Norilsk interested in Indonesian coal assets as part of railroad construction involving RZD
MOSCOW. June 26. (Interfax) - MMC Norilsk Nickel is considering the possibility of developing coal deposits in Indonesia as part of a railroad construction project in East Kalimantan, which is expected to be carried out with the participation of OJSC Russian Railways (RZD).
Norilsk looked at such a possibility during a Tuesday meeting between its General Director Vladimir Strzhalkovsky and Indonesia's Coordinating Minister for Economic Affairs Hatta Rajasa.
A Norilsk representative told Interfax that joining a project to develop bituminous coal deposits in Indonesia is linked with RZD's construction of a railroad leading up to a coal deposit on the Kalimantan island. Which object will be chosen depends on the economic indicators of particular projects. Norilsk did not comment on whether it will co-finance the railroad's construction.
The railroad's construction is expected to commence in 2013, for which RZD has created a subsidiary called Kalimantan Rail Ltd. Vnesheconombank (VEB) considered the possibility of joining this subsidiary's capital, and the sides signed a related memorandum in February.
The project is estimated to cost $2.5 billion, $2 billion of which will be raised in the form of loans from international banks, and $500 million of which strategic investors will contribute. The local government has tasked the project's participants with wrapping up the construction within three to five years. RZD should build a 185-kilometer stretch at the first stage, with the entire main railroad measuring about 300 km long. This first section will be used to transport about 20 million tonnes of coal a year. Russian specialists have already put together a preliminary feasibility study, determined the project's economic expediency and made a tentative layout.
Norilsk has another project in Indonesia to build a copper smelter capable of turning out up to 400,000 tonnes of product a year. In order to implement this project, Norilsk signed a memorandum of understanding with Indonesian company Nusantara Smelting in May of last year. The two companies negotiated with several potential raw material suppliers, and Norilsk considered prospective sections of copper and nickel ore deposits. Norilsk has not yet selected Indonesian deposits, where the largest sections are being developed by Newmont and Freeport McMoran.
On Tuesday, Norilsk said that the memorandum with Nusantra was extended in June. The parties plan to transition to the stage of conducting design work by the end of this year, it said.
Norilsk is thinking about cutting its operating and investment costs if market conditions deteriorate. Investments could be reduced if the cost of nickel is lower than $15,000 per tonne for two months. Norilsk's board of directors at a meeting on June 28 might order the management to prepare such proposals.