PT Vale Indonesia Tbk (INCO) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to PT Vale Indonesia Fourth Quarter 2019 Results and Outlook Conference Call. Mr. Nico Kanter, Chief Executive Officer, please begin.

Thank you, Aaron, good afternoon, ladies and gentlemen. This is Nico Kanter speaking, the President Director of PT Vale Indonesia Tbk. I'm glad that I can discuss our fourth quarter 2019 results with all of you today. I'm currently in our Jakarta office, together with our Chief Financial Officer, Bernardus Irmanto, while other senior management also are joining from Sorowako as well as in the Jakarta office. This presentation and discussions will comprise assumptions and forward-looking statements that involve risks and uncertainties. In addition, all opinions and assumptions constitute our judgment and are subject to change without prior notice. Please refer to the following cautionary note and disclaimer. As you may see in the graph, our TRIFR, the total recoverable injury frequency rate, has slightly increased from previous year. We recognize the need to continuously work harder to lower our injury rate, and we are committed to create zero-harm working environment for our employees as well as our contractors. At the end of 2019, for the first time in the history of PT Vale, the company received Green PROPER title from the Ministry of Environment and Forestry. This is also the first time for an integrated mining -- nickel mining and processing company in Indonesia. Previously, the company has maintained Blue PROPER rating for 6 consecutive years, and in 2018, the company became a Green PROPER candidate. Receiving Green PROPER means that the government acknowledges and appreciates our beyond-compliance efforts in terms of environmental management and community development through the implementation of environmental management system, efficient utilization of resources and making significant effort to empower the community. For the record, PROPER is a prestigious program developed by the Ministry of Environment and Forestry since 2002 and evaluated by experts. We are glad to report that we already fulfilled divestment obligation. Inalum, the state-owned mining company that oversees the mining activities and the mining investments, has been appointed by the government of Republic of Indonesia to acquire the stake. Post divestment, VCL and Sumitomo will jointly own almost 59% of PTVI shares. The final terms and conditions will be agreed by a definitive document or divestment agreement, and all parties have agreed to extend the signing deadline of the definitive agreement to end of first quarter 2020. In 2019, PT Vale produced 71,025 tons of nickel in matte, a decrease of 5% from last year's production of 74,806 tons. The decrease was mainly driven by the impact of major maintenance activities related to Larona Canal Lining and Electric Furnace #4 in first quarter 2019. We are confident in our ability to maintain our production levels in 2020. Now I'd like to ask Bernardus Irmanto to continue the presentation with our financial results.

Thank you, Pak Nico. So for the financial results 2019, we maintained our EBITDA at the same level as last year. So despite of lower production, as Pak Nico explained, in 2019, we maintained the same level of EBITDA. This is mainly driven by nickel price primarily and also maintaining a cautious cost management. Throughout the year, the company's average realized price in 2019 was USD 10,855 per ton. That number is about 6% higher than the 2018 average realized price. PT Vale recorded sales of USD 782 million in 2019, 1% above sales recorded in 2018. The company's cost of revenue in 2019 slightly decreased by 1% compared to the same number for 2018. So if you see the graph, the graph actually shows the comparison between our average realized nickel price and unit cash cost of revenue. As you may see in the graph, our margin is improved, particularly in the quarter 4 2019, mainly due to higher nickel price and managed -- cost management prudently. Next is on our energy consumption. As you know, that our energy consumption contributes significantly to our cost. So in 2019, HSFO and coal consumption decreased by 5% and 9%, respectively, compared to 2018, primarily due to the lower volume of nickel production while diesel consumption in 2019 increased by 10% from 2018, mainly due to the usage of diesel-fueled thermal power generator that was being used as a backup source of energy during the Larona Canal Lining activities in the first half of 2019. Next is on the $50 million cost efficiency initiative. So in early 2018, we launched a 3-years program with $50 million cost reduction target. Since then, we implemented a series of initiatives to eliminate operational waste and also to improve efficiencies. So throughout the year, in 2019, we were able to realize cost saving of $28.9 million from the target of $28 million that we set for 2019. As you can see in the graph, there are several initiatives that contributed to that saving. So for example, in the equipment cost, our equipment cost -- or our reduction, the cost rate service optimization, a different department in the company actually contributed to that saving realization. Next on our cash balance. Our cash balance in fourth quarter 2019 was higher than previous quarter. We will continue to exercise prudent cash management. Compared to 2018 cash balance, the 2019 cash balance is lower, mainly due to the higher cash spending on our capital expenditures in 2019. As I mentioned before, in 2019, we executed Larona Canal Lining, which consumed quite significant cash. Next, in our development project for 2019. For project development progress, we received the AMDAL license for Pomalaa in January 2020. And now we are in the process of getting the forestry permit for Pomalaa, while Bahodopi, we are still waiting for the AMDAL and other license to be approved. We expect to have final investment decision of our -- FID with the partners for both projects by the end of the year, So next, I will pass to Pak Nico.

Hello, Aaron. Bernardus is just done with the presentation. We may start the Q&A session.

Sure. Certainly. [Operator Instructions] Our first question, Jayden from Macquarie.

Just wanted to know what is the company's guidance in terms of production, any major projects for this year and what sort of cost we should be expecting? So what would be the outlook for 2020 just for the current ongoing operations? That's my first question. And second question is, is there any sort of timing we should expect for some of the expansion projects, such as the project to get to 90,000 tons and also in previous quarters, the discussion around the enhanced briquette recovery. Those are my 2 questions.

Thank you for the question. So for 2020, we plan actually to execute the furnace rebuild for the Furnace #4. As Pak Nico mentioned in the beginning of the presentation, we experienced a Furnace #4 problem in the first half of the year. For the remaining of 2019, after the problem with [indiscernible], we actually managed to run Furnace #4, but with limited power. As a consequences of that, we -- the production for that particular furnace is actually lower. From our assessment, considering the safety of the operation and also reliability of the asset, we have decided to do the rebuild, full rebuild, for the Furnace #4. That would happen in quarter 4 2020. So that will definitely affect our production target for 2020. Our projection for 2020 is more or less the same with 2019. So the furnace itself will be down approximately for 5 months, so like probably 3 months in 2020, 2 months -- 2 other months, in 2021. So that's the projection for the production. On the cost, we're aiming to actually improve our cost compared to 2019. Also, I talked a bit about diesel consumption, right, in 2019. We actually burned diesel in 2019, which increased our costs quite significantly in the first half of the year. We will not have the same issue again in 2020, right? So -- and we have also different initiatives to also improve the efficiency of the cost. So we're actually aiming to probably improve the cost a little bit, although probably the level of the cost is still [ only $7,000 ]. So that's all from the reduction in cost. And regarding your question about the expansion. As I mentioned also that we are now really chasing some of the critical elements of the project. On the Pomalaa project, we actually made quite significant progress. As I mentioned, we obtained our AMDAL for Pomalaa and we are submitting our forestry permit application. We are coordinating our efforts with the BKPM, the Indonesian Coordinating Investment Board, and we obtained actually full support from them. So with that, we're actually confident to push this project through. And we're actually aiming to sign a final investment decision this year. So that's definitely a milestone for us. The construction and all other things, probably the early -- some of the early work will start this year, but the actual construction will be started once the final FID is signed. For Bahodopi project, it's a little bit -- right now it's a little bit delayed due to the fact that the -- our partner from China is also affected by the coronavirus thing. So some of the coordination and communication is kind of affected per se, although we still managed to have coordination through phone or through video conference, but the actual, for example, the design work and other technical communication was affected. So we're waiting for the development from their side on how they can deal with this coronavirus, but we do expect that this project also can move ahead quite progressively once the thing is also addressed. The other thing is on the 90 kilotons project. As we mentioned, there's a recapping, probably, I don't know. I would invite my colleague from Sorowako to talk about that, if they can comment. But this 90 kilo project is composed -- it's composed from different initiatives. As you probably remember, we mentioned about [ ICPCI ] project. So we have actually revised the scope of [ ICPCI ] project. Those which are -- have high maturity for execution and also high confidence to be realized, we prioritize them. So we're actually rescoping some of the initiatives, which can deliver additional production from the current operation. We're aiming to probably have 3 to 5 kiloton additional production. That will be happening this year as well. The second thing -- the second major project that we are talking is about installing or contracting the fifth line for Sorowako. It is now in the Phase 3 phase now. We are aiming to conclude the Phase 3 also this year, sometime this year. We are working with EPCM company who has a lot of experience in this role. And also for the briquetting that can have additional production gain, we're actually sending some samples to Brazil, so that they can analyze our oxide and our gas that can contribute to the additional production. I haven't got any update from the analysis from the briquetting, but that sometimes -- we expect that sometimes probably in quarter 1, we will have more clarity on that.

Okay. So just one last follow-up question, if I can. If I put all this together, what would be your expectations for CapEx, both from what you can see for 2020 and then it sounds like some of these projects are going to go into 2021. Can you let us know what the expected CapEx would be?

The CapEx level is probably slightly below the level of CapEx we spent in 2019. As I mentioned, in 2019, we have used capital expenditure for Larona Canal. The spending for the Furnace 4 rebuild probably is just about the same level, but it's split into 2 years, right? So it's slightly below that. However -- that's for the sustaining capital. However, as I mentioned, we will start spending some of the growth capital in the form of early work in Pomalaa, particularly. We just need to be cautious about it because we need to ensure that all the permitting is obtained before we can actually do some activities in the forestry area. So it's depending on the timing of the permitting, the level of expenditure will be different. We don't expect a major growth capital expenditure in 2020, probably in the level of less than $20 million for that.

[Operator Instructions] Our next question in queue, Ariyanto from Mandiri .

This is Ariyanto from Mandiri. Quick question with regards to the nickel ore market in Indonesia. I understand that Vale is not selling nickel ore at this moment, but maybe you know something that you can share with us?

Please go ahead, Ari.

Hello?

Hello, Ari. Yes.

So Ari, your question is regarding nickel ore market?

Yes, correct.

Yes. So Ari, as you probably heard that the government is planning to set the new government benchmark price for the nickel ore market, right, after the stoppage or the ban of our exports at the beginning of this year. I think the intention of the government is really to create a healthy ore market in Indonesia. With the new development of smelter ore in Indonesia, especially in Sulawesi, I think it is important for the government to regulate that properly so that the value for the country is actually optimum, right? So we have been invited to provide our input to the government, especially for the saprolite ore pricing. We have actually provided our input. We have talked to several officers in the ministry. We have provided our input with different consideration. And I heard that probably that's an opportunity as well that the government benchmark price for saprolite will be -- remain the same as it is today. The attention is more on the limonite ore because limonite and saprolite have different characteristics, so the saprolite pricing cannot be applied to limonite per se. And right now with the development, as you know, probably 5 -- there are 5 different developments of HPAL in Indonesia, this limonite pricing needs to be set as well. If we use the current government benchmark price for limonite pricing, probably it will not be economic for the developer because if you use the formula of the current saprolite and apply it for 1.3% grade of limonite, then the CF, correction factor, is around, something, 14%, right? So it probably is a little bit too high. So that's why I think government needs to think about that and set optimum pricing for the limonite. And I think with the input from different industry -- different players, they could set the right pricing for the limonite.

Okay. But do you think the -- from what I understand, the cost structure between the bigger players and the smaller players are different. I'm sure the bigger player has a bigger cost structure because there are some costs that probably only the bigger player pays like maybe environmental and everything. But with this lower cost structure for the smaller players, do you think they are willing to sell the nickel ore at below the benchmark prices? Or they have to comply with the government regulation to sell it at the minimum prices for the benchmark?

Ari, what I heard is that, that -- like the government will set it as a mandatory, so that it would be illegal for any industry -- or any companies to sell or to buy ore below government benchmark price. So both the seller and the buyer would be penalized if they actually sell or buy the ore below the government benchmark price. On your point regarding the cost structure, I think we also made our point very clear that all the companies operating in Indonesia must comply to the minimum regulation or standard when it comes to the environmental compliance just, for example, the requirement mention -- to how they're managing the environment basically from the operation. And in the way we provide our input, we actually explained line by line. This is the minimum activities which need to be done by mining companies when they are mining in Indonesia like the environment and all other things that is actually regulated by the government. So we are not adding on top of what we actually proposed that are not really regulated and not really necessary. So what we're proposing is actually what is minimum for mining companies to operate, safely and in compliance, in full compliance to the government regulation.

Okay. Sorry, one more thing. I think the biggest concern from the market is that given that the smaller players now cannot sell the nickel ore to the export market anymore, so there will be so many supply to the domestic market, so that it will suppress the domestic nickel prices. So -- but given the higher supply, they still cannot sell at below the -- at the lower price of the government benchmark price, is it correct?

Sorry. Pak Ari, your voice was a bit breaking up. Can you repeat again?

Okay. So my biggest concern is that given that we cannot sell nickel ore to the export market anymore, so most of the supply will go to the domestic market, right? So higher supply means higher (sic) [ lower ] prices. So is it possible -- I mean, so for the nickel players, they have to sell at the minimum benchmark prices and cannot sell below that number, is it correct? Or they can do something about it and sell at the below-market price?

What I understand, the intention of the government is to set the government benchmark price at a minimum level. So they cannot sell or they cannot buy below government benchmark price. And then, yes, probably the consequences is that the market will be probably consolidated. It puts pressure both on the seller and the buyer. On the buyer side, as you know that right now, the majority are operating RKEF, for example. So the pressure for the buyer is really to raise you again the infrastructure and make sure that they operate the smelter effectively. And if you look at the proportion of the cost for the RKEF operation, I think the ore component on this is quite significant, right? So they need to -- again, they need to look at that and how to -- look at ways how to improve the efficiency of operation because the ore price, which is quite significant now in the infrastructure will be regulated so they could not play with it.

Our next question Aryo from Bahana Securities.

Actually I observed quite significant increase in employee costs and professional fees in operating expense account. May I know why? That's my first question actually. And the second one is, is the 71,000 tons is your production target this year? Hello?

So your question is related to the provision area, yes?

No. The operating expense. So I observed a quite significant increase in employee cost and professional fees in operating expense account. I'm just wondering why.

Aryo, for the provision, I think this is related to the -- for the tax provision.

I'm sorry, the operating expense side.

The operating expense, let me see.

Yes. The operating expense. In the detail, there are employee cost and professional fees, and it increased quite large. I was just wondering why.

Aryo, I just looked at the financial statement again. So the difference between 2018 and 2019 is around $2 million, yes?

Yes.

And the employment cost is related to the EIP bonus. So we actually accrued the EIP bonus in 2018 for the payment of 2019. And the payment -- nevertheless, the payment that we made at that time is actually higher than what we accrued so it hit the cost, the expenses. For the...

Management. Professional.

Professional fees.

For the professional fees. So the professional fees, this is actually related to the -- in the company transaction. So we, PT Vale, have actually agreement with Vale Canada for their management mechanical systems and royalty. And royalty, actually the royalty has been stopped starting 2020, January 2020. But before January 2020, we actually pay Vale Canada a royalty. I think the formula is 0.8% of the sales, of the revenue. And because our revenue is actually higher compared to 2018, so the payment is also higher.

Okay. Will it recur -- recurring expense in this year?

So the current expenses for the year, because we stopped the royalty, there will be no longer -- well, this royalty is actually problematic from the tax point of view. We have been getting constant challenge from the fact like what is the value of royalty? Why this royalty is actually having no end date, like what is the lifetime of this royalty? That's why we and VCL, PT Vale and Vale Canada, actually agreed to stop the royalty payment. Nevertheless, we still need or require the support, the technical support, from Vale Canada, but it will not be -- will not be regulated under a royalty regime. So we are creating a new agreement with Vale Canada, a management technical agreement, service agreement. So whenever we actually require support from Vale Canada, we will ask them to provide kind of proposal and then we need to be sure that what activities and the way that they're applied or they're proposed to us is actually is a reasonable one. So in that way, it's going to be more transparent the fee that they charge to us. And from the tax point of view, they can also see that this service coming from Vale Canada is actually reasonable and bringing the benefit for the company, for Vale Indonesia.

Okay. And my second question is actually is the 71,000 tons is your production target for this year?

Yes. It's more or less that number. As I mentioned before, we will have Furnace #4 rebuilt, total rebuild, in quarter 4. So our projection for this year is more or less the number. So the range is still the same, 71,000 to 72,000. That's the range that we are aiming.

Okay. When will the furnace be built? In the fourth quarter?

Yes. It will be in the fourth quarter 2020, starting, and then will be completed quarter 1 2021.

Our next question, [ Ingrid ] from [ Sudharna ].

I have 2 questions from my end. First one is on the tax. So I noticed that the effective tax rate each -- every fourth quarter is a little bit higher. Is that because of the royalty that you mentioned before? Or is there any other thing causing that higher tax rate? And the second one is on the Pomalaa HPAL project. I noticed earlier that you mentioned that the Pomalaa project has already obtained the AMDAL license. Is this the same license that will be -- regulate the disposal of the tailings? Or will it require different permit for that? And can you just give us a little bit color on this tailings disposal, what Pomalaa will use as a method and how it is -- how is it perceived in the ESG perspective?

Okay. Thank you, Ingrid, for your question. I will probably answer the second question first related to the Pomalaa. So the AMDAL will not -- the AMDAL will cover the whole activities required for Pomalaa development, both for the mining and smelters. However, this tailing disposal will require different permit, which is the [ base 3 with ] disposal permit. So that will be arranged differently. We will submit or it's not -- it's actually not PT Vale, but the JV co because remember that PT Vale will be establishing a joint venture with Sumitomo, as you probably know. So the JV co will arrange for that permit application. It's not PT Vale. So JV co will arrange for that permit application. So it will be a different permit. So once actually all the technical design is completed, it's like the JV co will arrange for that permit. Regarding the tailings disposal. As you know that we have like right now the 2 well-known smelters for the tailing disposal are the land tailing disposal and deep sea tailing disposal. And from our project, we'll use land tailing disposal. So we will build this huge actually tailing dam. And now it is under design now. We know that this is quite critical in terms of the safety and reliability of the assets. And Sumitomo actually, our partner, has a lot of experiences in building the tailing dam. The structure will be probably similar or the same with their tailing dam for the HPAL project -- or the same or similar with the HPAL operation that they have in Philippines. So they have experience on that. You heard about different argument around deep sea tailing versus land disposal tailing, and we do believe that from the environmental point of view, the land tailing disposal is much more -- like much more environmental friendly compared to the deep sea tailing. So that's on the second question. On the first question, you asked about the tax rate, yes. I remember, probably in the first and second quarter of this year, the tax is actually skyrocketing, it reached probably 80%. It's not related to the royalty. It's related to the installed -- monthly installment that we made for 2019. So the monthly installment was that used -- the numbers that we actually submitted in previous years. We just -- I think the monthly installments are around USD 2.6 million. And then that's what we also paid monthly in 2019. That's why if you compare -- in 2019, if you compare the monthly tax installment and the net income in the first half of the year, then it is not balanced because until first half of the year -- actually, until third quarter of the year, our net income is, I don't know, it's very, very low. Even in the first half, we actually still booked negative net earnings, right? While the monthly installment is following the previous year installment. So we are actually kind of overpaid -- overpaying the tax installment. And by the end of the year, because in the third and fourth quarter, we actually made a -- booked significant net earnings, the tax rate by the end of the year is around 36%. And the 36% compared to probably, if you compare to 2018, it's around 27%. And the 36% is related to the tax provision that I mentioned before. Did that answer your question?

So the tax provision is relating to the monthly installment thing?

No, no. It's different. Monthly installment is still the same. That's why we are in the state of overpaying right now. But that is -- actually, every year, the company strategy is not to be underpaid because there's a consequences from the tax auditing, right? So if we are underpaying, meaning that we actually have owed the government for the tax payment, this active tax payment, I think the auditing treatment will be different. If we're actually overpaying -- in overpayment state, they will audit our -- the company right away. So that's what we're aiming. However, as I mentioned before, I think the -- by the end of the year, the overpayment of the tax is in the order of, I think, USD 30 million to USD 40 million while what we're aiming is probably $10 million or maximum $15 million. And anyway, that's what we have today the situation. In the third quarter, we actually have submitted our application to reduce the installment to the tax authority, the tax office. However, they rejected our application. You know that the government actually requires a lot of tax payments related to the sales revenue. So they rejected our application for tax installment reduction. So the tax provision that I mentioned is related to the tax case that now is ongoing in tax disputing and in the tax court. So it is not related to the installment that I mentioned before.

Our next question, Benyamin from UOB.

I want to ask about Bahodopi and Pomalaa projects. When the company expects those projects to be finished? And who is the partner for Bahodopi project? And how much -- how many tons the production for both projects? And how to finance the project? And maybe has Vale disclosed how many contracts that they expect in the joint venture? And how long the production will be optimized after the production facility is finished? Yes, that's all.

Okay. Thanks, Benyamin, for your question. So first from the line, Bahodopi. So first question is regarding the completion, right?

Yes.

As I mentioned before, Pomalaa will be the HPAL project and for Bahodopi will be RKEF project. Historically, HPAL project will take longer compared to the RKEF project. For RKEF project, it's more proven. I think you heard about Chinese company building every -- even every year, they build it. So it is proven technology. Capital-wise, it's also not as complex as HPAL project. So the HPAL project that we work will be taking around 5 years to complete. So as I mentioned before, we are chasing all this key permitting now and then waiting for the final -- FID. So assuming that everything is actually obtained by this year, we can start construction by next year. So the Pomalaa, the HPAL, will take around 5 years to complete. The Bahodopi project is, as I mentioned, the RKEF is probably much more simpler compared to the HPAL, and there's a lot of expertise on the field already about that. And unfortunately, I cannot mention, I cannot disclose the partner yet. So the company has signed the NDA with the partner. We cannot disclose the name of the partner yet right now. But they are -- they have the expertise on this field. That's why we engaged them as a partner. So for Bahodopi, it will take probably 2 to 3 years to complete. Again, the same, as I mentioned before, if 2020 we can obtain everything, we can sign the FID, then we can start in 2001 (sic) [ 2021 ] as well. And the completion will be earlier compared to the -- for the -- to the Pomalaa. For the capacity, Pomalaa will be in the range of 40,000 tons in the form of MSP, mixed sulphide precipitate. And the Bahodopi that will be around 70 kilotons in the form of ferronickel. And the next question is around stake or equity. Our pro forma, as you know, that this is -- the technology that we are going to implement in Pomalaa is Sumitomo price, Sumitomo technology basically, right? So it is rational that Sumitomo will have major equity on that. At this point of time, we are talking about probably 75-25. So we are aiming for minimum 25% equity for the Pomalaa. And for Bahodopi, we're still discussing with the partner, but we are aiming a bigger portion compared to the Pomalaa. We are talking about probably 49-51, but this is something that has not been decided yet. We're still in the negotiation with the partner. And regarding the financing. As I mentioned, actually, we are establishing this joint venture with the partner, right? So the financing will be the project financing at a JV co level. So it will not be in our balance sheet. But Vale and the partner will be the sponsor of the project financing.

How much is the investment for both projects?

Right now, the Pomalaa project, we are talking about $2.5 billion investment. Again, that number needs to be confirmed when all of the technical design is completed and negotiation with the probably EPCM companies is complete. Bahodopi, we haven't got the number yet, but we -- the number is probably at the range of $1.5 billion.

Okay. If you have financing in your joint venture, is there any possibility that the financing costs will be higher?

Not necessarily because I mean, higher compared to the corporate financing, do you mean?

Yes. Compared with Vale Indonesia financing by discount.

No. I don't think it is possible because, again, it is joint venture, right, so -- and we have partner. So PT Vale will not assume the liability for the project. So it should be the joint liability between PT Vale and the partner. We also have -- as I mentioned, we also have also projects for Sorowako expansion and other projects in PT Vale, right? So if we require funding, then it is going to be corporate financing. But for the 2 projects, Pomalaa and Bahodopi, it's going to be project financing. But if you look at -- because in project financing, you typically deal with a bank like [indiscernible] and NEXI and all those banks compared to commercial bank that you can compare, right? Commercial bank, I do believe commercial bank rates will be higher compared to the [indiscernible] bank.

Okay. I see. How long for both production to be optimalized after the production is start?

Yes. The ramp-up period until we achieve probably 80%, 90% the nameplate capacity, probably will be around 3 to 5 years.

Okay. So 5 years, it's possible the project is...

Yes. True, for the ramp-up.

Okay. How long is the [ permitting carry ] of Pomalaa and Bahodopi? And what [ cannot be this year ] for what project? What energy is used for the plan?

As [indiscernible], it is feasible. I think economically feasible. We have a [ set level ] but we cannot disclose yet. I think please wait for the press release when we sign the FID, but I cannot disclose yet the numbers, the economic numbers or the IRR or NPV. So I cannot disclose that yet, but I -- it is economically feasible. It is within our thresholds for investment. That's first. And the -- I think you've made a very good question related to the energy sources. Just to let you know that the PT Vale and Vale Global particularly is very, very committed to carbon emission. Vale Global, actually made a pledge recently that it will reduce the carbon emission by 30% by 2030, right? And by 2050, we'll fully comply with the Paris agreement. And we actually share the same commitment with them. So for Bahodopi project, for example, because it's RKEF and naturally -- historically RKEF will require a huge amount of energy and all of the RKEF built in Indonesia are actually using coal for power sources. However, it will be conflicting with our intention, right, for the carbon emission reduction. So right now we're actually doing the study for the alternative energy sources. We're reviewing natural gases and other energy sources. But our intention, our genuine intention, is not to use coal. It will set ourselves different, but from the cost perspective, I know that it's going to be challenging because coal is probably -- will be cheaper compared to the natural gases and other sources. But a commitment is commitment. We will attack after we're getting the study result and then make a decision based on that.

Okay. Do you know of a HPAL project in [indiscernible]. I ask that the project could be delayed because of the, I think, AMDAL, yes. Maybe you know something. And do you know how much is there for the production capacity?

Unfortunately, I cannot comment on that, Benyamin.

All right. Any benefits from [indiscernible] -- any financial benefits from -- following this year.

I think, first of all, I think the major -- most of the benefit is coming from the reputation and image, for sure. I know that more and more investors, as they're moving towards the ESG, right, they're actually very, very, very careful in investing their money. They will be investing only on the companies that have commitments on ESG. So I think based on that, we are putting ourselves in a very good position to attract a very responsible investor, right? With the 2 projects going on, that will help us a lot. Not only investor, I think more and more banks are actually moving to the ESG as well, right? So in our discussion with the bank, for example, we're actually selling our achievement of importer and they are more interested and attracted by that. So it gives us leverage as well when it comes come to dealing with the banks and investor. And probably there will be movement as well in the future around how client will buy the product and all other things. And I do believe that we do have that as well, although probably the technical benefit is not here yet significantly, but we do believe that in the upcoming years, we will matter like that.

There are currently no questions in queue. [Operator Instructions] Our next question, Eun from DBS.

Congratulations for your good earnings. My question is first two question is could you update the divestment of Vale's stake to Inalum? And then question number two is what is your outlook on the nickel price this year? And just number three question, you just mentioned about your CapEx for rebuilding #4 Furnace this year. What would be the impact to earnings? Because I remember last year, the first half of your earnings has been impacted negatively from several management maintenance and then the CapEx activities. So hopefully, I want to have your expectation on the impact from these CapEx activities this year?

Okay. Thank you for the question. The first question is related to the divestment. I think we made our factor in this already. We signed -- as I also mentioned, we signed our hand-off agreement with Inalum. It's supposed to be concluded by December, but we have more detailed agreement to be discussed. So the hand-off agreement has been extended. We are aiming to conclude it very soon. So probably in the first quarter, we will conclude it. So let's wait, all right, and let's face together, so that we can conclude it as we have put a lot of uncertainties to our business and finance. Second question is on nickel price outlook. As you know, right? 2020 will be quite challenging from different factors, from the demand factors. In China like where the 50% of stainless steel market is in, there's oversupply for the stainless steel in China. And the coronavirus actually adds complexity to it. So the downstream activities from stainless steel production is actually also reducing. So there will be challenges in demand on the stainless steel. So some analysts actually projected to have production up in China, especially in the first half of 2020. On the EV market where we've actually put our bet, it generally is tough year-on-year. There's 18% decrease on the EV market. Different factors as well. China is always with the country that drives the EV movement. The coronavirus affected that and the uncertainty around capacity is also adding some complexity. So 2020 first half, it will be quite challenging, and on the second half probably it will be improving. So the demand will be improving that will be putting some hope to us. On the supply side, some of the projects that are in the pipeline that has been forecasted to be online in 2020, also having some issues, some problem. So that also helped actually, if they are not going online in 2020 because the demand is quite sluggish right now. So we expect that the nickel price actually in the first half will remain at the same level. Right now probably $12,000 to $13,000, but will be improving in the second half of the year. This is my personal assessment, probably the nickel price will be in the level of between $13,000 and $14,000 average for the whole of the year. And the next question is on the furnace, right, the CapEx in the furnace and the impact on the reliability of the asset. Yes, you're right. When we have with furnace problem, we have difficulties actually in the operation because there are a lot of unpaid maintenance. After the furnace rebuilt in quarter 4, we expect that we have -- we will have more reliable operations, particularly for the furnace. We also learned from this particular Furnace 8 accident and also applying the monitoring -- the same rigorous monitoring program for the other 3 furnaces just to detect if the other furnaces have shown the symptom that the Furnace 4 actually displayed in the first half of 2019. So I think from that, we can expect that after furnace rebuild -- actually after the Furnace [ 8 ] accident stop, we can manage our operation and the furnaces more carefully. We can actually detect a [Audio Gap] the nickel kind of a landscape, it would still be significant. I mean, we cannot undermine, although we, of course, believe our bet in FEV, stainless is still going strong, right? So ferronickel is good to stainless steel. Nickel matte is quite interesting because nickel matte optionality is quite high. What I mean by optionality is that nickel matte actually can be turned into anything. So nickel matte can be turned into nickel briquette then nickel briquette can be turned into nickel sulfate or nickel briquette can be turned into alloy. So the optionality is high. So I think I'm not too concerned on the nickel production from Sorowako. The MSP is, yes, probably, that's a concern if, for example, this new movement on the battery is not using nickel as well, then, therefore, we've got a concern on that as well. But I believe our partner, Sumitomo, is not only aiming for the battery market now. I mean they extract and refine sooner the MSP into different products. So I guess you'll learn more on that. I just write this article probably a couple of days ago and if you -- to get more detail of the implication. I mean what is the element or ingredient of this new battery that they plan now recently.

Okay, sure. Thanks for the very good explanation. I Just want to continue my question. So for the HPAL plan say, 5 years down the road, so I'm pretty sure that you guys will have like a sales agreement between the HPAL entity and also Sumitomo, right? So it's 100% contracted similar to the nickel we made? Or the only certain portion that will go to the Sumitomo and the rest you will sell to the market?

Right now it is still -- it is in -- I think after FID, we'll have more clarity about the optic. I think the initial thinking around that, it will be 100% opted by Sumitomo because they have the refinery to more -- to refine too the MSP. If you look at the different refineries in the world, I think only limited refineries that have capability to refine MSP. So that's probably -- if you talk about this far, there are 2 different products that now are largely known by the public, one is MHP, second is MSP. MSP is more popular, you could say, right? So there are different refineries they can process MHP. But for MSP, I think it's very limited. And Sumitomo has can also too -- to refine that to is a different class 1 nickel grade. So -- and it's not taking this yet. Sumitomo will take 100% of the optic, or the other possibilities is just following the equity proportion. Sumitomo, 70%; Vale will be 25%. That's then you have to think about the complexity of marketing these very specific products. But it is still a little discussion now.

There are currently no questions in queue. [Operator Instructions] As there are no further questions, I will now hand the session back to Mr. Nico Kanter for closing comments. Please go ahead.

Okay. Thank you, Aaron. I would like to take this opportunity to thank everyone for the support, and as always, we're looking forward to meeting you in the next quarter earnings call. My warm wishes to all of you. Thank you.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, you may now disconnect.