Jakarta. Mining giant Merdeka Copper Gold (MDKA) reported that the company continued to book a solid growth this year. 

The quarterly report shows that MDKA produced 109,159 ounces of gold in January-September 2023, marking an increase from 107,168 ounces recorded in the same period the previous year. According to MDKA’s GM of Corporate Communication Tom Malik, the production in the first 9 months of 2023 aligned with the target that the company had set. MDKA said it was optimistic about reaching 140,000 ounces in production.

MDKA sold 98,694 ounces of gold over the said period with an average selling price (ASP) of $1,942 per ounce. MDKA also produced 443,936 ounces of silver with an ASP of $23 per ounce, 11,011 tons of copper with an ASP of $8,660 per ton, 42,054 tons of nickel pig iron (NPI) with an ASP of $14,267 per ton, and 16,430 tons of nickel matte with an ASP of $16,503 per ton.

MDKA has set a gold production goal of 120,000-140,000 ounces until the end of the year. It also seeks to produce between 14,000 and 16,000 tons of copper as well as 57,000-65,000 tons of NPI.

The quarterly report also shows that the company had booked $1.17 billion in revenue as of the first 9 months of 2023. This marks an 86.9 percent increase from $626.01 million in the same period the previous year. MDKA attributed the significant growth to the additional revenue of $618 million from NPI and nickel matte sales. This also began with the start of the Zhao Hui Nickel (ZHN) smelter with a capacity of 50,000 tons per year and the acquisition of Huaneng Metal Industry (HNMI), a high-grade matte nickel factory (HGNM).

Merdeka Copper Gold’s cost of revenue also grew from $481.91 million as of the end of the third quarter in 2022 to $1.05 billion the following year.

“The increase in cost of revenue is primarily attributable to additional nickel production costs,” MDKA said.

The company posted an operating profit of $80.47 million and a loss for the period of $3.88 million as of September 30, 2023.

Domestic sales hit $445.20 million, versus last year's level of $96.73 million. 

MDKA's liabilities stood at $2.07 billion, an increase compared to the period at the end of last year of $1.85 billion. Long-term liabilities were recorded at $1.31 billion while short-term liabilities reached $758.70 million. The equity was recorded at $2.61 billion, an increase compared to last December's period of $2.02 billion. The total assets reached $4.69 billion.

MDKA attributed the significant increase in assets to the construction process of the acid iron metal (AIM) factory in Morowali, an increase in nickel production, and as a result of the acquisition of Huaneng Metal Industry by the group.

Research by RHB Sekuritas shows that there would be three catalysts that could spur MDKA’s growth. The first is the increase in NPI production volume by MDKA’s subsidiary Merdeka Battery Materials (MBMA). The second catalyst is the nickel matte business contribution which is expected to increase. Last but not least is the planned initial ore sale at the end of 2023. 

"These three factors are expected to offset the losses recorded in the first half of 2023, which were caused by initial investment costs," wrote the RHB Sekuritas research report.

RHB Sekuritas has adjusted its 2023 earnings forecast for MDKA, with a cut of 30 percent. However, a more optimistic outlook is expected in 2024, with the revenue increasing by 45 percent.

The nickel matte production is expected to reach around 31,000 tons for the second half of 2023 and around 50,000 tons next year. This is expected to provide the company with a revenue boost. MDKA is trying to achieve stable margins from these two products, namely earnings before interest, taxes, depreciation and amortization (EBITDA) of $1,000 to $1,500 per ton, as well as to recover the initial costs previously incurred.

MBMA has begun supplying its first ore from its Sulawesi Cahaya Mineral (SCM) mine since August 2023, in line with the planned commissioning of sulfuric acid facilities from the AIM project, which is part of Merdeka Tsingshan Indonesia. 

"We believe that MDKA's operational performance will remain solid. We have not included the potential value from AIM, utilities for industrial areas, and gold production from the Pani project, which are potential catalysts in the future," the RHB Sekuritas report reads.

The limonite and saprolite nickel ores from the SCM Mine are expected to support MBMA's various downstream businesses.

SCM will send saprolite nickel ore to 3 nickel smelters equipped with the rotary kiln electric furnace (RKEF) which lies in the Indonesia Morowali Industrial Park (IMIP), Central Sulawesi. They will then process the ores into NPI. 

MBMA has also acquired a 60 percent stake in HNMI, a nickel converter factory. HNMI will process the NPI produced by three RKEF smelters into nickel matte. SCM’s nickel limonite ore will be converted by two high-pressure acid leach (HPAL) plants. 

The first HPAL factory is a joint venture between MBMA and GEM with MBMA holding a 55 percent stake ownership. The factory boasts a capacity of 30,000 tons of nickel per year in the form of mixed hydroxide precipitate (MHP). The factory, which is located in IMIP, seeks phase 1-commissioning by end-2024.

The second HPAL factory is currently in the planning stage and is scheduled to begin operations in 2025 in the Indonesia Konawe Industrial Park (IKIP). This is a 3,500-hectare battery raw material industrial area. It will also be built within the SCM Mining concession area in collaboration with various business partners.

The Pani Gold Project in Gorontalo, which will become one of Indonesia’s largest primary gold mines, will also start production at the end of 2025. The project hosts 6.6 million ounces of gold. MBKA says it will be a “low-cost, long-lived, and sustainable gold mine”.