The news should come as little surprise to nickel market participants. Six months ago, Glencore said that it wouldn’t fund the loss-making asset any further after March 2024 and that it was looking for alternative options for the site.
“More than $4 billion has been funded by Glencore since 2013, and a total of $9 billion since project inception,” Glencore said in a statement on Monday, February 12. “For over ten years, Glencore has been the primary funder of Koniambo without ever realizing a profit,” it added.
Quite clearly, enough was enough.
The company had been warning as far back as 2013 that Koniambo was a “problem project” and a “destroyer of capital.” Glencore’s then-head of nickel Kenny Ives famously said that the billions of dollars spent on construction of the project had produced “a teacup of nickel.”
Glencore has a 49% stake in Koniambo, with the remainder held by Société Minière du Sud Pacifique (SMSP). It inherited the project from its 2012 acquisition of Xstrata, which had inherited it from its own acquisition of Falconbridge in 2006.
Koniambo, which produced 27,200 tonnes of nickel in ferro-nickel in 2024, has the capacity to produce 60,000 tonnes per year.
But Konimabo has long struggled with operational issues, so much so that its targeted production rate was always significantly lower than its nameplate capacity. Even while its productivity performance and reliability have improved of late, the project has also dealt with leaks, a fire and local unrest.
If it seems that Koniambo had been running on borrowed time, perhaps it had. But it marks the demise, albeit apparently temporary, of yet another nickel operation amid declining prices, high costs and an upsurge of capacity in Indonesia.
Koniambo is also part of a very specific New Caledonia story.
The French territory in the South Pacific has some of the world’s largest nickel reserves. But high fuel, coal and freight costs and ongoing political tensions have created a difficult environment for the world’s international nickel miners to operate in.
The recent weakness in nickel prices and emerging market surplus is perhaps the icing on the cake for these miners, who – unwilling to plough more of their own cash into the proverbial pits – have turned to the French government for help.
France’s Finance Minister Bruno Le Maire estimated in November that New Caledonia needed an emergency cash injection of roughly $1.6 billion for its three nickel complexes: Koniambo, Goro and Société Le Nickel (SLN).
Like Koniambo, operations at Goro and SLN have not been plain sailing.
Vale, which inherited the 60,000 tpy Goro nickel mine and processing plant in New Caledonia due to its acquisition of Inco in 2006, struggled with the complex and finally sold it to Prony Resources New Caledonia in 2021.
The new ownership consortium, which includes Trafigura (19%) and Prony Resources (30%), has been seeking financial assistance from the French government, according to media reports. It may even be looking for a new investor after Trafigura said it wouldn’t throw more cash into the venture, the reports said.
Tesla, whose chief executive Elon Musk has made some very public pleas for miners to produce more nickel, has already signed a deal backing the supply of nickel from Goro for its batteries for electric vehicles (EV).
Similarly, Eramet, the French mining company that owns SLN’s five mining facilities as well as the Doniambo ferro-nickel plant, said in November 2022 that it wouldn’t provide further cash for the operations.
Eramet entered into talks with the French government and was granted a $43 million emergency loan a year ago to keep operations running.
SLN has a nameplate nickel capacity of 60,000 tpy, according to its website.
At the same time, Koniambo is very much a story of the current nickel market.
Nickel was by far the worst performer of 2023, with London Metal Exchange prices down by around 44% last year.
With these lower prices, the inevitable happened.
Many producers, particularly in regions with high energy and labor costs, have struggled to cover the costs of production. But in lower cost regions like Indonesia, nickel production has continued to grow, putting further pressure on the market and leading producers to cut production or curtail projects all-together.
That’s the case with Wyloo, which is putting its Kambalda operations in Australia on care and maintenance from the end of May.
This in turn impacted BHP’s Kambalda nickel concentrator, which takes ore from Wyloo to be refined and was forced to also be put on care and maintenance from June.
First Quantum has suspended its Ravensthorpe mine, Panoramic Resources called in the administrators over its Savannah nickel project and IGO suspended its Cosmos mine, all of which are in Australia.
Despite all of this, the market will still be in a surplus due to the mass of nickel being produced in Indonesia. The International Nickel Study Group recently reported the largest nickel market monthly surplus since they started reporting them in 2009.
The source of this new output is largely Indonesia, where production has exploded in the past few years. It started because the country banned nickel ore exports in 2020 as part of an effort to draw onshore investment and to add-value to its industrial chains.
The bulk of current Indonesian nickel projects have a Chinese and an Indonesian shareholding base — normally Indonesian in the mining phase, and Chinese in the smelting/refining phases.
There are, of course, western companies that are also active in nickel in Indonesia.
But with the exception of major nickel projects operated by PT Antam, owned by the Indonesian government, along with most operations of PT Vale Indonesia and a planned joint venture between Eramet and BASF, the remaining projects of scale in the country have more than 25% Chinese ownership.
The southeast Asian nation is on track to account for an estimated 60% of global nickel supply by 2025 and 75% of global nickel supply by 2030, making Indonesian minerals critical to the production of batteries for EV.
That’s assuming the country can secure a free trade agreement that includes minerals and get around the foreign entity of concern definition, each of which give access to important US Inflation Reduction Act tax credits.
For now, the nickel market is braced for more cuts and curtailments. But, given long-term demand expectations for nickel, it could also be the start of a period of mergers and acquisitions, as savvy investors with spare cash swoop in to pick up assets, hoping for more than teacup of metal at the end.
In Hotter Commodities, special correspondent Andrea Hotter covers some of the biggest stories impacting the natural resources sector. Sign up today to receive Andrea’s content as it is published.
The post Billions of dollars for a teacup of nickel | Hotter Commodities appeared first on Fastmarkets.
