Incurring Huge Loss
POSCO International, a subsidiary of POSCO, will withdraw from Ambatovy nickel mine in Madagascar. In invested a total of 360 billion won for a 4 percent stake in the mine, but the market value of its stake is estimated at less than 30 billion won. The company made the withdrawal decision as the project requires additional investment.
Ambatovy mine is one of the world's three largest nickel mines with 150 million tons of reserves. POSCO International (then Daewoo International), together with STX, acquired a stake in the mine in 2006 as a member of a consortium formed by Korea Resources Corp. (KORES). As of now, the Korean consortium is holding a 27.5 percent stake -- 22.5 percent for KORES, 4 percent for POSCO International, and 1 percent for STX.
The mine was expected to produce nickel starting from 2010, but actual commercial production began only in 2014, eight years after the initial investment. In the process, investors' losses grew, and profitability did not improve even after production began. According to KORES, the total accumulated loss of the Ambatovy project amounted to US$7.5 billion during the 2014-2020 period. As a result, the value of investors' stakes also plummeted. As of the first quarter of this year, the book value of the 4 percent stake held by POSCO International stood at 28.463 billion won, a 92 percent drop from the acquisition price of 361.619 billion won.
POSCO International attempted to sell off its stake in 2016 but failed. The reason it has decided again to sell off the stake is a recent conflict with KORES over additional investment. Last year, as production fell sharply due to the spread of COVID-19, KORES made an additional investment at the consortium level without obtaining approval from POSCO International. KORES asserted that increasing investment does not require shareholders’ unanimous approval. But in May, the court ruled in favor of POSCO International. Eventually, KORES returned a total of US$14.35 million to POSCO International in late May.
If POSCO International sells off its stake in the mine, it will inevitably disrupt KORES’s operations and sale plan of the mine.