Sumitomo, a Japanese company, operates Madagascar's largest nickel mine in partnership with a South Korean company. The mine failed to meet its production targets for fiscal 2023 due to malfunctions that the owners are working to resolve.

On August 28, Sumitomo filed a restructuring plan with a British court for its Ambatovy nickel mine in Madagascar. This is part of the company's efforts to improve operating efficiency and ensure full production at the mine.

In the fiscal year ending March 31, 2024, Ambatovy's annual nickel production was 31,000 tonnes, falling short of the initial target of 40,000 tonnes. Several malfunctions affected operations at the mine, leading Sumitomo to take an 89 billion yen ($617 million) write-down on the asset earlier this year. 

"Cost reductions and a resumption of production are to be expected when the plant's operating problem is resolved," Sumitomo stated in its fiscal 2024 first-quarter report published at the end of July.

We were honored to receive the visit of Her Excellency Mrs. Ji-hyun PARK, the Ambassador of the #Republic of #Korea to Madagascar, on February 19th at our Mine in #Moramanga. #Visit #Minesite pic.twitter.com/feKeJrTX43

— Ambatovy (@AmbatovyJV) February 27, 2024

The Ambatovy project is jointly operated with Korea Mine Rehabilitation and Mineral Resources Corporation, which holds a 45.82% interest, while Sumitomo owns 54.17%.

Implications for Madagascar

Nickel is crucial to Madagascar's mining sector, accounting for 41% of the value of mining production in 2020. As the leading nickel producer, the Ambatovy mine significantly contributes to the Malagasy government's mining revenues. At full capacity, the mine could generate more foreign currency through royalties and taxes, which are vital since over 40% of the government's fiscal income comes from the mining sector.

Nickel prices hit 5-month low on sluggish China consumption #nickel

Los precios mundiales del níquel, utilizado en baterías de acero inoxidable y vehículos eléctricos, están cayendo, arrastrados por la prolongada caída inmobiliaria en los principales consumidores de China.

Los…

— Giannoni S.A. (@GiannoniSA) July 18, 2024

However, State revenues are affected by global market trends. Despite growing interest in nickel for EV batteries, an oversupply in the past two years caused prices to fall. On the London Metal Exchange, nickel plunged from over $32,000 per tonne in December 2022 to around $17,000 per tonne at the end of August 2024.

Major players took several measures to face the price drop. For example, BHP announced it would close a loss-making Australian nickel mine until 2027, while Anglo American is considering selling its nickel portfolio as part of a broader restructuring.

Emiliano Tossou