PEFINDO: PT Kapuas Prima Coal Tbk rated “idBBB”, outlook revised to “positive”

(October 7, 2021)--PEFINDO has affirmed its “idBBB” ratings to PT Kapuas Prima Coal Tbk (ZINC) and its Bond I Year 2018. The outlook for the corporate rating is revised to “positive” from “stable” to reflect our expectation that ZINC’s business position and cash flow protection measures will improve as results of more integrated business expansions. We expect ZINC to increase its overall mining annual production to reach more than 600 thousand tons ore starting 2022 from currently 450 thousand tons ore, following the operation of its lead smelter in the first half of 2022 (1H2022). Its lead smelter with capacity of 20 thousand tons bullion per year will generate revenue of around IDR800 billion in 2022. With additional revenue of around IDR800 billion from the new lead smelter, we are of the view that its cash flow protection measures to improve, with the projected funds from operation to debt ratio of 44% on average in 2022 – 2024 from 17% at the end of June 2021. To finance both its investment and working capital, ZINC had received bank loan of USD96 million. ZINC plans to repay its maturing Bond I Year 2018 Series D of IDR18.4 billion on December 21, 2021 using internal funds. As of June 30, 2021, its cash and cash equivalent were IDR924.5 billion.

An obligor rated idBBB has an adequate capacity to meet its long-term financial commitments relative to that of other Indonesian obligors. However, adverse economic conditions or changing circumstances are more likely to weaken its capacity to meet its financial commitments.

The rating reflects ZINC’s adequate reserves and resources profile, as well as its vertically integrated operations after the operation of lead and zinc’s smelters. The rating is constrained by its aggressive capital structure, small capacity compared to global peers, and exposure to fluctuating commodity prices.

The rating may be raised following ZINC’s successful business expansion in the near term, which would generate significant cash flow and result to financial leverage improvement. The outlook may be revised to stable if the Company fails to operate the lead smelter in a timely manner which lead to a stagnant revenue generation. The rating may be lowered if its EBITDA generation is significantly declined and/or its capital structure becomes substantially more aggressive. The rating may also be under pressure if price fluctuations in the global zinc, lead, and silver markets significantly impair its revenue and profitability. We have not incorporated the possibility of zinc smelter to be consolidated in the Company’s financial projection.

Established in 2005, ZINC engaged in exploration and production activities for industrial metals: zinc (Zn), lead (Pb), silver (Ag), and iron ore (Fe). The Company currently operates three blocks of underground pits named Gossan, Karim, and Ruwai in Lamandau, Central Kalimantan, with an estimated raw ore production capacity of around 550,000 tons per annum in 2021. Publicly listed in 2017, its shareholders were PT Sarana Inti Selaras (12.69%), Sim Anthony (14.42%), Kioe Nata (12.33%), Budimulio Utomo (10.15%), Haroen Soedjatmiko (9.57%), William (9.16%), and the public 31.68% as of June 30, 2021. (ends)