Wed, 03 Mar 2010


JAKARTA - The Indonesian unit of Rio Tinto PLC has been granted a mining permit for its planned $2 billion nickel project on Sulawesi island, the company said Tuesday, making it the first mining company to gain investment approval under Indonesia's new mining law.

Indonesia last year introduced a law that replaced the old contract system with mining permits, which many feared would reduce legal certainty for companies and make investing here more difficult.

The Anglo-Australian miner said Tuesday it can now review its options for developing the Sulawesi site, and will focus on determining the method of development that provides the best value.

Rio Tinto has previously estimated the Sulawesi project could produce 46,000 metric tons of nickel a year by 2015, eventually rising to 100,000 tons a year or more, which the company says would make it one of the world's largest nickel producers.

Rio Tinto has said it plans to spend $2 billion developing the site, which has an estimated 162 million tons of laterite nickel resources.

Separately, PT Rio Tinto Indonesia spokesman Budi Irianto said the company hasn't yet determined when the study will be completed or when exploration and production could start at Sulawesi.

Mr. Irianto said Rio Tinto will need to apply for a second mining permit from the Department of Energy and Mineral Resources before it starts production, and will need separate permits from the environment and forestry ministries "before starting operations on the ground" in the exploration stage.

Such complex, overlapping regulations, as well as legal uncertainty and disputes over the share of royalty payments that go to the central and regional governments, are among a slew of issues that have prevented Indonesia from attracting significant mining investment in the past decade.

Although Indonesia has some of the world's richest deposits of nickel, gold and copper, many analysts and industry participants expected the introduction of mining permits over the so-called contract of work system to further discourage investment.

Under the old system, in place since the 1960s, companies had much more leeway to negotiate the terms of their contracts with the central government, including the duration of the project, tax rates and the granting of relevant permits.

By contrast, mining permits expire after a set time period and must be obtained for both the exploration and development stages.

They also limit the maximum size of a mining area, restrict outsourcing of mining services, and require companies to pay a fixed 10% of net profit to local and provincial governments.