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Jakarta Post

Vale expects no increase in nickel output

  • Raras Cahyafitri

    The Jakarta Post

Jakarta   /   Thu, February 13, 2014   /  10:00 am

Jakarta-listed nickel miner Vale Indonesia expects flat growth in its nickel production this year amid uncertainty in the negotiation of its contracts with the government.

According to figures presented to the House of Representatives Commission VII overseeing energy on Wednesday, Vale Indonesia '€” the local unit of Brazilian mining giant Vale '€” expected to produce 79,691 tons of nickel (TNi) this year, almost the same as company'€™s 2013 production target of 79,552 TNi.

The company is yet to release its official 2013 operational performance numbers as the figures have not been audited.

Despite the flat production expectation, Vale Indonesia president director Nicolaas '€œNico'€ Kanter said the company'€™s 2014 financial performance would fare better than last year.

'€œOur performance during the first quarter to the third quarter in 2013 was very good, however, we had a technical problem in the fourth quarter, which means we will likely miss our production target of 2013,'€ he said.

Nico did not reveal the details of the technical problem his company dealt with in the last three months of last year.

Vale Indonesia, whose shares are traded on the Indonesia Stock Exchange (IDX) under the code INCO, is also expecting to complete a mining contract renegotiation with the government within this first quarter, which will determine the fate of the company'€™s further investment worth US$4 billion, Nico said.

'€œIn investment, we need certainty. For most of our projects, we use technology that makes our expenditure huge, therefore, we cannot immediately halt it when the nickel price is volatile,'€ Nico said.

Nickel miners have been suffering from declining price due to weak demand of big consumers such as China amid the unfavorable global economic condition.

Meanwhile, an increase in the production particularly in Indonesia ahead of the implementation of the ore export ban, which started in early January caused an oversupply in the market, making the price fall deeper.

Nickel for delivery in three months on the London Metal Exchange (LME) lost as much as 1.2 percent to $14,035 a metric ton, the biggest slump since Feb. 3, Bloomberg reported on Tuesday.

Vale Indonesia expects that the nickel price will rebound and touch $16,000 per ton this year on the back of disruption of supply from Indonesia, which implemented a ban on the export of ore on Jan. 12.

With the expected price increase, Vale expects to earn $1 billion in its total sales this year according to a document given to members of the House of Representatives during a hearing on Wednesday. For its bottom line, the company expects to book roughly $112 million.

Nico said a positive trend was seen following the implementation of the export ban, however, the real impact would only be seen after China reduced its inventory, which had been increased before the ban began effective.

'€œFor now, inventory is still enough for the next few months. People are monitoring the implementation of the Mining Law,'€ Nico said.

Analysts have said that the implementation of ore export ban would be positive for Vale Indonesia as the company already produces end product of metal called nickel matte. Under the 2009 Mining Law, all mining companies are required to process and refine ores in domestic smelters before export. Under a government regulation, nickel matte with a minimum nickel content of 70 percent can be sold overseas, without export duty.

'€œWe performed a sensitivity analysis on our model and it showed that for every 1 percent increase in our full year 2014 nickel price assumption '€” our current LME nickel price assumption is at $16,000 '€” INCO'€™s net profit would increase by approximately 6 percent assuming other variables were constant,'€ Wilim Hadiwijaya of PT Ciptadana Securities said in a recent research.

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