Press Metal Aluminium Holdings Bhd (PMETAL) announced that it is setting up a strategic Joint Venture (JV) project for an alumina refinery in West Kalimantan, Indonesia. The third investment in refinery ensures that 75% of its alumina requirement is locked in.
The group is investing USD240m for an 80% stake involving PT Kalimantan Alumina Nusantara (KAN) with two Indonesian parties, namely PT Alakasa Alumina Refineri (AAR) and PT Dinamika Sejahtera Mandiri (DSM). Eventually, the shareholding of KAN will be – PMETAL 80%, AAR 19.77% and DSM 0.23%.
The JV company KAN will undertake a project in Sanggau, West Kalimantan, covering about 980 ha of land to house an alumina refinery plant with an annual production capacity of 1.0 to 1.2m MT, including a power plant, jetty and supporting infrastructure. The total cost for Phase 1 is estimated at USD750m. There is potential for capacity expansion in Phase 2 which could add another 1.0 to 1.2m MT.
Meanwhile, KAN is expected to secure bauxite supply from DSM while the final product, alumina will be sold to PMETAL.
PMETAL had RM2.01b cash as of Jun 2024 with strong cash flow generating ability. Given its strong cashflow, the JV can be financed without taking on debt. However, PMETAL has to equity-account for this investment.
For strategic leverage purpose, this venture is not unexpected, as PMETAL also holds a 50% stake in Japan Alumina Associates (Australia) Pty Ltd (JAA) and a 25% stake in PT Bintan. These two investment projects allow PMETAL access to 230,000 MT alumina production capacity at JAA and 500,000 MT at PT Bintan.
With the KAN venture, PMETAL has effectively locked in 75% of its alumina requirement, ensuring a stable supply of raw materials, and potentially logistics savings.
Kenanga maintains its OUTPERFORM call for PMETAL with a target price of RM5.80. As at 10:40am on Thursday, the company's stock traded at RM4.90. (Google-hosted Bursa updates)
Nevertheless, the new venture is unlikely to affect its near-term earnings. For reference, PT Bintan project took 2.5 years to reach production.
Analysts favour PMETAL due to its structural cost advantage over international peers especially its access to low-cost hydro-power secured under four long-term PPA contracts ending between 2034 and 2040, solid alumina supply and green investment appeal as a clean energy source producer.
