Company Overview
Vale Indonesia (Ticker: INCO IJ) is a leading producer of nickel in matte, an intermediate product derived from lateritic ores. The company operates integrated mining and processing facilities in Soroako, Sulawesi. With a strategic focus on expanding its production capabilities, Vale Indonesia aims to strengthen its position in the materials sector.
Stock Details and Performance
The stock is currently priced at Rp3,640 with a target price of Rp3,800, indicating a potential upside of 4.4%. Vale Indonesia’s market capitalization stands at approximately Rp38,364,815.7 billion (US\$2,418.7 million), with a 3-month average daily turnover of US\$3.8 million. The stock has experienced a 52-week high of Rp5,225 and a low of Rp3,510, reflecting a mixed performance over the year.
Major shareholders include Vale Canada Limited (33.9%), Mineral Industri Indonesia (34.0%), and Sumitomo Metal Mining (11.5%).
Growth and Earnings Outlook
Vale Indonesia’s growth trajectory for 2025 is anchored on the initial sales of 1.2 million to 1.3 million wmt of saprolite ore from the Bahadopi and Pomalaa mines. The company’s earnings are projected to grow by 18% year-on-year to US\$73 million, driven by a 71.2% increase in EBIT. This growth is supported by slightly higher LME nickel prices, anticipated to reach US\$17,300 (+1.7% yoy).
However, net profit growth may be tempered by increased interest costs due to a US\$700 million capital expenditure (capex) cycle, which will be partially funded through debt financing. This could lead to lower finance income and increased finance costs.
Production and Investment Strategy
The company has a strong production outlook for the next three years. Production at the Bahadopi mine is set to commence in the fourth quarter of 2024, while the Pomalaa mine is expected to begin operations in the second quarter of 2026. This will result in an annual saprolite production of 6 million wmt, further bolstered by the projected start of the Sorowako limonite mine in the third quarter of 2026. By 2027, saprolite production is expected to reach 12 million wmt, with limonite output potentially growing to 21 million wmt.
Vale Indonesia has secured two significant High-Pressure Acid Leach (HPAL) projects in Sorowako and Pomalaa, with a combined production capacity of 180,000 tonnes of Mixed Hydroxide Precipitate (MHP). These projects are expected to commence production in the first half of 2027 under a call option scheme, allowing the company to prioritize mine investments that offer higher margins and Internal Rate of Return (IRR).
Additionally, Vale recently signed a strategic collaboration with GEM Co. to develop a HPAL smelter with a capacity of 60,000 tonnes of MHP in Morowali (Bahadopi).
Financial Overview
Key financials from 2022 to 2026 show fluctuations in net turnover, EBITDA, operating profit, and net profit. For instance, net turnover is expected to decrease from US\$1,232 million in 2023 to US\$927 million in 2024, before rising to US\$1,186 million in 2026. EBITDA follows a similar pattern, declining from US\$501 million in 2023 to US\$245 million in 2024, then increasing to US\$500 million in 2026.
Despite a challenging 2024, the company plans to maintain a stable sales volume of 71,000 tonnes of nickel in matte. However, earnings revisions show a reduction of 40.4-50.2% for 2024-25, primarily due to a downward revision in nickel matte Average Selling Price (ASP) assumptions by 5.8% and 5.0% for 2024 and 2025, respectively.
Valuation and Recommendation
The recommendation for Vale Indonesia is to maintain a HOLD position with a target price of Rp3,800, based on a 7.4x forward 2025 EV/EBITDA, reflecting its five-year average. The company’s trading is slightly below its five-year average EV/EBITDA, considering slightly higher nickel prices in 2025 due to reduced oversupply and a strong production outlook over the next three years.
