Medco plans bonds to back smelter task

IDX-listed energy company PT Medco Energi Internasional plans to issue Rp 900 billion (US$67.3 million) in bonds to repay some of its Singapore-dollar bonds, finance the construction of its new smelter and its operations, The Jakarta Post reported on Wednesday.

This will be Medco?s fourth issuance under its second round of shelf-registration, which is set to collect total proceeds of Rp 5 trillion. During the period of June to December, the company issued the first three parts of the bonds worth a total of Rp 2.77 trillion.

The fourth issuance, which will take place on March 24, will consist of three series of debt papers. The A series will mature after three years and offer a fixed coupon rate of 10.8 percent per annum, while the B series will be due after five years and offer an 11.3 percent rate a year and the C series will be due after seven years and offer an 11.8 percent rate a year.

?About 60 percent of the bond proceeds will be used to repay some of our Singapore-dollar bonds, which are worth S$100 million and will mature in May 2018,? Medco Energi president commissioner Muhammad Lutfi told The Jakarta Post over the phone on Tuesday.

Meanwhile, he said 40 percent of the funds would be used for the company?s capital expenditure, including for constructing a new smelter and future acquisition. Lutfi refused to elaborate more on the latter plan.

Medco Energi announced on Nov. 2 that it had officially acquired 50 percent stake owned by PT Amman Mineral Investama, which controls an 82.2 percent stake of PT Newmont Nusa Tenggara.

Newmont Nusa Tenggara, which has changed its name to PT Amman Mineral Nusa Tenggara, operates the Batu Hijau mine ? the country?s second-largest copper and gold mine in Sumbawa ? which produced 240 million pounds of copper and 300,000 ounces of gold in 2015.

The newly acquired company was granted by the Trade Ministry an export permit for its copper concentrates on Feb. 22, following its commitment to start the construction of its new smelter worth around $500 million by year-end.

?We want to build the smelter near the Batu Hijau mine and expect the groundbreaking ceremony to be held by the end of 2017, or at the beginning of 2018 at the latest. Then, hopefully we can start the smelter?s operations in 2021,? Lutfi said in January.

Medco Energi is optimistic that the new smelter will have significant impact on its financial performance in the long run, especially considering there will be a surge in national demand for copper.

The government has estimated that copper consumption will reach at least 5 kilograms per capita in 2025. By that time, national demand for copper will reach 1.68 million tons per year, which can be produced from 5.15 million tons of copper concentrate per year.

However, Indonesia only produced around 241,000 tons of copper last year, with the government aiming to boost the figure to 710,000 by the end of 2017. The mineral export ban was implemented on Jan. 12 as initially mandated in the 2009 Mining Law.

However, miners are still allowed to continue exporting copper concentrates, low-grade nickel and washed bauxite if they show commitment to building a new smelter, convert their contract of work (CoW) to a special mining license (IUPK) and divest 51 percent of their shares to local entities. All of these requirements stated in Government Regulation No. 1/2017.(*)