Metal Mining Sector Update - 31 March 2021

Battery Empire in the Making

The Official Announcement

•  The SOE Ministry has officially announce the establishment of a battery holding company in Indonesia called Indonesia Battery Corporation (IBC) on Friday (26/03) with the purpose of managing the integrated battery industry from upstream to downstream. IBC will be fully formed on 1H21.
•  Four SOE’s namely: 1) MIND ID; 2) ANTM; 3)PLN; and 4) Pertamina, each holds 25% ownership within IBC. With MIND ID’s 65% of ownership in ANTM (see exhibit 02), MIND ID’s direct and indirect ownership in IBC amounts to 41.25%, so to speak.
•  ANTM and MIND ID will be providing necessary metals as well as down streaming them through smelters. PLN will contribute on the downstream by preparing electricity reliability and building infrastructure for Public Electric Vehicle Charging Stations (SPKLU) as well as Public Electric Vehicle Battery Exchange Stations (SPBKLU). Pertamina, on the other hand, will contribute in the middle stream with precursor, cathode, battery cell and battery pack, while working together with PLN on the recycling stage.
•  The battery ecosystem will need USD13-17 billion of investment in which an MoU has been signed by South Korean LG reaching USD9.8 billion to build a battery plant while Chinese Contemporary Amperex Technology (CATL) also plans to invest USD5 billion. Both foreign companies are the Top 2 players in the global battery industry with more than 50% of market share.
•  Investment from several countries such as the US, Japan and the European countries are being explored by the Government. Subsequently, Hyundai is currently constructing an EV factory with 250,000 vehicles production capacity that is estimated to operate in FY22F.

Adding More Appeal to Indonesia

•  It is well known that Indonesia has a gigantic nickel reserve, probably a third of the world’s with 21 billion tons of nickel. With the ever-increasing demand, especially for the battery, reaching around 10% of the estimated nickel production in FY25F and growing, the Indonesian Government is securing their chances and seizing the opportunity to become a global battery player.
•  IBC targeted the battery cell production capacity to reach 140 gigawatt hour (GWh) in FY30F and the 50 GWh intended for export. Based on CellPress Research (Olivetti, 2017), 1KWh of nickel cobalt aluminum (NCA) battery needs 0.759 kg of nickel. So, with 140 GWh capacity, IBC would need 106,260 tons of nickel, which will power 140 million EV (assuming 100 KWh battery capacity per EV).
•  Ferronickel production as of 11M20 was recorded at 1.32 million ton, but only 308,900 ton were absorbed locally, which means to fulfill IBC nickel it would take 34.40% of domestic consumption.

OVERWEIGHT Recommendation with top Picks: ANTM and INCO

Still, we recommend OVERWEIGHT outlook for the metal mining sector with our BUY recommendations for:

1)      ANTM (TP: IDR2,550)*

•        ANTM estimated future ferronickel production capacity could reach 40,500 tons, supported by Ferronickel plant in East Halmahera which will add 13,500 tons of ferronickel production (from 27,000 tons currently). Though the plant operation is still delayed due to electricity shortage.
•        If ANTM can provide 22,770 tons of nickel (~56% of future capacity) within the first phase of battery cell production of up to 30 GWh, ANTM increase their revenue by ~19% from the nickel sales alone. Moreover, 140 GWh in FY30 will potentially contribute IDR23.80 tn or ~87% additional revenue, almost doubling up ANTM’s revenue in FY30 (FY20 revenue base, assuming nickel ASP at USD16,000/mt with IDR14,000/USD).
•        ANTM is also in the process of building a High-Pressure Acid Leach (HPAL) smelter, which will produce nickel sulfate, the materials used in nickel-based ion lithium battery. The smelter is expected to operate in FY22F.
•        ANTM is planning to increase their ownership in Weda Bay from 10% to 40%. Weda Bay is known to have a large nickel reserve of up to 9.3 million ton, said to be the largest in the world, with smelting capacity of 30,000 tons per year.

2)      INCO (TP: IDR7,150)

•        Currently, INCO is also in the construction of HPAL smelter as well, whilst INCO still fully export it’s nickel matte to VCL (Canada) and Sumitomo Metal Mining Co. (Japan).
•        MIND ID has 20% ownership of INCO, we hope that there is a potential of domestic nickel supply for the IBC in the future.

Disclaimer On

ANTM, INCO