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Vale Indonesia (INCO.IJ IDR 6,250 BUY.TP: IDR 7,600J )
September 29, 2022 09:25

Clearer outlook for HPAL projects


INCO received FID for its HPAL project and expect the facility will complete in 2025. Mining activity for this project will begin next year and expect will begin operational in 2025. Reiterate our Buy call on INCO with a higher TP of IDR7,600.


Expect margins compression in 2H22, but... Vale Indonesia plan to maintain their nickel matte production volume at 65k tons in 2022F, although up to 1H22, the company’s production was at 26,394 tons, which was still 41% of full year target. As a result, we expect the company will ramp up their operation in 2H22. We believe the company’s peak production growth In 2022F would be during 3Q22 and we expect INCO will produce of around 21k tons and another ~17k tons in 4Q22.


With FY22 production target remain intact, we leave our 2022F earnings forecast unchanged and we also expect that nickel price will continue to decline in following quarters with building up surplus from additional nickel smelter capacity of around 180k tons this year. And thus, we will see a margins compression on INCO’s P&L in 2H22. 


…Positive progress on HPAL project in Pomalaa, and... INCO already signed memorandum of cooperation agreement to develop an HPAL processing facility in Pomalaa with capacity up to 120k tons of MHP. INCO partnering with Huayou and Ford to develop this project. Currently, the company try to finalize the feasibility study to improve capacity for both mine and HPAL facility. Also, INCO targets they could secure definitive agreement by October 2022. Mining operation will begin next year to secure ore required for HPAL.


…another HPAL smelter in Soroako. INCO was also enter an agreement with the same partner in Pomalaa, Huayou, to develop HPAL smelter in Sorowako. The feasibility of this project already began since the beginning of this year. This HPAL plat will also process limonite into MHP with capacity of 60k tons. We believe INCO will disclose the detail timeline of this project early next year.

Maintain Buy with Higher TP of IDR7,600. We try to take into account HPAL Pomalaa that will effectively operational in 2025 to our valuation and this brings our TP upgraded to IDR7,600. We still not factored in another HPAL smelter in Soroako and once this project come into FID stage this could be another upside potential to INCO’s valuation.


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