ANTAM’s President Director, Alwin Syah Lubis said:
“As a price taker, our financial performance in 2008 was impacted negatively from lower commodities prices. We have put cash preservation as our top priority as well as refocus on key growth projects to optimise the use of our cash position. Implementation of cost reduction programs also continue such as the use of cheaper nickel ore feed from Pomalaa mine, lowering our ferronickel output to optimum level to meet current market demand as well as evaluating all contracts, including mining services contracts with third parties. Amid the global economic crisis, we are committed to deliver good profitability and returns to our shareholders inline with the increasing trend of current gold prices, in which gold is part of our main commodities.”
Revenue
ANTAM’s revenue in 2008 decreased by 21% to Rp9,538 billion compared to Rp12,008 billion in 2007. The decrease was attributed to lower ferronickel and nickel ore sales volume as well lower average selling prices of both commodities. Ferronickel and nickel ore contributed 37% and 30% to ANTAM’s revenue, respectively. Meanwhile, gold sales contributed 29% to ANTAM’s sales revenue.
In 2008, ANTAM’s ferronickel sales revenue decreased 39% compared to 2007 to Rp3,518 billion inline with 37% lower average selling price of US$9,91 per lb. as well as 3% lower sales volume of 17,026 tonnes nickel contained in ferronickel (TNi). ANTAM’s main ferronickel customers are based in Europe and South Korea. ANTAM’s ferronickel production amounted to 17,566 TNi, including 748 TNi which was produced via toll smelting arrangement with an European company. In 2008, ANTAM consumed 1,236,334 wmt of high grade nickel ore as ore feed to its ferronickel smelters. As such, the ratio of ore feed consumption was 74 wmt high grade nickel ore to produce 1 TNi of ferronickel. This is relatively comparable to 2007 in which ANTAM consumed 77 wmt of high grade nickel ore to produce 1 TNi of ferronickel. In 2008 ANTAM used 555,016 wmt of high grade nickel ore from its Pomalaa and Halmahera nickel mines as well as 681.321 wmt from PT Inco’s East Pomalaa nickel deposit as ferronickel smelters ore feed. Under the Cooperative Resources Agreement (CRA) between ANTAM and PT Inco in 2003, ANTAM may use up to 1 million wmt of nickel ore from PT Inco’s East Pomalaa nickel deposit as ferronickel ore feed. The agreement expired in July 2008. In 2009 ANTAM will use nickel ore from its own Pomalaa mine as ore feed to save transportation costs.
Nickel ore sales revenue decreased by 41% to Rp2,902 billion inline with lower sales volume following decreased Chinese demand as well as lower average selling prices. Nickel ore sales volume amounted to 5,342,964 wmt of which 35% were exported to China. Higher grade nickel ore was exported to Japan and East Europe while lower grade ores were sold to China. The average selling price of nickel ore decreased by 26% to US$57.71 per wmt. The price of nickel ore is determined by the LME nickel price, nickel ore grade, moisture content and a specified recovery rate. ANTAM targets nickel ore production of 5.1 million wmt in 2009 with high grade production of 3.3 million wmt and low grade production of 1.8 million wmt.
Lower global nickel demand is largely attributed to worsening global economic conditions. Stainless steel industries, and its end use industries such as automotive and construction, are forced to cut production inline with fears of global economic recession. To anticipate lower nickel demand, ANTAM targets ferronickel production of 12,000 TNi in 2009. Inline with the timing of lower demand ANTAM will optimise its FeNi III smelter which currently runs at 80% of capacity. ANTAM plans to conduct the optimisation program for three months beginning in the second half of 2009. The 12,000 TNi ferronickel production target in 2009 includes the loss of production during the optimisation period.
ANTAM’s gold sales revenue increased 165% to Rp2,740 billion inline with higher sales volume sand selling price. Despite a 1% higher gold production to 2,833 kg (91,083 t.oz), gold sales volume increased by 96% to 9,820 kg (315,718 t.oz.) inline with intensive gold trading by ANTAM’s Logam Mulia unit with third parties. ANTAM’s Logam Mulia Unit conducts gold trading and refinery services with third parties in addition to processing ANTAM’s own gold produced in Pongkor gold mine. In 2008, the average selling price of gold rose 24% to US$873 per t.oz. ANTAM’s gold price is based on the London Bullion Market Association gold price. Sales revenue from silver, a by-product of gold, rose 46% to Rp157 billion, inline with a 49% higher sales volume to 40,129 kg (1,290,187 t.oz). The average selling price of silver rose 5% to US$14.26 per t.oz. ANTAM estimates gold production of 2,821 kg (90,697 t.oz) with silver production of 20,292 kg (652,403 t.oz) in 2009. In addition to gold and silver sales, Logam Mulia also conducts refinery services to third parties, hence incurring refinery services of Rp29 billion, 3% higher compared to 2007.
In 2008, 72% of ANTAM’s sales volume came from trading with third parties such as retail jewellery outlets and individuals. Logam Mulia trading activities include refining of gold scraps as well as buying and selling of gold bars. Logam Mulia takes small margin from its trading activities and takes the margin from the spread between buy and sell price of gold. To minimise the risk of spread price, normally Logam Mulia seeks to find gold buyer first before making transaction to buy gold. The intensive trading activity has increased ANTAM’s materials costs, hence higher ANTAM’s overall cost of sales. Although ANTAM’s cost of sales increased, ANTAM still made profits from gold trading in 2008. ANTAM will continue gold trading activities in a prudent manner to minimise the risk of gold price volatility.
Bauxite sales revenue rose 23% to Rp159 billion inline with higher sales price by 24% to US$18.21 per wmt. Higher sales revenue was also due to increased sales volume of bauxite by 8% to 893,088 wmt.
Cost of Sales
ANTAM’s cost of sales rose 52% to Rp7,030 billion inline with higher fuel prices, hence raising materials and mining services costs. As well, both higher trading activities by Logam Mulia unit as well as lower value of ferronickel inventory whichas a result of marked to market had significant impact towards cost of sales. ANTAM’s production cost rose by 36% to Rp7,033 billion, including materials cost from gold and silver trading activities at Logam Mulia which amounted to Rp1,962 billion. Approximately 86% of ANTAM’s total production cost was attributed to five largest components: materials, fuel, salary and depreciation.
Materials Used
Materials cost is the largest component of ANTAM’s production cost and contributed 39% to ANTAM’s overall cost of sales. Cost of materials jumped 99% to Rp2,742 billion, largely due to intensive trading activities of Logam Mulia. From ANTAM’s overall materials cost, 72% came from Logam Mulia unit for trading activities. Materials cost in SBU Nickel Pomalaa amounted to Rp645 billion or 23% of total materials cost. Materials cost at Pomalaa includes consumables, including ore feed, and spare parts.
Mining Services
Cost of mining services rose 53% to Rp1,320 billion inline with higher fuel prices, hence raising costs from third party mining services. The largest component of mining services cost was nickel mining services which amounted to Rp1,246 billion or 94% of total ANTAM’s mining services cost. ANTAM uses third party contractors as well as related party contractors to conduct a portion of its mining activities. Inline with lower commodities prices, ANTAM is currently negotiating its mining services contracts to reduce costs.
Fuel
Fuel costs rose 57% to Rp1 billion inline with higher fuel prices. ANTAM’s fuel price is based on Pertamina’s (Indonesian state-owned oil and gas company) industrial fuel price which is based on international oil prices. ANTAM does not receive fuel subsidies from the government. ANTAM uses three types of fuel for mining and ferronickel processing, Marine Fuel Oil (MFO), Industrial Diesel Oil (IDO) and high speed diesel (HSD). In 2008, the average MFO price was Rp5,328 per liter an increase of 63% compared to 2007. Meanwhile, the prices of IDO and HSD rose 63% and 47% to Rp8,522 per liter and Rp8,666 per liter respectively. Increased fuel prices also raised ANTAM’s mining services cost. Approximately 98% of ANTAM’s fuel cost was attributed to ferronickel processing at Pomalaa. ANTAM uses approximately 10,000 liters of fuel to produce 1 TNi.
In 2008, ANTAM consumed approximately 13.2 million liters of IDO and 135.9 million liters of MFO. To lower its fuel costs, ANTAM’s main strategy to lower overall production cost, ANTAM currently prepares the development of coal fired power plant to reduce costs.
Labor
ANTAM’s labor cost which is related to production cost includes salaries, benefits and other remuneration, rose 8% to Rp523 billion and contributed 7% to ANTAM’s total production cost. Higher labor cost was due to increased actuarial calculation estimates on employee benefits. The amount of actuarial liabilities depends on the ability of ANTAM’s Pension Fund and ANTAM’s Pensioners Welfare Foundation in managing its funds, including any changes to employees’ post working benefits.
Depreciation
Depreciation is ANTAM’s fifth largest cost of sales component and contributed 7% to ANTAM’s total cost of production. Inline with the commercial operation of FeNi III smelter in the beginning of 2007, depreciation cost rose 5% to Rp478 billion. The largest component of depreciation cost was the depreciation of machinery and production facilities which amounted to Rp379 billion. From that amount, 94% was attributed to depreciation of machinery and production faiclities at SBU Nickel Pomalaa.
Toll services
In 2008, ANTAM conducted toll smelting services with stainless steel producer in Macedonia. In previous years, ANTAM conducted toll smelting dengan Pamco Japan to ensure on time ferronickel delivery. Under the toll smelting arrangement with the Macedonian company, ANTAM shipped nickel ore to be processed as ferronickel and received margin from the ferronickel sales. Toll smelting services in 2008 amounted to Rp163 billion, 49% lower compared to 2007.
Gross Profit
Inline with lower revenue and higher cost of sales, ANTAM’s gross profit decreased by 66% to Rp2,508 billion. As such, ANTAM’s gross margin decreased by 57% to 26% in 2008 compared to 61% in 2007.
Operating Expenses and Profit
ANTAM’s operating expenses rose 56% to Rp892 billion inline with 54% higher general and administrative expenses to Rp611 billion, 21% higher sales and marketing expenses to Rp151 billion and 115% increased exploration expenses to Rp130 billion. The higher operating expenses was largely due to corporate social responsibility expenses of Rp102 billion and higher receivables allowance of Rp20 billion. The largest component of general and administrative expense was labor which amounted to Rp219 billion or a 5% increase compared to 2007. Labor contributed 36% to ANTAM’s general and administrative expense. Higher sales and marketing expenses were due to higher ferronickel shipping charges compared to 2007. Meanwhile, higher exploration expenses were due to cost allowance of exploration activities at Obi and Tapunopaka for Rp18 billion and Rp12 billion, respectively, as well as higher exploration costs of nickel and coal.
ANTAM’s operating profit decreased by 76% to Rp1,616 billion. As such, operating margin dropped significantly to 17% in 2008 compared to 57% in 2007.
Other Income and Net Profit
In 2008, ANTAM booked other income of Rp205 billion compared to Rp506 billion in 2007. The decrease in other income was due to a loss on currency hedging for Rp263 billion, Dual Currency Deposit of Rp192 billion, and foreign exchange gains of Rp226 billion.
In 2008, ANTAM had a policy to conduct derivative transactions (hedging and foreign exchange instrument) to protect its budget and minimise the company’s exposure to foreign exchange risk. ANTAM from time to time may hedge its IDR expenses against its US$ income. Due to fluctuations in foreign currency exchange rates, companies such as ANTAM can incur both losses as well as gains from these types of transactions.
ANTAM’s interest income rose 42% to Rp178 billion inline with higher interest rates despite lower cash position. ANTAM’s dividend income rose 28% to Rp179 billion inline with higher profit of PT Nusa Halmahera Minerals (NHM), ANTAM’s joint venture with Newcrest Ltd. The dividend income was for first quarter until third quarter of 2008 as fourth quarter dividend was not declared yet. Inline with lower liabilities, ANTAM’s interest expense decreased to Rp50 billion from Rp74 billion in 2007. In 2008 ANTAM also received the income from penalty and insurance claims of FeNi III smelter of Rp16 billion. ANTAM also posted other income of Rp111 billion which comprised of, among others, income from bauxite mining fee and receipt of 2007 final invoice .
Inline with lower profits, ANTAM’s tax expense decreased by 77% to Rp509 billion. In 2008, ANTAM booked a net profit of Rp1,313 billion, a significant 74% decrease compared to 2007. As such, ANTAM’s net margin also lowered to 13% in 2008 compared to 43% in 2007.
Consolidated Balance Sheet
Total Consolidated Assets
ANTAM’s total consolidated assets in 2008 decreased 15% to Rp10,173 billion mainly contributed from lower current assets account.
Current Assets
ANTAM’s current assets decreased Rp2,273 billion or 28% to Rp5,774 billion or contributed 57% of total current assets mostly attributed to lower cash and cash equivalents position by 30% to Rp3,314 billion and lower account receivables by 67% to Rp546 billion. Increase in allowance of doubtful accounts to Rp20 billion also contributed in lower account receivables. ANTAM believes allowance for doubtful accounts is sufficient to cover losses from the non-collection of the accounts.
Despite cash position decreased, ANTAM is still able to do investments for growth. Nonetheless in 2009 ANTAM will focus on cash preservation program in line with declined nickel price. At the end of 2008, ANTAM placed Rp2,645 billion or 80% of total cash and cash equivalents to time deposits in several domestic and foreign banks. 87% of total time deposits were in Rupiah and 13% in Australian Dollar. Interests applied in time deposits varied from 7.75% - 14% (Rupiah), 4%-6.3% (USD Dollar) and 5.5%-6.8% (Australian Dollar). ANTAM also placed cash in current accounts amounted to Rp669 billion by distribution of 49% in US Dollar, 44% in Rupiah and 7% in Australian Dollar.
ANTAM’s inventories rose 5% to Rp1,391 billion attributed to the 39% increase in gold and silver inventory to Rp239 billion as Logam Mulia increased gold trading activities. Ferronickel inventory booked 10% decrease to Rp412 billion due to inventory valuation based on market prices.
Non-Current Assets
ANTAM’s non-current assets increased 10% from Rp3,989 billion in 2007 to Rp4,398 billion mostly due to increases in estimated claims for tax refund and deferred exploration and development expenditure.
Fixed assets decreased in line with depreciation after expansion of FeNi III came to an end and commercial operations of FeNi III began in the beginning of 2007. ANTAM increased its investments in shares of stock by 66% to Rp92.6 billion consisting of PT Indonesia Chemical Alumina (Tayan Chemical Grade Alumina Project), PT Meratus Jaya Iron Steel (sponge iron project in South Kalimantan with PT Krakatau Steel), PT ANTAM Jindal Stainless Indonesia (integrated stainless steel project in Southeast Sulawesi with JIndal Stainless), PT Mega Citra Utama (bauxite) and PT Borneo Edo International (bauxite).
ANTAM posted increase in deferred exploration and development expenditure by 41% to Rp687.1 billion, booked estimated claims for tax refund of Rp328 billion and increased deferred tax assets by 15% to Rp355 billion.
Total Consolidated Liabilities
ANTAM total consolidated liabilities decreased 34% to Rp2,167 billion due to lower current liabilities by 60% to Rp712 billion or contributed 49% of total consolidated liabilities. ANTAM’s non-current liabilities slightly changed to Rp1,457 billion.
Current Liabilities
ANTAM’s current liabilities decreased to Rp712 billion mainly due to lower taxes payables which decreased 97% to Rp22 billion as net income dropped in 2008 resulted in over payment on estimated corporate income tax. Accrued expenses decreased 55% to Rp201 billion mostly due to lower mining and transportation services fees amounted to Rp76 billion or fell 42% as nickel ore production and transportation reduced in 2008.
Non-Current Liabilities
In 2008, ANTAM’s non-current liabilities was at Rp1,457 billion or similar to 2007. The total investment loans (posted in current and non-current liabilities) decreased 24% from US$97.7 billion to US$74.3 billion. The facilities have interest rate of SIBOR 3 months plus 1.5%.
Other significant accounts in non-current liabilities were pension and other post-retirement obligations at Rp679 billion and provision for environmental and reclamation costs at Rp191 billion.
Total Consolidated Stockholders’ Equity
ANTAM’s total consolidated stockholders’ equity decreased 9% to Rp7,959 billion mainly due to payment of dividend that reached Rp2,053 billion based on 2007 performance and it was more than 2008 net income of Rp1,313 billion. ANTAM posted Rp13.4 billion of treasury stock due to share buyback program on market that reached 15,460,000 shares.
Cash Flows
Due to decreased production and sales volumes and also commodity prices fall, particularly nickel, ANTAM’s cash flows from operations decreased significantly. With cash disbursement of capital expenditures reached Rp275 billion ANTAM still posted positive free cash flow of Rp1,014 billion although dropped 78% compared to 2007 that reached Rp4,639 billion. ANTAM posted net decrease in cash and cash equivalents amounted to Rp1,555 billion mostly due to cash used in investing activities of Rp657 billion and cash used in financing activities of Rp2,354 billion. In 2009 ANTAM will focus on cash preservation program in line with declined commodity prices.
Cash Flows From Operating Activities
In 2008, ANTAM’s net cash receipts from operations dropped 73% to Rp1,290 billion. The decrease was primarily due to the 60% increase in payments to suppliers amounted to Rp6,826 billion while cash receipts from customers decreased 5% to Rp10,672 billion. Payments to commissioners, directors and employees decreased 2% to Rp780 billion.
ANTAM’s cash flow for interest income increased 30% to Rp164 billion while interest payments, due to loan repayment, lowered 37% to Rp49 billion. ANTAM’s tax payments increased 11% to Rp1,846 billion due to increase in 2007 net income resulted higher tax paid in 2008.
Cash Flows Used In Investing Activities
ANTAM’s cash flows used in investing activities increased 87% to Rp490 billion. The increase is mainly due to higher acquisitions of property, plant and equipment as well as exploration and development expenditure. In 2008, ANTAM spent Rp275 billion, an increase of 40% on acquisitions of property, plant and equipment. As well, ANTAM ramped up investment on exploration and development as much as 79% to Rp350 billion. ANTAM received dividend income from PT Nusa Halmahera Minerals, which rose 6% to Rp165 billion compared to 2007.
Cash Flows Used in Financing Activities
In 2008, ANTAM’s repayments of long term borrowings decreased 49% to Rp237 billion. Due to a much larger dividend payment as a result of 2007 performance, payment of dividends rose 231% to Rp2,053 billion, ANTAM’s cash flows used in financing activities increased 111% to Rp2,354 billion.
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Please click here to download Appendix 4E - 2008 preliminary report.
