Antam reports 306% jump in first half net profit

Publicly listed mining firm PT Antam announced on Monday that unaudited net profit in the first half of this year jumped by 306% compared to the same period of last year on the back of strong commodity prices and nickel ore sales volumes.

The company said in a press release that consolidated net profit soared to Rp 374 billion (US$40 million), which translates to an earnings per share of Rp 196.15

The following is the remaining part of the press release.

Antam held the cost of sales to a 6% increase and continued to focus on combating rising cost, as Antam's operating margin widened 37% from 18% last year.

Antam's consolidated revenue in first half 2004 rose 42% to Rp1,298 billion. Antam's nickel division continued to be the largest contributor as revenues increased 59% to Rp975 billion and accounted for 75% of sales, up from 67% in the corresponding period of 2003. The gold division's contribution fell 2% to Rp233% billion, which was a smaller portion of total sales, dropping from 26% to 18%. The contribution of Antam's bauxite and iron sands division rose 34% to Rp90 billion, or 7% of total sales.

The major reason for increased revenue is due to the higher average selling prices of all of Antam's products. The average price Antam charged for its nickel contained in ferronickel rose 57% over the first half of 2003 to USD6.16 per pound while the weighted average selling price Antam charged for is nickel ores also increased. Nickel prices have performed well since the end of 2003 on the back of strong global demand, especially due to Chinese growth, and limited supply. The decreased sales volumes from the gold division were offset by higher prices as Antam charged 18% more for its gold bars, at USD412.12 per troy ounce. Gold prices are supported by geopolitical insecurity and weaker US dollar.

Ferronickel sales volumes decreased 33% to 3,080 tonnes although 735 tonnes was in transit for delivery in July. Antam is targeting 8,000 tonnes of contained nickel sales in 2004. Sales volumes of Antam's saprolite and limonite nickel ores increased by 13% and 44%. Gold and silver sales volumes decreased by 15% and 35% after production was temporarily disrupted by a fire in illegal miner tunnels near an abandoned area of the underground mine. Both bauxite and iron sands volumes increased over last year.

In the second half of 2004, Antam plans to conduct a necessary full overhaul of FeNi II smelter, which will decrease ferronickel production and sales.

Antam's cost of sales increased 6% to Rp692 billion. The four major cost components remained materials, ore exploitation services, labour costs and depreciation, accounting for 73% of the total costs of sales. Due to higher fuel prices, materials increased by 4% to 201 billion and ore exploitation services increased by 23% to Rp125 billion. Labour costs decreased by 9% to Rp96 billion and depreciation increased by 31% to Rp82 billion. Pamco nickel ore processing services, increased 99% to Rp25 billion, due to increased toll smelting volumes. Rental charges increased 25% to Rp27 billion. Antam currently rents up to supplement Antam's existing power facility and regulate power generation. This also increases materials costs as power units require a more expensive diesel fuel than Antam normally uses. Antam was able to lower indirect labour costs, water and electricity, and repais and maintenance charges. With higher prices and limited cost of sales increases, Antam's gross profit increased 130% to Rp606 billion.

Antam's operating expenses, which increased 16% to Rp121 billion, due to higher general and administration (G&A) expenses, which increased 16% to Rp105 billion. Salaries, wages, bonuses and employee benefits increased 14% to Rp54 billion, while the retirement component of mine closure costs, increased 113% to Rp26 billion.

Antam earned Other Income of Rp 53 billion, compared to an expense of Rp34 billion in the first half of 2003. Lower interest income was more than offset by a foreign exchange gain of Rp61 billion as the Rupiah weakened over the half of 2004, compared to a foreign exchange loss last year of Rp32 billion. Antam has large US dollar debts and assets.

Due to the hefty income increase, Antam's income tax expense rose 339% to Rp164 billion, although the tax rate remained the same at 30%.

For cost reductions in the short term, Antam will continue to implement its cost reduction program (CRP), which saved Rp40.5 billion in full year 2003. As of these savings are one-off in nature, Antam's CRP target for 2004 is Rp10 billion. Antam has hired an expert to help seek other ways to reduce costs such as training the workforce to increase efficiency and productivity. Antam's aim is to reduce the materials cost by 5% and lower unit cost of production of each of its products by 3%. In 2005, Antam expects costs will be lower as the full overhaul of FeNi II will be complete, along with the construction of 3 new power generators, which will normalize production and stabilize power output. In 2006, the FeNi III smelter, through greater efficiency and economies of scale is expected to lower ferronickel cash cost to within USD2.20 - USD2.40 per pound. In the long term costs may be reduced further as the 102MW diesel power plant Antam is currently constructing can be converted to the less expensive natural gas.

Antam's balance sheet as at the end of first half 2004 reflects the increases in assets and debt due to the company's ferronickel expansion, FeNi III, which is under construction. Total assets increased 113% to Rp5,331 billion (USD566m) and total liabilities increasing 287% to Rp3,248 billion (USD345m). Antam's assets were 61% funded by debt and the total borrowings to equity ratio increased to 102% from 2%. (*)