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Analysis: MIND ID to gain majority stake at Vale to drive Nickel downstreaming
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Workers operate a tool to break limestone into small pieces in the Klapanunggal limestone hill - Bogor Regency, West Java (Friday, December 3, 2021). Even though they are assisted by small machines, they prefer to work manually. (JP/P.J.LEO)
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n another move of resource nationalism, the government through mining holding company MIND ID plans to acquire majority stake in the country’s largest nickel miner PT Vale Indonesia (INCO) in a bid to speed up the downstreaming of nickel industry in the country.
MIND ID currently owns 20 percent of INCO and plans to purchase another 14 percent stake to make it the largest shareholder of the company. Currently, Vale Canada Limited holds the largest stake with 43.79 percent, Sumitomo Metal Mining Co. Ltd. holds 15.03 percent and the investing public owns the remaining 20.49 percent.
Having a controling stake at Vale serves as a strategic move for MIND ID to control supplies of nickel, the main raw material for stainless steels and batteries for electric vehicles (EVs), as the government has ambitions for Indonesia to take on a major role in the global supply chain, from the upstream to the downstream, including manufacturing EV batteries in the country.
To support its ambition, the government has slapped an export ban on nickel, which prompted the European Union to challenge it at the World Trade Organization. But the government seems unfazed and has taken various measures to speed up the nickel downstreaming process by developing smelters.
The government has apparently been dissappointed with INCO’s slow progress in developing its three promised smelters. The three smelters would be developed in Sorowako with investment of US$2 billion, in Bahodopi with $2.5 billion, both in South Sulawesi, and Pomalaa, Central Sulawesi, with $4.5 billion. No significant progress has been reported.
The government apparently wants to repeat its success in acquiring the majority stake in the country’s largest copper and gold miner Freeport Indonesia, after which the government forces Freeport to speed up the development of its $2.8 billion smelter in Gresik, East Java. Freeport had actually been reluctant to build the smelter arguing that investing in smelters did not bring good margins.
With Vale, the government currently has a good bargaining position as the company’s contract of work is due to expire by the end of December 2025. To get an extension, the contract of work needs to be changed into a special mining business permit (IUPK), under which Vale Indonesia needs to divest 51 percent of its shares to Indonesian shareholders, such as the central government, regional governments, state-owned enterprises (SOEs), region-owned enterprises (BUMD) and the private sector.
However, as the purchase of the additional 14 percent stake would be using INCO stock prices on the Indonesia Stock Exchange as reference, the execution of the purchase could be delayed because INCO prices began to rally, reaching its highest level in the past 15 years, near Rp 9,500 per share following news of MIND ID’s planned acquisition.
As the largest nickle miner, Vale Indonesia produced 60,090 tonnes of nickel in matte last year, down 8 percent from 65,388 tonnes in 2021. This year, the company targets to increase its nickel production to over 70,000 tonnes.
What we’ve heard
Several sources within the State-Owned Enterprises Ministry have indicated that the ongoing tug-of-war over the divestment of Vale Indonesia shares is primarily due to Vale Canada Ltd's reluctance to relinquish mining company ownership to MIND ID. Vale Canada Ltd is even rumored to be unwilling to allow MIND ID to become the majority shareholder.
However, divestment is a prerequisite for extending the Contract of Work (CoW) to the Special Mining Business License (IUPK). Lengthy negotiations have ensued due to Vale Canada, the majority shareholder of Vale Indonesia, with a stake of 43.79 percent, setting a commercial price for the shares to be divested. "The negotiations are still centered around the price," stated a government source.
Vale Canada is said to be awaiting an offer from MIND ID until the end of July. If no bid is made, Vale Canada will divest to another party. At this juncture, MIND ID has sought the support of several political parties in the legislature. These politicians have urged Vale to divest more than 11 percent of the shares. Otherwise, they threaten not to extend the CoW of Vale Indonesia to the IUPK when the contract expires in 2025.
MIND ID has been dissatisfied with Vale Canada Ltd from the outset. As the majority shareholder of Vale Indonesia, Vale Canada has purportedly refrained from distributing dividends for several years.
To become the majority shareholder, MIND ID must also acquire shares of Vale Indonesia from other existing shareholders. Additionally, there is a requirement to involve local governments in this process. It has come to light that there are rumors of certain undisclosed parties attempting to acquire Vale's shares, projecting themselves as potential partners and injecting funds into local companies. These rumors surfaced when local governments expressed dissatisfaction with being excluded from the divestment process.
Alternatively, local companies may receive loan injections. They would then be obliged to repay these loans from Vale's dividend payments.
Disclaimer
This content is provided by Tenggara Strategics in collaboration with The Jakarta Post to serve the latest comprehensive and reliable analysis on Indonesia’s political and business landscape. Access the latest edition of Tenggara Backgrounder to read the articles listed below:
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- PAN offers Erick as VP to highest bidder
- More names surface in BTS graft case
- JIS' renovation: An effort to undermine Anies' electability
Business and Economy
- MIND ID to gain majority stake at Vale to drive Nickel downstreaming
- Indonesian banks' funding of coal industry contradicts climate efforts
- Government plans LNG export ban to boost downstream industry
- Pay Later delinquency spikes, driven by pressure on low income users
