Indonesia Seeing Expansion Trend in Mining Businesses

TEMPO.CO, Jakarta – A number of mining services companies are tapping into other businesses following the declining performance of the mining sector. PT United Tractors Tbk (IDX-UNTR), a subsidiary of Astra Group, has signaled that it will difersify its business to other sectors.

UNTR corporate secretary Sara K. Loebis said diversification is necessary as the company is facing constraints in achieving performance targets. Some constraints include the increasing competition in the heavy equipment market and weakening coal prices.

In August, PT ABM Investama Tbk (IDX-ABMM) announced that it has tapped into the construction sector. Through its subsidiary, PT Cipta Kridatama, ABMM—a company that used to focus on coal mining business services only—now aims to work on highway projects, dams, ports, and others construction projects.

Coal mining contractor PT Petrosea Tbk (ISX-PTRO) has also expanded its business for the construction business as well as oil and gas. Last year, Petrosea worked on a US$26.7-million road construction project in East Kalimantan. The company is also working on deepwater a gas development project in the Makassar Strait with PT Chevron Pacific Indonesia worth US$27.5 million.

Reza Priyambada, an analyst from Trust Securities, said it is reasonable for companies to expand and diversify as an effort to maintain performances. "But companies must dare to bear risks such as not getting a new contract," said Reza.

Meanwhile, Kiswoyo Adi Joe from Investasi Saran Mandiri said the mining sector is hit by unimproving prices. Mine product prices are expected to remain volatile until 2015.

However, Kiswoyo said large mining services companies do not need to diversify their businesses because they can still survive eve if business is low. "If a company has a solid base, there is no need for diversification," he said.

DINI PRAMITA | GANGSAR PARIKESIT