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Golden Opportunity

The recent surge in global gold prices to its all-time high has sparked optimism among investors, particularly in gold mining stocks.

With fresh US inflation data fueling hopes of rate cuts, gold surged as much as 23.7% in the past 6 months, reaching an impressive $2,265.73 per ounce.

Source: Market Insider

When interest rates are low, gold becomes more appealing to investors compared to other investments like bonds, which typically yield lower returns during such times.

This surge in gold's popularity isn't solely a result of domestic factors but is significantly influenced by robust overseas demand. Central banks worldwide are increasingly diversifying their reserves away from the US dollar due to geopolitical risks, further propelling the upward trajectory of gold prices.

In the Indonesian context, the global surge in gold prices has infused a wave of positivity among gold mining companies. Among them, PT Merdeka Copper Gold Tbk (MDKA), one of Indonesia's leading gold producers, stands to benefit from this bullish trend in the precious metal market.

However, MDKA's journey hasn't been devoid of challenges. Despite the overall uptrend in gold prices, MDKA's share price has lagged behind its counterparts like HRTA, ANTM, and BRMS in the past month.

Source: Google Finance

This lag can be attributed partly to the company's recent financial performance, notably recording lower earnings in the 4Q23. The decline in earnings was primarily due to margin pressures in the gold segment, as All-In Sustaining Costs (AISC) escalated, leading to a substantial decrease in margin.

However, despite this setback, MDKA demonstrated robust revenue growth of 96.2% year-over-year, reaching US$1.7 billion in 2023 compared to US$869.87 million in the previous year.

MDKA Financial Performance

The Merdeka Group, which MDKA is a part of, is actively involved in two significant projects. The Tembaga Tujuh Bukit Project in Banyuwangi and the Pani Gold Project in Gorontalo show promising potential for MDKA's future growth.

Source: Petromindo

The Tembaga Tujuh Bukit project has witnessed a significant increase in indicated resources, with estimates suggesting it could produce over 112,000 tons of copper and 366,000 ounces of gold annually for more than 30 years upon reaching peak production.

Meanwhile, the Pani project represents another opportunity for MDKA, with an investment of US$101 million and a production target of 120-140,000 ounces per annum. The feasibility study for the Pani project indicates an attractive economic value for large-scale, long-term, and low-cost gold mining operations.

Our analysts, Andre, foresee a positive outlook for MDKA's gold segment margin, expecting it to improve to USD 880 per ounce due to the favorable gold price outlook. Additionally, the copper segment is anticipated to record lower losses. With these projections, Andre expect MDKA to bounce back from its previous quarterly loss and record earnings of USD 16 million in 2024.

Considering the potential for growth and the positive outlook for gold prices, analysts maintain a BUY recommendation for MDKA with a TP of Rp 3,000.

With all this in mind, it seems like a good time for investors to consider MDKA. As global events continue to unfold, the demand for gold as a safe investment is likely to remain strong. And with MDKA's strategic plans and good projects, there could be bright days ahead for the company and its investors.


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