Vale Indonesia (INCO IJ)
Cost Efficiencies in Growth Projects
- INCO announced a reduction of US$800mn in projected capex for Pomalaa HPAL due to efficient technology and cost-cutting measures.
- It also announced an initial resource of 825mn wmt saprolite and 533mn wmt limonite, making it the largest in Indonesia.
- We lowered our TP to Rp3,300 as we decreased our LT nickel price assumption to US$16,500 for its HPAL projects; Upgrade rating to Buy.
Cost efficiencies have reduced initial capex plan
INCO updated its capex schedule for its growth projects up to 2029, which highlights a decline of US$800mn or a -21% reduction in Pomalaa HPAL capex to US$2.7bn, implying capex intensity of US$22.5k/ton, down from US$28.3k/ton. Furthermore, we also noticed a notable decrease in mining capex for its Pomalaa, Sorowako, and Bahodopi sites. In terms of project timeline, Bahodopi mine completion has been brought forward to 3Q25 (vs. 4Q25), while other projects are experiencing delays of 1–2 quarters. Initial mining cost in Bahodopi is estimated to be at US$10-11/wmt and Pomalaa at US$7.5-8.5/wmt. Pomalaa’s cost is lower due to it being closer to port (22km) vs. Bahodopi (67km), and Pomalaa operates at a much larger scale of 28mtpa vs. Bahodopi (16mtpa). Management remains confident in the execution of these growth initiatives, as the extension of INCO’s concession is contingent on the completion of its downstream projects.
Largest nickel mine in Indonesia
INCO announced its 1st resource totaling 825mn wmt of Saprolite and 533mn wmt of Limonite ore. The company also announced a notable increase in limonite reserve to 564mn wmt, +63% yoy, as it converts resources to reserves in 2024. Additionally, INCO submitted a 2.2Mtpa RKAB in Apr25 and is currently awaiting approval. Pending this approval, the company expects to begin sales in 3Q25, following the commencement of operations at the Bahodopi mine.
Improvements ahead
The one-off gain in derivative contracts recorded in 1Q25 was mainly affected by the approval of tax holiday for BNSI which improved project economics, instead of changes in LME nickel price. Mgmt. is negotiating with its offtaker on the possibility of higher payability for its nickel matte as the current market payability could be as high as 85% vs. INCO’s 78%.
Upgrade rating to Buy with a downgraded TP of Rp3,300
While our FY25-26F forecast remained unchanged, we have slightly downgraded our TP to Rp3,300 (from Rp3,900) based on our SOTP derived valuation, as we decreased LT nickel price assumption to US$16,500 (From: US$17,000) for its HPAL projects. We upgrade our rating to Buy on INCO with a TP of Rp3,300, which implies FY25-26F PE of 22x/12x. Key risks to our call include lower nickel prices, a lower utilization rate, and project execution delays.
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