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South Korea seeks to exit Africa mining JV despite rising nickel demand

Aug 26, 2020 (Gmt+09:00)

State-run Korea Resources Corp. has embarked on a plan to sell its stake in a loss-making nickel mining joint venture in Madagascar, Africa, after the ruling Democratic Party put forward a motion to ban the cash-strapped institution’s direct investment in overseas projects.

The planned sale, announced early this month, would mean South Korea’s exit from one of the world’s three-largest nickel mines, at a time when demand for nickel, a core raw material for rechargeable batteries, is on the rise from the burgeoning electric vehicle (EV) industry.

Korea Resources has pumped 2.2 trillion won ($1.9 billion) in the joint venture (JV), Ambatovy, since acquiring a 33% stake in the venture in 2006.

In June, a ruling party lawmaker proposed a bill to restructure Korea Resources’ businesses and ban its direct overseas investments. If the bill is passed, the state-run agency will have to divest of existing mining projects, not only in Madagascar, but also copper mines in Mexico and Panama.

“After the bill was submitted again, we kicked off the process to sell our foreign projects,” said a source from Korea Resources.

The restructuring proposal, including a merger with another state-run institution -- Mine Reclamation Corp. – was put forward in the previous parliament. But it was rejected in 2018, in the face of opposition from politicians and residents of closed mine areas. They worried a merger would deteriorate the financial conditions of Mine Reclamation.

Loss-making overseas projects have increased debts at Korea Resources to 6.4 trillion won by the end of last year, even more than its equity capital.

Ambatovy nickel mine in Madagascar, Africa
Ambatovy nickel mine in Madagascar, Africa



The Ambatovy JV is Korea Resources' biggest overseas mining project. It is a $8 billion venture with Canada’s Sherritt International Corp. holding 12% and Sumitomo Corp. having 47.7%. Two South Korean companies -- POSCO International and STX Corp., a trading company – have 5.87% and 1.46%, respectively.

But the shareholders have been suffering heavy losses from the investment. Operations at the mine have been suspended since March in the wake of the COVID-19 outbreak. Previously, a civil war in Madagascar and tumbling raw material prices weighed on its operations.

Last year, Sheritt announced its exit from the joint venture, rejecting Ambatovy’s request for fresh funding. At the time, the Canadian company said that it became a defaulting shareholder.

Early this month, Sumitomo Corp. forecast a record net loss of 150 billion yen ($1.4 billion) for the year to March due to hefty one-off losses, including a write-down on the Ambatovy nickel project, according to Reuters. The Japanese company’s stake in Ambatovy will rise further as Sheritt is restructuring debt on the JV.


The Ambatovy mine produces between 33,000 and 47,000 tons of refined nickel and 3,000 tons of refined cobalt per year. Its raw ores are estimated to reach 146.20 million tons.

To South Korea, it ships about 10,000 tons of nickel annually, or 7-8% of the country's demand -- enough supply to produce batteries for 30,000 EV units.

Korean battery makers are working to increase the portion of nickel in their new EV battery models. Nickel increases the energy density in batteries.

The world’s top battery maker LG Chem Ltd. is planning to unveil NCMA (nickel, cobalt, manganese, aluminum) batteries containing a higher portion of nickel next year, while cutting the portion of cobalt. SK Innovation Co. Ltd. is developing a new type of NCM battery, in which nickel accounts for over 90% and will supply them to Ford Motor Co.

“The use of nickel in next-generation EV batteries will rise to more than 30% per unit,” said a battery maker industry source, stressing the importance of stable nickel supply.

Reflecting demand, nickel prices spiked to $14,925 per ton in the spot market on August 25, according to the London Metal Exchange. This marked its highest price in more than nine months. The metal price has rallied 34% over the past five months, supported by dwindling production.

Nickel demand for use in batteries is expected to multiply by more than seven times from this year’s estimated 150,000 tons to 1.1 million tons by 2030, industry sources say.


For the planned stake sale, Korea Resources said it will tap domestic companies ahead of foreign candidates to calm concerns about outflows of national wealth.

But the resource industry sources see no suitable domestic candidate who can afford to take over the billion-dollar overseas project.

“In the worst-case scenario, it may fall into the hands of a Chinese or Japanese company, and the chance of this is high,” said one of the industry sources.

A sale of the stake in the African joint venture to a Chinese company may increase Korean battery makers’ dependence on Chinese nickel suppliers and could increase their vulnerability to a trade dispute with the neighboring country, he added.

None of South Korea’s major rechargeable battery makers – LG Chem, Samsung SDI and SK Innovation – have invested in a nickel mine abroad. But they are unlikely to show interest in the Ambatovy nickel project, given their focus on research and development.

Separately, Korea Resources has a 76.8% stake in the world’s fourth-largest copper mine in El Boleo, Mexico. It invested 1.7 trillion won in the mine in 2008. It also owns 10% of Cobre Panama, investing 835 billion won in the copper mine in Panama since 2009.

Its stakes in the two copper mines have been up for sale, but no candidates have yet emerged.

By Man-su Choe

Yeonhee Kim edited this article

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