Many viewers have commented positively on the Money on Mine programme. It has good content and analysis.
But I do wish that they would make the extra effort to analyse just a bit further, particularly on the opportunities and threats aspects. Then the programme will be leaps and bounds ahead of the standard fare available for free on social media and mainstream media.
Currently, it falls short, leaving the viewer (me) feeling dissatisfied with my unanswered questions that they could easily have addressed.
So I'll do some of what they didn't, but in ARL's context.
Source: ASEAN Briefing"
Indonesia holds the world’s largest nickel reserves with an estimated 21 million tons, which roughly accounts for 22 percent of global reserves. The country is also the world’s top producer of metal, with production hitting 1 million tons in 2021.
Australia has the second-largest nickel reserves of approximately 20 million tons or 21 percent of the global share. However, the country only produced 160,000 tons of the metal in 2021.
Brazil has an estimated 16 million tons in reserves but produced approximately 100,000 tons of the metal in 2021.
Indonesia’s exports of processed nickel reached an estimated US$30 billion in 2022."
Also in 2021, Phillipines produced 370,000 tons, and Russia produced 250,000 tons.
Implications/Threats/Opportunities:At the current rate of production Indonesia will likely exhaust its Ni reserves in 20 years, unless it is also continuously drilling for
and successfully finding economic replacement resources.
Indonesia's AISC ranges from USD5,000 p/T to USD15,000 p/T.
Shallower reserves should have lower AISC, meaning that in the latter half of the 20-year period, the mines have to go deeper and the AISC would likely rise threefold to the USD15,000 level.
Part of the cost increase can also be attributed to the plants inevitably getting older and wearing out, thereby requiring refurbishment/upgrading. Over time, the AISC competitive advantage over other producers therefore falls significantly.
Ni price reached its peak in 2022, and has halved since.
If Indonesia's strategy is to suppress Ni price over the long term to kill off competition, then it has to be prepared to earn only USD16 billion p.a. from Ni export for 20 years.
The total revenue for 20 years might look great at USD320 billion, but Indonesia would have to forgo the other half, being USD320 billion, in revenue just to kill off competition. That's a very expensive way to do business.
Had Indonesia been more willing to accomodate competition, it could collaborate with Australia, Philipnies, Russia and Brazil to develop a viable OPEC-style strategy to retain the additional USD320 billion presumed foregone. Instead, it chose to play solo and pay "the assasin's fee".
So China is the true winner because it gets to buy very cheap nickel over 20 years, while Indonesia is the hidden loser by exhausting its Ni reserves unnecessarily at twice the rate and missing out on doubling its revenue.
How is ARL situated in this big picture?
- Indonesia will have its 6-years of headstart over ARL in massive production of laterite Ni, commenced in 2022 vs ARL's planned 2028.
- By the time Goongarie is ready for production, Indonesia's mines would have gotten deeper, the plants getting older and wearing out, and the AISC increasing.
What we do not know are the actual LOM of Indonesia's individual Ni mines, the ore grades, processing recovery rates and the quality of the plants.
There was an analysis by MacKenzie Wood stating that Indonesia's plants cost about a third compared to those in Western countries, including Australia.
Everyone gets what they pay for.
Hence we have ongoing reports of severe environmental and social costs in Indonesia's Ni mining and production, none of which are included into the AISC.
In contrast, the preventative environmental and social costs are included into ARL's AISC.
The US and European purchasers of Ni are increasingly more conscious of the need to hold the triple bottomline as non-negotiable.
Lastly, but still of importance, the USA and the entirety of Europe have the following rough similarities in terms of size/volume/numbers/scale, call it what we will:
- GDP
- Population
- No. states vs no. of countries
- Economic/social/environmental policies
- Political ideology in capitalism and democracy
- Religious philosophy.
ARL has a huge market on both sides of the Atlantic Ocean, plus the up and coming huge market of India just a sail north of Indonesia.
AP has access to Ni demand and supply intel from high quality business analysts, and had reiterated on several presentations that the world needs all the nickel mines developed to meet future demand. Viewed in this light, Indonesia is being unwisely short-sighted.
(20min delay)
