PEFINDO affirmed “idA” rating for PT Merdeka Copper Gold Tbk

(December 10, 2021)--PEFINDO has affirmed its “idA” rating for PT Merdeka Copper Gold Tbk’s (MDKA). At the same time, PEFINDO also affirmed its “idA” ratings for its Shelf Registered Bond I Year 2020 and Shelf Registered Bond II Year 2021. The outlook for the corporate rating is “stable”.

As of June 2021, MDKA booked negative revenue and EBITDA growth of 15.9% and 7.4%, respectively, compared to 2020 as the Company was affected by heap leach accident occurred in September 2020 which disrupts the Company’s operation up to 1H2021. We are of the view that this incident has no significant impact to MDKA's financial capacity, as reflected by its quite manageable financial figures. MDKA also has recorded part of the insurance claim related to material damage and business interruption of USD20 million as of June 2021 and currently is still in process to obtain the remaining insurance claim expected to be received in 1H2022.

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, potentially higher revenue stream from its Acid Iron Metal (AIM) project, and the high demand for gold. The rating is constrained by its limited mining reserves, risk of developing new areas, moderate capital structure and cash flow protection, and exposure to the fluctuation of gold prices.

The rating may be raised if MDKA improves its mining profile by expanding its gold and copper reserves and fully operates the AIM project. This should be followed by maintaining its conservative capital structure and strong cash flow protection measures, while sustaining satisfactory profit margins. The rating may be lowered if it aggressively finances its capital expenditure (capex) with substantial debt, which may trigger a more aggressive capital structure without being compensated for by a stronger business profile. A significant deterioration in the price of gold may also trigger a rating downgrade, as this will adversely affect its financial profile. We note that it has long-term projects located in Tujuh Bukit Copper project which in our view will require substantial capex. The required capex and potential revenue related to those projects have yet been included in the financial projection.

MDKA was established in 2012 and is engaged 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 September 30, 2021, its shareholders consisted of PT Saratoga Investama Sedaya Tbk (18.29%), PT Mitra Daya Mustika (12.87%), Garibaldi Thohir (8.86%), PT Suwarna Arta Mandiri (6.05%), Pemda Kabupaten Banyuwangi (4.25%), and others, including the public (49%). (ends)