Mining shares expected to weather rupiah decline

Mining shares expected to weather rupiah decline

Rendi A. Witular, The Jakarta Post, Jakarta

Despite the ongoing controversy over a lack of legal certainty
in the country's mining sector, the shares of most local mining
companies are forecast to retain their luster in the second
semester of this year, analysts said.

Volatility in the rupiah and an expected surge in the price of
several mining commodities on the international market will
likely keep up investor interest in mining shares amid otherwise
uninspiring trading on the stock market in the second half.

"The revenues of mining companies are mostly in U.S. dollars.
The rupiah's problems will lower their operating costs and widen
their profit margins," said Mandiri Sekuritas' mining analyst
Achmad Solichin on Thursday.

He also explained that most mining shares, especially those
owned by companies engaged in the production of metal-based
commodities, such as state-owned PT Aneka Tambang and PT Timah,
and privately owned PT International Nickel Indonesian, would
likely stand their ground.

Achmad said that this was because the international prices of
several commodities, such as nickel, tin and copper, which were
the core commodities produced by the three companies, were
improving.

The price of nickel on the London Metal Exchange stood at Rp
US$8,835 per metric ton on Thursday, up from $7,210 in the first
week of January; tin at $4,735 per metric ton, up from $4,260;
and copper at $1,695, up from $1,550.

As for the shares of energy-based mining companies, Achmad
feared that the bulls would remain at home as the price of oil
had been declining since the end of the Iraq war in May. The
decline in oil prices would reduce the profit margin of oil
companies.

The price of international benchmark Brent crude stood at
$27.85 per barrel on Friday, down from nearly $40 before the Iraq
war broke out.

Regarding the impact of the unexpected exit of Anglo-American
oil company BP PLC and Anglo-Australian mining group Rio Tinto
from the world's most profitable coal mine, run by PT Kaltim
Prima Coal, Achmad said that it would not significantly affect
the performance of mining shares.

"As long as local mining companies put in good performances
and produce healthy profits, financial investors will not let go
of their shares," said Achmad.

Meanwhile, Erwan Teguh from Danareksa Securities concurred
with Achmad, saying that the withdrawal of BP and Rio Tinto would
not cast a shadow over mining shares as investors could not see
any legal violations in the case.

"The case is specific and there have been no legal violations.
It's just business," said Erwan.

The pulling out of BP and Rio Tinto was reportedly due to the
fact that they could no longer tolerate the uncertainties of
doing business in Indonesia, especially in the mining sector.

Over the last five years the country's mining industry has
been left bewildered by a spate of new government policies,
opposition from environmentalists, and hostility from local
communities.

Regarding the performance of mining shares in the second
semester, Erwan said that they would still be promising because
of the possibility of higher net profits being earned by mining
companies.

He explained that such higher profits would result mostly from
greater efficiencies in their operations resulting from lower
international oil prices. Fuel usually accounts for up to 50
percent of operating expenses.