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Miner Vale Indonesia keeps tightening belt
For nickel mine operator PT Vale Indonesia (INCO), drastic times call for drastic measures
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For nickel mine operator PT Vale Indonesia (INCO), drastic times call for drastic measures.
The publicly listed firm has been forced to keep tightening its belt following the reopening of the export tap for low-grade nickel amid uncertainties in global nickel prices.
Vale Indonesia, which is the country’s largest nickel producer and part of Brazilian mining giant Vale, saw its profits plunge 96.2 percent year-on-year to only US$1.9 million in 2016 as a result of a 22 percent drop in global nickel prices.
The three-month nickel price on the London Metal Exchange (LME) plummeted to $7,725 per ton in February 2016, the lowest in 13 years, due to mounting global inventories.
The price, however, bounced back to about $11,700 in November following a clampdown on mines in the Philippines.
“The price was already getting better by the end of last year. However, the government suddenly issued the new regulation on Jan. 11, leading to uncertainties for the global nickel market,” Vale Indonesia president director Nico Kanter said after an annual general shareholders’ meeting on Monday.
Under the regulation, the government relaxed the export ban for low-grade nickel with content below 1.7 percent, along with copper concentrates and washed bauxite, in return for the miners’ commitment to convert their contract of work (CoW) to a special mining license (IUPK), divest 51 percent of their shares to local entities and build a new smelter.
“If the government is not able to control the export quota wisely, it will lead to a further drop in nickel prices,” Nico said.
The LME’s three-month official nickel bid/offer spread fell by $265 to $270 per ton week-on-week to $9,940 to $9,950 per ton on March 24.
State-owned securities firm PT Bahana Sekuritas has previously predicted that the government’s relaxation policy on export bans could lead to a significant drop in global nickel prices to around $9,500 per ton this year, especially considering mounting supplies in the global market.
Vale Indonesia plans to maintain various internal efficiency measures this year, including its coal conversion project to replace high sulfur fuel oil (HSFO) with pulverized coal in its dryers.
HSFO has been primarily used to operate the company’s processing plant and accounted for 63 percent of its fuel costs last year.
The company saw its HSFO consumption decrease by 180,000 barrels to 1.6 million barrels last year due to implementation of the coal conversion project on one of its five reduction kilns, and it was able to save more than $12 million throughout 2016.
In 2017, INCO aims to implement such conversion on another kiln. It also plans to keep reducing its costs of revenue, which already fell by 18 percent year-on-year to $550 million last year.
“We will never be able to predict our net profit as it depends on the nickel price. We can only set our focus on controlling the costs more efficiently,” Vale Indonesia chief financial officer Febriany Eddy said.
Such efficiency measures are deemed crucial because the firm has various expansion plans to be carried out in the years to come.
It has allocated nearly $90 million in capital expenditure to finance its operations in 2017, including to upgrade its nickel smelter in Sorowako, South Sulawesi.
