Govt studies Inco request to boost output

Govt studies Inco request to boost output

Leony Aurora, The Jakarta Post, Jakarta

The government is considering nickel mining company PT
International Nickel Indonesia's request to expand production of
its giant mine in Soroako, South Sulawesi, to 200 million pounds
of nickel in matte by 2009.

The government's concerns included that the development in the
company's two other blocks, namely Bahodopi in Central Sulawesi
and Pomalaa in Southeast Sulawesi, would stall as it focused on
Soroako, said Mahyudin Lubis, director of coal and mineral
endeavors at the ministry of energy and mineral resources.

"We'd like to approve the expansion, but there have to be
benefits for the areas that are yet to be developed," he said on
Thursday.

The Indonesian unit of the world's second largest mining
company Inco Ltd. is seeking to lift production in Soroako from
the current 160 million pounds of nickel in matte to 200 million
pounds by 2009.

To support the expansion, the firm wants to build a 350-
megawatt hydro power plant in Karebbe, with an estimated
investment of US$280 million.

While Pomalaa has produced ores, and thus brought royalties
for the local administration, Bahodopi, located within Morowali
regency, is yet to deliver revenue for its regional
administration.

Lubis said the local administration had requested that the
central government find new investors to speed up the development
in Bahodopi. "We couldn't do that as we are bound by the
contract," he said.

Based on its contract, Inco is obliged to submit feasibility
study results by 2009.

Inco's director of government relations Sri Kuncoro said the
company had been conducting advanced exploration in Bahodopi
since last year.

"Next year we will conduct bulk sampling," he said. "If the
results turn out to be good, we will proceed with the feasibility
studies."

Lubis said one of the options to give benefits to the people
of the area was to establish more community development projects.

He added that the government was also concerned that the rapid
development of Soroako would cause an oversupply of nickel and
subsequently lower prices.

Nickel prices surged last year as demand from producers of
stainless steel and other alloys in China grew. In 2004, nickel
was priced at $4.88 a pound, up 51 percent from an average of
$3.23 per pound in 2003, based on benchmark prices at the London
Metal Exchange.

Inco's net profits rose to $265.1 million in 2004, from $104.2
million the year before, supported by a 56 percent jump in sales
revenues from $509 million in 2003 to $792.1 million last year.