A bullish start to the year for South Korean-based SK Innovation Co with Quarter 1 earnings expected to see gains of over 14% over the previous quarter. Bolstered by a significant improvement from SK Global Chemical, SK Energy, the largest crude oil refiner in South Korea, also show signs of sustainable growth. News that the company had signed an off-take agreement with Australian Mines Ltd caused a surge in the share price of the technology metals developer, ending the trading day of the announcement up by 26%.
The off-take agreement was announced by Australian Mines’ Managing Director, Benjamin Bell, who noted that “the signing of the agreement with SK Innovation is a landmark occasion for Australian Mines and its shareholders.” The commodity off-take agreement spans a seven-year period, with an option to extend for a further six years. It also allows for an option to purchase up to 19.9% of ordinary shares in Australian Mines. The deal is contingent on Australian Mines procuring financing for the project and starting mining operations by 2020. According to the terms of the agreement, SK Innovation will take all the cobalt and nickel from the Sconi mine in Queensland. They expect to get around 12,000 tonnes of cobalt sulphate and 60,000 tonnes of nickel per year from the mine. An SK Innovation spokesperson told Reuters, “We signed the deal to minimize supply volatility and the long-term supply contract is a way to ensure stable supplies”.
The agreement with Australian Mines will provide 90% of the cobalt needed to run existing battery operations in Korea as well as the new plant in Hungary. In November 2017, SK Innovation announced that it would be investing $777 million to construct an electric vehicle battery plant to meet the demand from top automobile manufacturers in Europe. Construction on the plant will start this year, with production due to start in 2020. The announcement to expand rapidly into Europe was mostly a response to the significant losses that SK Innovation and other South Korean electric vehicle battery manufacturers have experienced as a part of a worsening diplomatic relationship between the two countries. With clients that include luxury automaker Mercedes Benz, the plant, which will be in Komarom, Hungary, will have the capacity to produce 7.5 gigawatt hours of batteries per year.
On February 21, 2018 SK Innovation released the news of the discovery of oil in the PRMB block 17/03 in the South China Sea. SK Innovation started oil exploration in February 2015, focusing at first on geological and geophysical surveys as well as on technical capabilities. The first exploratory well was drilled to a depth of 2,014 metres, with oil production from the well estimated at 3,750 barrels per day. With 80% ownership in the block, SK Innovation has noted its interest in expanding into other areas in the South China Sea.