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Commodities

Indonesia state company to acquire stake in nickel miner

Southeast Asian nation intent on playing key role in EV battery supply chain

The mine operated by Vale Indonesia in Soroako, South Sulawesi is one of the largest nickel operations in the world.   © AP

JAKARTA -- Indonesia's state-owned mining holding company will acquire a 20% stake in the local subsidiary of Brazilian mining giant Vale, operator of the world's largest nickel mine on the island of Sulawesi. 

Indonesia is keen to expand control over nickel production as global demand for the commodity, used as batteries in electric vehicles, rises.

In a deal signed last week, Mind Id, the holding company, agreed to pay a combined $390 million or so to Vale and Japan's Sumitomo Metal Mining for the Vale Indonesia stake. The transaction is to be completed by the end of the year. Afterward, Vale will have a stake of 44.3% and Sumitomo 15%; the rest of the shares will be traded publicly.

The deal is part of a 2014 agreement between Vale Indonesia and the government that stipulates Vale needs to divest 20% of its shares to Indonesian entities to be entitled to continue operating beyond 2025, when its mining contract with the government expires.

Nickel has always been important to Indonesia's economy -- the country is the world's largest producer of nickel ore. In recent years, however, it has become an even more strategic commodity. Nickel is increasingly being used in battery cathodes for electric vehicles, and Indonesia is keen to be a key cog in the supply chain as it builds up its processing capabilities.

Previously, exports of nickel ore were linked to the construction of smelters with many miners having to set up processing units.

Then last September the government announced it would ban exports of nickel ore from January this year, two years earlier than initially flagged, to develop its downstream industry. New rules require miners to process ore at local smelters before shipping it overseas.

"We have succeeded in adding more state ownership in the mining sector," Erick Thohir, minister of state-owned enterprises, said in a statement. The deal "is an important part in the development of the battery industry for electric cars. Nickel has high potential in the future in line with the rapid trend of electric vehicles in the world."

The move implies Indonesia intends to further strengthen its grip on its natural resources.

President Joko Widodo has pushed for the nationalization of the country's natural resources. The latest acquisition marks the holding company's second major purchase. In 2018, it reached a deal to acquire a 51% stake in the local unit of U.S. miner Freeport-McMoRan for $3.85 billion. The unit operates the world's second-largest copper mine in output terms and is the top source of gold in Papua.

Shares in Vale Indonesia fell 1% on Monday.

Additional reporting by Ismi Damayanti in Jakarta.

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