State-owned mining holding company Inalum will soon own 20 percent of Vale Indonesia, who supplies 5 percent of the world's nickel demand. (GA Photo/Mohammad Defrizal)

Inalum Sets Aside $500m to Acquire Vale Indonesia


NOVEMBER 25, 2019

Jakarta. Indonesia Asahan Aluminum, or Inalum, a state-owned mining holding company, has set aside $500 million to acquire a 20 percent stake in Vale Indonesia, the country's largest nickel producer, an Inalum executive said over the weekend. 

The price reflected a $2.5 billion valuation of Vale Indonesia and imposed a 6.8 percent premium to the company's market capitalization of $2.34 billion as the Indonesia Stock Exchange (IDX) opened on Monday. 

Ogi Prasto, Inalum's acting president director, said the company plans to finance the acquisition using proceeds from the company's bond issuance last year and some internal cash.

Inalum issued $4 billion worth of global bonds last year and used $3.85 billion from the proceeds to acquire a 51 percent stake in Freeport Indonesia, the largest gold producer in the country, from London-based mining giant Rio Tinto and US mining conglomerate Freeport McMoran. 

"To acquire the 20 percent stake [in Vale Indonesia] we will spend approximately $500 million from our 2020 budget," Ogi said. 

Ogi said the company expected to sign a conditional sale and purchase agreement with Vale next month. 

"We expect to have the transaction done and dusted by no later than June next year," he said.

Indonesian mining law requires Vale Indonesia, currently still under the control of Vale Canada Limited, who holds a 58.7 percent stake in the company, and Sumitomo Metal Mining (20.1 percent), to divest 20 percent of its shares to one or more local entities by October this year after selling another 20 percent of its shares to the public. 

The Vale takeover is part of the government's strategy to take control of a big chunk of the global nickel supply and develop a local electric vehicle battery manufacturing industry. 

"This is a strategic divestment. Vale supplies 5 percent of the world's nickel demand," Abra Talattov, an economist at the Institute of Economic and Financial Development (Indef), said.

"In the future, the electric vehicle battery industry could become a key bargaining power for Indonesia," Abra said.