Indonesia's nickel mining boom has put global nickel IPOs on track for a multiyear high, while global IPOs in other sectors continued to decline in part due to tight monetary conditions and recession risks.

Companies engaging in nickel mining and processing announced IPOs that aimed to raise an aggregate $1.36 billion in the first three months of 2023, the highest amount for the first quarter of any year, according to an analysis of S&P Global Market Intelligence data. Total proceeds in 2023 have so far surpassed the amount raised in 2022 and 2021 combined.

Two Indonesian IPOs formed the bulk of those first-quarter IPO announcements and rank as the top two nickel IPOs since 2020.

The Indonesia Stock Exchange (IDX) is the most popular listing venue for nickel companies in 2023, with three companies raising $1.35 billion. IDX has outperformed other exchanges in Hong Kong, Shanghai, Shenzhen and Australia, which were the main listing destinations of nickel IPOs in recent years.

IDX's outperformance might be "driven simply by the geographical need for capital in Indonesia in this sector," Andrew Digges, Singapore-based project finance partner at Norton Rose Fulbright, told S&P Global Commodity Insights in an email. "What is clear is that Indonesia is likely to be the leading source of the growth in nickel supply in the next decade," thanks to substantial investment in the Indonesian nickel refining industry in the past decade, partly triggered by Indonesia's nickel ore export bans and bolstered by lower mining costs and abundant nickel resources.

Indonesia races ahead

Electric vehicles are expected to drive nickel demand. The Commodity Insights research team recently forecast global primary nickel consumption in EV batteries to surge 198% to 851,000 metric tons between 2022 and 2027.

"Lithium-ion batteries with nickel-rich cathodes remain the preferred choice for light and high-performance vehicles, given they offer higher energy density and greater storage capacity at a lower cost," Digges said. "This demand for nickel is leading to a huge increase in investment in nickel mining, processing and battery precursor manufacturing capacity, and so urgent capital for the applicable projects is driving some to the equity capital markets."

Indonesia, which has the largest nickel reserves in the world, is expected to account for 46% of global primary nickel production in 2027, according to Commodity Insights. The country's output is expected to increase due in part to Tsingshan Holding Group Co. Ltd.'s game-changing process that could convert nickel pig iron into high-grade nickel matte — an intermediate product that can turn into nickel sulfate for lithium-ion batteries.

Indonesia's PT Trimegah Bangun Persada Tbk, known as Harita Nickel, and PT Merdeka Battery Materials Tbk each raised more than $650 million from their public floats in April, becoming the two biggest nickel IPOs since 2020.

China-based Lygend Resources & Technology Co. Ltd., the third biggest IPO on the list, began production at its nickel sulfate plant on Indonesia's Obi Island in March, after raising $470 million from a Hong Kong IPO in November 2022. The plant has an annual production capacity of 240,000 metric tons, which the company said was the largest in the world at the time.

With the support of local governments, companies in the region are expanding their capital base through IPOs for research and development, to expand or repay loans, Ringo Choi, Asia-Pacific IPO leader at Ernst & Young, said in an interview. Southeast Asian governments have been supporting local IPOs to strengthen capital, attract more foreign funding and expand their market, especially when COVID-19 and a strong US dollar weighed on economic growth, Choi said.

Since many battery supply chain companies went public in other parts of the world, Indonesian companies had comparisons to set their own IPO reference prices. Domestic listings allow companies to use the local language for investor communication and attract more liquidity from locals who might know the companies well and understand their importance in the industry, Choi said.

ESG, policy risks remain

The large nickel IPO deals shine a spotlight on Indonesia's environmental, social and governance issues.

The prospectuses of recent IPOs illustrate that the companies and their sponsors are attempting to address investors' concerns, said Amit Singh, partner and head of South and Southeast Asia capital markets at multinational law firm Linklaters. The law firm advised on Merdeka Battery Materials' recent IPO.

"Companies and regulators in Indonesia will indirectly be competing with companies in other nickel producing powerhouses like Australia and Brazil to demonstrate best-in-class ESG approaches and policies, which should tend to drive improvements in ESG areas globally," Singh said.

Indonesian nickel producers, including Lygend Resources, Harita Nickel and Merdeka, have shifted to high-pressure acid leaching technology to make battery-grade nickel, but the technology produces a high volume fine-particle waste that is difficult to dispose of and risks contaminating water. Additionally, fossil fuels dominate Indonesia's power mix, with coal accounting for 41% of the country's power generation in 2021, Market Intelligence data shows.

"International lenders to the sector are likely to require that such issues are addressed as a condition to financing, at least in accordance with latest generation Equator Principles," Norton Rose Fulbright's Digges said. The Equator Principles form a framework to help manage social and environmental issues in project financing.

When asked about tailings disposal, Harita Nickel's spokesperson told Commodity Insights that it is using the dry tailings facility method, which has been approved by the government. "Within the HPAL processing facilities, the wet tailings are filter pressed and when they reach the approved level of dryness, they are conveyed to the approved mine out area and then layered into this pit as per design. These facilities are properly prepared to ensure water does not collect into these areas, with outlet pipes placed at strategic positions. The water is then moved into the sediment ponds for further treatment," the spokesperson said in an email.

"Because of the far proximity to any available electricity grid or gas pipeline, [Harita Nickel] and its companies have to depend on its own captive [coal-fired] power plants," the spokesperson said. Harita Nickel aims to reach "net zero" emissions by 2060, and it is looking at solar farms, which will begin operations by 2025.

In addition to ESG risks, Indonesia's changing policies could affect companies' valuations. Indonesia lifted a 2014 export ban on unprocessed nickel ore in 2017, and reimposed the ban in 2020.

While nickel IPOs will ride the curve of the green transition, policy risk brings uncertainty for investors, said Gary Ng, senior economist for Asia-Pacific at investment management firm Natixis.

"It is not only nickel but all the 'green' metals," Ng said. "It is possible to see the government implementing protectionist policies, which may be risky for investors regarding growth. For example, Indonesia is trying to localize its nickel processing, and Chile may nationalize its lithium sector."

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