$MBMA

Company Initiation | Metals | MBMA IJ TP Rp 990

2Q23 ops.: steady production, falling cost, extra margin from nickel matte

 We viewed positively MBMA’s falling cash cost and additional margin
from newly-acquired HNMI, aside from steady production in 2Q23

 Management expects saprolite/limonite sales to start in 3Q23/4Q23 and
AIM project to commence in 4Q23.

 We maintain FY23-25F est. and SOTP-based TP of Rp990 for now.
Steady 2Q23 production volumes, including contribution from ZHN
MBMA produced a combined 11.8kt and sold 11kt of NPI in 2Q23, up 27%
and 35% qoq respectively, reflecting steady production from existing CSI,
BSI smelters (at 9.7kt/+4% qoq), and contributions from newly completed
ZHN smelter. 1H23 NPI production and sales volume of 21.2kt and 19.2kt
respectively accounted for 40/36% of our FY23 assumptions. On the mining
front, SCM produced 631k wmt of nickel ore, driving the mine’s stockpile to
2.9mn wmt (2/0.9mn wmt of saprolite/limonite) as of end of 2Q23.
Falling cost though still above peers; capturing margin through HNMI
MBMA’s RKEF smelters delivered lower cash cost of US$13.4k/t in 2Q23,
largely reflecting the drop in coal price. While this is expected, MBMA’s
2Q23 cash cost remained higher that of other RKEF producers (e.g., NCKL
at US$10.7k/t and NIC at US$12.1k/t), with 1H23 cash cost of US$14.3k/t
slightly above our FY23 forecast of US$13k/t. MBMA’s 2Q23 earnings also
include contribution from newly-acquired HNMI (conversion facility from NPI
to high-grade nickel matte). HNMI’s 2Q23 ASP of US$17.4k/t and cash cost
of US$15.9k/t (including LGNM purchase cost of US$14.9k/t) reflected
processing cash cost of US$1k/t which we think reflect well on the project’s
economics. HMNI’s production of 4.4kt in 2Q23 account for 18% of our
FY23F estimates, implying possible room for upside surprise in 2H23.