Company Update / Coal / IJ / Click here for full PDF version
Author(s): Erindra Krisnawan ;Reggie Parengkuan
- 's operational team indicated possible upside in resource and reserve base, though it has not obtained JORC certification and IPPKH.
- Management aims to tap into unmineable resources (est. 127Mt) through underground coal gasification project (pilot project to start in FY25F).
- We maintain our FY23-25F earnings estimates and reiterate Buy at unchanged TP of Rp34,700.
Abundant untapped resource base
Indominco's operations team indicated tha its resource base stood at ~500Mt and reserve at 53Mt as of Dec22. This is higher than the official numbers (as stated in its FY22 Annual Report) where resources/reserves were reported at 280Mt/24Mt. Nonetheless, data stated by operations team are yet to be JORC certified and has not obtained IPPKH permit. The operations team also estimated that Indominco should currently have 8 years of mine life (vs. 4 years implied in the official numbers). However, majority of its resources are uneconomically viable to mine due to its depth (Indominco generally extracts coal between 10-30m underground).
UCG project to tap into uneconomically viable resources
Management is currently conducting a feasibility study on underground coal gasification (UCG) with Tekmira to tap into its unmineable resources that lies ~200 metres below ground level. Coal resources for UCG is estimated to reach 127Mt with 10 years life of mine. Pilot project for UCG is expected to start in FY25F. Management indicated plans of selling gas produced from coal gasification to Pupuk Kalimantan Timur.
Increasing renewable energy composition through solar and biomass
Indominco's mining operation currently has 3 power sources; coal-fired power plant (capacity of 2x7MW), diesel-powered power plant (capacity of 10x1MW), and solar-powered power plant (capacity of 3MW). Its coal-fired power plant blends coal with wood as biomass (at 1-2% composition and aims to increase it to 10% by FY24F). Additionally, management has a long-term target of increasing its solar capacity to 9MW, in-line with government's target of 23% renewable energy composition (Indominco is currently at 11%).
Maintain Buy rating at unchanged TP of Rp34,700
We maintain our estimates and reiterate Buy at unchanged TP of Rp34,700 which we derived from DCF method ( WACC 13.5%, LT coal price of US$85/t). is currently trading at 2x FY23F EV/EBITDA (34% discount to 10yr mean). Key risks are weaker coal price and higher cost inflation.
Sumber : IPS