RHB Indonesia - Mining - Deal between Freeport Indonesia (FI) and the Indonesian government (Mining, Regional Oil and Gas) Unknown Rabu, 30 Agustus 2017




Good morning,

Mining – Deal between Freeport Indonesia (FI) and the Indonesian government

1. Legal base between the Indonesian government and FI is Special Mining Business Permit (Izin Usaha Pertambangan Khusus / IUPK), not Contract of Work (Kontrak Karya / KK)
2. 51% stake divestment of FI is for Indonesia’s national interest. Further details on the implementation will be discussed further.
3. FI will build processing and refinery facility in next five years which should be completed by October 2022 at the latest
4. Under IUPK, the Indonesian government’s revenues would be higher and more stable than under the previous contract (KK).
5. FI will obtain extended contract with a maximum operational period of 2x10 years, or up to 2041.


Based on our channel checks, at the moment all state-owned mining companies - including Antam (ANTM IJ, NR) – are interested to acquire stakes in FI. Media sources reported that Antam’s CEO met with the Minister of Maritime Corrdinator Luhut Panjaitan yesterday morning, after the Minister of Energy and Mineral announced that FI will divest some of its stakes.

We see that Antam and Inalum are among the strong candidates to buy the stake of FI. In terms of mining expertise, Antam has better experience in mining, refinery, and various metal mining materials processing. Inalum's expertise is on processing alumina into aluminum, and it does not have experience in mining activities.

However, our source said that current government's plan is to create a National Resources Holding company which include Antam, Inalum, Freeport, etc. Hence, Freeport is likely to be a sister company of Antam. (Andey Wijaya)

Link to daily report: Indonesia Morning Cuppa 300817

Sector Update:

Regional Oil & Gas – Oil Price Free Fall a Concern; Tropical Storm Harvey
OPEC and non-OPEC members remain concerned over the possibility of crude oil price free fall after the production cut agreement ends in Mar 2018. We expect more discussions on a three-month production cut extension amongst the producers prior to the next meeting, scheduled for 22 Sep in Vienna. On another note, tropical storm Harvey in the Gulf of Mexico has resulted in a shutdown of around 2mbpd of refining capacity. This should result in positive upwards movement on refined product prices. The main beneficiaries of this incident would be the refiners – under our coverage, these would be the Thai refiners: SPRC, BCP,TOP, IRPC and PTTGC. We maintain our crude oil price forecasts at USD54.00/bbl and USD60.00/bbl for 2017/2018 onwards.

¨ Crude oil price free fall a concern. Both Organisation of the Petroleum Exporting Countries (OPEC) and non-OPEC producers are concerned about a possible free fall in crude oil price, once the production cut agreement terminates in Mar 2018. As a result, Saudi Arabia and Russia are now discussing the possibilities of extending the production cuts for another three months, up to Jun 2018, according to the Wall Street Journal. The next meeting in Vienna is scheduled for 22 Sep, to discuss compliance and a possible extension of the deal. More discussions about the possible production cut extension amongst the producers are expected prior to this meeting.
¨ The production cut agreement between OPEC and non-OPEC members, as it stands, ends in Mar 2018. After Mar 2018, we enter a low demand and refinery maintenance period during April-June. If all producers produce at full capacity after March, we can expect additional supply to be c. 1.9mbpd (OPEC, non-OPEC and US producers). This is against additional demand of c. 1.2mbpd -1.4mbpd. As such, we are looking at another year of oversupply, should there be no production cut extension. This was our concern in our May report, Regional Oil & Gas: A Peek Into 2018. Should OPEC and non-OPEC agree to extend the production cut agreement, this should alleviate the oversupply concerns until 3Q18.
¨ With such prospects, we believe that production cuts may need to be a permanent fixture. It is possible that producers may have to revert to a quota system, as, without such mechanism, markets may collapse once again. We do not rule out such possibility, going forward.
Update on the refiners:
¨ Tropical storm Harvey – short-term positive for refiners: The impact of tropical storm Harvey on the crude oil price remains limited, as global crude oil supply remains in abundance and the US Government is ready to release its strategic petroleum reserves if it is required. Brent closed last night up 0.4% at USD52.09/bbl and WTI, up 0.5% at USD46.81/bbl.
The immediate impact is on refined products, where around 2mbpd of refining capacity has been shut down. This has pushed refined product (gasoline, heating oil and diesel) futures higher. This positive momentum in the US refined product prices should also push refined product spreads in Asia higher as well. Note that refined product spreads had already started to move higher since thebeginning of August, due to the fire at the Shell refinery (Pernis) in Rotterdam – this refinery is now back on line.
We expect the higher refined product spreads as a result of Harvey would be short-term, beneficiaries would be the refiners (we have only Thailand under this category): Star Petroleum Refining (SPRC), Bangchak Corp (BCP),Thai Oil (TOP), IRPC, and PTT Global Chemical (PTTGC).
Some statistics:
¨ US oil and gas production is disrupted, with c. 25% (437,500bpd out of 1.75mbpd) of the US Gulf of Mexico oil production offline, due to Harvey. Around 112 platforms have been evacuated (15% in the region) and 50% of the drilling rigs in the Gulf have been evacuated. Around 23% (748mmscfd) of the natural gas production from the Gulf has been affected.
¨ Around ten oil refineries, with total refining capacity of 2mbpd, were forced offline due to the storm. Assessment of the damage after the storm and floods would have to be made, therefore the duration of the impact from this incident remains uncertain.
Strategic reserves ready to be released. According to media reports, the US Department of Energy has said that it stands ready to release crude oil from the nation’s emergency stockpile if needed. (Kannika Siamwalla, CFA)
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Best regards,

Andrey Wijaya
Senior Vice President
Research Analyst – Auto, Consumer, Cement
PT RHB Sekuritas Indonesia

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