(Ecofin Agency) - With the ability to produce 4,000 tonnes of cobalt and 40,000 tonnes of nickel each year, the Ambatovy mine significantly contributes to Madagascar's mining income. Unfortunately, the project has faced difficulties recently that led to a loss in value of around $600 million.

Sumitomo is gradually resuming production at its Ambatovy nickel and cobalt project in Madagascar. The Japanese firm disclosed this on October 31, 2024, a month after works at the site were paused due to a pipeline rupture. While the immediate focus is stabilizing production, Sumitomo is also considering transferring the mine’s control to another company.

“Our priority for Ambatovy is to bring production back to normal by resolving operational issues […]. After that, we will examine all options to determine the best way forward,” said Sumitomo Chief Executive, Shingo Ueno, as reported by Reuters.

Currently, Sumitomo holds a 54.17% stake in Ambatovy, while South Korea's Korea Mine Rehabilitation and Mineral Resources Corporation (KOMIR) owns the remaining 45.83%. In recent months, the Japanese firm has faced several challenges in Madagascar. 

Besides the pipeline incident, Sumitomo failed to meet the mine's production capacity for the fiscal year ending March 31, 2024. The company produced only 31,000 tonnes of nickel against a target of 40,000 tonnes. Due to various issues, Ambatovy incurred an 89 billion yen ($583.72 million) write-down at year-end. Although a debt restructuring was announced in August, the situation remains unresolved.

Furthermore, the target of delivering 35,000 tonnes of nickel for the year ending March 2025 was abandoned. Production from April to September reached only 10,000 tonnes, half the output recorded in April-September 2023.

The nickel and cobalt market is currently weak. Prices of both metals have dropped by over 100% since October 2022, leading some nickel producers to halt operations.

As we await further details on Sumitomo's plans, it is crucial to recognize that Ambatovy plays a significant role in Madagascar's export earnings. The project accounted for 25% of the total value of exports in 2022, according to the Central Bank. However, in H1 2024, revenues from nickel exports plummeted by 56.5% due to a 35% reduction in export volume and a 33.1% decline in average prices.

Emiliano Tossou