BHP may invest US$300m in Indonesian coal mine

BHP may invest US$300m in Indonesian coal mine

Bloomberg, Melbourne

BHP Billiton, the world's biggest exporter of coking coal used
by steelmaker, may spend US$300 million developing a new mine in
Indonesia to help meet rising demand for the fuel through 2010,
Merrill Lynch & Co. said.

BHP Billiton plans to start mining at the Maruwai site in
Kalimantan in 2008, producing 5 million tons of coking coal a
year, Merrill analysts led by Vicky Binns said in a June 2 note.
The Melbourne-based company also told analysts global coking coal
demand will rise as much as 58 percent through 2010, UBS AG
analyst Glyn Lawcock said in a June 3 note.

BHP Billiton and rival miners are benefiting from surging
steel production, led by China, that fueled a 120 percent
increase in coking coal prices from April 1. BHP Billiton is
spending $468 million expanding its coal mines and plant in
Australia and is aiming to produce 100 million tons of coking
coal a year by 2010, up from 58 million tons in fiscal 2004.

"BHP management does believe China has changed the demand
landscape," Binns said. "However, future growth is also going to
be strong from Brazil and India, who will both likely ramp up
steel production due to their own vast iron ore resources."

Of the $300 million to be spent on Maruwai, about half will be
spent on mine development, and the remainder on infrastructure.
The site is 500 kilometers from the coast and "infrastructure is
non-existent," Merrill's Binns said. Binns said the mine may only
start in 2009.

BHP Billiton forecasts that global coking coal demand could be
between 220 million metric tons and 300 million metric tons a
year by 2010, UBS AG said. The company also predicts that steel
production could rise to between 1.18 billion tons and 1.475
billion tons by 2010, from 1.05 billion tons last year, UBS's
Lawcock said.

China, the world's largest steel producer, is producing more
of the material as it increases production of houses, cars and
household appliances with economic growth of 9.5 percent in 2004.
China's steel production rose 32 percent last year to 266 million
metric tons, according to China's National Bureau of Statistics.

India's steelmaker sold 33.4 million tons of metal in the
fiscal year that ended March 31, 7 percent more than the previous
year.

BHP Billiton also told analysts that production costs at its
coal mines in Queensland will rise by between $8 a ton and $10 a
ton in 2005, from a year ago. Half of the increase is because of
paying more for royalties, UBS's Lawcock said.

"We think that the market is not factoring sufficient cost
pressure into its forecasts and we believe we could see earnings
lowered by the market," Lawcock said.

Miners are facing increased costs as companies try to increase
production and expand mines, leading to shortages of skilled
labor and equipment and surging materials costs.

Merrill's Binns said the higher prices BHP Billiton can get
for its coal this year will more than offset the higher costs.
Costs could rise to between $35 a ton and $40 a ton, while the
prices of the coal sold will rise to $125 a ton, she said.