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Business Times
3 days ago
- Business
- Business Times
Indonesia's mining quota U-turn risks raising operational costs and hurting investment: analysts
[JAKARTA] Indonesia's plan to shorten the validity of mining output quotas from three years to one year could heighten regulatory uncertainty, increase operational costs and discourage long-term investment, analysts warned, even as the government said that the measure will help control supply and stabilise prices. 'Transitioning from a three-year to a one-year period will heighten regulatory uncertainty for miners,' noted Amelia Haines, commodities analyst at BMI. 'Annual quotas will require companies to engage with regulatory authorities more frequently, potentially lengthening permitting timelines and diverting resources to compliance activities.' The Indonesian government will press ahead with implementing the policy in October, despite opposition from players in the mining industry. The move would roll back a 2023 reform to the work plan and budget system, known locally as RKAB, which extended quota validity from one year to three. Miners in Indonesia must get RKAB approval to decide how much of a mineral resource they can extract over a set period. That longer cycle was intended to help miners plan production better and reduce administrative costs. Energy and Mineral Resources Minister Bahlil Lahadalia said on Monday (Aug 11) that the U-turn aims to tackle oversupply in key commodities such as coal and nickel, which have experienced significant price volatility, partly due to surging Indonesian output. A NEWSLETTER FOR YOU Friday, 8.30 am Asean Business Business insights centering on South-east Asia's fast-growing economies. Sign Up Sign Up The government believes that more frequent reviews will enable it to better align production with market demand, helping to avoid price collapses. 'Indonesia supplies 45 per cent of the world's thermal coal exports. When prices drop, there's little we can do; demand is low while supply is high. We will revise the policy without exception to maintain stability,' the minister noted. Damage control Indonesia is the world's largest producer of nickel, a key component in stainless steel and electric vehicle batteries, and more frequent quota reviews would give the government greater control over supply. As of the first half of this year, the country has produced 357.6 million tonnes of coal and 220 million tonnes of nickel ore. However nickel prices have come under pressure in recent years as a surge of Indonesian output has flooded the global market . The government has set nickel production quotas at 296.1 million tonnes for 2025 and 261.4 million tonnes for 2026, though the final approval for the 2026 quota remains uncertain. The country has also become a major supplier of coal, iron ore, and other minerals, giving it significant influence over global supply flows. However, some observers say its ability to sway prices is far more limited than officials had anticipated. Bill Sullivan, senior foreign counsel at Jakarta-based law firm Christian Teo and Partners, questioned whether shortening the RKAB period will truly enhance price stability. 'I find it impossible to see how this improves price stability for mineral products,' he said. 'It is much more likely that the government has belatedly realised it overestimated Indonesia's ability to influence world prices, and now needs to more carefully control approved production quotas to avoid putting further downward pressure on prices.' Sullivan characterised the change as 'damage control' and warned that it would reinforce the longstanding narrative of regulatory unpredictability in Indonesia. 'The shorter the period of the approval, the less certainty mining companies have as to their future production, sales, revenue and profitability,' he explained. 'That lack of certainty operates as a constraint on their ability to secure additional financing or investment.' Burden on cost While more frequent quota adjustments may give the government flexibility to respond to market fluctuations, overall increase in administrative burden could weigh on companies' earnings and raise their operational costs. BMI said that it may also reduce regulatory certainty, potentially discouraging capital investment particularly in long-term projects with substantial upfront costs. Research by Shanghai Metals Market (SMM) noted that the introduction of the one-year RKAB for the 2026 period is expected to keep tin prices volatile going forward, particularly on the Shanghai Futures Exchange. 'Investors need to closely monitor changes in international macroeconomic policies and domestic supply-demand conditions, and operate with caution,' SMM wrote in its research, published on Aug 4. Industry groups have yet to formally respond to the proposal, but mining executives had previously backed the three-year RKAB cycle, citing its benefits in reducing bureaucracy and improving long-term planning. Gita Mahyarani, acting executive director of the Indonesian Coal Mining Association, said that reverting to annual approvals would require more frequent paperwork, site inspections, and compliance reporting, all of which increase costs and divert management's focus from operations. South-east Asia's largest economy has often faced criticism from investors over its lengthy and complex bureaucracy, a challenge that prompted the previous administration under president Joko Widodo to streamline licensing procedures and make them more seamless, aiming to provide greater certainty for businesses. Nickel producers in Indonesia's Sulawesi region faced a supply crisis a few years ago and had to import additional ore from the Philippines due to delays in local permitting and production disruptions caused by severe weather. As a result, in 2023 the government decided to extend the validity of mining production plans to three years. Analysts say the new measure could have unintended consequences on supply chains. Delays or unpredictability in quota approvals could disrupt exports, undermine Indonesia's reputation as a reliable supplier, and push buyers towards competitors. The change may also make Indonesian miners less competitive compared with producers in other major coal-exporting countries that operate under more stable regulatory regimes. 'Buyers value consistency,' Haines from BMI said. 'Frequent changes to rules and approvals can make them think twice about long-term contracts.'
Reuters
02-07-2025
- Business
- Reuters
Indonesia plans to cut mining quota period back to one year, minister says
JAKARTA, July 2 (Reuters) - Indonesia plans to cut the duration of mining quotas back to one year from the current three years to improve governance in the sector and better control coal and ore supplies, mining minister Bahlil Lahadalia said on Wednesday. Resource-rich Indonesia extended the validity of mining production quotas, locally known as RKAB, to three years in 2023 to ease red tape. Miners in Indonesia are required to seek RKAB approval to determine how much ore they may dig out over a period of time. "Because we allowed three-year RKAB, we could not control the balance between coal production and global demand ... Same thing happened to nickel, as well as bauxite," Bahlil told members of parliament. The switch back to one year was proposed to the minister by lawmakers overseeing the mining sector. The move is expected to help underpin prices of coal and ores and boost government revenues, Bahlil added.
Yahoo
25-02-2025
- Business
- Yahoo
Nickel Industries Ltd (NICMF) (Q4 2024) Earnings Call Highlights: Navigating Challenges with ...
Adjusted EBITDA: USD296.8 million, adjusted for HNI and RNI impairment and FX losses. Gross Profit: USD186.7 million. Net Loss After Tax: USD189.8 million. Final Dividend: AUD0.015 per share, total 2024 dividend AUD0.04 per share. Net Debt: USD827.5 million. Nickel Production: 135,602 tonnes in 2024. Hengjaya Mine EBITDA: Over USD100 million. HNC Adjusted EBITDA: USD466.3 million on a 100% basis. RKEF Margins: Declined from USD2,676 in 2023 to USD1,458 in 2024. ENC Ownership: Increased to 44%, with plans to reach 55%. Sampala Project Acquisition: 60% ownership acquired. Bank Funding Loans: USD250 million established and syndicated. Warning! GuruFocus has detected 7 Warning Signs with NICMF. Release Date: February 24, 2025 For the complete transcript of the earnings call, please refer to the full earnings call transcript. Nickel Industries Ltd (NICMF) reported a strong EBITDA of USD 296.8 million despite challenging market conditions. The company declared a final dividend of AUD 0.015 per share, resulting in a full-year dividend of AUD 0.04 per share, reflecting a greater than 5% dividend yield. Record production of 135,602 tonnes of nickel was achieved in 2024, with ENC construction progressing ahead of schedule. Significant corporate developments include increased ownership in ENC to 44% and the acquisition of 60% of the world-class Sampala project. The company achieved notable ESG milestones, including a low carbon intensity of 6.9 tonnes of carbon per tonne of nickel and several awards for climate reporting and transparency. Nickel Industries Ltd (NICMF) faced a net loss after tax of USD 189.8 million due to impairments and high ore costs. The company had to account for a USD 205 million impairment of older RKEF assets, impacting financial results. Global nickel market conditions were challenging, with significant declines in LME and NPI prices. The company experienced margin compression, with RKEF margins declining from 2023 to 2024. There are concerns about the impact of Indonesia's mandate for natural resource companies to retain 100% of FX revenues in Indonesia for 12 months, which could affect working capital. Q: Can you provide an update on the RKAB quota increase and the timeline for its approval? A: Justin Werner, Managing Director, explained that the feasibility study for the RKAB quota increase has been submitted and is nearing final approval. Once approved, the Environmental Impact Statement (AMDAL) will be submitted, expected to take three to four months for approval. The goal is to complete the RKAB increase before October 2025, aligning with the ENC HPAL MHP plant commissioning. Q: How will Indonesia's mandate for natural resource companies to retain 100% of FX revenues impact Nickel Industries? A: Christopher Shepherd, CFO, noted that the mandate's impact is still being analyzed, particularly which exports are covered. If it applies to all exports, it could affect NPI exports and future ENC exports, impacting working capital. However, companies converting USD to IDR may not need to hold capital for 12 months. Q: Why did you decide to pay a dividend for the second half of CY24, given your dividend policy? A: Christopher Shepherd explained that despite challenging conditions in 2024, the decision to pay a dividend was made to balance shareholder returns with maintaining a strong balance sheet. The dividend policy guides 30% to 60% of free cash flow, but extraordinary events in 2024 influenced the decision to pay above the minimum level. Q: Can you elaborate on the impairment charge and its impact on the business? A: Justin Werner clarified that the impairment charge is an accounting adjustment with no cash impact. It reflects lower profitability from older RKEF operations compared to newer ones. The impairment is based on market analyst forecasts and accounting standards, with no immediate effect on business operations. Q: What is driving the outperformance of HNC in 2024, and how does it relate to ENC's future performance? A: Justin Werner attributed HNC's outperformance to Tsingshan's operational efficiency and higher-grade ore usage. ENC is expected to benefit similarly, with initial operations using higher-grade ore to maximize margins. Tsingshan's conservative capacity estimates often lead to exceeding nameplate capacity. For the complete transcript of the earnings call, please refer to the full earnings call transcript. This article first appeared on GuruFocus. Sign in to access your portfolio
