The Rising Influence of Rising Affluence

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BHP Begins Work on Indonesian Met-Coal Project

[See the third paragraph of #msg-64756612, #msg-64762810, and #msg-64738025, and #msg-64762346 for related info.]

http://online.wsj.com/article/SB10001424052970203716204577015053729515874.html

›NOVEMBER 3, 2011, 11:37 A.M. ET
By DAVID FICKLING And DAVID WINNING

SYDNEY—BHP Billiton Ltd. said Thursday it plans to begin work on the US$1.34 billion IndoMet coal project in Indonesia within weeks, a move that would open up a new mining area to help meet Asian demand.

Joint-venture companies controlled by BHP and Indonesia's PT Adaro Energy will start building the Haju mine in the jungle around 220 kilometers northwest of Balikpapan port by the end of the year, BHP said.

Haju is the first stage of the IndoMet project on the island of Borneo, which could be producing five million metric tons of coking coal annually by 2017. IndoMet is BHP's fifth-biggest coking coal resource.

"PT Lahai will construct a road and a mine (Haju) and related infrastructure, commencing, subject to approvals, in the fourth quarter of 2011," a BHP spokeswoman said in an emailed statement. This will be followed by investments in mines and infrastructure by PT Maruwai and PT Juloi, two other joint venture companies, she said.

IndoMet mine will produce 500,000 tons of coal annually by 2016, and five million tons the following year, according to a BHP presentation in September. Further expansion would target over 10 million tons of annual production.

But the project—discovered by BHP in the late 1990s—is challenging to develop due to its isolation. Getting the coal to port may require extensive trucking, barging down the Barito river, or even a railway, according to BHP. A presentation in February suggested the project's first stage would cost US$500 million-US$2 billion, with the second stage costing the same amount again.

BHP is the world's biggest producer of coking coal, with mines operated by the company producing a quarter of all coking coal traded by sea last year.

Moves to develop the Haju mine represent a comeback for a project originally scheduled to start production in mid-2009. It was put on hold during the financial crisis, and BHP said in 2009 it was reviewing its commercial options.

Adaro, Indonesia's second-largest coal miner by output, bought a 25% stake in IndoMet in May 2010 for US$335 million, giving the project a total value of US$1.34 billion. Booming steel demand from fast-developing Asian economies and tight supplies have driven up the price of coking coal from around US$50 a ton in 2004 to US$350 a ton earlier this year.

Each ton of steel requires 1.5 tons of iron ore and 0.6 tons of coking coal. Hard coking coals are particularly scarce [see third paragraph of #msg-64756612]. Marcus Randolph, BHP's head of coal and iron ore, recently said coking-coal supplies would be tighter than iron ore over the next decade.

With a resource base of 774 million tons, IndoMet would only rank behind BHP's Peak Downs-Saraji, Goonyella Riverside, Blackwater, and Wards Well complexes in Queensland in terms of size.‹