[2020 National Audit] "Mineral Corporation's Investment in Ambatovy Nickel Mine, Net Loss of 710 Billion Won"

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The Ambatovy Plant facility in Madagascar, Africa, established by Korea Resources Corporation to produce nickel since 2013. (Photo by Korea Resources Corporation)

[Asia Economy Reporter Moon Chaeseok] It has been revealed that the operation of the Ambatovy project in Madagascar, in which Korea Resources Corporation is investing, has been temporarily suspended.

According to the national audit data submitted by Korea Resources Corporation to Kim Kyung-man, a member of the National Assembly's Industry, Trade, Energy, Small and Medium Enterprises Committee from the Democratic Party of Korea on the 20th, the Madagascar government declared a national health emergency in March due to the spread of the novel coronavirus infection (COVID-19), resulting in the temporary suspension of the project operation.

Through the data, Korea Resources Corporation stated that it recognized an impairment loss of $1.07 billion (approximately 1.22 trillion KRW) for the Ambatovy project in the first half of 2020. Excluding the impairment loss, the net loss for the period amounted to $626 million (approximately 710 billion KRW). Korea Resources Corporation holds a 33% stake in the Ambatovy project.

The suspension of Ambatovy operations has also caused significant disruptions in nickel and cobalt production. Since the Ambatovy project began in 2012, an average of approximately 32,476 tons of nickel has been produced annually, but only 9,904 tons of nickel were produced by the end of March this year. This is only 29.3% of last year's production of 33,736 tons. Cobalt production, which averaged about 2,639 tons annually, was only 829 tons in the first half of this year.

Domestic demand for Ambatovy nickel continues. Each company in the Korea Ambatovy Consortium (KAC), participating in the project, holds the right to pre-purchase 50% of Ambatovy's nickel production, up to a maximum of 30,000 tons annually, through off-take contracts.

Accordingly, the amount of nickel imported domestically reached a total of 55,090 tons from 2013 to 2019. Korea Resources Corporation sold 21,664 tons (39%), POSCO International sold 17,126 tons (31%), and STX sold 14,980 tons (27%). Quantities beyond domestic imports were sold to third countries, with sales to third countries totaling 71,010 tons during the same period.

Korea Resources Corporation expects to restart the Ambatovy project in February next year. However, the local medical infrastructure in Madagascar is very poor, and the national health emergency declared on March 21 has already been extended 14 times at two-week intervals. If COVID-19 prolongs, the normalization of mine operations in February next year is also expected to be uncertain.

Recently, the international credit rating agency Standard & Poor's (S&P) downgraded Korea Resources Corporation's Stand-Alone Credit Profile (SACP) from 'b+' last year to 'b', and from 'b' this year to 'b-' for two consecutive years. It forecasted that Korea Resources Corporation would record operating losses for the next one to two years due to the suspension of operations at the Ambatovy nickel mine.

Assemblyman Kim said, "The government must actively strive to restart the mine to prevent problems caused by nickel supply instability across manufacturing industries such as steel and automobiles," adding, "Measures should be devised to stably secure key raw materials such as nickel and cobalt for secondary batteries, laying the foundation for domestic materials, parts, and equipment companies to prepare for changes in the industrial paradigm."