Mining Issuers Reap Benefits from Downstreaming Programme, Check Stock Recommendations
JAKARTA - The downstreaming programme is regarded as one of the main catalysts for mining issuers, as it offers the opportunity to increase value added compared with merely selling raw materials.
One issuer currently pushing ahead with downstreaming is PT Aneka Tambang Tbk (ANTM).
The company is involved in developing the Smelter Grade Alumina Refinery (SGAR) project in Mempawah together with Inalum through PT Borneo Alumina Indonesia (BAI).
The first phase of the SGAR project has begun operations and is targeted to produce around 1 million tonnes of alumina by 2026.
Meanwhile, in the second half of this year, several issuers are also starting up their smelters. These include PT Alamtri Minerals Indonesia Tbk (ADMR) and PT Cita Mineral Investindo Tbk (CITA), which are developing an aluminium smelter project in North Kalimantan.
Alrich Paskalis Tambolang, equity research analyst at Phintraco Sekuritas, said the prospects for mining issuers involved in the downstreaming programme remain fairly positive, as downstreaming provides opportunities to increase product value added, diversify revenue sources and improve business margins compared with simply selling raw materials.
For issuers such as ANTM, ADMR and CITA, the success of their smelter projects will strengthen the companies’ position in the national mineral industry supply chain whilst reducing dependence on commodity price fluctuations.
However, the benefits of downstreaming are generally not felt immediately, as smelter projects require substantial investment and a relatively long construction period before contributing fully to company profits.
On the other hand, investors also need to pay attention to a number of challenges, such as high capital expenditure requirements, potential project completion delays, fluctuations in global commodity prices, and demand risks from export destination countries.
Therefore, successful project execution will be the main factor determining the extent of downstreaming’s contribution to issuer performance.
Elandry Pratama, analyst and branch manager of Panin Sekuritas Pondok Indah, added that the operation of several strategic projects such as SGAR and progress on the aluminium smelter construction make the long-term prospects of issuers such as ANTM, ADMR and CITA still quite attractive.
As such, the market will focus more on project completion progress, operational efficiency and the potential for margin improvement in the years ahead.
“For the remainder of this year, the downstreaming programme has the potential to be a positive sentiment, as it demonstrates the government’s commitment to increasing value added in the national mining industry and opens up opportunities for long-term revenue growth,” Elandry added.