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Rio Tinto committed to Indonesia nickel project

The Indonesian unit of Rio Tinto Ltd/Plc remains committed to a $2 billion nickel project in Indonesia's Sulawesi island, although is waiting for more clarity under a new mining law.

Posted: Tuesday , 24 Feb 2009

JAKARTA (Reuters) - 

The Indonesian unit of Rio Tinto Ltd/Plc (RIO.AX: Quote)(RIO.L: Quote) remains committed to a $2 billion nickel project in Indonesia's Sulawesi island, although is waiting for more clarity under a new mining law, an executive said on Tuesday.

Many global resource firms have been reviewing investment decisions due to a dive in mineral prices, while Rio Tinto has been looking to sell assets in a number of countries to cut its heavy debt load.

"At this stage, we have no intention of pulling out of the project," Mark Hunter, executive manager of projects at PT Rio Tinto Indonesia, told reporters.

"Once we see the implementing regulation, we will then review the project," he said.

Indonesia passed a new mining law in December last year under which the current licensing via a contract of work, favoured by major mining firms, has been replaced by mining permits running for shorter periods.

Rito Tinto previously applied for a contract of work, but under the new law, along with other firms with applications underway, can continue the project with a mining permit.

The firm also does not have to go through a tender process, although the government is currently drafting new regulations and has said new permits would not be approved until this was done.

Rio Tinto has said it plans to spend up to $2 billion on the Central Sulawesi project, which is estimated to have a capacity to produce 46,000 tonnes of nickel metal a year.

Hunter said the firm still felt the project was a feasible long-term investment despite falling nickel prices.

Nickel prices MNI3 have slumped more than 80 percent to about $9,450 a tonne since hitting a record high of $51,800 in May 2007, as output cuts by miners have failed to keep pace with the drop in demand from stainless steel producers.

Another global resource firm, BHP Billiton Ltd (BLT.L: Quote), late last year scrapped a study into developing a nickel project in eastern Indonesia, after failing to get a contract in time.

Initially a resource at Gag Island was being evaluated and then a second resource at Buli in Halmahera was included, following a conditional agreement to form a joint venture with state mining firm PT Antam Tbk (ANTM.JK: Quote).

The agreement with Antam was conditional on obtaining government work permission for the Buli resource by Oct. 31, which was not achieved, BHP said.

Indonesia has some of the world's largest deposit of gold, nickel, tin coal and copper with international mining firms, including Freeport-McMoran Copper&Gold (FCX.N: Quote) and Newmont Mining Corp. (NEM.N: Quote), already having operations in the country.

The Indonesian Mining Association has said mining investment in Indonesia may drop below $1 billion this year and there may be no fresh projects as metal prices fall and miners await details from the new mining bill.

But the government is more optimistic and expects mining and geothermal investment to reach more than $2 billion this year up from $1.65 billion in 2008.

(Reporting by Fitri Wulandari; Editing by Ed Davies)

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