Recently, I paid a visit to the Indonesia Morowali Industrial Park (IMIP) in Sulawesi, where I stayed at the Tsingshan guest house called ‘Green Mountain and Clear Water Guesthouse’, which stayed true to its name as it is a nice, proper hotel — definitely not something you would expect at an industrial park and a base for nickel extraction. Over the past 10 years, it has become this remarkable space where we see impressive infrastructure and projects built with more than 50 corporate tenants, multiple ports, hospitals, coal fired power plants, mosques for the local Indonesian employees, water treatment and sewage systems, etc.
Is Tsingshan being left behind on high-pressure acid leach (HPAL) technology?
You could say that. Huayou Cobalt has certainly become an HPAL tech leader with PT Huayue Nickel Cobalt (HNC) running steadily, exceeding a nameplate capacity of 70Ktpa vs 65Ktpa in Morowali. Elsewhere across Indonesia, Huayou are developing a number of HPAL projects – Huafei (120ktpa) is recently commissioned, Huashan (120ktpa) currently under construction as well as Pomalaa (120ktpa), Sorowako (60ktpa)and more among a long list of project pipelines in partnership with battery companies and auto OEMs (original equipment manufacturers).
But how could ‘the big brother’ who has built two Indonesian industrial parks and more than 100 rotary kiln-electric furnace (RKEF) lines let others lead on HPAL’s moment in the spotlight? It didn’t. Tsinghua chairman, Guangda Xiang, has taken the approach to watch and wait in regard to the novo hydro technology. Now with three HPAL plants up and running, the company is all in. Four will be built in total — two at Morowali and two at Weda Bay, totaling 240Ktpa contained Ni, along with strategic partners like Nickel Industries.
Here are some of the highlights:
- Diversified ownership – Nickel Industries Ltd (ASX: NIC) has been enjoying a fruitful partnership with Tsingshan at its Hengjaya laterite mine and RKEF smelters over the past few years. Their partnership in developing HPAL technology will not only enable Nickel Industries to tap into the battery materials space, but will also contain Chinese ownership to a certain level, hopefully to be compliant with the US Inflation Reduction Act (IRA). United Tractors (IDX listed, Jardine Matheson subsidiary held via Astra International) has also announced it will acquire a 20% interest in the company’s first phase (60Ktpa) i.e., the Excelsior Nickel Cobalt (ENC) project.
- It seems they will not use ENFI Engineering Corp., but will build it themselves. Having gone through everything at Huayue and QMB New Energy Materials, Tsingshan is confident it build its own two operating HPAL plants at IMIP. Construction is expected to take about two years. Tsingshan is confident in its efficiency and cost control as Tsingshan head Xiang is typically focused on cost.
- Low carbon power will also be developed – Tsingshan has announced solar power at IMIP and IWIP (Indonesia Weda Bay Industrial Park). It is also involved in hydropower at North Kalimantan. Indonesia’s natural surroundings can prove inopportune for renewables: high humidity, lack of wind, minimal to no sun in its wet season, mellow tides, etc. I think its unrealistic to have 100% clean power, nor is it economic. Gradually diversifying away from thermal coal sounds like a feasible way forward.
Deep-sea tailings are prohibited in Indonesia. Tailings are essentially the waste from the HPAL process and tend to be dry stacked and managed centrally at the industrial parks. At IMIP, I visited the tailings storage facility which is in a shallow pitted area about a 30-minute drive from camp.
HPAL is notoriously famous for the quantum of the tailings due to its processing flowsheet. It typically generates 1.25x volume of the feedstock ore in the tailings. Using Huayue as an example, it produces approximately 70Ktpa Ni. Using 1% ore it would consume approximately 7Mt of limonite ore every year and the tailings generated would be approximately 8.75Mtpa.
The tailings are mostly iron (30-40%) in content with approximately 35% moisture, therefore they look reddish brown in colour. Tailings are treated to meet local government standards before they are backfilled. Black coloured membranes made of plasti polymer materials are placed on the ground before refilling. In the meantime, tailings are rehabilitated with grass and shrubs as the backfill goes.
Interestingly, inspired by the complementary attributes of the periodic elements, the tailings from HPAL are mostly iron, and those from RKEF are mostly silica — a mix and match to make construction bricks sound like a plan — a perfect example of the Chinese alchemist economy.
Behind the economies of scale
HPAL is gaining speed and economies of scale. Ramu, the first Chinese HPAL plant in Papua New Guinea took approximately four years to build and five years to ramp up. However less than 10 years later, Huayue has broken a number of world records — with a 22 month construction period, four month ramp up to full capacity, and has been running at 70Ktpa (compared to a designed capacity of 65Ktpa) since last year.
Capital intensity wise, Ramu is estimated at around US$600M/t, while it has more than halved for QMB and Huayue. If benchmarked with projects outside of Indonesia, for example; Goro, Murrin Murrin, and Ambatovy, the capital intensity is dramatically higher.
Thanks to the rapid growth of electrification and the increasing demand for battery materials in China — many half-jokingly say that the bottleneck with HPAL is not the technology nuances or operational expertise, but the long order log. With such a huge demand, companies like ENFI can afford the research and development to constantly improve the technology, but at the same time still achieve the economies of scale.
What’s happening in the background? China is the world’s largest and fastest electric vehicle (EV) growth market with approximately 1M units sold in 2020, 3M in 2021, and 6.5M in 2022. EV penetration has achieved approximately 30% in Chinese markets despite the broader economic recovery being below expectation. A big highlight is that China has become an auto net exporter this year thanks to the strong EV demand worldwide.
Will this continue and for how long? Honestly, I don’t know. With the slow-down of EV sales and the oversupply of batteries in China happening in tandem with an HPAL boom in Indonesia, how should we strike a balance between demand and supply? In a free economy and global village, the surplus Indonesian supply would naturally flow to the US market (where an EV explosion is expected), however with complex geopolitical tensions, the IRA has become a visible hand directing traffic in the market flows of battery materials. An ideal solution is to get Indonesia to join the US free trade agreement for critical minerals to smooth out the oversupply in this part of the world and fill up the supply gap in other parts.
What’s next for Indonesian nickel?
Tsingshan has been operating in Morowali for more than ten years, it started from almost nothing to it now being a well-established industrial park with developed infrastructure and numerous corporate tenants.
When Tsingshan first came to Morowali, it came for the laterite ore; then established the downstream processing and smelting; and now it’s going further to the battery materials and an end-to-end battery materials supply chain.
Tsingshan is in partnership with Chengxin Lithium, building the first lithium hydroxide factory in Indonesia and BTR is in the process of building the first battery anode factory in the country. In addition, CATL is also reported to be partnering with Antam and others to develop a closed loop supply chain including battery recycling. Similarly, Korean companies like, POSCO, Hyundai, and LGEs have been doing similar things.
Indonesia is well known for its abundant nickel resources, using a quarter of the world’s resources but producing more than half of the global supply. What’s less known is its end market potential — with a population of more than 270M, Indonesia is the world’s fourth largest nation and has significant growth potential for electrification, not only for conventional four wheelers, but also two wheelers (you’ll understand when you see Jakarta at rush hour).
As EU battery regulations come into force, including a battery passport which traces the lifecycle carbon emissions of batteries, Indonesia is under pressure to diversify and transition its energy sources. Regulatory pressure is one thing, another is driven commercially. Making sure products can go the low carbon/green supply chain route of a tier one Western OEMs is essential for leading players like Tsingshan.
In summary, Indonesia is on the right track to become a key regional hub, if not global, for battery materials under the leadership of Indonesian president Jokowi. Fingers crossed for the presidential election this coming February — people are running around one ministry after another hoping to get red stamps on their project papers by the end of the year but that’s just the end of the beginning. A sustainable development of nickel resources and a broader battery materials supply chain needs a pragmatic government with a long-term perspective.