Sorowako, South Sulawesi. Life hasn’t been that easy for Vale Indonesia, the local unit of Brazilian giant miner Vale, despite it having signed an amendment to its contract of work in October 2014.

Nico Kanter, president director at Vale Indonesia, and Febriany Eddy, chief financial officer and a director, told reporters at a gathering in Sorowako on Wednesday that updating some of its expansion projects would involve as much as $4 billion worth of investment in the next few years.

In January 2014, Vale unveiled its plan to spend up to $2 bil­lion to expand its nickel smelter in Sorowa­ko, South Sulawesi, and build a refinery in Bahadopi, Southeast Sulawesi.

“For this project, there are stages of developments. The first phase of development for the Sorowako [operation] development involves up to $500 million [in investment],” said Nico, the president director at Vale Indonesia, the biggest nickel producer in the country, since April 2009.

Vale operates the world’s largest integrated laterite nickel mining and processing operation in Sorowako, located around 600 kilometers north of Makassar City, the provincial capital.

The main product of Vale Indonesia is nickel-in-matte, a product with average content of 78 percent nickel, 1 percent cobalt and 20 percent sulfur and other metals. Matte is an intermediate product from lateritic ore, while nickel itself is used in various objects, especially in making stainless steel.

In daily life, nickel can be found in laptops, mobile phones, coins, cars, airplanes and skyscrapers.

Last year, Vale Indonesia produced 78,726 metric tons of nickel-in-matte. Febriany said that Vale Indonesia seeks to boost its production at Sorowako facility to around 90,000 metric tons.

Febriany also said that the company is now completing the final feasibility study for phase one of the $2 billion smelter and refinery projects and the company is still awaiting to secure environmental permit for the projects.

The CFO elaborated that once the final feasibility study is completed, that will be brought to shareholders in a meeting for approval.

“For this first phase, it needs three years [for the development],” said Febriany, adding that at this stage, the  additional production facilities will be powered from its Karebbe hydroelectric power plant — one of three power plants it operates in South Sulawesi.

Renewable energy

One of Vale Indonesia’s unique features since it started operations more than 35 years ago is that it has been using renewable energy.

The company operates three hydroelectric power plants in Larona, Balambano and Karebbe — all in South Sulawesi — that generate a total of 365 megawatts needed to operate the smelting and nickel ore processing furnace at Sorowako plant.

It also sources an additional 60 MW of electricity from diesel and coal generators for its dryer and kiln at the Sorowako facility.

Meanwhile, the next phase of developments would seek to boost Vale Indonesia’s production beyond 100,000 metric tons and a plan to build a refinery in Bahadopi, Southeast Sulawesi.

No details were explained for these projects, as Febriany said decisions on these plans would follow upon successful completion of the first phase of development in Sorowako.

Another expansion plan is a $2 billion develop­ment of a nickel refinery plant in Pomalaa, Southeast Sulawesi.

Vale Indonesia’s Brazilian and Japanese parent companies — Vale and Sumitomo Metal Mining of Japan — plan to invest in developing a facility that will process nickel ore into nickel matte.

The project is another capital intensive investment that the Brazilian and Japanese investors plans to pour into their Indonesia subsidiary, but progress hasn’t been that easy even after Vale Indonesia managed to sign a contract of work amendment last year that gave certainty over the company’s legality to operate in Indonesia for the next few years.

Brazilian mining giant Vale owns a 58.73 percent stake in Vale Indonesia and Sumitomo Metal controls 20.09 percent.

For this $2 billion project, Sumitomo Metal will own the bulk of shares and provide most of the financing.

The project to build the HPAL nickel smelting plant for processing low-grade nickel ore into nickel metal will be located within Vale Indonesia’s concession area in Pomalaa.

“There have been some constraints for this project. In 2012 to 2013, we have made a feasibility study with Sumitomo, but we were never be able to complete that because there was one very important data we cannot ship,” said Febriany.

She said that Vale Indonesia couldn’t send a sample of ore from its Pomalaa concession area to Japan to be analyzed by Sumitomo as the government of Indonesia considered the shipment as exports.

Export ban

Indonesia banned exports of some ore minerals, including nickel in early 2014, in an effort to push mining companies to build smelters in Indonesia.

After permits to ship ore samples were secured by Vale Indonesia, the company faced another stumbling block: environmental permits.

Febriany said the company is now awaiting for results of the analysis, while awaiting to secure the environmental permits.

She said that should the analysis be completed this year, Vale Indonesia plans next year to move to the next stage of development, which means initiating the final feasibility study.

”The feasibility study may take about 1 to 1.5 years before we can bring the output to shareholders and move to the next stage,” she said.

Vale Indonesia signed a contract of works amendment last year — the first among other contract of works holders in Indonesia.

The new deal with the Indonesian government resulted in an immediate 38 percent reduction in the size of the company’s total concession area — to 118,435 hectares from the current 190,510 hectares.

At the expiration of the contract on Dec. 28, 2025, Vale Indonesia will also maintain 25,000 hectares as ore zones that the company proposes to mine.

In addition to the ore zones, the company can retain areas required to support its operations and other needs, Vale Indonesia said last year.

Profitability slipped in the first quarter this year. It posted a 43 percent decline in profit to $17.96 million in the January-March period from the same quarter in 2014, dragged by falling prices for the metal.

GlobeAsia was invited by Vale Indonesia to view its facilities.

GlobeAsia

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