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Bumi Resources Minerals

In October 25, 2016, in this blog we've talked about one of the most phenomenal stock in the history of stock market in Indonesia, Bumi Resources (BUMI), which suddenly jumped from Rp82 to Rp123 per share, in just two trading days. However, after considering the rise in coal prices, plus the company’s plan to convert its debt into shares (which was then approved by the creditors), we concluded that BUMI is very attractive because it is still likely to rise further. You can read the analysis in here.

Three months passed.. and now suddenly BUMI is already trading at Rp500 per share! Because the daily transaction value is also high (more than US$ 50 million per day, one of the largest in the market), then of course this stock became the center of attention, where people who had earlier claimed that they are ‘Not going to touch BUMI!', they now began to wonder: Maybe BUMI is a good company indeed??

But even if BUMI is that good, it is now not priced at Rp50 per share anymore, but 500.. So what if we buy his ‘brothers’ instead? And perhaps because of that, some of the Bakrie related stocks like Bumi Resources Minerals (BRMS), Darma Henwa (DEWA), Energi Mega Persada (ENRG), Bakrie Sumatera Plantations (UNSP), until Bakrieland Development (ELTY), all rise from the grave. But for experienced investors, it is quite clear that the rise of those zombie stocks is only because they follow the rise of BUMI only, not necessarily because of the fundamentals of the companies concerned.

Okay, but what about BRMS? In contrast to other Bakrie Group stocks which only rise recently in this January, BRMS already begun to move forward since October last year, or almost simultaneously with the rise of BUMI. And although the increase is not as high as BUMI, but when compared with other Bakrie shares, BRMS is so far the highest one. Moreover in the ownership structure of the company, BUMI hold 87% stake in BRMS, so if BUMI later book a good performance and large profit because of rising coal prices, BRMS should also experience the same, for BUMI and BRMS is actually the same company, is not it? Well, maybe not, and here’s the explanation:

Analysis of Bumi Resources Minerals

BRMS history begins in 2009, when the Bakrie Group together with the Province Government of West Nusa Tenggara successfully acquired 24% stake in Newmont Nusa Tenggara (NNT), a gold mining company. In the same year, the Bakrie Group also successfully acquired three other mining companies, namely PT Gorontalo Minerals (gold and copper), PT Citra Palu Minerals (gold), and PT Dairi Prima Mineral (zinc and lead), all the four company was subsequently placed under BUMI. However, because almost all of the other assets of BUMI engaged in coal mines, while four companies above, although they’re also mining companies, but not coal, then arose the idea to set up a holding company under BUMI to specifically accommodate NNT and the other three. Thus Bumi Resources Minerals was established. Only a year later ie in 2010, the company successfully held an IPO with an initial price of Rp635 per share. Regulation from the Indonesia Stock Exchange (IDX) actually requires a company to have been established for at least three years before the IPO, but the Bakrie Group could deal with these rules by acquiring (in 2009) a small company called PT Panorama Timur Abadi which had established since 2007, then changed its corporate name to Bumi Resources Minerals, and immediately held the IPO a year later. Pretty clever, is not it?

However, in contrast to the coal assets of BUMI which mostly already in operation, of the four assets placed under BRMS, only NNT which already in operation. When BRMS hold an IPO in 2010, the initial plan was that the company will use the proceeds to carry out the exploration activities for its three subsidiaries, namely Gorontalo Minerals, Citra Palu, and Dairi Prima, all of which will start operating and generating revenue by the year 2013.

But as we all know, in 2012 coal prices began to fall, the financial performance of BUMI as the parent company of BRMS began to deteriorate, while the directors were more busy in dealing with the mountainous debts of both companies instead of working on mining operations. Thus the exploration activities in the three mine owned by BRMS almost stopped completely, and there was no outlook about when Gorontalo Minerals and the others will be able to start operating. For some time, the condition was not a big deal, because BRMS still have a source of income from its share of profit in NNT.

But in 2016, after much struggle from the Bakrie Group to break away from its debt problems, in the end they had to sell their stake in NNT to the Medco Group, even at a low price so that in the income statement of BRMS, there was a large investment loss of US$ 660 million. But the biggest problem is probably not in the losses, but: Having no longer holds NNT, starting in 2017 and onwards, BRMS is certainly have no source of income anymore.

Because of BRMS’ three mining subsidiaries, it is now estimated that they will begin operating in the year.. 2019, of course with an assumption that the exploration activities would going well (so the realization could be much longer). BRMS actually still have one source of income, ie from marketing services of mining products, but its value is very small, only US$ 2 – 3 million per year. On the other hand its exploration activities will cost up to hundreds of millions of dollars, thus BRMS will almost certainly suffer losses in 2017, and also in 2018.

Thus, in contrast with BUMI that is likely to re-gain profit in 2017 thanks to the rise in coal selling prices, plus its book value will be positive once again because of the successfull debt restructuring, or in other words the increase in the company’s shares in the last three months had a fundamental basis, then for this BRMS, I frankly do not have an idea. Actually there are two conditions that can make BRMS book profit immediately, namely: 1. The Company sold one of its three mining assets at high prices, or 2. the Bakrie Group successfully acquired a mining company which are already operating, then placed it under BRMS. But as long as I could observe, there are no signs that the two conditions will going to happen.

Okay Sir, then what abou DEWA? ENRG? UNSP? ELTY? Or maybe Bakrie & Brothers (BNBR)?? Well, just chill! We will discuss them one by one. Actually if you are bold enough to speculate, then as long as BUMI keeps going, his brothers including BRMS will also keep rising, even if their financial statements are terrible. But just like three months ago we analyze BUMI based on the fundamental approach and value investing and the results proved to be very good, then it would be much safer if we buy (or not buy) the shares of other Bakrie companies by using the rules of value investing as well, instead of using a mere technical analysis (because for this kind of stocks, trust me it won’t work).

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