Silkroad Nickel Ltd - An Emerging Nickel Player in Indonesia

Nickel Market Landscape

Since the beginning of 2020, nickel prices have remained relatively stable despite severe volatility in financial markets triggered by the global pandemic, Covid-19, and negative oil prices. 

Nickel is a key raw material for the stainless steel and electric/chemical battery industries making nickel an essential industrial metal and the high demand for nickel is driven by the growth in these industries. The stainless steel industry uses nickel in its intermediate product form called Nickel Pig Iron (“NPI”) whilst the battery industry uses nickel in its pure form in finished products like lithium-ion batteries.

Nickel Demand

Global primary nickel demand and consumption is dominated by China and is expected to increase from approximately 2.2M tonnes per annum in 2019 to 2.5M tonnes per annum in 2025 at a Compounded Annual Growth Rate (“CAGR”) of 3%. Of which, Electric Vehicle (“EV”) batteries should be the most prominent driver for nickel demand, estimated to grow 23% annually until 2030. Stainless steel will remain a major nickel consuming sector with nickel demand from stainless steel at CAGR of 2.7% by 2030. Despite the continuous growth of nickel demand from stainless steel, its contribution to total nickel demand is likely to decline to 60% in 2030 from 70% in 2018, due to stronger demand growth from EV batteries.

Nickel Supply

Global primary nickel supply is dominated by Indonesia, which supplies 27% (NPI/Ferronickel and nickel ore) of the global market. While Global nickel supply sits at around 2.46M tonnes in 2019, experts are projecting a shortfall in the demand-supply curve, which is estimated at 300k tonnes of nickel by 2025 and 780k tonnes of nickel by 2035. This creates both push and pull factors for Chinese smelter and stainless steel players to enter Indonesia in order to secure their supply chains. 

China’s Investments in Indonesia

In order to encourage Foreign Direct Investments (“FDI”) into downstream nickel processing facilities and in its efforts to further develop the Indonesian economy and infrastructure, the Indonesian Government banned the export of nickel ore with effect from January 2020. 

A major success story is the Indonesian Morowali Industrial Park (“IMIP”) where Tsingshan operates the world’s largest ferronickel and stainless steel facility. The increasing demand for nickel will spur industry growth and innovation as more nickel-related project collaborations come online. 

The majority of the future nickel supply will arise through more collaborations between Indonesian and Chinese companies on NPI and HPAL processing plants. In 2018, Indonesia accounted for only 12% of global refined supply and China accounted for 33%. This is expected to shift to 27% for Indonesia and 29% for China by 2025. Most of this increase will arise from NPI capacity additions and HPAL plants.

As over 70% of China’s nickel imports come from Indonesia, Indonesian NPI is set to extend its dominant role in nickel supply. It is forecasted that NPI should be the main contributor to nickel supply in 2020 and NPI is expected to replace refined nickel in stainless steel production going forward.

Indonesia’s supply to grow rapidly

Indonesia is currently the hot spot for nickel-related investments. Based on Indonesia’s nickel projects in the pipeline, it is estimated that 213.5k tonnes of new capacity is to be added in 2019, with a further 294k tonnes in 2020 and 90.6k tonnes in 2021. 

Consequently, Indonesia is expected to be the strongest driver in global refined nickel supply. After the rapid expansion of 96.5% and 47.9% y-o-y in 2017 and 2018, refined nickel output is expected to grow further by 22.7% to 339.2k tonnes in 2019 and 16.9% CAGR in 2018- 2025F in Indonesia.

Silkroad Nickel Ltd - An Emerging Player 

Silkroad Nickel Ltd (“SRN, the Group, or the Company”) is an emerging player in the nickel processing industry and was the first nickel mining company listed on the Singapore Exchange“("SGX”) Catalist Board in 2018. 

SRN’s long-term vision is to become a vertically-integrated producer of NPI and Ferronickel products for the stainless steel market. The Group’s initial business focus was on the exploration, mining, production and sales of nickel ore but within two years of its listing and in line with its long term vision SRN has formed partnerships with best-in-class and lowest-cost joint venture partners to expand into downstream nickel ore processing to produce higher value NPI and Ferronickel products.

Upstream Mining Business

Its wholly-owned subsidiary, PT Teknik Alum Service (“PT TAS”) has been granted the Production Operations IUP (Izin Usaha Pertambangan) or mining business license to conduct nickel ore mining operations in the mining concession area, covering approximately 1,301 hectares located in Morowali, Sulawesi, Indonesia. 

The 2019 JORC reported that the concession has total mineral resources of 146 Million WMT at 0.99% Nickel & 0.06% Cobalt, which is inclusive of ore reserves of 45 Million WMT at 1.08% Nickel & 0.06% Cobalt grade. 

Even prior to listing, the Group has been supplying nickel ore for over 5 years to PT Ekasa Yad Resources (a subsidiary of Tsingshan) at the IMIP because of its close proximity (approx. 40km) and its ability to supply high quality ore (Ni  1.7%). PT TAS, in co-operation with PowerChina as its mining contractor, has production capabilities to produce between 100k – 250k tonnes of nickel ore per month at fixed low production costs. The Group expects to monetize its high cobalt content limonite ore with an even lower production cost than saprolite ore, thereby creating an overall high revenue stream at low cost compared with competitors.

In addition, with two port jetties stapled to the mine capable of loading 10k tonnes barges and majority ownership of a tug and barge company, SRN has control over its logistics supply chain.

Downstream Processing Business

Phase I - Blast Furnace to be commissioned in Q4 2020

In December 2019, the Group signed a binding definitive head of agreement with its joint venture partners to operate an existing NPI blast furnace smelting facility located about 2km from the Group’s mine site in the Buleleng region. The smelters are expected to commissioned in Q4 2020 with a NPI production capacity of between 50k – 60k tonnes per annum with an estimated Nickel content of 10%.

Phase II - RKEF to be commissioned in Q3 2022
In April 2020, SRN signed a non-binding heads of agreement with Shandong Xinhai Technology Co., Ltd, (“SXH”) to build and operate a RKEF (Rotary Kiln Electric Furnace) with a NPI production capacity of 350k tonnes per annum with an estimated Nickel content of 10-12%.

SXH is a global leader in RKEF processing technology with 55% of China’s total market share. It has a production capacity of 1.9M tonnes of ferronickel per annum and also generates 10B KWH of electric power. SXH is located in the Economic Development Zone of Junan County, Linyi, Shandong Province, China.

Through these downstream partnerships, SRN aims to help bridge a portion of the 300k tonnes shortfall in nickel supply by 2025 and beyond. 

Contact: If you are interested in SRN or its products, please don’t hesitate to contact Executive Director & CEO, Mr Joseph Hong at jh@silkroadnickel.com and Executive Director, Mr Nasser Aljunied at nasser@silkroadnickel.com