Indo Mines says Indonesia pig iron plant on track

Reuters, Wed Feb 25, 2009 10:41am GMT  

JAKARTA, Feb 25 (Reuters) - Australia's Indo Mines Ltd (IDO.AX) is set to produce 1 million tonnes of pig iron from its project on Indonesia's Java island by 2012, despite the impact of the global credit crisis, an executive said on Wednesday. 

Miners around the world have been carefully examining new projects amid sliding prices and financing woes as the global credit crisis bites. 

Indo Mines has a 70 percent share in PT Jogja Magasa iron, an Indonesian firm planning to mine iron sand and set up Indonesia's first pig iron smelter in central Java's Yogyakarta province. 

The firm, which signed a $1.1 billion mining contract in November last year, will begin exploration of iron sands in 2011 and expects commercial production of 1 million tonnes of pig iron per year to start in 2012. 

"There is no delay for us in term of feasibility study. It is still on schedule (to start production) for 2012," Phil Welten, Indo Mines managing director told reporters. 

"It's difficult to raise funds to do this job. But we believe the market is going to turnaround in the next 12 months to two years when we are going to look for financing," Welten said on the sidelines of a mining conference. 

The firm has said the $1.1 billion investment will include a a 350-megawatt power plant and a port facility. 

Slowing demand from steel makers as car makers and construction activity slows, has pressed miners to reduce pig iron output. 

Global miner Rio Tinto (RIO.AX)(RIO.L) in December suspended operations at an Australian pig-iron plant for at least three months to weather the economic downturn.  

Welten said Jogja Magasa planned to renegotiate an initial agreement to supply 100,000 tonnes of pig iron to PT Krakatau Steel, Indonesia's largest steel producer after the agreement expired last year. 

"We haven't renegotiated it because we were waiting to get our contract of work. So now we have the contract of work, then we'll start looking at what opportunity is there," he said. 

The firm saw good demand for pig iron in the domestic market for wrought iron, Welten said, adding it had also received interest from Malaysian and Chinese buyers. 

Indo Mines is the first mining firm to sign a mining contract for a decade due to confusion over the mining law. 

It is also the last company to be awarded a mining contract before the new mining and coal law was passed in December. 

The previous licensing via a contract of work, favoured by major mining firms, has now been replaced by mining permits running for shorter periods. 

The Indonesian Mining Association has said mining investment in Indonesia may drop below $1 billion this year and there may be no fresh projects as metal prices fall and miners await details from the new mining bill. 

But the government is more optimistic and expects mining and geothermal investment to reach more than $2 billion this year up from $1.65 billion in 2008. 

(Reporting by Fitri Wulandari; Editing by Ed Davies)