Partnership in Indonesia will build $2.2bn copper plant

Freeport McMoRan, Newmont Mining, state-owned company PT Antam and Chinese investors have teamed up to build a $2.2 billion, 400,000-tpy copper smelter in east Java, Indonesia.

Freeport McMoRan, Newmont Mining, state-owned company PT Antam and Chinese investors have teamed up to build a $2.2 billion, 400,000-tpy copper smelter in east Java, Indonesia.

The parties have come together in a public-private partnership, according to Syahrir Abubakar, executive director of the Indonesian Mining Assn (IMA).

“It’s a 400,000-tpy copper smelter costing $2.2 billion, but if Chinese technology is used then the cost is maybe less,” he said.

East Java was picked for the facility’s location “because there is available electricity and infrastructure”, he added.

Two other locations had been considered for the plant ¬– Sulawesi and Kalimantan – but were ruled after because of their lack of manpower and infrastructure, such as port facilities.

Talks between the parties were still progressing, he said, and he was concerned whether the plant could be built within three years, because Indonesia’s ore export ban and regulatory environment had created many challenges.

“They need $2.2 billion to build the plant and the break-even point will be more than 11 years on,” Abubakar said. “Normally, commercial loans are for less than eight years, which means they need to apply for a syndicated loan.”

The key question for winning a syndicated loan for this scale of project is whether the country’s regulatory framework and political environment is stable, he said.

The Chinese investors, which he declined to name, have said “they will get the majority share and the rest will be [divided between] Antam, Newmont and Freeport,” he said, adding that the Chinese may want up to a 60% stake in the project.

However, before they can start building the smelter, the companies will have to pay a 5% guarantee, or about $110 million, to the government to show that they are serious in building the smelter, he said, adding that even after the payment there is “no guarantee that they will build a smelter”.

Antam and Freeport did not respond to queries about the smelter plan and the identity of the Chinese investors could not be confirmed by the time of publication.

A Newmont spokeswoman said the company was “communicating to the government that we are willing to contribute limited financial support for a more comprehensive study in the form of a PPP [public-private partnership]”.

“[Newmont is] committing to place a security bond to show our seriousness to support a smelter development by a third-party developer,” she said, adding that “we are still in discussions with the government about the details.”

She added that the company was in talks with Antam, but did not divulge further details.

Indonesia is considering a cut in the level of tax it plans to levy on exports of metal concentrates, Metal Bulletin has reported. The ministry of finance agreeing to bring it down to a maximum of 10%, while mining companies have said 5-7% is acceptable.

“Profit margins in the mining industry are 27-30%,” Abubakar said, and paying the export tax imposed by the ministry of finance means profit margins go down to 7% “so no one wants to continue operations”, he said, adding that many mining support companies have started laying off employees and contractors.

See also:
Newmont Indonesia will cut output from June if talks with govt fail
CLOSE TO CLOSE: Copper prices lose ground after Yellen testimony
Freeport McMoRan expects copper consumption to outstrip production this year

Shivani Singh
Twitter: @ShivaniSingh_MB

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