South32

South32 has decided to sell its Cerro Matoso nickel asset (Colombia) for a ‘nominal consideration’ of $100m. The price is disappointing, especially since the asset generated sales of H1 FY25 sales of $239m and EBITDA of $27m, respectively. While we had assumed that this west-owned nickel capacity would have recovered eventually, this assumption has been completely wrong-footed.

This is a clear negative read across for Eramet and Glencore, and is a reiteration of how the ‘Chinese-controlled Indonesian’ and Russian capacities have dominated the nickel markets.

Also, today’s FT article titled “China boosts nickel reserves as tensions with US simmer” is a reminder of how the West has gone totally wrong in letting China (and Russia) dominate critical materials’ (and not just for nickel) supplies.

While this is disappointing over the short term and underlines the current predicament of nickel operators (outside Indonesia and China), this also highlights the strategic aspect of mining assets. Our expert sticks to his strong bullish view on Glencore (for which Nickel is a minor part of the business) which has been massively underperforming the sector ever since rumors of M&A resurfaced.

On Eramet, he would be significantly more cautious. Its nickel operations in New Caledonia are facing significant difficulties while tensions in Gabon may jeopardize the activity in Manganese. Despite the facially low valuation, he still sees the risk-reward profile as unfavorable.