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A Boon for Mining Companies

In the world of commodities, nickel has once again taken the spotlight with its prices soaring to their highest level since September 2023, reaching USD 19,636 per ton yesterday.

According to Bloomberg, nickel prices surged by 8.59% within a week, bringing a wave of optimism for nickel mining companies as it could potentially lead to an increase in the average selling price (ASP).

Source: Bloomberg

Among the beneficiaries of this upward trend is PT Merdeka Battery Materials Tbk (MBMA), a subsidiary of PT Merdeka Copper Gold Tbk (MDKA).

Operating as a price taker with the largest limonite nickel resource in the world (13.8Mt contained nickel and ~150,000 tonnes p.a. current processing), MBMA stands to benefit significantly from the current nickel price rally. With downstream projects like Rotary Kiln-Electric Furnace (RKEF) and Nickel Matte Converter, alongside plans for High-Pressure Acid Leach (HPAL) facilities, MBMA is strategically positioned to leverage this surge in prices.

Rotary Kiln-Electric Furnace (RKEF)

The rise in nickel prices will also boost the performance of Sulawesi Cahaya Mineral nickel mines- which has commenced full production with targets set at 4 million tons of saprolite ore and 11 million tons of limonite ore, as well as MBMA's downstream projects such as nickel pig iron (NPI) and nickel matte.

Nickel Matte

The ripple effects extend beyond MBMA, impacting players like PT Trimegah Bangun Persada Tbk (NCKL) and PT Vale Indonesia Tbk (INCO).

Indonesian nickel producers, renowned for their competitive cost structures, are poised to capitalize on this trend. With cash costs reported around USD 10,000 per ton as of 2023, companies like INCO and NCKL stand to reap significant rewards, bolstering margins and profits.

Looking ahead, our analyst, Andre, suggest nickel prices will hover between USD 19,000 and USD 20,000 per ton in the coming years, setting a positive trajectory for the industry. However, prudent monitoring of capital expenditure and operational efficiencies will be crucial for sustained growth.

From a valuation standpoint, all the 3 companies I mentioned above shows potential for an uptrend; however, we need to continuously monitor how the company like MBMA for example, delivers their capital expenditure spending, both on AIM and HPAL, which commence in 2025, and their consistent improvement in free cash flows.

The surge in nickel prices not only signifies a positive outlook for the mining sector but also underscores the significance of Indonesia in the global nickel market.

As prices continue to fluctuate, the resilience and adaptability of Indonesian nickel producers will play a crucial role in shaping the industry's future.


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