PEFINDO assigns “idA” ratings to PT Merdeka Copper Gold Tbk and its proposed bond

(July 29, 2020)--PEFINDO has assigned its “idA” ratings to PT Merdeka Copper Gold Tbk (MDKA) and its proposed Shelf-Registered Bond I Year 2020 of a maximum of equivalent to USD100 million or IDR1.7 trillion, which will be used to refinance its existing loan and to finance the Company’s working capital. The outlook for the corporate rating is “stable”.

An obligor rated idA has a strong capacity to meet its long-term financial commitments relative to that of other Indonesian obligors. However, the obligor is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than higher-rated obligors.

The corporate rating reflects MDKA’s low cash cost position, conservative capital structure and strong cash flow protection measures, and the high demand for gold. The rating is constrained by its moderate mining life, exposure to the fluctuation of commodity prices and unfavorable weather, and the risks of developing new areas.

The rating may be raised if MDKA improves its mining life by enlarging its gold and copper reserves. This should be followed by maintaining a conservative capital structure and strong cash flow protection measures, while maintaining its current profitability margins. The rating will be lowered if it aggressively finances its capital expenditure (capex) with substantial debt, which could trigger a more aggressive capital structure as indicated by a debt to EBITDA ratio above 3.0x on a sustained basis without being compensated by a stronger business profile. A significant drop in the price of gold may also trigger a rating downgrade, as this could adversely affect its financial profile. We note that it has long-term projects located in Pani, Banyuwangi (porphyry project), and Morowali (Acid Iron Metal project – AIM), which in our view will require significant capex. The potential capex for those projects is not yet included in the financial projection. The rating will also be lowered if we view that the COVID-19 pandemic adversely affects the Company’s business operations.

MDKA was established in 2012 and engages in mining activities. It has two projects located in Bukit Tumpang Pitu, Banyuwangi for gold mining and Wetar Island, Maluku for copper mining. As of December 31, 2019, its shareholders were PT Saratoga Investama Sedaya Tbk (19.74%), PT Mitra Daya Mustika (13.47%), Garibaldi Thohir (8.95%), PT Suwarna Arta Mandiri (7.17%), Pemda Kabupaten Banyuwangi (5.23%), and others including the public (45.44%). (ends)