Net Sales
ANTAM’s net sales jumped 53% to Rp3,401 billion (US$371 million) from Rp2,216 billion in 2005. The additional Rp1,185 billion is nearly all due to the additional Rp1,065
billion earned from sales of nickel contained in ferronickel. Nickel sales rose 172% to Rp1,682
billion due to a 131% sales volume increase to 9,716 tonnes of nickel, on the back of new output
during the trial period of ANTAM’s newly built FeNi III smelter as well as a 25% increase in the
average sales price which rose 25% to an average of US$8.59 per pound. FeNi III began
producing nickel in April 2006 after two and a half years of construction.
The remaining increase in revenues came from increases in nickel ore, bauxite, silver and
refinery services. The combined revenue of nickel ores, ANTAM’s second biggest revenue earner
after nickel contained in ferronickel, rose 13% to Rp1, 154 billion due to higher sales volumes
and higher prices of saprolite (high grade nickel ore) and higher prices of limonite (low grade
nickel ore).
Revenues from gold, ANTAM’s third largest earner, decreased by 8% to Rp363 billion due
to lower gold sales of 2,037kg of gold, a decrease of 31%, which occurred in the first quarter as
ANTAM implemented a revised mine plan to deal with lower than expected grades and soft tunnel
walls. The gold price increased 39% to an average of US$603.44 per troy ounce, partially
offsetting the impact of lower sales volumes.
Although FeNi III produced 1,800 tonnes of nickel in the first nine months of 2006,
ANTAM has yet to declare commercial operations of FeNi III, and thereby release the turnkey
contractor. This will not occur until mid-November after the contractor finishes repairs to an
unexpected leak that occurred in July.
ANTAM’s revenues were 91% exports, and substantially all US dollar-denominated. The
share of revenues attributed to nickel contained in ferronickel surged from 28% to 49%. This, a
part of ANTAM’s strategy to move downstream into processing its raw materials instead of
exporting them, is also reflected in the revenue share of nickel ores dropping to 34% from 46%.
Due to production slow downs at the beginning of the year the share of revenues from gold
decreased to 11% from 18%. Rising nickel prices and sales volumes have created a revenue mix
heavily weighted with nickel. In the years ahead ANTAM intends to maintain a diversified
revenue string by developing its bauxite reserves and acquiring or discovering gold.
Cost of Sales
ANTAM’s cost of sales rose 61% to Rp1,895 billion (US$207 million), resulting in a 45%
increase of gross profit to Rp1,506 billion. The cost increase exceeded the pace of revenue
growth due to higher fuel prices and materials costs. As such, ANTAM’s gross margin contracted
slightly to 44% from 46%.
The top five costs, in descending order of importance, were materials, fuel, mining
services, depreciation and labour. Combined cost increases in these categories amounted to
Rp832 billion, practically the entire increase to cost of sales in the first nine months of 2006.
These top five costs account for 81% of the cost of sales, a far larger share than the 60% the top
five costs accounted for last year, which were the same costs in a different order of importance.
The increase of production of ferronickel, which is produced entirely by ANTAM, the cost
of which is almost 50% fuel, and almost 80% variable, is reflected in the changed structure of
ANTAM’s cost of sales.
In the first nine months of 2005, mining services was the top cost, accounting for 19% of
the total cost of sales. As ANTAM did not need to increase nickel ore production to feed FeNi III,
the ore for which is sourced from a nearby site owned by PT Inco, mining services dropped to
third position, or 18% of the total cost of sales. The cost of mining services did however
increase 50% to Rp332 billion due to higher excavation costs of ANTAM’s contractors.
Last year’s second largest cost was for labour, which dropped to the fifth largest cost in
2006, despite increasing 64% to Rp235 billion on the back of higher salaries and bonuses.
Labour is to a large extent a fixed cost and so did not increase in synch with the ramp up in
ferronickel production.
Due to higher ferronickel production, materials jumped 160% to Rp369 billion and rose
from third place to become ANTAM’s largest cost component. Included in this category is the
nickel ore ANTAM began to buy from PT Inco to feed the FeNi III plant, along with other
consumables for ferronickel production such as limestone and anthracite.
Once ANTAM began to operate FeNi III at the end of March 2006, depreciation of the
smelter began, sales of the output were accounted for as revenues (rather than offsetting the
investment cost) and interest on the associated debt was no longer capitalized. Depreciation
therefore increased 124% to Rp257 billion and remained ANTAM’s fourth largest cost of sales.
It is with last year’s fifth largest cost component that we can most strikingly see the
impact of increased ferronickel production on costs. ANTAM’s fuel costs increased 285% to
Rp350 billion and became the second largest cost after materials. The increase is the most
pronounced of any other cost and the largest contributor to higher costs of sales. The sharp
increase is due to the heavy fuel needs of ferronickel production but also due to higher fuel
prices, which rose 78% to Rp3,130 per litre from Rp1,762 per litre. The fuel price increases are
due to global market dynamics as well as the reduction of national subsidies and removal of
industry subsidies in March and July of 2005 respectively.
Operating Expenses
ANTAM’s operating expenses decreased 4% to Rp189 billion, and are just 6% of ANTAM’s
revenues. The decrease is due to lower general and administration expenses, which ANTAM
decreased by 5% to Rp176 billion. ANTAM’s operating profit rose 56% to Rp1,317 billion
(US$144 million) resulting in an operating margin which widened from 38% to 39%.
When ANTAM’s cost of sales and operating expenses are combined, the rate of cost
increase compared to last year is 52%, which is lower than the 53% increase of net sales.
Other Income and Net Income
ANTAM’s non-operational expenses and one-off, non-recurring expenses were significant.
It is therefore at the level of profit before income tax where the rate of profit growth slows to a
15% gain to Rp1,160 billion. Last year ANTAM had Other Income of Rp167 billion, whereas in
the first nine months of 2006 ANTAM had Other Expenses of Rp157 billion. ANTAM’s interest
expense jumped 668% to Rp96 billion as the interest on the loan associated with the
construction of FeNi III was capitalized from the end of March, as the assembly and operation of
the unit had been completed. A foreign exchange gain of Rp88 billion in 2005 turned into a
foreign exchange loss of Rp61 billion as the Rupiah strengthened. ANTAM’s large dollar assets
become less valuable in Rupiah terms as the Rupiah strengthens. Other non-recurring gains of
Rp75 billion in 2005 reversed into an expense of Rp20 billion in 2006.
ANTAM achieved net income of Rp809 billion (US$88 million), a 14% increase over the
first nine months of 2005.
Cash Costs and Cost Reduction
ANTAM’s ferronickel cash cost of production rose 11% to US$4.20 per pound, mostly, as
explained above, due to higher fuel prices. The cash cost of saprolite and limonite was
US$16.38 per wet metric ton (wmt) and US$7.21 per wmt respectively. The cash cost of gold
likely remained below US$300 per troy ounce. As such, ANTAM is achieving over 50% cash cost
margin for all of its products.
ANTAM is a low cost producer of all its products except ferronickel, for which ANTAM was
in the top quartile in 2005. ANTAM plans to lower ferronickel costs by converting to a lower cost
fuel by 2009. ANTAM plans that the conversion to either natural gas, hydropower, or coal will
result in ferronickel cash cost of US$3.50 per pound, a position in the low-to-middle part of the
industrial cost curve. Recently a Canadian engineering firm confirmed the feasibility of the
hydropower plan, which has the most momentum as the plans for natural gas have begun to look
less likely. A new technology called Smart Predictive Line Control, which eliminates
fluctuation in the power load, is creating the possibility for ANTAM to use coal, which previously
had been omitted as a potential fuel.
Converting to a less expensive fuel will bring the most significant cost reductions. Other
efforts include reducing the workforce from 2,900 to 2,500 by 2009, using lower cost equipment
and materials and upgrading equipment to benefit from better efficiency and higher productivity.
Balance Sheet
ANTAM’s balance sheet remained robust as total assets grew by 10% to Rp6,676 billion
(US$723 million), while total interest-bearing debt decreased 12% to Rp1,811 (US$196
million), or 27% of total assets, down from Rp2,067 billion or 34% of total assets. ANTAM’s
current ratio improved to 378% from 318%, with ANTAM’s working capital increasing to
Rp1,935 billion from Rp1,527 billion. The ratio of ANTAM’s total liabilities to equity was 89%
and ANTAM’s balance sheet was funded 47:53, debt to equity. As an important pillar of ANTAM’s
strategic growth plans, efforts will continue to strengthen ANTAM’s financial structure.
Of ANTAM’s Rp3,537 billion in total equity, which rose 22% from the first nine months of
2005, Rp2,561 billion was retained earnings a 33% increase over last year.
Assets
The Rp585 billion increase in total assets is largely due to the 31% increase of total
current assets to Rp2,631 billion, which itself is largely due to the Rp138 billion, or 20%,
increase in cash and cash equivalents to Rp814 billion, the 86% increase in trade receivables
from Rp453 billion to Rp844 billion and the Rp288 billion, or 70%, increase in inventories to
Rp702 billion. The increase in cash, which was 87% US dollars, held in several banks as cash
and time deposits, is due to higher sales of nickel contained in ferronickel and higher prices of
nickel. The increases in trade receivables and inventories are largely to do with higher prices for
ANTAM’s finished goods and, for inventories, spare parts and supplies. Over three quarters of
ANTAM’s receivables were due in 30 days and all are considered fully collectible.
ANTAM’s non-current assets were 86% fixed assets, which decreased 5% to Rp3,466
billion. Reflecting ANTAM’s continued focus on exploration, the deferred exploration and
development expenditure increased 55% to Rp361 billion.
Liabilities
ANTAM’s current liabilities increased 45% to Rp696 billion mostly due to the 117%
increase of accrued expenses to Rp315 billion, which rose to account for interest and services
expenses, as well due to a 10% increase of taxes payable to Rp224 billion and a Rp55 billion
current maturity of the BCA investment credit facility. Meanwhile, ANTAM’s trade payables to
third parties decreased 20% to Rp78 billion.
ANTAM’s non-current liabilities decreased 10% to Rp2,443 billion, pointing towards
ANTAM’s continuing debt repayment activities, to further strengthen ANTAM’s capital structure.
The value of Anam’s bonds outstanding decreased 12% to Rp1,547 billion (or from US$175 to
US$171 million), while ANTAM’s loan from a domestic bank called BCA decreased 33% to
Rp208 billion. The value of these US dollar debts would also have decreased in Rupiah terms as
the Rupiah strengthened over the period. ANTAM’s pension and post-retirement obligations
continued to rise, increasing another 9% to Rp607 billion at the end of the September 2006.
Cash Flow
ANTAM’s cash flows reflect the increase in ferronickel production and sales from FeNi III
and higher nickel prices, together with higher costs, and reduced investment expenditures as
ANTAM’s payments for FeNi III construction began to decrease. Related to FeNi III, ANTAM’s
operating cash was bolstered by large tax restitution payments.
ANTAM’s larger operating cash and lower capital expenditures resulted in ANTAM
generating free cash flow of Rp535 billion, compared to negative free cash flow of Rp817
billion in 2005. ANTAM’s capital expenditures fell 78% to Rp243 billion in the first nine months
of 2006. Like in 2005, capital expenditures were substantially all for the nickel division.
ANTAM’s cash flows from operations increased 100% to Rp778 billion as receipts from
customers rose 54% to Rp3,057 billion. The 107% increase in payments to suppliers (the largest
of which is state-owned oil company Pertamina at Rp195 billion of ANTAM’s cost of sales) to
Rp1,769 billion would have reduced operating cash significantly were it not for the Rp201
billion in receipts from tax restitution related to tax payments made on equipment and parts for
FeNi III. Payments to commissioners, directors and employees decreased 1.5% to Rp333
billion, while tax payments decreased 10% to Rp344 billion.
ANTAM’s cash flows used for investing activities decreased 71% to Rp367 billion as the
construction of FeNi III smelter comes to an end. Payments for fixed assets decreased 80% to
Rp242 billion. ANTAM’s expenditures for exploration and development rose 92% to Rp98
billion.
ANTAM’s cash flows used in financing activities decreased 32% to Rp322 billion, as
ANTAM repaid Rp36 billion of long term debt, 85% less than in 2005. ANTAM’s dividend
payment was 11% higher at Rp286 billion.
