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Investing in Indonesia’s mining industry presents an alluring opportunity as the country is home to one of the largest mineral reserves in the world, contributing significantly to the nation’s economic growth.
Indonesia holds the title of the world’s largest producer of nickel, a vital component in the production of electric vehicles. Furthermore, Indonesia claims the second-largest position in tin production, ranks third in coal output, and stands as the fourth-largest producer of bauxite. This mineral-rich archipelago also asserts itself in the realms of copper and gold production, solidifying its stature as a mining powerhouse.
The mining sector of the country is growing fast as well. In 2022, the industry recorded revenues of around $129 bn, reflecting a compound annual growth rate (CAGR) of 28.9% from 2017 to 2022. Production volumes in the sector surged with a CAGR of 6.8% during the same period, reaching 653.8 billion metric tons in 2022.
Also, foreign investments have poured into Indonesia’s mining sector in recent years, signifying global confidence in its immense potential. The sector attracted $5.1 bn in foreign direct investments (FDI) in 2022, marking a 34.79% increase from the previous year.
This capital influx played a pivotal role in Indonesia’s economic landscape, constituting 11.29% of the country’s total FDI for the year, with mining only second to the base metals industry in terms of FDI inflows.
“Indonesia is a key player in several mineral markets, including nickel, which is one of the most widely used minerals in the production of EV batteries. This allows the Indonesian government to leverage its rich mineral resources to entice more foreign investment, which is exactly what it has been doing,” said Oxford Economics.
Indonesia’s mining industry benefiting from government measures
Indonesia’s thriving mining industry is also benefiting from various government measures. These initiatives aim to enhance the sector’s competitiveness and sustainability while attracting increased investments.
For starters, there is a concerted government effort to boost downstream activities within the country’s mining sector. This includes investments in processing capabilities to create higher-value products. “For example, in 2022, there was a significant push for the processing of bauxite—a raw material used in aluminum production—and copper concentrate processing and tin processing are set to increase from 2023 onward,” said McKinsey & Company.
The Southeast Asian nation is also committed to promoting transparency in the mining sector. It is actively working to improve data transparency, such as through the Energy and Mineral Resources One Map initiative, which provides accessible and comprehensive information about mining activities and licenses.
In addition, the country also aims to change its status as a primary exporter of raw minerals to produce higher-value, processed goods. “By banning nickel exports, President Jokowi’s administration aims to transform Indonesia from a primary exporter of raw materials into a producer of higher-value, processed goods, ultimately benefiting the nation’s economy and its standing in the global market,” said Nikko AM.
However, problems persist in Indonesia’s mining industry. Environmental concerns, foreign ownership limits, lack of a comprehensive regulatory framework, and licensing issues are some of the problems that need to be addressed urgently.
How to invest in Indonesia’s mining industry?
Indonesia’s mining stocks are proving to be enticing investment opportunities, with the country producing the world’s top-performing IPO in 2023. Here, we present a selection of three stocks within the country’s mining sector that may capture the interest of investors.
PT Amman Mineral Internasional Tbk
This is an Indonesian company primarily engaged in copper and gold mining activities. They manage the Batu Hijau mine located on the island of Sumbawa. Copper concentrate stands as the main output of the Batu Hijau mine.
In 2022, the company reported a net income of $1.09 bn, which represented a significant increase of over three times compared to the previous year. Additionally, Amman saw year-on-year revenue growth of 117.86%, totaling $2.83 bn.
With a market capitalisation of $25.29 bn, the company is listed on the Indonesia Stock Exchange (IDX: AMMAN). As of August 29, it held the distinction of being the best-performing IPO globally in 2023, with its shares having surged by an impressive 153% since its stock market debut on July 7. Amman boasts a PE ratio of 19.13 and a price-to-book ratio of 6.86.
PT Adaro Energy Indonesia Tbk
PT Adaro Energy Indonesia Tbk holds the position of Indonesia’s second-largest coal miner in terms of production volume and is, in fact, the largest in market capitalisation within the country. This conglomerate also diversifies its services, extending beyond coal mining to encompass logistics, mining contracting, port operations, marketing, and power generation.
The company saw a 175.39% year-on-year increase in its net profit, reaching $2.83 bn in 2022. During this same period, Adaro achieved substantial revenue growth, witnessing a 102.9% year-on-year increase, amounting to $8.10 bn.
The company, with a market capitalisation of $5.81 bn, has its shares traded on the Indonesia Stock Exchange (IDX: ADRO). Over the past year, Adaro’s stock has experienced a 28.36% decline. The company boasts a price-to-earnings ratio of 6.93, a forward PE ratio of 4.88, and a price-to-book ratio of 0.90.
Additionally, American Depository Receipts (ADRs) for Adaro are listed on NASDAQ (OTCMKTS: ADOOY) in the United States and can be traded through over-the-counter transactions.
PT Trimegah Bangun Persada Tbk
Also known as Harita Nickel, this company is an Indonesian nickel producer located in Indonesia’s North Maluku province. It is known for its comprehensive capabilities in both upstream and downstream operations. Trimegah operates as a subsidiary of the Harita Group, a conglomerate with a business history spanning over a century in Indonesia.
Last year, the company achieved a year-on-year increase of 16.27% in its revenue earnings, reaching IDR 9.6 tn (equivalent to $625.17 mn). During that same period, its gross profit also saw a year-on-year rise of 3.58% to IDR 4.67 tn (approximately $304.12 mn).
Trimegah’s shares are traded on the Indonesia Stock Exchange (IDX: NCKL). The company currently holds a market capitalisation of $4.21 bn. Since its initial public offering on April 12, 2023, the company’s stock has experienced a decline of 23.75%. Additionally, its shares are characterised by a PE ratio of 9.88, a forward PE ratio of 6.43, and a price-to-book ratio of 3.24.
Editor’s note: All stock movement figures as of September 7, 2023.
