Inco expects rise in production costs due to higher fuel prices
Inco expects rise in production costs due to higher fuel prices
Leony Aurora, The Jakarta Post, Jakarta
Publicly listed nickel mining company PT International Nickel
Indonesia will see a 7 percent rise in its unit cost of
production due to the government's decision to apply market
prices on fuel supplied to mining companies.
Production costs will rise by 15 U.S. cents per pound,
starting with July's delivery of fuel, president director Bing
Tobing said on Thursday.
"Energy represents about 40 percent of our costs last year,"
Bing said.
Unit cost production stood at US$2.23 per pound in the three
months ending on June 30.
The Indonesian unit of the world's second largest mining
company Inco Ltd. uses about 3.4 million barrels of high sulfur
fuel oil (HSFO) and between 80 million liters and 85 million
liters of diesel fuel per year in its operations.
State oil and gas firm Pertamina, with leave from the
government, has announced that mining companies and exporting
industries will have to pay market prices for fuel. Diesel fuel
prices more than doubled from the subsidized Rp 2,200 (about 22
U.S. cents) a liter to Rp 4,740 per liter.
The government is seeking to ease pressure on the state
budget, which, as oil prices soar to above $60 per barrel, may
see fuel subsidies to jump to Rp 138 trillion. It has allocated
Rp 76.5 trillion of fuel subsidy in the budget, that presumed an
oil price of $45 per barrel.
Inco's chief financial officer Jan Kees van Gaalen said that
the company was reviewing three options to cut fuel cost, namely
to convert diesel generators to using the cheaper HSFO, convert
part of HSFO used in processing to pulverized coal and substitute
ore-transporting trucks with a conveyor belt system.
Inco is planning to increase its hydroelectric capacity by
constructing a 90-megawatt hydropower plant near its mine in
Sorowako, South Sulawesi, to enable it to hike output to 200
million pounds of nickel in matte in 2009 from the 160 million
pounds targeted this year.
The increased power surge would reduce production costs by
between 10 U.S. cents and 15 U.S. cents per pound, Bing said.
The development of the $280 million dam is stalled as Inco has
not secured a permit to increase its mining output from the
government, which has insisted that the company double its
royalties in the event nickel prices go above $3.50 per pound.
"We have not reached an agreement on the formula (for
compensation) for the permit," said Bing.
Inco's realized price for the commodity averaged $5.85 per
pound in the second quarter of the year, compared with $5.15 per
pound in the first quarter.
The company reported a 13 percent rise in its unaudited net
profit in the year's first semester to $141.9 million from $126
million booked in the previous year on strong global prices.