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

Ladies and gentlemen, welcome to PT Vale Tbk First Quarter 2022 Results and Outlook. I'm Lydia Yohana, and I will be the moderator of today's call. With me now have Ibu Febriany Eddy, the CEO; and Baba Bernardus Irmanto, the CFO of PT Vale Indonesia Tbk. The conference call today will be started with brief presentation by our Board of Directors and then followed by a Q&A session. Without further ado, I will now hand the session to Ibu Febriany Eddy to begin today's presentation.

Thank you, Lydia. Everyone, first of all, I'd like to apologize. I am actually in the airport. So in the background, you'd probably hear some noise. And hopefully, it's not too inconvenient for all of you. Okay. Good afternoon, ladies and gentlemen. This is Febriany speaking. I'm CEO of PT Vale. I'm glad that I can be with you all to discuss our Q1 2022 performance today. Please turn to next page, please. These presentations and discussions comprise assumption and forward-looking statement that involve risk and uncertainty. In addition, all opinion and assumption constitute our judgment and are subject to change without prior notice. Please refer to the cautionary note and disclaimer. Please turn to next page I'd like to use this opportunity to share with you our one-pager that connect our purpose, value, key behavior, levers and finally, our ambition. This one-pager is our compass that guide us in deciding our strategic directions, our planning and also our decision-making. Our purpose is to improve life and transform the future together. We think that this purpose is very relevant today as we play significant role in supporting the global decarbonization, and global decarbonization generate massive demand for base metals, including nickel. As part of the solution, nickel to back this decarbonization must come from sustainable process. We believe PT Vale, who has abundant nickel resources and always embracing sustainable mining practices, is in the best position and unique position to tap on this tremendous opportunity. Therefore, we are now focusing on expanding our business driven by our purpose. Before we talk about our future plan, let me start with our safety performance. Consistent with our company value and our ambitions, we always start our meeting and discussions with safety. Please turn to next page. Furnace 4 rebuild shutdown involved more than 1,000 green workers in experience and low education level. You would imagine that to address this challenge, we have intensified our leadership in the field, increased our safety supervisors on the field and create dedicated housekeeping crew. Although the TRIFR increased in Q1 2022, mainly driven by the furnace 4 rebuild, we're happy to say that until today we don't have major incident. And hopefully, we could finish our shutdown without major incident. Leadership in the field has been our major program to revamp our safety mindset, and in addition, mid of this year, we will start our CRM, critical risk management. Please turn to next page, please. We produced 13,827 metric tons of nickel matte in Q1 2022. Our volume was 19% lower than the previous quarter and 9% lower than the same quarter in a year-on-year comparison. This production was mainly due to execution of furnace 4 rebuild. As some of you may be aware of, furnace 4 is among the oldest furnace in the world. The rebuild is long overdue. That's why it's very important that we complete this rebuild to ensure the safe and sustainable operations. Please turn to next page. We have announced our carbon reduction road map and is working toward it. Our goal is to reduce our Scope 1 and Scope 2 emissions by 33% in 2030 and achieving net 0 by 2050. And a brief update on our progress to date. We have completed the study for basic burner design of LNG. However, the overall LNG study conversion is still ongoing. We will conduct like tests of biomass to replace carbon as reductant on our processing plant in Q4 2022. We also have first electric vehicle -- light vehicle arrive in Sorowako at the beginning of this year, and now we are expecting to receive electric trucks. This is part of our pilot project to electrify our vehicle. Please turn to the next page. I'm delighted to share with you this global chart. Today, even without our carbon reduction road map, PT Vale is already well positioned globally in terms of our GHG intensity. The chart shows that we are sitting in the second quartile globally. Next page. Now if we take out the sulfite producers, you may -- as you may appreciate, sulfite and laterite are very different in nature. So if we take out sulfite producers and focus only on saprolite, PTVI is actually at the first quartile. We believe it sets us apart from other saprolite producers. With our carbon reduction road map, we are aiming to strengthen our position even further. Reducing our carbon intensity is very important. As mentioned before, we see nickel as a part of solutions for global decarbonization. Thus, we believe it is important to always work on reducing our carbon intensity from nickel that we produce. Now I'd like Pak Anto, our CFO, to continue presentation of our financial results. Thank you.

Thank you, Ibu Febri. So I'm pleased to report a profitable first quarter of 2022. So despite lower production due to the ongoing furnace 4 rebuild, as Ibu Febri explained before, we were able to deliver higher EBITDA, higher profit and higher cash balance compared to the previous quarter. So the strong cash balance will enable us to undertake our current and future growth plans. However, considering the volatility in the market, we remain focused on optimizing our production capacity and at the same time, also improving efficiency of our operations. The group recorded revenue of $235.1 million in the first quarter of 2022 or 12% lower than revenue recorded in fourth quarter 2021 of $266.7 million. The average realized price for nickel in matte shipment was $17,432 per ton, 13% increase compared to the previous quarter. The group cost of revenue fell by 29% from $201 million in the fourth quarter of 2021 to $142.3 million in the first quarter of 2022, aligned with the lower production recorded in the quarter. PT Vale delivered EBITDA of $116.2 million and disbursed approximately $42.3 million in capital expenditure in the first quarter of 2022. Next slide. So from the chart, it shows comparison between our average realized nickel price and unit cash cost of sales. As you may see in the chart, we maintained solid margin in the first quarter of 2022. The nickel price has been showing positive trends since last year, and at the same time, unfortunately, the commodity price, primarily coal and fuel, has been increasing as well, giving pressure to our costs. However, the company was able to manage the costs prudently. Next slide. So in the first quarter 2022, high sulphur fuel oil, diesel and coal consumption were lower compared to the consumption of previous quarter. This is in line with lower production volume. However, the average price of fuel, diesel and coal increased by 7%, 14% and 14%, respectively. Again, as I mentioned before, it gives pressures to our costs. Fuel and coal represent a significant portion of PT Vale production costs. The company cash and cash equivalent as of March 31, 2022 and December 31, 2021, were quite strong. So it was $518 million and $508 million, respectively. So PT Vale will continue to exercise prudent control of its spending to preserve the cash as we will start disbursing cash for our growth plan later this year. So this is going to be our last slide. We are talking about our growth project pipeline. So there are 3 potential investment for the 3 blocks in Sorowako, Pomalaa and Bahadopi. We identified some potential projects and pursue them. All are with partners. So Bahadopi, as we updated before, we are partnering with TISCO and Xinhai to develop RKEF with production capacity of 73 kilotons per annum. Right now, we are in the final stage of completing our requirement for FID. All aspects, technical, permitting, commercial and financings, are progressing as expected. In Pomalaa, recently, we announced that we changed the partner. Our new partner Huayou has solid track record in building HPAL in Indonesia. Their technical ability, speed and agility combined with our nickel resources and our ability to develop and also to run sustainable mining are an excellent combination to develop Pomalaa project. We have 6 months, more or less, after the signing of the FCA to conduct some of the studies and complete the definitive agreement before starting the construction. Just to emphasize again our commitment in line with what Febriany mentioned about the decarbonization that also is supported by our partner, that we are not going to use coal in all of our projects. There are 3 other potential development in our pipeline, namely Pomalaa. So we are doing mining in Pomalaa for our HPAL. At the same time, we'll get saprolite. So we are pursuing some discussion for the future project to process the saprolite from Pomalaa mining. In Sorowako, we are discussing about developing HPAL to process Sorowako limonite. In addition, we are also focusing in completing early exploration program to enable us to develop option for further expanding our business in the future. That's all. So we will return to Lydia to have the Q&A session.

Thank you, Ibu Febri and Pak Anto, for the presentation. [Operator Instructions]

Congrats for the new deal with Huayou. I have a couple of questions with regards to the HPAL processing. My first question is about the cost. How much do you expect the cost to produce a nickel sulphate? And the second question is with regards to tailing. What kind of tailing that you -- we should expect to use by Vale? That's all.

Yes. I'll try to answer your question, [ Barry ]. Ibu Febri and Vini, please feel free if you want to add. Probably the question is more to produce the MHP or -- yes, MHP. [ Barry ], we don't have any visibility on some of the requirements of processing [ anti-nickel sulphate ]. But at least from our discussion so far and considering that we are going to use probably LNG as to power sources, although it's not significant compared to the RKEF energy requirement, we are talking about $9,000 per ton operating cost to produce the MHP. As for the tailing management, as you know, we will continue the commitment that we previously have with Sumitomo. We are going to use the land tailing disposal. And we are now assessing -- the partner is actually assessing several scenarios to manage the tailing. One of the possible scenario is to use dry stacking, right? So within the next 6 months, they will conduct study really assessing the possibilities, also configuring some parameters on site. They have to understand the location well before actually deciding on what tailing disposal management that we were going to implement.

Okay. But for MHP, how much is the ASP? Is it linked to the LME prices, at a discount or premium?

Yes. I mean for the offtake pricing, I think it's going to follow the market, right? Well, if we take for example the last 5 years pricing data and try to do some regression, there will be some linkage, right? We can draw equation which link the MHP price with the LME, but it will be fluctuating, following the market price, for sure.

Okay. My -- one last question for me, Anto. What about the possibility of producing cobalt? Because from what I know, HPAL can produce more cobalt compared to the RKEF. Correct me if I'm wrong that nickel in matte also produce cobalt, right, only 2% of the production. So what about MHP? Should we expect higher cobalt production from MHP?

So basically, it is not like different products. Like the cobalt is inside the MHP, similar to nickel in matte, right? So the cobalt will be inside the nickel in matte. So that's my understanding. Please correct me if I'm wrong, Ibu Febri or Vinicius.

So if there is cobalt in the MHP, should we expect higher -- I mean premium prices to the market because you have cobalt?

There will be different pricing, for sure, for the cobalt, I believe.

[ Barry ], sorry, my background is very busy because I'm in the airport, but anyway I'd give it a try. I think the OpEx that Anto mentioned is correct. But one factor that fluctuate a lot is sulfur price. So sulfur is one of the major commodity that will be used. So today, sulfur price, as you know, increased dramatically, right? So I wouldn't say that today is a sustainable number. So the numbers that Anto talked before was based on sulfur price 2 years ago, I think. Now on your questions about cobalt, yes, based on the orebody itself or the limonite that we have, the ratio of cobalt is roughly 10%. So in matte, our case, 2%, yes, but in Pomalaa, from our orebody alone, it's roughly 10%. Of course, there will be pricing when it comes to cobalt, Yes. Overall, as Pak Anto mentioned, the deal we have with Huayou is everything is market. So there is no per se one fixed price but it will be a market price, whatever the market dictate at that time.

We have next question from [ Anyang ] in the chat box. [ Anyang ] is from UBS. What's the time line for all the projects? When will they start operation?

Yes. So from a logistic, to give you idea. As I mentioned before, we signed the FCA with Huayou just recently, right? So there will be 6 months to complete all of the study. And once the study is completed, then like we can start -- or Huayou can start the construction. The time line that we are discussing, we are talking about 36 months. However, just referring to the experience of Huayou developing the HPAL plant in Morowali, they can actually complete the construction within 2.5 years during pandemic, right? So it is quite remarkable that they can complete the construction within 2.5 years. So it can be earlier than what we disclosed, right? It can be earlier or sooner than 3 years. So like if we start early -- say, giving some buffer, so if they can start the construction into early 2023, and taking 3 years period, we're talking about 2025 completion basically. And as for Pomalaa, it's more or less the same kind of time line. So like after the FID -- FID is going to be achieved within this year. We are aiming for end of quarter 2 or early July or sometime in July. So after that, there will be some administrative work that need to be obtained by our partner to start injecting the cash. So if we can start that by end of this year, early next year, I think the time line of the construction will be more or less the same. It's a 36-month period of construction for the Bahadopi project.

And then I just want to attack this Bahadopi project with the higher cobalt. Is it the project that you planned to build HPAL plant using MHP technology with Sumitomo? Is it the same project or it's replaced by this project? So I'm a bit confused if this project is an additional project. If we use -- if I see your presentation, this is the only project in the Pomalaa. Last time, in my understanding, you are considering to honor the HPAL plant with Sumitomo. So could you clarify all this?

Yes. Thanks, [ Anyang ]. So yes, I mean, as I mentioned before, we -- like Sumitomo and PT Vale agreed to terminate the partnership due to certain reasons, right? And recently, we announced that we changed the partner. So we are still developing HPAL in Pomalaa but with new partner, which is Huayou.

We have next question from Andreas.

My name is Andreas from Sucor Securities. I have a question probably for Bernardus. If I did not miscalculate, it seems like you guys -- PT Vale has bigger discount towards the LME price in the first Q than you do. Is that correct? And could you tell us why is that?

Can you repeat? We have what -- sorry, I did not...

Bigger discount compared to -- towards the LME prices compared to the historical discount.

No, I think the discount level remains the same, right? So we have the formula that we applied in our offtake agreement. For nickel, it is 78% multiplied by the LME price, right? So that's the formula that we apply. So the discount is 22% of the LME, right? So according to our offtake agreement, that formula can change. Like there will be like 5 years window period. In each period, we can always discuss and negotiate with our off-taker about the pricing. But that discount, the 22% discount is there, following the formula that we have in our agreement.

All right. Could you also tell us about the HPAL's capital structure, like the debt equity ratio for the HPAL project?

Yes. For the HPAL, as I mentioned, the engagement model -- our partnership model is quite different with what we had with Sumitomo in the past, and it's different from what we have in Bahadopi. Basically, our partner, Huayou will build that first, right? So they will build the HPAL. And then PT Vale will have participating right up to 30%. And then we can exercise that participating right when the HPAL is completed basically. When it reached the mechanical completion, we can exercise our right and it's up to 30%. So probably you can refer to their capital intensity from their recent development in Morowali. Definitely, it's going to be -- there will be some additional capital because it is a greenfield compared to their development in Morowali which is inside the industrial park. So there will be additional costs for infrastructure. And considering as well that we are going probably to use LNG or other greener energy sources, so there will be some additional capital on that. But from -- like from what we see, it is going to be still competitive capital intensity compared to what we have previously with Sumitomo.

And what's the total CapEx, sorry?

Sorry?

The total CapEx for HPAL.

No, I don't know. Like the only numbers that is like in our deal is the call option pricing basically. So they will build -- like they can spend whatever CapEx they need in order to build, complete the HPAL. And then we can exercise the call -- like the participating right after the mechanical completion. So there will be guaranteed fixed valuation pricing that we can exercise. So the pricing might not be directly correlated with the CapEx, right? Because there will be some premium built because we will only exercise our option after the construction risk is actually eliminated, right? So there will be some premium built on that. So that's what we built in our agreement.

Now next, we have [ Bahasbi ] .

Can you hear me?

Yes.

First of all, congratulations for the set of good results and the new deal that is much [ easier ], right? So I have several questions. The first one is regarding the Pomalaa and Bahadopi mines. How much is the potential reserve that mines could have? What is the proportion of the saprolite and limonite in the respective mines? And the second question is, as you mentioned, the HPAL in Sorowako, what is the current update on the project? And do you have any conversation with the government regarding potential investment with new infrastructure as well?

Yes. Okay. Thanks, [ Bahasbi ]. So for the resources -- nickel resources in Pomalaa, basically, with the capacity of the plant that we are planning for Pomalaa and Bahadopi, for Bahadopi, so we are talking about 73 kilotons of ferronickel, right? And then the commitment from Vale, so considering the amount or the volume of resources that can meet the specification required by the smelters, is to supply 50% of the feed for at least 20 years, right? So it can be more than that like. If we do some more study and then we can actually supply more than that, then definitely, we will be open to supply more. But the agreement is that we will be supplying 50% of the feed requirement for 20 years. That's more or less the requirement. I think Bahadopi does not have really a lot of limonite. I think the majority are saprolite. As for Pomalaa, we are talking about -- in our press release, we also mentioned, we are building up to 120 kiloton of MHP, right? So that's the annual capacity. And then we believe that we will be able -- conceptually, we'll be able to supply that. But it will require some more detailed study to ensure that we can actually like supply the required ore while still optimizing the mine plant, right? So it is still under study. Like hopefully, very soon, we can conclude whether we can supply 120 kiloton or we need to probably come up with different scenarios on the ore requirement for Pomalaa. And then your question -- the third question is about Sorowako HPAL. So Sorowako HPAL is also progressing. I think we are discussing with partner, right, in order to continue the study. It is going to be -- I think the challenge for PT Vale is really -- we have from Pomalaa and we have Bahadopi. Sorowako really, I think, is a very good project as well because in our Sorowako mining, we have mined limonite anyway, right? So -- and then we keep the limonite now in the disposal area. So there will be some additional costs to get the limonite from the disposal area. It's not that significant, I believe. And at the same time, if we can actually get the limonite, it will provide areas for mining -- more area for mining to do disposal. It will give them possibility to do so. So it is a very good project, and then we're continuing to discuss. When we have more information -- more detailed information about that, definitely we will announce to the market. And for Tesla, like I cannot make like a lot of comment basically. You probably read the deal that Tesla signed, but it is not with PT Vale Indonesia, it is with our parent company, with Vale Canada basically, about the visit recently in Indonesia that are organized by Marves. I cannot comment a lot on that. Basically, I mean, as soon as there's a development on Sorowako HPAL or other partnership that we will have, we will definitely let the market know about that.

I have one follow-up question regarding the -- what is the ratio between ore and HPAL and also the ferronickel [indiscernible]?

Between what, sorry?

Between nickel ore, ferronickel and also the HPAL.

Nickel ore? I mean the ore requirement for those...

Yes, yes.

Yes. I mean for -- again, I don't have the numbers. I don't know whether there's a technical person here that can help me with the numbers. As far as I remember, for Pomalaa -- for Bahadopi, for example, we are talking about 5-million-something ton of saprolite annually. And that's only representing 50% of the feed for the Bahadopi project. And for Pomalaa, as I mentioned, because we are still conducting a study on the availability of the ore that we can supply, but definitely, we are talking about probably 60 -- like 420-kiloton MHP. We are talking about [ 60 million ] limonite, 2 million low-grade saprolite. That's what's what we are talking in order to supply 120-kiloton HPAL in Pomalaa.

We have next question from Timothy Handerson.

Timothy from Crédit Suisse. Just one quick question on the HPAL. I think if you look historically, projects that were built and even from what we were guiding on the Sumitomo partnership, I think if we look at the Huayou numbers now, the CapEx capacity is much lower and also the time -- the construction schedule is much faster. Just wondering where do you think all these time and cost savings are coming from? That's number one. And what do you think is the schedule in terms of ramping up the facility? Because I think historically, HPAL needs quite some time to ramp up their [ utilities ] into the optimal level. So would be pleased to get your thoughts on that one.

Yes. I'd try to answer that question. I think just from our discussion with our partner Huayou, I think one of their competitive kind of advantages is really on the supply chain. They have built a very good relationship with the supply chain, with all of the suppliers required to build HPAL. I think they learned a lot from the development in Morowali. Basically, they have all of the relationship -- they have all of the package ready to be executed. They will save some time and also will be giving some commercial benefit in term of pricing. They maintain the same suppliers, the same contractors for all of the development [ that they do ]. And in a sense, it is kind of strategic partnership that they have with their suppliers and contractors. That alone will give them a lot of advantages in terms of construction time as well as the pricing that will impact the capital intensity. I think they have a very strong technical team as well. They have been building the team for quite a while until now. They are accumulating the knowledge from the previous development and try to improve the design, the parameters of operation from the previous plant. So every time they build a plant, they actually learn a lot and try to improve. And also the new development will be better compared to the previous one. So it is quite amazing to see how agile they are, how -- like the capability to contract, to learn and also to improve things, right? So that's at least the factor that's contributing to the speed and also to the cost. There's a different probably mindset as well in the way they are planning the construction without really compromising the risk as well. So they have different approach for sure that make the HPAL development much more efficient, I would say.

One follow-up, if I may. So what's -- I mean based on the deal pricing that you're getting on your contract, what sort of IRR threshold level you're looking at? And how is it any different from the ones you've been having with the Sumitomo partnership, if you can share?

Yes. I mean typically, Vale definitely has a threshold for all investments. And this new deal will give us better return, first, because we will only spend the capital when the HPAL is constructed, right? So as I mentioned before, compared to the previous engagement where we have to put the money from day 1 and wait until probably 4 years, 5 years before receiving the cash flow from the plant, now we are investing when the plant is constructed basically. So by the time we are spending the cash which already delayed from the previous one -- previous engagement, we also can receive the cash at the same year, right? So that will -- they will improve the economy a lot basically. So I cannot really disclose the IRR threshold but it is very decent economic return.

Now we have next from [ Andre Vijaya ].

I have one question regarding your project in Bahadopi and Pomalaa. We know that you have like one project for cash in Bahadopi with TISCO and Xinhai and also the other HPAL project with Huayou in Pomalaa. Will you give color on the offtake agreement of nickel after this semester starting to running and also the sales and purchase agreement of nickel?

Thanks, [ Andre ]. So for Bahadopi, the agreement that we have with our partners, so there will be some -- we call it exclusive period for the first 5 years. So for the first 5 years, starting from the commercial -- from the mechanical completion, the offtake will be taken by our partner, right? So by TISCO and Xinhai. After the first 5 years, then PT Vale has the right to take the offtake proportionally to the shareholding. So if PT Vale is owning 49% of the shares of the RKEF, meaning that PT Vale has the right for the 49%. So PT Vale can opt not to exercise that or can opt to exercise that depending on us, but it's giving us flexibility, right? So basically, PT Vale has the right for the 49% offtake if PT Vale is 49% shareholders after the first 5 years. So that's for Bahadopi. As for the Pomalaa HPAL, it's the same, right? So as soon as we exercise our participating rate, so we are becoming shareholders of the HPAL. So we are also getting the offtake right for that.

Is there any like fixed volume or price that Vale has to provide to those projects?

There's no like -- basically, the production definitely will be fluctuating, although in some of capacity, as I mentioned before, we are talking about 73,000 of NPI from Bahadopi, 120,000 of MHP for Pomalaa. But definitely, it is just a reference number. Like that's the nameplate capacity, right? So the production itself will not be fixed. And the pricing is following -- as I mentioned, is following the market pricing. So there will be no fixed kind of pricing that is stated in the offtake agreement.

[Operator Instructions] We have next question from Pak Dony, Macquarie.

My name is Dony from Macquarie Securities Indonesia. I have several questions basically regarding your HPAL project. So can you share where do you source your LNG? And do you need to build another LNG terminal as well? And have you secured all the permits needed for this project or maybe with the RKEF project as well?

Yes. For the Pomalaa HPAL, because the power requirement is quite small, so our partner will assess different alternative of energy sources. LNG is one of -- was one of them. I mean they can also consider the power from PLN with REC, for example, the renewable energy certificate. There's another option. So there's a couple of options that they're studying now. And within -- again, as I mentioned before, within 6 months, we should have a firm decision like, "Okay, this is going to be the energy sources." But definitely, it is not coal. So LNG is just one option for Pomalaa. As for Bahadopi, we are now working with our partner to source the LNG. And we are consulting to the [indiscernible] on that. We are in discussion with several producers as per now. And as soon as we have more information about that, we'll be able to talk more about that.

And also, have you secured any -- all the permits needed for the RKEF smelters and maybe the HPAL? Maybe you can give us color. How long do you need and kind of permits needed as well?

Yes. The key permit is now like -- for example, AMDAL has been obtained for the project. And then we are following up with some activities related to the [ ITSP ], right, for the [ president ] permitting. [ President ] permit has been secured as well. And from our discussion, I think it's going to be very good news very soon. Hopefully, nothing changed. We will get the project -- strategic national status for the 2 projects as well. That alone will give a lot of advantages and assurance that we will get the permit that we will need for the 2 projects.

Maybe just one follow-up question related to ESG and the HPAL project. Since you're using the landfill tailing, are you going to build the waste dam from the beginning or you're going to do it during the production as well?

Again, that's part of the study that's going to be done in the next 6 months. I cannot comment now. Several -- there will be some checkoff study, right? So comparing one option and the other option, tailing dam versus dry stacking versus other possible approach that our partners can come up. Definitely, PT Vale will also have a say on the selection of the dam -- or the tailing disposal. But we will obviously answer that question when the study is completed.

We have next question in the chat box from [ Demonte Vijaya Bahana ]. Electric furnace 4 rebuild will increase efficiency by how much every year? Will it reach 80 kiloton per annum of production?

I believe Vinicius is here. Vinicius, can you help answering the question?

Yes, yes, I can. So if I understood right, you were asking after furnace 4 come back, yes, if it will recover, how much percent and -- how many percentage it will increase in terms of productivity. And the second question is about -- sorry, I forgot the second question.

Will it reach to 80 kiloton per annum?

Okay, 80 kiloton. Yes, okay. So the first question, as you know, furnace 4 is operating with some dips in the productivity because it's getting old. It was getting old as time pass by. But when furnace 4 return in operation, it will recover all this productivity and will be our best furnace in operation because it is a new furnace with more improvements. So we will be totally able to produce full power with furnace 4, no more restriction anymore. And regarding the question about 80 kilotons, yes. The plan is to get 80 kilotons, but it will depend on the grade, yes. As you know, the grade goes down as time pass by. If we can maintain a good grade and furnace 4 in good position, we will be around that, but it will be also influenced a lot by the grade. But this is our plan, our intention. I hope I could -- answered. Feel free to add, Anto, if you want to complement.

Now we have next question from [ Wesley Alianto ].

I just want to get a rough outlook for your carbon reduction. You mentioned you pledged to reduce your carbon reduction by 33%. And what is your baseline and your carbon emission right now? And how your 2 new RKEF and HPAL smelter and probably another smelter in Bahadopi will affect your carbon emission? And how will you reduce after those 3 smelters come into operation?

Thanks, [ Wesley ]. Right now, the baseline is from current operation in Sorowako, so anything around [indiscernible] ton CO2 per ton nickel now. So if we divide that with average production, we are talking about 26, 27 ton CO2 per ton nickel, right? So that's our baseline, right? And as Ibu Febri mentioned during the presentation, we are going to reduce that by 33% in 2030. I think the plan that we have, for example, replacing some coal and fuel by LNG, that alone will reduce around 28% of the carbon emission from our operation in Sorowako. So combine that with other initiatives, like we are trying to also implement the electric truck -- electric vehicle and then improve the [ wet ] or stockpile storage, implementing the Vale screening station -- so there are several initiatives that we're doing at the same time. So combined with that LNG, it will give us definitely the target that we are aiming in 2030 year. And then the other question that you have, if I'm not mistaken, is about, okay, what about the Pomalaa and Bahadopi. Pomalaa and Bahadopi, as I mentioned, there will be no coal there. There, we will be using -- probably in the beginning, there will be still coal in the kiln, right? Because I think our partner is not confident yet with that, so there will be some coal. But still, we are aiming for transition from coal into greener energy in Bahadopi. For Pomalaa, definitely, we are not going to use coal. It's going to be either LNG or other greener energy sources. So I think for Pomalaa, I cannot comment yet until -- we are fixing up the plan for the energy source for Pomalaa. For Bahadopi, I think I don't have the numbers on top of my head. Definitely, there will be -- Bahadopi will be second largest -- second lowest RKEF in terms of carbon emission in the country, in Indonesia. I think the first one is the Sorowako. Bahadopi now will be coming as second lowest carbon emitter in the country. But in terms of numbers, I don't really remember the exact emission for Bahadopi. I think we can let you know after the call.

All right. So the 20 -- the 30% reduction is on per ton nickel basis. So I assume even if you add another HPAL project or smelter, overall, you will increase the emission. But then on a per ton basis, you expect to reduce it by 33%. Am I right?

Yes. I mean the 33%, like what we are talking during the presentation is really talking about Sorowako. And then we -- as Pomalaa and Bahadopi, it's not [ exclusive to ] Vale, right? For example, for Pomalaa, we are aiming to have 30% maximum shares. And then for Bahadopi, [indiscernible]. So there will be a different calculation for that. So the 33% that we are talking is really referring to our operation in Sorowako.

We have next question in the chat box from [ Cynthia Vegafria ] from [ Sperry ]. What kind of benefit will the national strategic project status get for the projects?

Yes. Basically, the project that is included in the PSN will be monitored directly by -- even by the president, right? So I think there's several qualification or criteria for a project to be included in the PSN, and one that's included in the PSN is considered as really strategic for the country. That's why it is tracked, it is monitored regularly by government. And by the fact that it is controlled -- it is monitored directly by the president and relevant minister, we can always escalate an issue, including the permitting issue, other issue, technical issue that we face on the ground so that the government is also committed to help solving this issue. So it gives us a lot of benefit actually.

Okay. [Operator Instructions] As there are no further questions, I will now hand the session back to Ibu Febriany Eddy to give the closing remarks. Please go ahead, Ibu Febri.

Thank you, Lydia. Thank you, everyone, for the support, and look forward to meet you again in next quarter earnings call. My warm message to all of you, stay safe and healthy. Thank you.

Thank you, Ibu. Ladies and gentlemen, this concludes our today's conference call. Thank you for your participation, and you may now disconnect. Once again, Ibu Febri and Pak Anto. Thank you, everyone. Stay safe.

Thank you. Good job, Lydia.