BHP Billiton is expanding its activities in Indonesia, signing a joint venture agreement on Tuesday to develop two nickel mines in partnership with state-owned company Antam, an investment that could top $4.5bn.
Development of nickel laterite mines on Gag Island, off West Papua, and North Maluku would be a significant boon for Indonesia's mining sector, which despite its vast resources has languished amid uncertainty about the introduction of new laws.
Muhammad Lutfi, chairman of the investment coordinating board, said the two companies planned to build a smelter and could spend more than $4.5bn on the project.
BHP said it was too early to predict the size of the investment but in a presentation to investors last Thursday, Marius Kloppers, chief executive, referred to a $2bn-plus investment in an "eastern Indonesian facility".
"We are entering into conditional agreements with PT Antam to form a 50:50 alliance to integrate and evaluate two nickel laterite resources in Eastern Indonesia," BHP told the Financial Times on Tuesday.
"The agreements are conditional, one such condition being approval by the board of BHP Billiton."
The board is expected to make its decision by this time next month. But BHP has already advertised for a project manager, with applications closing on Monday.
Tuesday's agreement breathes new life into BHP's controversial Gag Island project, which was suspended in 1999 following an environmental campaign to protect its forests and surrounding coral reef.
The government reclassified the area as 'protected forest'. But in 2004, it changed the regulations to reinstate the rights of BHP and Antam to mine there.
The other area for development, Halmahera in the Maluku Islands, hosts several mining projects but it also poses its own challenges. In 1999 and 2000, thousands of people were killed on the island during clashes between religious militia groups.
The environmental and conflict risks for BHP may now be outweighed by the potential rewards as nickel prices have more than doubled in the past five years.
BHP is also getting back into coal in Indonesia after selling out of the industry in 2001. Motivated by a tripling in coking coal prices, BHP is building a mine in East Kalimantan, Borneo and production is expected to start by the end of this year.
Rio Tinto, the subject of a takeover bid by BHP, is also looking to develop a large nickel deposit in central Sulawesi. It has been in negotiations with the Indonesian government over the project for more than two years.
Source: Financial Times
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