Indonesia: BHP writes off Gag Island laterite resource

Published by MAC on 2008-11-17
Source: Matt Chambers, The Australian

AFTER more than a decade, BHP Billiton is walking away from the controversial Gag Island nickel project off West Papua despite spending $US75 million.

BHP said yesterday it would end a study of joint development of Gag and another laterite nickel resource because it could not identify an operation that would support an investment.

The move comes just five months after BHP confirmed it had a conditional agreement with Indonesia's PT Antam Tbk to study developing Gag and the Buli resource on the nearby Indonesian island, Halmahera.

The decision also comes after BHP repeatedly said it was not reviewing expansion plans in light of the current global economic crisis and demand slowdown.

Rio Tinto, the subject of a $US90 billion BHP takeover bid, has suggested BHP is being gun*g-ho in not reviewing plans.

BHP's critics say it is holding back on a broad revision of expansion because it wants to assu*re European Union regulators a combined Rio-BHP would not crimp global supply.

The nickel study has cost BHP $US75 million ($116 million).

It had terminated the agreement with Antam and would not pursue a standalone development on Gag Island, it said.

BHP's walkout follows noise in June from the Indonesia Investment Co-ordinating Board that an investment deal, including a $US4.8 billion smelter, was about to be announced.

Since June, nickel prices have continued to slide to levels that make the Ravensthorpe laterite nickel operation in Western Australia unprofitable, while global financial woes have worsened substantially.

The Gag development has been opposed by environmental groups due to the island's diverse marine life.

In 2003, television identity Andrew Denton attended BHP's annual general meeting in Melbourne to protest against the company's proposed development on the island.

BHP first looked at mining on Gag in 1996, but the project stalled in 2000 when the Government introduced forest protection legislation.