Harum Energy Shifts to Nickel, Targets 50% Revenue

Key Takeaway

• PT Harum Energy shifts investment from coal to nickel, aiming for nickel to make up half its revenue by year-end.
• Faces challenges in expanding nickel assets due to market conditions and scarcity of large deposits.
• Partners with Tsingshan Holding Group, gaining capital and expertise but potentially complicating access to Western markets.

Strategic Shift to Nickel

PT Harum Energy, an Indonesian coal company, is actively transitioning its investment focus towards nickel mining, stepping away from further investments in fossil fuels. President Director Ray Antonio Gunara highlighted the company's strategy to maintain coal operations at current levels without expanding production capacity. This decision stems from the market's diminishing valuation of coal businesses despite their profitability. Harum Energy has already acquired stakes in three nickel processing plants, with plans for an initial public offering of the nickel unit when market conditions become favorable. The company anticipates nickel will constitute half of its revenue by year-end, a significant increase from just over 10% in 2023.

Navigating Market Dynamics

Indonesia, contributing to over half of the world's nickel production, has seen a surge in investment, particularly from Chinese companies, amounting to $30 billion. This investment has been crucial for the development of smelters necessary for high-performance electric vehicles (EVs). However, the acquisition of nickel mines has become increasingly challenging due to the scarcity of large deposits and inflated valuations. Gunara expressed the difficulties in expanding their nickel assets due to these market conditions. Despite these challenges, Harum Energy's strategic moves are part of a broader trend among Indonesian coal miners shifting towards cleaner energy sources, with several companies investing in non-coal mining assets and cleaner supply chains.

Partnership with Tsingshan Holding Group

In a significant development, Harum Energy announced a partnership with Tsingshan Holding Group, a leading global producer of stainless steel and nickel. This collaboration will see Tsingshan Holding Group acquiring up to a 49% stake in Harum's nickel unit, providing capital and technical expertise. This partnership is pivotal for Harum Energy's ambitions in the nickel sector, leveraging Tsingshan's dominance in the industry to accelerate their transition towards the green economy. However, this alliance with a Chinese entity may pose challenges in accessing Western markets, particularly for American and European car manufacturers seeking nickel supplies devoid of Chinese influence to qualify for subsidies under the Inflation Reduction Act.

Management Quotes

• Ray Antonio Gunara, President Director of PT Harum Energy:

  "The public market doesn’t appreciate the business of coal mining whose valuations remain poor despite the sector’s high profits. We won’t be spending our money expanding production capacity." "We’re always looking for assets to acquire but there are challenges. Nickel mines are just getting more expensive." "The intention is to become IRA compliant... We haven’t fully figured out the right path for us to get to that point."