PT Indika Energy Tbk (INDY) has the potential to generate up to USD 3 billion, or approximately IDR 47.59 trillion, from its gold business. The company's transition towards a sustainable business model, balancing its coal and non-coal revenues at a 50%-50% ratio, is expected to occur by 2028.

The substantial revenue will be derived from the Awak Mas mine, managed by its subsidiary, PT Masmindo Dwi Area, in South Sulawesi, which has resource potential of 2.29 million ounces, with a potential reserve of 1.45 million ounces and a grade of 1.33 g/t. Currently, the mine is in the development phase, including land acquisition for 1,400 hectares and construction. The company, led by Arsjad Rasjid, aims for the gold mine, with a total concession area of 14,390 hectares, to begin production in the second half of 2026, with an output of 100,000 ounces per year. The license for the mine has already been renewed until 2050.

Purbaja Pantja, Director & Group Chief Investment Officer of Indika Energy, revealed that the Awak Mas mine has the potential to generate significant revenue for INDY, given its potential reserves of around 1.5 million ounces.

"If we multiply the 1.5 million ounces (of reserves) by USD 2,000 per ounce, the revenue could reach around USD 3 billion, which we could generate until the mine life ends," he said during a public presentation on Wednesday (20/11/2024).

This revenue estimate assumes that Indika Energy does not discover new reserves that can be further explored. Regarding the mine life, Purbaja projects that the Awak Mas mine will have a lifespan of 15 years, with a cash cost of around USD 1,000 per ounce.

"So, with the current gold price around USD 2,600 per ounce, we should be able to make a substantial profit," Purbaja added.

Furthermore, the development of the Awak Mas mine has already received funding support from several major banks, both local and regional, such as Mandiri, BNI, UOB, DBS, and Bank Bukopin.

"Our investment in Awak Mas is the largest. To date, the investment has reached around USD 238.9 million since we started investing in 2018, and it is estimated that the total investment will reach USD 429 million by 2026," he said.

Another mineral business that contributes to INDY's revenue outside of coal is bauxite and nickel. The company mines bauxite in Ngabang, Landak, West Kalimantan, through its subsidiary, Mekko Mining, with a production capacity of 1 million tons per year.

Purbaja mentioned that the bauxite mine has resources of 30 million tons and reserves of 5.7 million tons, with a production volume of 200,000 dry metric tons up to 9M24. The total investment made in the bauxite project has reached USD 1.7 million, including acquisitions.

Indika also has a portfolio in the nickel business through its subsidiary, PT Rockgeo Energi Nusantara. As of 9M24, the production volume from the nickel mine has reached 9,000 wet metric tons (wmt) of nickel ore, with a total investment of around USD 9 million.

Delayed beyond 2025

Aziz Armand, Vice President Director & Group CEO of Indika Energy, added that the company now targets balancing its coal and non-coal business revenues by 2028, a shift from the previous commitment of 2025.

The delay in this target is attributed to both external and internal factors that have hindered Indika. However, the company remains optimistic that the target can be achieved by 2028. "We are committed to achieving net-zero emissions before 2050, or at the latest by 2050," said Aziz.

Indika’s transition to reduce its exposure to the coal business is reflected in its ownership of two green businesses, which are involved in the renewable energy sector through Emits and nature-based solutions via Indika Nature, as well as the electric vehicle business, including production, distribution, and rental of electric vehicles.

In the coal business, Indika indicated that coal production will likely remain flat through the end of 2024, after the company aggressively ramped up production activities in recent months. "So, (coal production) is now being held back. Because, contractors might take a break in December since everyone has been productive. So, insyaallah, we will achieve our RKAB target in 2024," added Aziz.

This signal is also related to the weakening of coal prices, which has impacted Indika’s performance throughout the January-September 2024 period. INDY reported revenue of USD 1.78 billion, down 22.4% from USD 2.29 billion, and net profit fell by 63.3%, from USD 93.83 million to USD 34.40 million.

Mining and Property Analyst at NH Korindo Sekuritas Indonesia, Axell Ebenhaezer, stated that, on a year-on-year basis, the performance of coal companies has generally declined due to the drop in Average Selling Price (ASP) as a result of weakening global coal prices.

"Looking at the short-term outlook, in the fourth quarter of 2024, coal prices should rise slightly because coal supply is projected to decrease with the onset of the rainy season. Therefore, the performance of coal companies in the last quarter of this year should improve on a quarterly basis," he said to Investor Daily recently.