Nickel Industries Ltd (ASX: NIC) shares are under heavy selling pressure today.
In morning trade, the ASX 200 mining stock is down 28% to a 52-week low of 54 cents.
Investors have been rushing to the exits this morning following concerning news out of Indonesia, where the company operates a portfolio of mining and downstream nickel processing assets.
According to a report from Reuters, the Indonesian government is considering a major overhaul of its mining royalty system. This includes potential increases in royalties on key commodities such as nickel, coal, and copper.
The report reveals that Indonesia's mining ministry has put forward a proposal that would see nickel ore royalties rise from the current flat rate of 10% to a progressive range of 14% to 19%, depending on benchmark prices.
Additionally, new royalty structures are being considered for nickel matte and ferronickel, which could impact Nickel Industries' operations and profitability.
The proposal forms part of a broader strategy by Indonesia's new government to fund major public spending initiatives. This includes President Prabowo Subianto's free school lunch program. Officials claim the changes aim to improve governance of the mining sector and boost government revenues.
The ASX 200 mining stock operates several key assets in Indonesia, including the Hengjaya Mine and multiple rotary kiln electric furnace (RKEF) projects, which produce nickel matte for the electric vehicle (EV) supply chain and nickel pig iron (NPI) for stainless steel production.
The company is also transitioning towards greater exposure to the EV battery supply chain through investments in high-pressure acid leach (HPAL) projects such as Excelsior Nickel Cobalt (ENC).
The prospect of significantly higher royalty costs threatens to reduce profitability across these operations, particularly if nickel prices remain volatile. Investors appear to be pricing in the risk that higher royalties could cut into margins and force Nickel Industries to adjust its future investment plans and capital returns.
However, it is worth noting that the proposed royalty hikes are not yet official, so this could ultimately be a panic about nothing. But with the ASX 200 mining stock down sharply today, the market appears to be bracing for the worst-case scenario.
Nickel Industries shareholders will no doubt be watching closely for further updates from both the company and the Indonesian government in the coming days and weeks.
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