Merdeka Copper Gold: Strong Growth in 9M 2024 Driven by Nickel Expansion and Strategic Investments

Introduction

PT Merdeka Copper Gold Tbk (MDKA), along with its subsidiary PT Merdeka Battery Materials Tbk (MBMA), has demonstrated strong financial and operational results in the first nine months of 2024.

The company has achieved significant year-over-year (YoY) growth in revenue and EBITDA, primarily fueled by the strategic expansion of its nickel business, while also benefiting from contributions from its gold and copper operations.

This article provides an in-depth analysis of Merdeka’s performance, highlighting key financial achievements, production milestones, strategic project developments, and future outlook. The company’s strategic shift towards large-scale, long-life, and low-cost assets is setting the stage for continued growth and establishing Merdeka as a leading mining company in Indonesia.

Revenue & Profit

Merdeka Copper Gold reported a 43% YoY increase in consolidated revenue, reaching $1.668 billion in 9M 2024, compared to $1.170 billion in the same period of 2023. This significant growth was primarily driven by the nickel business, which is managed under its subsidiary MBMA, which reported revenue of $1.380 billion.

The company also saw a 22% YoY increase in Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA), with an EBITDA of $222 million in 9M 2024, compared to $182 million in 9M 2023.

While the consolidated group experienced a net loss of $20 million for the first nine months of 2024, a 405% decrease YoY, MBMA reported a net profit of $60 million. The loss was mainly due to increased finance costs from higher interest rates and debt levels (bonds: $1.2 billion in 9M 2024 vs. $1.0 billion in 9M 2023) incurred to support the Company’s growth plans, along with foreign exchange losses. Despite these challenges, the robust revenue growth and MBMA’s profitability emphasize the strength of Merdeka’s core business.

Segmental contributions to the company’s EBITDA in 9M 2024 include:

• Gold: $81 million
• Nickel in NPI: $76 million
• Copper: $28 million
• Nickel in HGNM: $28 million
• Limonite: $29 million These positive contributions were partially offset by other costs, including corporate expenses, totaling $20 million.

Production Updates

 Merdeka has made substantial progress in its production across its various segments.

• Nickel Mining: The SCM mine, a major supplier for MBMA, has significantly ramped up its production of limonite and saprolite ores. In the first nine months of 2024, the mine produced 6.7 million wmt of limonite, representing a 176% increase YoY, and 1.9 million wmt of saprolite, a 113% increase YoY. The increase in limonite production is mainly due to the commencement of sales to PT Huayue Nickel Cobalt (HNC). The total material mined during 9M 2024 was 9.9 million wmt, including 1.3 million wmt of waste.
• Nickel Processing: The company’s nickel processing operations have shown robust growth. The RKEF smelters produced 63,338 tonnes of nickel in NPI, a 47% increase, due to production from the third RKEF smelter. Additionally, the nickel matte facility produced 38,422 tonnes of HGNM, with the increase attributable to three consecutive quarters of full operations. During 9M 2024, the RKEF smelters processed 6.8 million wmt of saprolite ore at an average nickel grade of 1.63%.
• Gold Mining: Gold production decreased to 80,043 ounces in 9M 2024, due to a decline in gold grade (0.56 g/t vs. 0.69 g/t) and slightly lower gold recovery (80% vs. 81%). Despite the decline, the Tujuh Bukit gold mine is on track to meet the upper end of its 2024 guidance of 110,000 to 120,000 ounces of gold.
• Copper Mining: Copper production improved to 10,483 tonnes in 9M 2024, due to the increased volume of ore mined (1.3Mt vs. 0.9Mt). The Wetar copper mine is on track to meet its 2024 guidance of 13,500 to 14,000 tonnes of copper.

Strategic Project Developments

Merdeka is making significant investments in strategic projects to enhance its future performance and growth.

• Pani Gold Project: This project is being developed to become Indonesia’s largest primary gold mine. As of the end of November 2024, the project was 28% complete. The commissioning of the heap leach operation is expected in late 2025, with the first ore processing planned for early 2026. Pani has mineral resources of 6.9 million ounces of gold and is projected to produce 500,000 ounces of gold per year at its peak. The company allocated $65 million to this project in 9M 2024, focusing on processing plant construction, mine infrastructure, and ongoing drilling and technical studies.
• Tujuh Bukit (TB) Copper Project: Merdeka is advancing the TB Copper project, which is among the world’s largest undeveloped copper deposits. The company is integrating an upgraded indicated resource of 755 million tonnes at 0.60% copper and 0.66 g/t gold to define a larger ore reserve in 1Q 2025, and exploring downstream processing options. TB Copper is expected to produce approximately 200,000 tonnes of copper per year at peak production. Merdeka invested $28 million in TB Copper in 9M 2024 for further exploration and project optimization.
• HPAL Plants: Merdeka, in partnership with GEM Co., Ltd., is developing two High-Pressure Acid Leaching (HPAL) plants in the Indonesia Morowali Industrial Park (IMIP). The first production line of the PT ESG HPAL plant, with a 20,000 tonnes per annum (tpa) capacity, commenced operations in early December 2024, and the second 10,000 tpa line is expected to come online in early 2025. The PT Meiming HPAL plant began commissioning in October 2024. These plants are expected to reach full production in 2025, with a combined designed capacity of 55,000 tonnes per year of mixed hydroxide precipitate (MHP).
• AIM Plant: Construction of the copper cathode plant at the AIM plant is nearing completion, with commissioning of certain sections underway in late 2024. Merdeka invested $125 million in the AIM plant during 9M 2024. In the third quarter of 2024, Train 1 recorded commissioning results of 77,555 tonnes of sulfuric acid, while Train 2, which began commissioning in September 2024, produced 5,119 tonnes of sulfuric acid.

Infrastructure Improvements

Merdeka is implementing infrastructure improvements at the SCM mine to support increased mining operations and meet the growing demand for limonite ore. These include:

• A new dedicated haul road connecting the SCM mine to IMIP.
• Widening of the existing haul road to increase limonite transport capacity, facilitating larger volumes to MBMA’s HPAL plants at IMIP. These initiatives aim to enhance transportation efficiency, reduce haulage costs, and significantly increase saprolite capacity. Additionally, the existing HNC FPP at IKIP facilitates the transportation of limonite to IMIP via a slurry pipeline, and a similar approach will be used for the MBMA FPP that will transport limonite to the PT ESG HPAL plant.

Cost Management and Margins

Merdeka is achieving positive margins across all its products. The company has managed to reduce costs, notably for NPI, where cash costs decreased due to lower costs for ore, reductants, and electricity.

• NPI: The cash cost for NPI dropped to $10,387/t in 9M 2024 from $12,775/t in 9M 2023. The implied cash cost for NPI is less than $9,000/t, assuming nickel ore for NPI is sourced solely from SCM and electricity is generated internally. However, the average selling price (ASP) for NPI decreased from $14,267/t in 9M 2023 to $11,522/t in 9M 2024, which contributed to a lower EBITDA margin.
• HGNM: The cash cost for HGNM is $13,310/t, with over 90% of costs related to low-grade nickel matte. HGNM’s ASP decreased from $16,503/t in 9M 2023 to $13,931/t in 9M 2024, which also impacted its EBITDA margin.
• Gold: The higher margin for gold is driven by elevated gold prices, which averaged $2,261/oz in 9M 2024 compared to $1,942/oz in 9M 2023.
• Limonite: Limonite’s ASP is $15.6/wmt and its cash cost is $11.1/wmt.
• Saprolite: Saprolite’s ASP is $29.7/wmt and its cash cost is $25.0/wmt. The company expects nickel ore margins to improve as mining volumes increase and optimization efforts yield results.

Future Outlook

Merdeka is strategically transitioning from mid-scale to large-scale operations, focusing on a portfolio of long-life, low-cost assets. In 2025, the company plans to:

• Fully realize the potential of the AIM plant.
• Increase mining volumes at the SCM mine.
• Ramp up processing capacity at the PT ESG and PT Meiming HPAL plants.
• Secure new partnerships for HPAL development.
• Advance the Pani and TB Copper projects as scheduled.

Merdeka has set the following production and sales targets:

• 2024 Targets:
  • Gold: 110,000-120,000 ounces at a cash cost of $950 to $1,050/oz.
  • Copper: 13,500-14,000 tonnes at a cash cost of $3.65 to 4.00/lb.
  • Nickel in NPI: 80,000-85,000 tonnes at a cash cost of $10,000 to 12,000/t.
  • Nickel in HGNM: 50,000-55,000 tonnes at a cash cost of $13,000 to 15,000/t.
  • Limonite Sales: 9.5-10.5 million wmt.
  • Saprolite Sales: 4.0-5.0 million wmt.
• 2025 Targets:
  • Limonite Sales: 12.5-15.0 million wmt at a cash cost of less than $11/wmt.
  • Saprolite Sales: 6.0-7.0 million wmt at a cash cost of less than $23/wmt.
  • NPI Sales: 85,000-90,000 tonnes at a cash cost of less than $11,000/t.
  • HGNM Sales: 50,000-55,000 tonnes at a cash cost of less than $13,500/t.
• Combined HPAL production: ~30,000 tonnes of nickel, with cash cost (after cobalt credit) of $6,500 – $8,500 per tonne. The completion of the Feed Preparation Plant (FPP) at SCM is targeted for 2H 2025, allowing for internally sourced ore for the HPAL plants.

Conclusion

Merdeka Copper Gold has demonstrated robust growth in the first nine months of 2024, driven by the expansion of its nickel business and supported by its gold and copper operations.

The company’s strategic investments in key projects like the Pani Gold Project, TB Copper Project, AIM Plant, and HPAL plants position it for sustained growth.

While challenges such as finance costs and fluctuating commodity prices remain, Merdeka’s focus on expanding its low-cost, long-life asset base suggests a positive trajectory for the coming years. The company’s ability to meet its 2024 guidance and successfully execute its 2025 plans will be crucial for maintaining its growth momentum.