As capital pours into nickel projects, companies face increasing challenges when attempting to develop nickel laterite mines or source offtake agreements in Indonesia.
Indonesia, the world’s largest nickel producer, accounted for an estimated 48% of global nickel production in 2022, up from 37% the previous year, and has a 22% share of global reserves. It is forecast to deliver about half of global nickel production between now and 2025.
Two interrelated factors explain this growth. The first factor is surging demand for nickel and other critical minerals used in applications associated with the green energy transition, such as EV batteries. The second is strategic. As governments and multinationals rush to secure supply of critical minerals, this has ramifications for national and economic security, as well as global supply chains and production pipelines.
Indonesia is vital to nickel supply. However, breaking into the Indonesian nickel sector is becoming increasingly complicated.
China’s significant investment in Indonesian nickel poses a major challenge. The country is pouring billions of US dollars into this sector, facilitating rapid expansion of China-backed projects. China’s formulaic approach to asset development, coupled with its capacity to invest in large mines and infrastructure, solidifies its dominance in the industry.
From the perspective of the Indonesian government, which is trying to encourage processing and manufacturing of raw materials onshore and recently banned nickel exports, Chinese investments in its nickel-processing infrastructure are incredibly appealing. But this makes it extremely difficult for Western mining companies to get a foothold in the sector.
Processing technologies currently in use in the country include the well-established rotary kiln electric furnace (RKEF), which produces nickel pig iron, and the more recent adoption of high-pressure acid leaching (HPAL).
HPAL, a capital-intensive technology, has historically been associated with failed nickel projects in Australia and elsewhere. The technology has subsequently been applied to large HPAL facilities to recover nickel and cobalt from the low-grade limonite-nickel mineralisation that often overlies the saprolite mineralisation used as feedstock for the RKEF plants.
Another challenge to Western miners hoping to operate in Indonesia concerns the poor environmental practices and difficulties of obtaining social license to operate. In fact, the situation is bad enough that listed mining companies could find their ESG ratings impacted by Indonesian nickel projects unless they take steps to address these issues early in the mine development process.
In summary, China is moving faster, investing more, and driving up market-entry barriers. Therefore, Western companies looking to enter Indonesia’s nickel sector need well-devised strategies.
Wait too long to enter and the rate of expansion and development will allow established players to dominate the strategic supply of Indonesian nickel. Move too quickly – or without expert advice – and companies face potentially costly complications and reputational risk.
Our experience in Indonesian nickel projects shows solutions can be found. However, no company should underestimate the growing competition in this sector.
