Indonesia Raises Mineral Royalties; ANTM Emerges as Top Pick

Overview

This report analyzes the impact of Indonesia’s proposed revision to the PP19/2025 mineral royalty regulation. Key adjustments affect royalty rates for nickel, gold, copper, and tin. For nickel, the price threshold triggering higher royalty rates has been lowered (LME nickel price > USD16k/ton vs. previous > USD18k/ton). Impacts across covered companies are divergent: ANTM and INCO face limited effects (earnings impact ~1–2%), while MDKA confronts greater pressure due to higher royalties on gold and copper cathodes. The report believes sustained nickel price strength (current LME nickel price) and production growth will offset the negative impact of higher royalties. It maintains an Overweight rating on the metals sector and names ANTM as its top pick.

Core views

The report notes that Indonesia’s revision of the PP19/2025 royalty regulation stems primarily from a widening fiscal deficit (driven by higher oil prices). Specific adjustments include: 1. Nickel royalties: The 14–19% range remains unchanged, but the trigger price for higher rates is lowered (LME nickel > USD16k/ton vs. previously > USD18k/ton), resulting in a ~1% royalty increase at current prices; 2. Gold royalties: The lowest bracket increases from 3.8% (≤USD1,300/oz) to 14% (<USD2,500/oz); the highest bracket rises from 10% (≥USD2,000/oz) to 20% (≥USD5,000/oz); 3. Copper product royalties: Copper concentrate royalties rise from 10% (≥USD10k/ton) to 13% (≥USD13k/ton); copper cathode royalties increase from 7% (≥USD10k/ton) to 10% (≥USD13k/ton); 4. Tin royalties: Rates for ≥USD50k/ton increase from 10% to 20%. Company-specific impacts: - Aneka Tambang (ANTM.JK): Nickel royalty impact ~1%, but rising nickel prices (current LME levels) and production growth (projected >80% earnings growth FY26–28) offset cost pressures; expected interim dividend yield of 9%/15% in 2026; - Vale Indonesia (INCO.JK): Nickel royalty impact ~2%, excluding potential cobalt royalties and export taxes; - Merdeka Copper Gold (MDKA.JK): Higher gold and copper royalties will significantly compress margins; - United Tractors (UNTR.JK): Not directly affected by royalty changes but included as a covered company. The report emphasizes that investors care more about earnings delivery than absolute royalty levels. Following the April 2025 announcement, covered stocks outperformed the Jakarta Composite Index (JCI) by 97–130%. Current adjustments are milder, and rising nickel prices plus production growth (projected FY27 volume increases) should support earnings. However, risks include further tax adjustments driven by Indonesia’s fiscal deficit and foreign ownership limits (ANTM’s foreign ownership near the 63% cap) constraining valuation expansion.

Analysis framework

The report employs a top-down analytical framework combining supply-demand analysis and financial impact assessment: 1. **Policy Analysis**: Compares pre- and post-revision royalty structures under PP19/2025 to quantify rate changes across price bands; 2. **Financial Modeling**: Uses LME metal prices and production data to quantify royalty impacts on company earnings (e.g., ~1% impact on ANTM FY26–28 earnings); 3. **Historical Backtesting**: Reviews stock performance post-April 2025 announcement (ANTM/INCO/MDKA outperformed JCI by 97–130%); 4. **Valuation Anchoring**: Assesses valuation reasonableness using P/E and ROE metrics, noting current valuations sit at the lower end of historical ranges (P/E 9.5–14.2x); 5. **Risk Assessment**: Identifies risks from further taxation due to fiscal deficits and valuation constraints from high foreign ownership concentration.

Methodology notes

• Sector/Industry Analysis FrameworkSupply-demand framework

  Assessing the cross-impact of metal price movements and royalty adjustments to determine actual financial effects of policy changes on companies

  The report compares changes in royalty rates triggered by LME nickel prices (e.g., >USD16k/ton triggers higher rates) against current price levels to estimate earnings impact, reflecting cost-pass-through analysis within a supply-demand framework

• Company Fundamentals & Financial FrameworkFree cash flow analysis

  Using NPATMI (Net Profit After Tax and Minority Interest) growth forecasts to assess earnings visibility

  The report forecasts ANTM’s NPATMI growth exceeding 80% in FY26–28 and uses free cash flow analysis to evaluate dividend capacity (projected FY26 dividend yield of 9%), reflecting core fundamental analysis logic

• Event Arbitrage & Behavioral FinanceFund Flow/Positioning Analysis

  Positive correlation between foreign ownership concentration and share price

  By analyzing foreign ownership trends in ANTM/INCO/MDKA (e.g., ANTM foreign ownership nearing the 63% cap), the report explains share price volatility, demonstrating how positioning shifts influence valuation

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Aneka Tambang (ANTM.JK)

  Least impacted by nickel royalty changes; supported by rising nickel prices and production growth

  Strengths

  High exposure to nickel; clear earnings growth outlook

  Weaknesses

  Foreign ownership near 63% cap limits valuation upside

  Comparison

  Preferred over MDKA and INCO

  Risks

  Nickel price decline, further Indonesian taxation

• Vale Indonesia (INCO.JK)

  Limited nickel royalty impact, but cobalt royalty and export tax risks not yet factored in

  Strengths

  Nickel capacity expansion

  Weaknesses

  Cobalt royalty impact not quantified

  Comparison

  Secondary to ANTM

  Risks

  Cobalt price volatility, Indonesian fiscal pressures

• Merdeka Copper Gold (MDKA.JK)

  Higher gold and copper royalties pressure margins

  Strengths

  Diversified copper-gold portfolio

  Weaknesses

  Significant royalty impact

  Comparison

  Weaker than ANTM and INCO

  Risks

  Gold price volatility, further royalty hikes

Key data

• Nickel Royalty Impact1–2%ANTM/INCO earnings impacted by ~1–2%; MDKA faces greater pressure from gold and copper royalty hikes
• Gold Royalty Increase+7%/+4%Lowest bracket increased from 3.8% (≤USD1,300/oz) to 14% (<USD2,500/oz); highest bracket from 10% (≥USD2,000/oz) to 20% (≥USD5,000/oz)
• Copper Product Royalties+2–3%Copper concentrate royalties rose from 10% (≥USD10k/ton) to 13% (≥USD13k/ton)
• Tin Royalties+10%Royalty rate for ≥USD50k/ton increased from 10% to 20%
• Dividend Yield9%/15%ANTM projected FY26/FY27 dividend yields of 9% and 15%, respectively

Impact & implications

This royalty adjustment creates structural differentiation across Indonesia’s metals sector: 1. Aneka Tambang (ANTM): Benefits from strong nickel prices and limited royalty impact, with clear earnings growth visibility and dividend yield supporting valuation; 2. Vale Indonesia (INCO): Short-term earnings still supported by nickel prices, but faces unquantified risks from potential cobalt royalties and export taxes; 3. Merdeka Copper Gold (MDKA): Higher gold and copper royalties will significantly compress margins; cost control capability becomes critical; 4. Investor positioning: Foreign ownership near regulatory caps (ANTM at 63%) may constrain valuation expansion, but earnings growth (e.g., accelerating ANTM NPATMI) provides support.

Risks

• Widening Indonesian fiscal deficit may trigger additional resource tax adjustments
• Foreign ownership near regulatory caps (ANTM at 63%) constrains valuation expansion
• Unquantified potential impact from cobalt royalties and export taxes

What to watch

• Indonesia’s fiscal condition and subsequent tax policy developments
• LME nickel price trends and realization of production growth
• Impact of foreign ownership changes on valuation