09 April 2008
Rio's nickel output may beat estimate

Claire Leovv Bloomberg/Singapore Rio Tinto Group, the world's thirdbiggest mining company, said a US$2 billion Indonesian nickel project may produce twice as much metal as estimated and a contract may be signed by midyear.

"The project, as it is originally envisaged, is going to be producing something like 46.iiijO tons of nickel a year," said Eric Finlayson, head of exploration at the Londonbased company."There's tremendous capacity to expand that production, potentially even possibly double it."

Rio, the world's secondbiggest producer of aluminum and iron ore, is investing in nickel for the first time. A contract for the Asampala, Sulawesi, site may be reached by the middle of the year, Finlayson said in an interview Monday in Singapore.

Nickel futures traded at $28,900 a metric ton Monday on the London Metal Exchange, more than four times higher than the average of about $7,000 during the 1990s. Nickel, used to make stainless steel, touched a record $51,800 last year on increasing demand from China and disruptions to supplies. Chinas stainless steel output may gain 23 percent this year to 9.1 million tons, according to a March 27 estimate from Macquarie Group Ltd.

Iron ore, aluminum and copper represent almost 90 percent of Rio Tinto's profit and 70 percent of exploration expenditure, Finlayson said.

"There's clearly a lot of effort put into increasing their exposure as part of the broadening of supply of alloys and raw materials for the steel industry," said Peter Richardson, commodity strategist at Macquarie Alternative Investments Ltd.

Rio Tinto, fighting a $153 billion hostile takeover bid from BHP Billiton Ltd., may make as much as 100,000 metric tons of nickel a year by 2015, Finlayson said. The total is about 33 percent of the level last vear from Moscowbased OAOGMK Norilsk Nickel, the world's biggest producer of the metal.

Rio Tinto will spend $25 million on drilling to determine the size of the Indonesian mine after a contract of work is signed, Finlayson said. Output from Asampala may start in 2014, he said.

The company is also exploring for nickel in the U.S. The Eagle project in Michigan may produce 16,000 tons a year for seven years from 2009, the company said on Dec. 17 Drilling has also started at the Lakeview prospect in Minnesota. Finlayson said.
Rio Tinto has been negotiat

ing with Indonesia's central government over royalty payments from Asampaia. permits to mine in a forested area and tax payments, Finlayson said. Regulatory terms with regional governments also need to be settled, he said.

The potential Indonesian venture is"just another element of stronger product exposure that's important for them," said Richardson, the commodity strategist at Macquarie Alternative Investments.

Rio shares, which have gained 70 percent over the past 12 months, fell 0.2 percent to $136.65 at 1:35 p.m. Sydney time on the Australian Stock Exchange.

"Indonesia has fantastic prospectivitv." Finlayson told a mining conference in Singapore Tuesday, adding that the company has been seeking to agree to the legal title for the Sulawesi project since 1999. "We would love to invest there."

Source : The Jakarta Post, Page : 14 

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