BHP Billiton to spend $1.7 b to develop Kalimantan coking coal project

Global Resources company BHP Billiton would spend US$1.7 billion until 2018 to realize its ambition to develop Indonesia?s first coking coal production center in Central and East Kalimantan with production capacity to be able to supply 10 percent of current world sea borne coking coal market, a company official said Wednesday.

Under the plan, BHP will gradually develop its seven coal contract of work (CCoW), which are located in the heart of resource-rich Kalimantan island with first coal production seen at 2006 with initial peak capacity of 5 MTPA reached in 2008. The giant coal project, also known as Maruwai project, will be fully developed six years after with full planned production of 17.5 million tones, or 10 percent of current world sea borne coking coal market, said Ken Crichton, president of BHP unit PT. Maruwai Coal when addressing a conference in Jakarta.

Maruway Coal Production by CCoW

CCoW	Construction Starts	Mining Starts	Target (MTPA)	Initial Mining Method	Long Term Method
Maruway	2006 (Trial Mine)	2006 (Trial Mine)	5	Open Cut	Open Cut
Kalteng	2008	2009	2	Open Cut	Open Cut
Sumber Barito	2008	2009	1	Open Cut	Underground
Lahai/Parii/Ratah	2009-2010	2010-2011	1.5	Open Cut	Underground
Juloi	2009	2010	6	Open Cut	Underground
New CCoWs	2012	2013	2	Unknown	Unknown
Total			17.5

The coal produced, said Crichton, and would be sold to European, Indian and Japan steel mills.

Crichton did not say the number of Maruwai project coal reserves, but in a presentation last year, BHP said the reserves could last for 50 years.

Crichton said that the project has some significant technical challenges as the reserves are located in the heart of Kalimantan, it would require 560-700kms transportation before reaching the sea, the longest Indonesia, which will consist of up to 250 kms of hauling road and up to 500 kms of barging distance, making transportation cost skyrocketed to $25-35 per tonne, compared to $2-5 per tonne range for average Indonesian other coal miners which are located close to sea.

Crichton said BHP would build dedicated hauling road for the project to ensure safety because ?the safety of interacting with local traffic is unacceptable to BHP Billiton?. The hauling road will have 120 trucks of 250 tonnes at full production.

BHP, however, still has a long way to go to realize the project as it still faced with uncertainties that might hamper the project?s development. Crichton said that BHP?s concern including security of its CCoWs and unclear of new application process. ?We got political pressure that is not consistent with our CCoW terms,? he said, fearing that the regional government might issue another mining permits to another companies on BHP?s concession area and pressure to relinquish areas in CCoWs beyond the CCoW obligation.

Another concern was The Land Use map that regulates appropriation of land in Central Kalimantan that was completed in 2003 but not yet approved by Ministry of Forestry and the boundaries issue between East and Central Kalimantan province had not been resolved. ?Until this happen, we can not proceed with environmental impact assessment study,? he said.

Crichton also hoped that the government could support the company to ensure land acquisition be carried out at fair market price.

Crichton added that in order to realize the project, BHP also needed royalty cut prom 13.5 percent presently, as the BHP must spend a huge amount of investment to develop infrastructure. ?Development of Maruwai requires a huge capital investment in one of the most challenging mining projects in Indonesia,? he said.

The Maruwai project is part of BHP Billiton?s plan to increase its global coking coal production to 100 million tons annually by 2010. (alex)