Timah sees higher tin costs on fuel hike: Report

State-owned tin miner PT Timah, the world's top integrated tin miner, could see production costs rise by up to 10 percent later this year should the government hike domestic fuel prices as planned, a top company official said on Tuesday.

But Timah plans to produce 10 to 15 percent more tin, which has almost doubled in value in the last 18 months, and will start a new smelter on Kundur island in April or May, president director Thobrani Alwi told Reuters.

"If the oil price increases, then all of our equipment, material and transportation costs will increase," Alwi told Reuters.

"We have forecast a 10 percent production cost increase into our budget," he said, although he added any rise would depend on the size of the fuel price hike.

Indonesia, needing to cut costly subsidies to take pressure off the state budget, is likely to raise domestic fuel product prices before the end of March, with an average 30 percent hike one option, Planning Minister Sri Mulyani Indrawati has said.

This would affect Timah's oil-powered dredging operations, which mine tin ore from the sea bed to supply raw materials for the company's smelting operations on Bangka island.

From the end of April or early May, Timah would begin processing about half of its offshore ore at a new 7,000-ton-per-year capacity smelter on Kundur island, between Singapore and the east coast of Sumatra, Alwi said.

The Kundur smelter, with its associated power plant and infrastructure, cost between $4 million and $5 million to build, he said, adding it would produce 5,000 to 6,000 tons in 2005.

He said the government of Riau, the province in which Kundur is located, would take about a 10 to 15 percent share in the smelter, although the final amount had not yet been decided.

Timah's net profit more than doubled to Rp136.86 billion ($15 million) in the first nine months of 2004, despite lower production, thanks to soaring global tin prices , which peaked last May at $9,600 a ton -- a 15-year high.

On Tuesday, the metal, used in the electronics, plating and chemical sectors and as a lead-free substitute in solder, was trading at $7,805/$7,905 a ton for three-month delivery on the benchmark London Metal Exchange.

Alwi said Timah's 2004 output, still subject to final audit, was expected to be about 36,000 tons. This would signal a 22 percent drop from 2003, as availability of ore on Bangka was limited and highly competitive due to the growth of many small-scale smelters seizing to profit from the high tin price.

This year, output would rise to about 40,000 tons, he said. Though the opening of the Kundur smelter would mean less ore would be transferred to Bangka, Alwi said some of the spare capacity at Bangka would be used to reprocess tin slag.

Timah's Bangka operations have capacity to produce 47,000 tons a tear of tin. (*)