Rio Tinto may spend US$1b on Indonesian mine, Purnomo says

Rio Tinto may spend US$1b on Indonesian mine, Purnomo says

Joyo Indonesia News, JAKARTA (Bloomberg)

7th April 2006

Rio Tinto Group, the world's No. 3 mining company, is in talks with the Indonesian government to invest US$1 billion in a nickel mining project as prices rise, Energy and Mineral Resources Minister Purnomo Yusgiantoro said.

The company is studying a laterite deposit containing nickel on Sulawesi Island, Purnomo said in an interview late Thursday night. Rio Tinto and central government officials are in Sulawesi to discuss the plan with regional authorities, he said.

Rio Tinto is considering the venture after nickel prices almost quadrupled since 2001 on demand from Chinese steelmakers.

Indonesia has about 16 percent of the world's nickel in laterite, which is more costly to process than other deposits. A global commodities boom has increased Rio's profit eightfold in five years, and may prompt $9 billion of spending on mines.

"All the big mining companies are going to spend money on new projects as they pay off debt," said Martin Potts, an analyst in London at Teather & Greenwood. Still, the Indonesian project "ismany years away."

Heather Keers, a spokeswoman in London for Rio, couldn't immediately be contacted for comment.

"We are negotiating a contract of work for a nickel mine in Sulawesi," Tom Albanese, chief executive of copper and head of exploration at Rio, said on March 30, without giving details.

Overseas miners have to sign a so-called contract of work to tap resources in Indonesia.

Nickel has soared because of rising demand, fueled by economic expansion in China and sustained consumption in the U.S. and Europe. Metal for delivery in three months gained 1.2 percent to $16,950 a ton Thursday on the London Metal Exchange. That's near a 15-year closing high of $17,100 set Jan. 5,
2004.

The metal adds strength and corrosion resistance to stainless steel and is a key component in jet engines, gas turbines and batteries. Inco Ltd., the world's second-largest nickel producer, and BHP Billiton, the biggest mining company, are among other companies expanding output from new projects.

China's economy grew 9.9 percent in 2005, overtaking the UK as the world's fourth largest and fueling demand for raw materials such as nickel. Global nickel demand is growing an average of 4 percent a year, according to analyst Greg Barnes at TD Newcrest Inc.

Rio Tinto's possible investment would be among the biggest in a new mining project in at least five years. Spending on Indonesian exploration dropped to an average of $33 million a year in 2001-2004 from $80 million a year in 1998-2000 and $134 million a year in 1995-1997, according to a survey
by PricewaterhouseCoopers released in January.

Investments in new Indonesian mines were unchanged at $7 million in 2004 at a time when global spending on new projects rose 52 percent to $1.6 billion, according to the survey.

The project "will create employment, economic activity," Yusgiantoro said.

"It will give added value to us."

Nickel prices probably will rise to $6.90 a pound on average this year from $6.68 last year as global demand outpaces production, creating a supply deficit.