New Indo Nickel Smelter and Power Plant

State miner Aneka Tambang, in concert with state utility Perusahaan Listrik Negara, plans to start construction of a $1.6 billion integrated ferronickel smelter and power plant project this year, its chief said on Friday.

Alwinsyah Lubis, president director of Antam, said it would invest US$1 billion in the smelter, with 35 percent of the financing for the project coming from internal funds and the rest from loans and bond issues.

"Most of our production will be exported. Companies like Arcellor Mittal of India and Posco of South Korea are interested in our products," Alwinsyah said.

PLN plans to build a 260-megawatt power plant worth $600 million to supply the smelter and the industrial area with electricity for the next 30 years.

PLN president director Dahlan Iskan said 95 percent of the electricity will be allocated for Antam and its industrial area, with the rest going to the local people.

Alwinsyah said the smelter, located in Tanjung Buli in Halmahera, Maluku, would have a capacity of 27,000 tons per year. Construction is expected to start in November and finish by 2014.

Antam's plan is one of a series of smelter projects expected in Halmahera in the coming years. Weda Bay Nickel, a unit of French mining group Eramet, and Mitsubishi Corporation of Japan, will team up with Antam on a $4.6 billion nickel smelter project in Halmahera.

A unit of Russia's Solway Industries pledged in February to invest $3 billion in a separate smelter in the same region.

Frederik Daniel Tanggela, a market analyst with Sucorinvest Central Gani, said Antam should make the project with PLN its top priority because it would provide multiple benefits.

"Antam has three smelters with around 26,000 tons of ferronickel production capacity. The new smelter will double Antam's production and at the same time reduce production costs because the company usually smelts its nickel in Pomala," he said.

He also said that even though ferronickel production was expected to stay flat, Antam's profit was expected to increase with rising commodity prices.

Antam's ferronickel production is projected to stay flat at around 18,000 tons this year. It posted an unaudited profit of Rp 1.66 trillion ($189 million) last year, up 175 percent from 2009.