Through a US$70-million transaction, Nickel Mines (ASX:NIC) has bumped up its stake in an Indonesian nickel pig iron (NPI) plant by 35 percent, giving the company a 60-percent total share.

The two-line rotary kiln electric furnace (RKEF) plant is located in the Indonesia Morowali Industrial Park (IMIP) and is currently under construction. Nickel Mines funded the deal through proceeds from its IPO.

The company says construction of the RKEF plant is progressing well so far, with most of the foundation work and support structures for the rotary kilns and electric furnaces near completion.

Commissioning of the RKEF plant is expected to begin ahead of schedule during the June 2019 quarter.

Once the RKEF plant produces its first NPI, Nickel Mines will have the option to increase its ownership in the RKEF plant to 100 percent for an additional US$120 million. It must decide whether it wants to do so within 12 months of first NPI production.

Nickel Mines’ stake in the RKEF plant is in collaboration with Tsingshan Holding Group, the world’s largest stainless steel producer. The companies began a relationship in 2015, when Nickel Mines helped supply high-grade nickel ore to Tsingshan’s IMIP after Indonesia banned the export of unprocessed metals.

Nickel Mines’ other major asset is its 80-percent stake in the Hengjaya nickel mine, whose northernmost border is just 12 kilometers away from Tsingshan’s IMIP. It was through Hengjaya that Nickel Mines was able to secure an offtake agreement with Tsingshan.

In September 2017, Nickel Mines signed a US$200-million collaboration and subscription agreement with Shanghai Decent, a subsidiary of Tsingshan, to construct two new RKEF lines within the IMIP. The project is expected to increase stainless steel production at the IMIP to 3 million tonnes per year.

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Securities Disclosure: I, Olivia Da Silva, hold no direct investment interest in any company mentioned in this article.