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China Hanking seeking partners to finance Indonesian nickel plant

China Hanking Holdings Ltd. has abandoned a plan to self-finance the construction of a 60,000 tonne capacity nickel processing plant in Indonesia, according to President and CEO Pan Guocheng.

The decision comes after the Southeast Asian nation in January relaxed its rules on the export of nickel as well as bauxite ores. Earlier this year, Virtue Dragon Nickel Industry, a unit of China's De Long Nickel Co. Ltd., suspended all its expansion plans, worth 25 trillion rupiah, in light of the new export rules.

Pan said in an interview with S&P Global Market Intelligence that there were already too many processing plants for nickel ore in Indonesia — with 180,000 tonnes in nickel capacity currently operational, plus 190,000 tonnes under construction. The project has yet to begin construction.

"It is a strategic adjustment for our nickel business. We previously planned to make large investments in the processing project but now Indonesia already has many processing plants," he said. "It no longer makes sense for us."

The original plan for China Hanking was to invest US$400 million in a phase one plant construction, of the total three phases which were expected to be completed by 2020. The schedule was previously delayed due to financing difficulties.

Pan admitted that other Chinese companies acted faster than China Hanking in terms of building processing capacity in Indonesia.

"In addition, nickel prices did not rebound as quickly as we have expected," Pan said, noting that the company was not satisfied with the current estimated investment return on the plant.

As for financing partners, Pan said the company was still in talks with interested parties. "But we will still hold a certain stake in the plant as we will provide infrastructure — ports and roads — for the project," he said.

The company also owns one of the largest nickel projects in Indonesia — the laterite nickel project in Sulawesi, where production had been suspended since 2014 due to Indonesia's restrictions on mineral exports.

A deal has been signed between China Hanking and Indonesia-based PT Maha Bhakti Abadi, under which the latter will be responsible for the funding of the project through to production, while payments to China Hanking will be contingent on ore grades.

For the laterite project, China Hanking will not make additional investments for the project ramp-up. Production will start in the first half, and is expected to accelerate over the next few years, according to Pan.

The processing plant was previously designed for the the laterite project. With the processing plant being delayed, Pan said the company would now sell ores to local processing plants.

China Hanking's avoidance of new investments in the nickel business also comes at a time when it is looking to expand into other metal sectors through project acquisitions, according to Pan.

As of March 27, US$1 was equivalent to 13,308.00 Indonesian rupiah.