Indonesia Raises Mining Royalties, Tin Sector Hit Hardest
AI summary card
Indonesia Raises Mining Royalties, Tin Sector Hit Hardest
Indonesia plans to double tin royalties to 20%, slating a 31% earnings decline for related firms; gold and copper face moderate impacts, while upstream nickel miners show resilience with minor rate adjustments.
- Tin royalties double from 10% to 20%, driving ~31% earnings decline
- Gold rates rise to 19%, with ~7% earnings drop expected
- Copper rates climb to 10%-13%, compressing earnings by ~12%
- Nickel ore rates edge up 1ppt, minimal earnings impact (~-2%)
- New rates may take effect as early as June 2026
- Preference for upstream nickel stocks and low-cost gold plays
Report interpretation
Overview
This report analyzes the impact of Indonesia’s revised PP 19/2025 regulations, which significantly raise mining royalty rates. The adjustments aim to capture excess returns from high commodity prices and recalibrate tariffs to current market levels. Effective as early as June 2026, the new rules apply to refined product sales rather than upstream ore (unless ore sales qualify as third-party business). The report notes starkly divergent impacts across metals, with the tin sector facing the most severe earnings pressure while nickel ore demonstrates defensive attributes.
Core views
Royalty adjustments unevenly affect sector earnings. Tin is hit hardest, with rates doubling from 10% to 20%, slashing pure-play firms’ annual earnings by ~31%. Gold enters a higher tax bracket (16% → 19%; each 1ppt hike erodes earnings by ~2.4%), driving a ~7% overall decline. Copper rates rise from 7%-10% to 10%-13%, squeezing earnings by ~12%. In contrast, nickel ore (laterite, Ni>1.5%) sees a marginal increase from 15% to 16%, with negligible earnings impact (~-2%). Silver rates inch up from 5% to 6%, barely affecting profits. For stock selection, the report finds commodity valuations attractive despite rate hikes. It favors upstream nickel players, particularly ANTM and INCO (both rated Buy), citing robust volume growth and margin expansion potential from ore exposure, with ANTM offering a ~12% dividend yield. In gold, EMAS (Buy) is preferred for its low cash costs (~$900/oz), while INDY (Buy) is seen as a potential new gold producer by 2027. For high-rate victims AMMN and TINS, valuations remain reasonable (P/E of 15.8x and 14.6x, respectively).
Analysis framework
The report combines 'volume-price decomposition' with 'policy sensitivity analysis.' First, it tracks YTD price trends (e.g., nickel +13%, tin +33%) as context for rate hikes to capture excess returns. Next, it calculates absolute rate changes (pp) by comparing old and new tariff tiers. Finally, using pure-play financial models, it quantifies how each 1ppt rate increase erodes net profit, projecting earnings declines by sector. This bottom-up approach helps investors identify policy 'hot zones' and defensive niches.
Methodology notes
Royalty Rate Sensitivity Analysis
Assesses policy risks by measuring how royalty rate changes directly erode miners’ net profits, highlighting differential impacts across metals.
EV/EBITDA Valuation
Used for ANTM at 8.4x FY26F EV/EBITDA, a capital-structure-neutral metric common for resource firms.
SOTP Sum-of-the-Parts
Applied to INDY with a 10% WACC, suitable for diversified energy/mining firms.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- Aneka Tambang (ANTM IJ)Beneficiary/Defensive Pick
- Strengths
- Large upstream nickel exposure, minimal rate impact; ~12% dividend yield; reasonable valuation.
- Comparison
- Stronger earnings stability vs. pure gold/tin plays.
- Risks
- Commodity price volatility, regulatory shifts.
- Vale Indonesia (INCO IJ)Beneficiary/Defensive Pick
- Strengths
- Upstream nickel player with strong volume growth and margin expansion.
- Comparison
- Similar to ANTM, favored for upstream nickel logic.
- Risks
- EV demand slowdown, delayed project ramp-up.
- Merdeka Gold Resources (EMAS IJ)Preferred Gold Play
- Strengths
- Low cash costs (~$900/oz), resilient to risks.
- Weaknesses
- Still faces 19% gold rate pressure.
- Comparison
- Low costs are key in high-rate environments.
- Risks
- Gold price swings.
- Indika Energy (INDY IJ)Potential New Gold Producer
- Strengths
- Likely 2027 gold producer; fair valuation.
- Weaknesses
- Current business complexity.
- Comparison
- Tracked for future growth.
- Risks
- Project execution risks.
- Trimegah Bangun Persada (NCKL IJ)Upstream Nickel Player
- Strengths
- Pure nickel ore play, limited rate impact.
- Comparison
- Aligns with upstream nickel strategy.
- Risks
- Nickel price volatility.
Key data
- Tin Royalty Change10% -> 20%Doubled, ~31% earnings decline
- Gold Royalty Change16% -> 19%~7% earnings decline
- Copper Royalty Change7-10% -> 10-13%~12% earnings compression
- Nickel Ore Royalty Change15% -> 16%Minimal, ~2% earnings decline
- ANTM Target Price Multiple8.4x FY26F EV/EBITDAIn line with 5-year average
- ANTM Dividend Yield~12%Offers high yield cushion
Impact & implications
While rate hikes pose sector-wide headwinds, the market may have partially priced in the news (JCI fell 2.86% post-announcement). Investors should reallocate away from hard-hit tin and select gold producers toward cost-advantaged or upstream-exposed firms. Upstream nickel miners, with minimal rate adjustments and volume/margin tailwinds, offer defense. Diversified players (e.g., MDKA, ANTM) face impacts based on high-rate product mix.
Risks
- Heightened commodity price volatility or downturns
- Further regulatory changes
- Project delays or slower-than-expected ramp-up
- EV demand slowdown (nickel impact)
- Limited mine life for existing nickel operations
What to watch
- Final implementation of new royalty rules by June 2026
- Subsequent commodity price trends
- Volume growth and margins for ANTM, INCO, etc.
- INDY’s progress as a new gold producer