Indonesia’s world-beating nickel industry has been rattled by reports of a government tax hike and the surprise sell-down of a stake in a leading producer by a major investor just as the price of the metal shows signs of a recovery.
The proposed tax increase on nickel, which is used to make stainless steel as well as rechargeable batteries, is part of a wide-ranging government review of taxes on minerals and metals.
Under a proposal being discussed with industry, an existing government royalty of 10% on the value of nickel ore mined would be replaced by a sliding scale based on the price of ore, starting at 14% and rising to 19%.
Similar increases are planned for Indonesia’s copper and coal industries as the government looks for additional sources of revenue to fund social welfare spending.
As well as adjusting mineral royalty rates the Indonesian Government is considering a cutback in the volume of ore miners are allowed to extract as a way of stabilising the price.
Reports of the royalty increase surfaced last week around the same time a subsidiary of the diversified Indonesian company Karunia Group said it had sold half of its holding in Nickel Industries, an Australian listed company heavily exposed to Indonesian nickel production.
Big Block Trade
The sale of 178 million shares by Harum Energy in a block trade has weighed heavily on the share price of Nickel Industries which fell by 25% on Monday from A76 cents to A57c, before reclaiming some of the lost ground to trade around A64c.
Karunia could sell more of its holding in Nickel Industries but has entered into a 45-day escrow period before making a decision on another sale.
The sell-down has surprised investors in Indonesia’s nickel industry which has grown rapidly from a 28% share of the global market for the metal to 63% over the last five years.
Heavy Chinese investment in Indonesian mining and mineral processing has driven expansion and been a major factor in the collapse of the nickel price, forcing closure of mines in other countries.
From $30,000 a ton as recently as three years ago nickel plunged by 50% to $15,000/t earlier this year, before signs of a recovery started to emerge, lifting the price of latest trades to $16,478/t, a 9% increase in six weeks.
Whether the recent rise in the nickel price is a short-term uptick, or the start of a long-term recovery will not be known until later this year with the immediate issue for nickel miners being a need to see a decrease in a mountain of surplus metal sitting in warehouses around the world and in commodity exchanges.
Clumsy Trade
Bell Potter, an Australian stockbroking firm, has maintained a buy recommendation on Nickel Industries describing the Karunia sell down as a “clumsy trade”.
“Nickel Industries continues to generate positive cash flows in a tough nickel market and is set to deliver major growth milestones this year across its highest margin operations,” the broker said, tipping a more than doubling in the stock’s share price from A64c to A$1.47.
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