BHP may invest US$300m in Indonesian coal mine<\/p>\n
Bloomberg, Melbourne<\/p>\n
BHP Billiton, the world's biggest exporter of coking coal used
\nby steelmaker, may spend US$300 million developing a new mine in
\nIndonesia to help meet rising demand for the fuel through 2010,
\nMerrill Lynch & Co. said.<\/p>\n
BHP Billiton plans to start mining at the Maruwai site in
\nKalimantan in 2008, producing 5 million tons of coking coal a
\nyear, Merrill analysts led by Vicky Binns said in a June 2 note.
\nThe Melbourne-based company also told analysts global coking coal
\ndemand will rise as much as 58 percent through 2010, UBS AG
\nanalyst Glyn Lawcock said in a June 3 note.<\/p>\n
BHP Billiton and rival miners are benefiting from surging
\nsteel production, led by China, that fueled a 120 percent
\nincrease in coking coal prices from April 1. BHP Billiton is
\nspending $468 million expanding its coal mines and plant in
\nAustralia and is aiming to produce 100 million tons of coking
\ncoal a year by 2010, up from 58 million tons in fiscal 2004.<\/p>\n
\"BHP management does believe China has changed the demand
\nlandscape,\" Binns said. \"However, future growth is also going to
\nbe strong from Brazil and India, who will both likely ramp up
\nsteel production due to their own vast iron ore resources.\"<\/p>\n
Of the $300 million to be spent on Maruwai, about half will be
\nspent on mine development, and the remainder on infrastructure.
\nThe site is 500 kilometers from the coast and \"infrastructure is
\nnon-existent,\" Merrill's Binns said. Binns said the mine may only
\nstart in 2009.<\/p>\n
BHP Billiton forecasts that global coking coal demand could be
\nbetween 220 million metric tons and 300 million metric tons a
\nyear by 2010, UBS AG said. The company also predicts that steel
\nproduction could rise to between 1.18 billion tons and 1.475
\nbillion tons by 2010, from 1.05 billion tons last year, UBS's
\nLawcock said.<\/p>\n
China, the world's largest steel producer, is producing more
\nof the material as it increases production of houses, cars and
\nhousehold appliances with economic growth of 9.5 percent in 2004.
\nChina's steel production rose 32 percent last year to 266 million
\nmetric tons, according to China's National Bureau of Statistics.<\/p>\n
India's steelmaker sold 33.4 million tons of metal in the
\nfiscal year that ended March 31, 7 percent more than the previous
\nyear.<\/p>\n
BHP Billiton also told analysts that production costs at its
\ncoal mines in Queensland will rise by between $8 a ton and $10 a
\nton in 2005, from a year ago. Half of the increase is because of
\npaying more for royalties, UBS's Lawcock said.<\/p>\n
\"We think that the market is not factoring sufficient cost
\npressure into its forecasts and we believe we could see earnings
\nlowered by the market,\" Lawcock said.<\/p>\n
Miners are facing increased costs as companies try to increase
\nproduction and expand mines, leading to shortages of skilled
\nlabor and equipment and surging materials costs.<\/p>\n
Merrill's Binns said the higher prices BHP Billiton can get
\nfor its coal this year will more than offset the higher costs.
\nCosts could rise to between $35 a ton and $40 a ton, while the
\nprices of the coal sold will rise to $125 a ton, she said.<\/p>",
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