Merdeka Copper Gold (MDKA) commodity reserves are limited, Pefindo assigns an idA rating

JAKARTA.PT Merdeka Copper Gold Tbk (MDKA) received an idA rating from PT Pemeringkat Efek Indonesia (Pefindo).The rating is affirmed from the previous rating and applies to Continuous Bonds I Year 2020. Not only that, Pefindo also provides a stable prospect for Merdeka Copper Gold.

Pefindo in a January 8, 2021 release explained idA’s rating has a strong ability compared to other Indonesian obligors to meet its long-term financial commitments.However, the obligor’s ability is affected by adverse changes in economic conditions and conditions than the obligor with a higher rating.

The rating reflects MDKA’s low cash cost, the potential for higher revenue from the Acid Iron Metal (AIM) project, and high demand for gold.However, the ratings are constrained by its limited mining resources, exposure to fluctuations in commodity prices and unfavorable weather, as well as the risk of developing mining in new areas.

Pefindo analyst Christyanto Wijaya and Samgar Effember in a release on Friday (8/1) explained that the MDKA rating could be raised if it was able to increase the mine’s profile by increasing gold and copper reserves and the progress of the better AIM project development.This must also be followed by a conservative capital structure and strong cash flow protection while maintaining good profitability margins.

However, Pefindo said, the rating could be lowered if MDKA financed capital expenditures with a large amount of debt, causing the capital structure to become heavier in debt.This is indicated by a debt to EBITDA ratio of greater than 3.0x on a sustainable basis without being accompanied by a stronger business profile.

“A significant decline in gold prices could also lead to a rating downgrade because it could have a negative impact on MDKA’s financial profile,” explained Christyanto and Samgar.In addition, MDKA has long term projects located in Pani and Banyuwangi (the Tujuh Bukit Copper project).

Both projects require significant capital expenditures.”We have not considered the planned capital expenditure and potential revenue from the project in MDKA’s financial projections,” explained Christyanto and Samgar.MDKA has two mining operations located in Tujuh Bukit, Banyuwangi for gold mining and Wetar Island, Maluku for copper mining.

As of September 30, 2020, the Company’s shareholders were PT Saratoga Investama Sedaya (19.13%), PT Mitra Daya Mustika (13.47%), Garibaldi Thohir (8.20%), PT Suwarna Arta Mandiri (6.33%) , Local Government of Banyuwangi Regency (5.23%), and others including the public (47.64%).