PT Harum Energy Tbk's ambition to develop the nickel business seems to be no joke. HRUM, through its subsidiary, namely Tanito Harum Nickel (THN), disbursed a loan of up to USD 580 million or the equivalent of Rp. 9.49 trillion to PT Blue Sparking Energy (BSE). Both parties have signed a loan agreement on June 26, 2024.

Withdrawals on loans can be made more than once. This loan bears interest on the principal amount outstanding at a Secured Overnight Financing Rate (SOFR) of 2.7% per year.

This is an affiliate loan. For your information, Blue Sparking Energy is a subsidiary of HRUM. The reason is, HRUM through Tanito Harum Nickel owns 51% of Blue Sparking Energy shares. Meanwhile, HRUM controls 99% of the shares in Tanito Harum Nickel.

In an information disclosure on the Indonesian Stock Exchange, HRUM Management explained that this loan transaction was a form of continuation of the nickel mining and processing business. Blue Sparking Energy is currently in the development and construction stage of a nickel processing project, namely high pressure acid leaching (HPAL) located in Central Halmahera.

This project is designed to produce nickel-cobalt hydroxide intermediate product, namely MHP or mixed hydroxide precipitate with an installed capacity of around 67,000 tons (plus or minus 10%) of nickel equivalent and around 7,500 tons (plus or minus 10%) of cobalt.

"The loan agreement is to finance the development and construction of Blue Sparking Energy's project, working capital, and for general purposes and company investment," explained HRUM management.

Depressed performance

As of quarter I-2024, HRUM posted revenue of USD 265.97 million or a decrease of 9.68% from revenue in quarter I-2023 which reached USD 294.50 million. There are several factors that influence HRUM's performance.

First, coal sales volume in the first quarter of 2024 fell 9.6% quarterly and 9.1% annually, aka year on year (yoy) to 1.7 million tons.

Second, the average selling price (ASP) of HRUM coal fell 37.9% yoy to USD 99.9 per ton compared to the ASP of coal in the same period last year which reached USD 160.9 per ton.

From the bottom line, HRUM's net profit shrank 99.04% to only USD 987,319 from previously reaching UD 103.02 million in the same period last year. One of the causes of this decline in net profit is the completion of the nickel company acquisition process.

In January 2024, HRUM's subsidiary, namely PT Harum Nickel Industry (HNI), acquired an additional 60.7% stake in WEstrong Metal Industry (WMI) with an acquisition cost of USD  215 million. This additional acquisition resulted in an increase in share ownership in WMI from only 20.0% to 80.7%.

With the completion of the transaction, there is an adjustment to the fair value of the asset, where WMI's liabilities identified before the transaction date are remeasured and reflected as an accounting adjustment. The negative adjustment resulting from this remeasurement amounted to USD  30.7 million which will be charged in the first quarter of 2024. This combination of factors is what makes HRUM's net profit depressed.