Rio Tinto Gets First Mining Permit for $2 Billion Nickel Project Under Indonesia's New Mining Law

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Researched by Industrial Info Resources (Sugar Land, Texas)--Rio Tinto plc (NYSE:RTP) (London, England) is the first beneficiary of a new Indonesian mining law, with a short-term mining permit issued for a nickel project on Sulawesi Island that is worth $2 billion.

The Mineral, Coal and Geothermal Law was passed by the Indonesian government in December 2008 to replace the existing system that had been in operation since 1967. Under the old system, companies had the ability to negotiate the terms of contracts directly with the central government, including important details such as project duration, permissions and tax rates.

The new law requires companies to make applications for various mining permits, including exploration mining permits, production operation mining permits, and special mining permits. In addition, permits issued under the new system have a set time period, leading to speculation that the new system would lead to a reduction in investment.

Rio Tinto had previously applied for a contract of work under the previous law in 1999, but was required to make an application for a shorter-term mining permit when the new law was passed. The mining permit issued to Rio Tinto will now enable the company to "complete an order of magnitude study to progress with identifying the best value development pathway," according to a statement by the company.

The Sulawesi laterite nickel deposit, which straddles the central and southeast Sulawesi provinces, is reported to contain about 162 million tons of reserves, making it one of the largest undeveloped nickel deposits in the world. In 2008, Rio Tinto estimated that production from the deposit could start in 2015, with an initial production capacity of about 46,000 tons per year. This could rise to as much as 100,000 tons per year, making Rio Tinto one of the world's largest nickel producers.

According to Rio Tinto, the best method of mining the deposit is the traditional open-cut method, with conventional and high-pressure acid leaching techniques used to recover metal from the ore. Preliminary investigations have revealed that the nickel recovery rate using these methods could be as high as 90%. In addition to nickel, the deposit also contains cobalt, with an expected recovery rate for this mineral expected to be about 80%.

Under the provisions of the new law, the time schedule for the development of the deposit is uncertain. Rio Tinto must apply for a second mining permit from the Indonesian Department of Energy and Mineral Resources before it can begin production. However, before exploratory operations can begin on the site, the company also must obtain separate permits from the Environment and Forestry ministries.

Rio Tinto has been active in Indonesia for more than 30 years and has already invested in community development work in Sulawesi. The company has committed $500,000, of which $250,000 already has been used to relocate a village and provide emergency relief following severe flooding in the central province in 2007.

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