SINGAPORE (May 8): Just like how gold and copper are often found near each other, a rather high concentration of cobalt has been discovered concurrently with the nickel ore being dug out by Indonesia-based nickel miner Silkroad Nickel.
Cobalt is a key ingredient needed to make lithium ion batteries, used in growing numbers to power electric vehicles, and commands a price more than twice that of nickel.
Silkroad Nickel could look into expanding into cobalt mining, processing, and supply. However, in the near term, the company plans to focus more on its core nickel business, as expanding into cobalt will require more capital expenditure.
“Our full concentration now is to expand into the downstream,” CEO Hong Kah Ing tells The Edge Singapore in an interview. “In the near to medium term, we do not see ourselves diversifying into other commodities.”
Indeed, Silkroad Nickel sees plenty of prospects from mining and processing nickel, which is needed for the production of stainless steel. It is ramping up its refining joint venture too (see sidebar).
The company holds a licence to carry out nickel ore mining operations at an approximately 1,301ha mining concession area in the Morowali Regency, Central Sulawesi. As at Sept 30, 2019, the concession has an estimated resources of 146.6 million wet metric tonnes. Indonesia is one of the largest producers of nickel, with a market share of around 27% of world output.
Unsurprisingly, China, with its voracious appetite for all manners of resources, is the largest consumer of Indonesia’s nickel ore, with a 43% share of demand in 1H2019.
In 2019, China’s production of stainless steel grew 11%. This pace might slow to 5% this year, and moderate to 2% in the following three years, according to Shanghai Metal Markets.
However, there is another growing source of demand for nickel besides producing stainless steel: just like cobalt, nickel is a key ingredient used in the production of lithium-ion batteries.
In a report last September, DBS analyst notes that demand for nickel used in the production of electric vehicle batteries is expected to grow by 19% annually by 2030, while demand from stainless steel production will be growing at a 4.2% CAGR by 2030.
Ban supports prices
Silkroad Nickel was listed through the reverse takeover (RTO) of suspended cash company China Bearing (Singapore) by Singapore-incorporated Far East Mining’s wholly owned subsidiary, FE Resources. After the RTO, the group changed its name to Silkroad Nickel and made its trading debut on the Catalist board on July 30, 2018, at 30 cents apiece. It is the first and only nickel mining company listed on the Singapore Exchange.
In its latest FY2019 earnings, Silkroad Nickel reported audited earnings of US$136,000 ($9192,822), compared to a loss in FY2018 of US$4.8 million. This came on the back of a 169.6% y-o-y increase in revenue to US$15.5 million.
For FY2018, the company’s financials were rather lacklustre as a lower quantity of ore
was sold because the company was conserving stock in anticipation of getting an export quota
licence for export market sales,. “2019 was essentially the first year where the business started ramping up and that was the first year where you saw the actual performance of the nickel mining business,” explains executive director Syed Abdel Nasser Bin Syed Hassan Aljunied in the same interview.
Year-to-date, shares in Silkroad Nickel have decreased by 35.6% to close at 19 cents on May 5. At this level, the company has a market capitalisation of $49.6 million.
Not only are companies dealing in metals and other resources subject to basic laws of demand and supply, they are also exposed to shifting regulations. In September 2019, the Indonesian government said that it would ban all exports of nickel ore from Jan 1, 2020 – two years ahead of what was previously announced. The news caused nickel prices in 4Q2019 to surge, which allowed the company to sell its nickel ore at higher margins.
Dealing with Covid-19
However, market conditions have changed since the outbreak of the Covid-19 pandemic. Silkroad Nickel recognises that this year will be a challenging year as the pandemic continues to affect economies globally and several uncertainties loom. However, Naseer is positive about the company’s prospects as its business is minimally affected (apart from the delay in opening its new smelter facility).
“We hope to maintain the same [growth] momentum for FY2020. It is difficult in the current climate to put a number,” says Naseer.
However, due to the pandemic, most of the commodity prices have dropped. This includes nickel prices, which have dropped some 10.3% to around RMB101,575 RMB/ metric tonne on May 5 since the start of the year, on the Shanghai Metal Market. But, comparatively, nickel prices have not fallen as much as other metals, such as copper and zinc. The demand for nickel has also increased due to the increasing popularity of electric vehicles, for which nickel is an essential component in battery manufacture.
As for the cost of operations, the company is likely to benefit from the drop in the Indonesia rupiah. “We are positively affected in a way, because the rupiah has weakened and the US dollar has gone up. We are selling our nickel in US-dollar terms,” says Hong, adding that the drop in energy and fuel prices will further benefit the company. “We do foresee some good, positive impact on the third and fourth quarters this year,” he says.
Eyeing the downstream
Just mining raw nickel ore is not enough for Silkroad Nickel.
The company has plans to develop its downstream business, transitioning from its primary nickel ore mining operations to a fully-integrated nickel producer that subcontracts its nickel mining operations.
This will allow Silkroad to change its current business model from operating as a relatively small-scale mining operator in an environment of high capital expenditure and relatively low operational efficiency, to being a low-cost nickel producer with high-quality nickel mining assets.
“Our business, going forward, is centred more on the downstream, which is the blast furnace [smelter facility], and less on the upstream [nickel ore mining], which is what we are doing right now,” says executive director Syed Abdel Nasser Bin Syed Hassan Aljunied.
On April 20, the company announced that further to the non-binding memorandum of understanding that it had previously entered into with Shandong Xinhai (Singapore), a subsidiary of Shandong Xinhai Technology, the two parties had signed a non-binding heads of agreement, where both parties will build and operate a rotary kiln electric furnace (RKEF) nickel smelter in Sambalagi Village. This smelter facility is expected to produce up to 350,000 metric tonnes of ferronickel a year.
Concurrently, Indonesian-listed Aneka Tambang (Antam) has also signed a heads of agreement with Shandong Xinhai’s consortium to partner in the RKEF Project. It is expected that, on commissioning of the RKEF, Antam will acquire up to 49% in the RKEF Project with at least 51% of the RKEF Project being held jointly by the consortium of Shandong Xinhai (Shandong Xinhai and Silkroad Nickel).
Silkroad Nickel will hold a stake of between 15% and 20% in the plant, and will also undertake a long-term supply arrangement of nickel ore to this plant, with terms to be finalised.
The estimated cost of the RKEF Project (excluding the cost of any supporting coal-fired power plant) currently stands at approximately US$400 million ($567 million) and the RKEF nickel smelter is expected to be built and commissioned for operations by the second quarter of 2022.
“Shandong Xinhai will provide its world-class expertise to build and operate the RKEF nickel smelter, with Antam and Silkroad Nickel supplying the nickel ore to the RKEF nickel smelter,” says Silkroad Nickel CEO Hong Kah Ing.
As the RKEF project is underway, Silkroad Nickel in December last year signed a binding definitive head of agreement with Renewable and Sustainable Energy Holding, Artabumi Sentra Industry (ASI), and Anugrah Tambang Smelter (ATSM) to form a joint venture to build and operate smelter facilities for the production of nickel pig iron on Silkroad Nickel’s Sulawesi mine site.
By building the nickel smelter on its mine site, Silkroad Nickel has effectively expanded its business downstream and is moving towards its goal of becoming an integrated nickel company.
The Edge Singapore understands that the smelter facility has been completed, but due to current travel bans amid the Covid-19 pandemic, the group has to delay the start of operations for its smelter facility, as it lacks the manpower.
