Indonesian Ministry Of Finance Announce Tax Relief To Angel Nickel Project

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Indonesian Ministry Of Finance Announce Tax Relief To Angel Nickel Project

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  • 100 percent, ten-year Corporate Income Tax Reduction from date of commercial production
  • Tax concessions reflect Indonesia’s economic growth upside from long-life, vertically integrated, down-stream nickel processing facilities
  • Clean energy battery storage dependence on nickel is driving Nickel Mines’ long-term favourable earnings and cash flow outlook.

Nickel Mines Limited (‘Nickel Mines‘ or the ‘Company‘) is a low cost producer of Nickel Pig Iron, a key ingredient essential in the production of stainless steel and lithium-ion batteries. The Company is rapidly expanding its presence in Indonesia, which is the world’s largest nickel producer. Its expansion program is centred around a strategic partnership with Shanghai Decent Investments (’SDI’). SDI is a subsidiary of China’s Tsingshan Holding Group, the world’s largest stainless-steel producer. Tsingshan is Nickel Mine’s largest shareholder with a 16 percent equity stake. Tsingshan produces over 7.5 million tonnes of stainless steel each year and employs more than 31,000 people.

The strategic partnership with Tsingshan is significant in that it places Nickel Mines on a production trajectory towards 100k tonnes per annum, by 2023. This production rate puts Nickel Mines in the top 10 global producers and arguably the largest listed pure-play nickel exposure in the world.

Sixty-nine percent of the world’s nickel production is currently used in the production of stainless steel. However, nickel is also used as a cathode in lithium-ion batteries. It is the growing penetration of battery-powered vehicles and the demand for energy storage that is driving the increasing demand for nickel around the world.

Angel Nickel project tax relief

The Indonesian Ministry of Finance has granted a 100 percent, ten year Corporate Income Tax Reduction for the Angel Nickel Rotary Kiln Electric Furnace (‘RKEF‘) project. The project, in which Nickel Mines holds an eighty percent equity stake, is approaching its maiden commissioning, scheduled for March 2022. The RKEF processing facilities are located in the Indonesia Weda Bay Industrial Park on Hulmahera Island in Indonesia’s Maluku province. All of Nickel Mines’ other assets are located in the Morowali Regency, on the east coast of Central Sulawesi.

The tax concession provides for ten years of 100 percent corporate tax relief from commencement of commercial production. This is to be followed by a 50 percent tax concession for two years after the end of the initial ten-year tax-free period. Additionally, the Angel Nickel project is exempt from tax collection by third parties on sale proceeds that would otherwise be remitted to the Indonesian Revenue Department, for two years from commencement of commercial production.

These generous tax concessions highlight the economic importance of this level of investment by Nickel Mines, to the Indonesian government. The nature of the vertically integrated, down-stream mineral processing facilities of the project implies substantial re-current revenue streams from long-life assets, generating significant local employment, in an expanding Indonesian economy.

The tax relief enhances the already strong cashflows of Nickel Mines’ Indonesian assets, supporting the Company’s ongoing investment and potential distributions to shareholders.

Looking Ahead

The structural shift to renewable, or ‘clean’ energy, is driving unprecedented demand for energy storage.

Batteries offer a low-cost solution to energy storage during times of low demand and provide the greatest flexibility for release of energy during periods of peak demand. Nickel is a major component in the production of energy-efficient lithium-ion batteries. A 60kwh NMC811 battery needs 39 kilograms of nickel, compared to just 5kilograms of cobalt and 5 kilograms of manganese.

This explains the strategic value of reliable, large-scale nickel supply and is highly supportive of Nickel Mines’ earnings and cash flow outlook as its production capacity continues to expand.

Louis Mosmann

Louis Mosmann is a Private Wealth Client and Research Assistant at KOSEC- Kodari Securities. Louis covers macroeconomic events, global markets and ASX300 company announcements, allowing clients to make more informed investment decisions. Email Louis at l.mosmann@kosec.com.au.

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