Indonesian mining giant to spend billions to avert metal imports

Indonesia is seeking to reshape its mining industry by making it mandatory for miners to build smelters after decades of free exports of raw materials left it reliant on costly imports to meet demand. The company is investing $850 million in building a 1-million ton smelter-grade alumina refinery in West Kalimantan that, when completed in 2022, will help reduce the country’s 500,000 tons of alumina imports each year, Sadikin said.

“The refinery will use Indonesia’s abundant bauxite supply,” Sadikin said in an interview at his office in Jakarta on July 16. “This is an energy-intensive industry. We can benefit from abundant water supply and construct hydro power plants.”

Bauxite reserves

Inalum plans to ramp up the capacity of its Mempawah refinery to 2 million tons eventually and export half its output as global demand for the metal has been steadily rising in recent years, Sadikin said. Inalum, which has access to an estimated 579 million wet metric tons of bauxite ore reserves through Aneka Tambang, known as Antam, plans to boost aluminum production to 2 million tons by 2035 from 250,000 tons now, he said.

Inalum, which owns a controlling stake in the world’s second-largest copper mine, is seeking to compete with mining majors such as Rio Tinto Group, United Co. Rusal and Aluminum Corp of China Ltd. with its expansion, Sadikin said.

The company’s expansion plans will not be without hurdles, Sadikin said, adding securing permits for hydro power plants in Indonesia were still difficult. However, Inalum is seeing rising demand of aluminum from its clients, whose operations span from automotive to construction. PT Toyota Motor Manufacturing Indonesia has ordered the metal for its car rims, while state electricity company PT Perusahaan Listrik Negara is seeking it as light-weight transmission cables, Sadikin said.

Vale stake

Inalum is also close to sealing a deal with nickel miner PT Vale Indonesia to acquire a 20% stake and the purchase may help tighten its grip in nickel production as demand for the metal soars from battery makers for electric vehicles. The acquisition will be based on Vale’s current market price, he said.

The nickel major, majority owned by Vale SA, has until October to sell the stake to Indonesian buyers under its contract of work with the government. Vale’s 20% stake will be valued at about $445 million at Wednesday’s closing price, according to data compiled by Bloomberg.

Inalum’s other expansion plans include:

• Antam developing a $458 million plant to produce 13,500 tons of nickel contained in ferronickel with operations set to start later this year
• Coal miner PT Bukit Asam is developing a $1.7 billion coal-pit power plant with a capacity of 2 x 620 megawatt with the facility expected to commence in 2022
• Bukit Asam also working on a $3.1 billion coal-gasification project with capacity to produce 570,000 tons of urea, 450,000 tons of polypropylene and 400,000 tons of dimethyl ether. Operations set to start in 2023.

(By Eko Listiyorini and Tassia Sipahutar)