low Grade |
Wmt |
- |
1,354,770
|
n/a |
|
Total Nickel Ore |
Wmt |
1,735,424 |
2,313,299
|
33 |
|
Gold Ore |
Wmt |
99,428 |
105,952 |
7 |
|
Gold Grade |
gpt |
9.38 |
10.80 |
15 |
|
Gold |
Kg |
770 |
935 |
21 |
|
Silver |
Kg |
6,199 |
7,633
|
23 |
|
Bauxite |
Wmt |
436,522 |
181,141
|
(59) |
|
|
|
|
|
|
|
SALES VOLUME |
|
|
|
|
|
Ferronickel |
Ton Ni |
3,345 |
1,267
|
(62) |
|
Nickel Ore: |
|
|
|
|
|
Total High Grade |
Wmt |
1,994,211 |
975,693
|
(51) |
|
Total Low Grade |
Wmt |
- |
1,030,013
|
n/a |
|
Total Nickel Ore |
Wmt |
1,994,211 |
2,005,706
|
1
|
|
Gold |
Kg |
746 |
1,580
|
112 |
|
Silver |
Kg |
5,202 |
7,289
|
40 |
|
Bauxite |
Wmt |
312,851 |
73,866
|
(76) |
|
DESCRIPTION |
|
1Q |
1Q |
1Q08/1Q07 |
|
|
2007 |
2008 |
(%) |
|
AVERAGE SALES PRICE |
|
|
|
|
|
Ferronickel |
US$/Lb |
15.80 |
12.69
|
(20) |
|
Nickel Ore Price |
US$/Wmt |
62.76 |
63.26 |
1
|
|
Gold |
US$/Toz |
655.52 |
901.57 |
38 |
|
Silver |
US$/Toz |
13.37 |
17.81 |
33 |
|
Bauxite |
US$/Wmt |
16.47
|
20.41
|
24
|
|
Exchange rate (for I/S) |
US$/Rp |
9,136 |
9,260
|
1
|
|
DESCRIPTION |
|
1Q |
1Q |
1Q08/1Q07 |
|
|
2007 |
2008 |
(%) |
|
SALES REVENUE (Rp million) |
|
|
|
|
|
EXPORT SALES |
|
|
|
|
|
Ferronickel |
Rp |
1,063,204 |
325,099
|
(69) |
|
Nickel Ore: |
|
|
|
|
|
Total High Grade |
Rp |
1,101,890 |
720,373
|
(35) |
|
Total Low Grade |
Rp |
- |
452,607
|
n/a |
|
Gold |
Rp |
91,353 |
396,345
|
334 |
|
Bauxite |
Rp |
46,928 |
13,982
|
(70) |
|
Silver |
Rp |
11,786 |
26,436
|
124 |
|
TOTAL EXPORT SALES |
Rp |
2,315,161 |
1,934,840
|
