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Investment in metal mineral smelter in Indonesia.

Smelters are part of the process of production in metal mining industry. Generally, minerals produced from mines are still mixed with undesired materials. Smelters are needed to remove the materials and refine the metals such as tin, nickel, copper, gold, and silver until the metals meet the standard grade needed in the down stream industries.

Smelters are not always integrated with the production facility of the mining companies. In fact many mining companies' exports metal minerals as smelter are not yet available in the country.

Under the new Law No. 4 in 2009 on mineral and coal mining (Minerba), all mining companies are required to have their metal minerals processed and refined in the country. Exports of raw minerals will be banned starting 2014.

The Law No. 4/2009 on mineral and coal mining will boost investment in smelters to meet requirement.

The role of smelters on non ferrous metal industry

Copper, tin, aluminum and nickel are among the non ferrous metals produced from minerals through a process in smelters.

Smelters are metal processing facilities in the downstream sector. The types of products produced by smelters are copper anode, aluminum ingot, tin bars, tin granules, ferronickel and nickel in matte.

Not all types of smelters processing metal minerals are available in Indonesia. Indonesia has no smelters to process minerals like bauxite into aluminum.

Bauxite is exported to be processed abroad and he result is imported back into the country in the form of alumina. The aluminum smelter in Indonesia owned by PT Industri Asahan Aluminium (PT Inalum) processes alumina into aluminum in bars.

Copper

Copper is a metal widely use din industries. The product of copper smelter is copper cathode, a downstream product. Copper cathode is used as a feedstock in midstream industry to produce intermediate products--copper rod, copper plate and copper sheets. Rod is processed into copper wires and other downstream materials like cables; and copper plates and sheets are processed into copper foil in the downstream sector.

The basic material for copper metal is copper ores in the form of concentrate that has to be processed into copper cathode through the process of melting down into copper matte, cleaning from slag and purification.

Copper concentrate (Cu: 30%, S: 30%, Fe: 25%, Gangue minerals 15%) is processed by putting it through a pipe into the smelting furnace. In this furnace, the concentrate is mixed with oxygen rich air and heated to turn out melting copper in matte (Cu: 68%) and slag.

The matte is separated from slag in the second stove or the slag cleaning furnace. The separation is made by using liquid. The heavier material will settle. The matte is then oxidized in the third stove or the converting furnace to turn out blister copper (Cu: 98.5%).

The blister copper is processed further in the anode furnaces to turn out refined copper ready to be mold into copper strips by the machine of Hazelett Twin Belt Caster. The next process is copper strip is cut into sheets using he machine of hydraulic shearing machine of Mannesmann.

[ILLUSTRATION OMITTED]

Aluminum

Aluminum is a light metal but tough and anti rust. The downstream product of aluminum is aluminum ingot.

In the midstream sector, the ingot is processed into a number of products including rod; billet; strip, and slab. Rod is a crude wire to be processed further into aluminum wires and cables.

Billet is a long bars used as a feedstock for aluminum pipes, and aluminum extrusion which is known with products like list profile

Downstream products of aluminum in he form of aluminum sheets like strip; foil; and tubes are produced from aluminum slabs. Slabs are crude and thick sheets that have to be processed into aluminum sheets in the midstream sector.

Bauxite ores go through a series of processes in the upstream sector to turn out downstream product in the form of ingot. First bauxite is processed into alumina or aluminum raw carbon, before being processed further in the aluminum smelter.

Alumina is put in a reaction with HF gas to turn out aluminum coke which will then be processed in the reduction furnace and mixed with anode butts before being heated. The materials are mixed with a pitch as adhesive.

The next process is molding in the Shaking Machine to turn out raw carbon blocks. The blocks are hen baked in the Baking Furnace. The baked anode is given handles.

Anode function as an electrode in the next process through electrolysis using big electric power in pots in the reduction facility. The handles are needed during the process of production.

Anode could be used for 30 days in posts and after that the anode butts are replaced with new ones. The butts could be reused after being processed. The output from the reduction facility is liquid aluminum ready to be cast into ingot.

[ILLUSTRATION OMITTED]

Tin

Tin is widely used in industries. Tin in the upstream sector is in the form of ingot. Ingot is used as feedstock in midstream sector to produce slabs and rod.

Slabs will become downstream material in the form of sheets like foil, tubes and pipes. The end product of rod includes tin wires.

There are also intermediate materials like solder bars and solder wires as basic material in downstream industry like electronic industry.

The process of producing ingot starts with the cleaning of tin ores to increase the SN content of the ores. After the SN grade is increased, the ores are melted into tin metal in a smelter.

Before the melting down refining is made through crystallization and electrolytic refining. The end of product is tin metal in the form of ingot or bars.

[ILLUSTRATION OMITTED]

Nickel

Nickel materials in the upstream sector include ferronickel and nickel in matte. Ferronickel is produced from lateritic ores and nickel in matte is a product of sulfide ores. The nickel content in nickel in matte is around 75% higher than nickel content of 20% in ferronickel.

Nickel is a metal used widely in industries such as feedstock for stainless steel, electric layers, no ferrous alloy, steel alloy, etc.

Existing Smelters

Investment in smelters began in the 1960s. Currently the country has around 7 metal smelters including copper, tin, and aluminum smelters.

The smelters are owned by PT Aneka Tambang (PT Antam), PT Industri Asahan Aluminium (PT Inalum), PT Timah, PT Inco and PT Freeport Indonesia (Freeport).

The first three companies general mining company PT Aneka Tambang (PT Antam), aluminum smelter PT Industri Asahan Aluminium (PT Inalum), and tin mining company PT Timah are wholly or partly owned by the state.

PT Inco is a foreign company producing nickel in matte, and Freeport is a US company producing copper and gold with copper smelter partly owned by the company.

PT Antam

PT Aneka Tambang has three smelters processing nickel ores into ferronickel. They are FeNi I; FeNi II; and FeNi III in Pomalaa, Southeast Sulawesi. The three factories have a total capacity of 26,000 TPA.

The smelters produce ferronickel with a content of 80% of iron and 20% in nickel. In the form of ingot and pellets. Most of the production is exported to Europe and South Korea. Around 70% of nickel is used in the production of stainless steel, and the rest use din various industries including battery, electronic, and aircraft industries.

Nickel ores used in the production of ferronickel are ones with a nickel content of 1.8% at the minimum and 25% at the maximum. The nickel ores are processed into calcine through pulverization, heating and reduction of acid content. After the process, the material is sent to the three factories

The technology used in the three factories is phyro-metallurgical which needs continued and big supply of energy. PT Antam has its own power plant with a capacity of 102 megawatts to meet energy requirement of the three smelters (FeNi I, FeNi II and FeNi III). The power generating plant was built and operated by contractor for Finland, Wartsilla.

PT Industri Asahan Aluminium (PT Inalum)

PT Inalum is a producer of aluminum processing bauxite into alumina in its smelter in Kuala Tanjung, North Sumatra. The smelter has an annual production capacity of 225,000 tons of alumina.

The smelter produces aluminum ingot with a purity of 99.70%, and 99.90%. The product is used in downstream industries as feedstock for aluminum metal such as extrusion, cable and aluminum sheets.

PT Inalum has three bauxite processing units--carbon factory producing anode blocks, reduction factory producing liquid aluminum and casting plant producing aluminum ingot. The smelters use the technology of Center Work Prebaked (CWPB). The technology is widely used by new smelters and smelter expansion units.

The carbon factory, which produces anode blocks, consists of raw carbon factory, baking factory and factory producing anode with handles. Cake and hard pitch are mixed in the raw carbon factory to form anode blocks, which are the baked under a temperature of 1,250 degrees Celsius in the baking factory. In the factory that provides handles for anode, a handle is fitted to the anode blocks already baked by using liquid cast iron. The anode blocks function as electrode in the reduction factory.

The reduction factory consists of three buildings having the same measures. There are 510 pots in the buildings. The pots have the type of Prebaked Anode Furnaces (PAF) with the design of 175 KA, but already increased to 194 KA, operating under a temperature of 960 degrees Celsius. Each pot produces 1.3 tons or more of liquid aluminum per day on the average.

In the casting factory, liquid aluminum is poured into a Holding Furnace. There are 10 units of holding Furnace in the factory each with a capacity of 30 tons. The liquid aluminum is then molded in a molding with Casting Machine. This factory has 7 units of Casting Machine each with a capacity of 12 tons/hour and producing 22.7 kg of ingot.

The process of production in aluminum smelter needs large supply of energy. Therefore, aluminum smelters are built normally in areas having large reserves of energy like water, coal, and gas energy as well as nuclear energy. PT Inalum has two hydro power plants (PLTA)--(PLTA) Siguragura and PLTA Tangga.

PLTA Siguragura has four generators with a total capacity of 203 megawatts (MW), and PLTA Tangga also has four generators with a total capacity of 223 MW.

The government has decided to take over PT Inalum through Pusat Investasi Pemerintah (PIP) in 2013 when the contract of Japanese consortium that controls the smelter will expires. PT Inalum is a joint venture between the government and the consortium. The contract will expire in 2013 and the government has decided not to renew the contract.

The government of Indonesia has a 41.13% stake in the company with the Japanese consortium holding the majority 58.87% stake. Under the contract, 60% pf the production will be shipped to Japan and the rest to be disposed of on the domestic market.

PT Timah

The state tin miner PT Timah has smelters with a capacity of 49,000 TPA located in Kundur of Riau and Mentok of Bangka. Tin ores are produced from onshore and offshore mining with tin content of 30%-60%. The ores will go through the process of separation and cleaning to increase the tin content to 70%-72%.

The tin ores then are processed in the smelter to turn out tin metal. Tin is refined through process of electrolysis. The out put is tin in bars weighing from 16 kg to 30 kg, depends on the request of the buyers.

PT Timah produces tin in ingot, pellet, granules, alloy, and tin for solder.

PT Gresik Smelter

PT Freeport Indonesia sends its cooper ores to the smelter of PT Gresik Smelter in Gresik, East Java. The smelter is owned by a consortium which is 25% owned by Freeport, 60.5% by Mitsubishi Materials Corporation, 9.5% by Mitsubishi Corporation and 5% by Nippon Mining and Metal Co.Ltd.

The smelter produces copper cathode as its main product measuring 50 kg and 100 kg per unit. The copper cathode production capacity of the smelter is 270,000 TPA. Copper cathode is a feedstock for copper wires and copper cable.

The smelter also produces side products including 655,000 tpa of copper slag; 1800 tpa of anode slime; 92,000 tpa of sulfuric acid 35,000 tpa of gypsum. Copper slag is use din cement and concrete production, anode slime in the process of refining gold and silver, and sulfuric acid is widely used in fertilizer industry and gypsum is a feedstock for cement.

The system used by Mitsubishi with the continuous smelting and converting technology with three stoves connected to each other with different height. The material which is melting in the first stove will flow to the second and third stoves.

Copper concentrate (Cu: 30%, S: 30%, Fe: 25%, Gangue minerals 15%) is put into the first stove, which is the smelting furnace, through a pipe. In this stove the concentrate is mixed with air full of oxygen and then heated until copper in matte (Cu 68%) and slag are produced.

The matte is separated from the slag in the second stove or slag cleaning furnace. The separation is made by allowing heavier material to settle The matte is then oxidized in the third stove or converting furnace to turn out blister copper (Cu: 98.5%).

Blister copper is the processed in the anode furnaces to turn out refined copper ready for molding into copper strip by the machine of Hazelett Twin Belt Caster. The next process is cutting the copper strips into sheets with the machine of hydraulic shearing machine, the product of Mannesmann.

[ILLUSTRATION OMITTED]

PT Inco

PT Inco has a processing factory in Soroako, South Sulawesi. The smelter has a production capacity of 72,500 tons of nickel in matte a year. Nickel matte has a nickel content of more than 75%.

The process of producing nickel in matte in the smelter goes through a number of phases:

* Drying in the drying furnace to reduce the water content of laterite ores from the mines and to separate the ores measuring +25 mm and--25 mm.

* Calcination and reduction in the Reduction Furnace to remove water content from the ores reduce part of nickel oxide into metal and sulfide.

* Smelting in the Electric Furnace to melt calcine the result of the calcinations/reduction to turn out matte in trickle and slag.

* Enrichment in the Purification Furnace to increase the NI content in matte from around 27% to more than 75%.

* Granulation and packaging to change the form of matte from liquid metal into granules ready fro export after being dried and packed.

Smelter investment projects

After the announcement of the Law No 4 of 2009 on mineral and coal mining (Minerba), requiring mineral mining companies to refine their products in the country with deadline in 2014, there have been new investment projects of big companies as the country has not enough smelters. New smelters will be needed to comply with the regulation.

There are a number of investment projects to build smelters including 4 units planned by PT Aneka Tambang (PT Antam) to be operational in 2014, and 1 unit to be operational this year. Two of the four projects to be operational in 2014 are in the process of financing scheme including the Tayan Chemical Grade Alumina (CGA) project and the Smelter Grade Alumina (SGA) project. Two other projects are still in the early phase of preparations or feasibility studies.

The one to be operational this year is to process iron ores into sponge iron in Batu Licin, South Kalimantan to cost around US$ 130 million with a capacity of 315,000 tons per year. PT Antam cooperates with PT Krakatau Steel and the South Kalimantan regional administration to build the smelter. PT Antam has a 31.02% stake in the project, PT Krakatau Steel (Persero) 60.22% stake and the South Kalimantan regional administration 8.76% stake.

Solway Group from Russia plans to build a nickel smelter with a capacity of 40,000 tpa in Halmahera, North Maluku with an investment of US$ 3 billion including for a coal gasification plant to feed a power plant to be built as part of the project.

The smelter is planned to be operational in 2014. The production capacity of the smelter will be expanded to 80,000 tons. Solway already spent US$ 55 million on pre-feasibility studies and exploration over a concession area of 4,500 hectares in East Halmahera since 2007.

Explorations with drilling already covered 30% of the concession in 3,000 spots. Construction of the smelters which will cost around US$ 900 million and the power plant will start in 2012.

Meanwhile in mid term Freeport also has planned to build a copper smelter to meet growing demand with expected increase in copper production from underground mining. The project will cost around US$ 3 billion, but no details yet are available about the project.

PT Unsanitary Smelting also plans to build a smelter in Bontang, East Kalimantan to produce copper cathode and copper slag, as the main products with gypsum, sulfuric acid, and anode slime as by products. The project is estimated to cost US$ 700 million. According to plan, the smelter will be operational in 2014. Nusantara Smelting will be the second company having copper smelter in the country after PT. Gresik Smelter.

PT Indosmelt plans to build a copper smelter with a capacity of 100,000 tpa copper cathode and 200,000 tpa of copper slag PT Indosmelt will focus on supplying the materials to domestic consumers in the downstream sector . Around 70% of its production will be sold to wire and cable factories in the country and 30% for exports. The project is still in the phase of studies. The basic material in the form of copper concentrate for PT Nusantara Smelting and Indosmelt is expected to be supplied by PT Freeport Indonesia.

Investor from India National Aluminium Company Ltd (Nalco) plans to build an aluminum smelter in South Sumatra, but implementation of the project, which has been approved by the provincial administration is doubted over difficulty in coal supply to fuel a power plant as part of the project. The project is too far from the source of the coal fuel. Originally Nalco was to build a coal-fired power plant with a capacity of 3 x 250 megawatts using low calorie coal of 5,000 Kcal/kg) . The smelter was to have a capacity of 250.000 tpa.

Nalco later planned to move the project to Kutai Timur, East Kalimantan. Nalco has sought to acquire 24% of the shares of PT Bumi Murau Coal, a subsidiary of coal mining PT Bhakti Energi Persada to guarantee coal supply for its power plant, but the offer was rejected by PT Bumi Murau Coal.

Many more mining companies may have to build smelters before 2014 to comply with the Law No. 4/2009 on mineral and coal mining (Minerba).

Among the mining companies operating under the working contract (KK) that may need to build smelters to comply with the law include PT Natarang Mining (gold). Antam, PT Timah Tbk, PT Koba Tm, PT Kasongan Bumi Kencana, PT Estara Mining, PT In-domura Kencana, PT Kelian Equatorial Mining, PT Masmindo Eka-sakti, PT Inco, PT Meares Suputan Mining, PT Nusa Halmahera Minerals, PT Weda Bay. PT Gag Nickel, PT Newmont Nusa Tenggara (NN-T), and PT Freeport Indonesia.

PT Inco has a mining contract effective until 2025 after the extension of its old contract that expired in 1999.

PT Inco operate in South Sulawesi (area Danau), Central Sulawesi (Bahudopi, Lingke, Bulubalang, Kolonodale); and Southeast Sulawesi (Latao, Suasua, Paopao, Pomalaa, Torobulu, Malapulu, Matarape, Lasolo). Its concession areas total 218,528.9 hectares, but operations covered only 6,000 hectares.

Currently PT Inco is facing difficulty over operating license in forest areas in South Sulawesi. The company has not secured the license from the provincial administration to operate in area covering 100,416.7 hectares of forest areas. PT Inco is required to build a nickel smelter in Southeast Sulawesi Tenggara; otherwise PT Inco has to return the mining license to the regional administration. PT Inco plans to cooperate with a Chinese company in developing its mineral reserves and building the smelter in that region. The Chinese company has been asked by the provincial administration to develop nickel reserves in Southeast Sulawesi.
Table--1
Metal mineral smelters operating in Indonesia

 End
Companies Smelters Technology products

PT Aneka FeNi I, FeNi Heat base Ferronickel
Tambang II, FeNi III phyro- 80% iron
 metallurgical 20%
 Nickel

PT Aneka Precious Gold 999.9
Tambang metal and Silver
 processing 999.5
 and refining
 units

PT Timah Crystallizer Tin metal
 equipped with
 electrolytic
 refining

PT Inco Nickel in
 matte >=
 75%

PT Gresik PT Gresik Mitsubishi Anode
Smelter Smelter copper
 98,5%

PT Inalum Aluminum
 ingot
 99.70%,
 and 99.90%
 of aluminum
 purity

 Capacity
Companies (tpa) Ore suppliers Location

PT Aneka 26,000 PT Aneka Pomalaa,
Tambang Tambang Southeast
 Sulawesi

PT Aneka 60 tpa gold; PT Aneka Jakarta
Tambang 250 tpa silver Tambang and
 a number of
 gold mining
 companies

PT Timah 49,000 PT Timah Kundur, Riau
 and Mentok,
 Bangka

PT Inco 72,500 Soroako,
 Sulawesi

PT Gresik 270,000 PT Freeport Gresik
Smelter Indonesia, PT
 Newmont Nusa
 Tenggara

PT Inalum 225,000 Kuala Tanjung
 North Sumatra

Source: Data Consult/ICN

Table--2
Plans to build smelters in Indonesia

 Names of Capacity/ Investment
 Owners project type value

PT Aneka Chemical 300,000 tpa US$450
Tambang Grade Alumina million
 Alumina
 (CGA) Tayan

PT Aneka FeNi in 27.000 tpa US$1.4
Tambang Halmahera Nickel billion
 (including
 power plant)

PT Aneka Mempawah 1.2 million US$1 billion
Tambang smelter grade tpa Alumina
 alumina
 (SGA)

PT Aneka Mandiodo 120,000 tpa US$140
Tambang Nickel Pig nickel million
 Iron (NPI)
 Project

PT Aneka -- 315,000 tpa US$130
Tambang sponge iron million

PT Freeport -- US$ 3 250,000 tpa
Indonesia billion

PT Nusantara -- copper US$ 700
Smelting cathode million
 200,000
 tpa,

 360,000 tpa
 copper slag,

 70,000 tpa
 gypsum,

 635,000 tpa
 sulfuric acid

 40,000 tpa
 anode
 slime.

Solway Group -- 40,000 tpa US$ 3 billion
(Rusia) nickel including
 coal
 gasification
 and power
 plants

PT Indosmelt -- 100,000 tpa US$ 500
 copper million
 cathode

 200,000 tpa
 copper slag

National -- 250,000 tpa US$ 3 billion
Aluminium Aluminum
Company Ltd ingot
(NALCO)--
India

 Plans to
 start
 Owners Locations Status operation

PT Aneka Tayan, West Financing 2014
Tambang Kalimantan scheme

PT Aneka Buli, East Feasibility 2nd
Tambang Halmahera, study drafting semester
 North Maluku and financing of 2014
 scheme and
 Sampling Pit
 Test and
 Industrial test

PT Aneka West Selection of 2nd
Tambang Kalimantan EPC contractor semester
 and financing of 2014
 scheme

PT Aneka Konawe Feasibility 2nd
Tambang Utara, study semester
 Southeast of 2014
 Sulawesi

PT Aneka Batu Licin, Construction 2011
Tambang South
 Kalimantan

PT Freeport Papua Feasibility 2024
Indonesia study

PT Nusantara Bontang, East Pre-feasibility 2014
Smelting Kalimantan study

Solway Group Halmahera, Pre-feasibility 2014
(Rusia) Maluku study

PT Indosmelt Maros, South Feasibility 2014
 Sulawesi study

National South Feasibility --
Aluminium Sumatra study
Company Ltd
(NALCO)--
India

Source: Data Consult/ICN
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Title Annotation:INDUSTRY
Comment:Investment in metal mineral smelter in Indonesia.(INDUSTRY)
Publication:Indonesian Commercial Newsletter
Geographic Code:9INDO
Date:Feb 1, 2011
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