Out of so many nickel projects in Indonesia, Lasamphala in Sulawesi is one of the most interesting from various perspectives: global competition of resources, local and national political dynamics after the downfall of Soeharto in 1998. What’s happened to this multi billion dollar project?
The project was planned by Rio Tinto Plc, one of the world’s top three mining giants outside BHP and Valle. Valle is still an active player in Sulawesi, while BHP has pulled out from most of Indonesian projects, except the Maruwai coking coal project in Kalimantan.
In 2010, Sherritt, a Toronto-based company with annual revenues of around $2 billion, entered into an earn-in and shareholders agreement with a subsidiary of Rio Tinto Limited pursuant to which Sherritt could acquire a 57.5% interest in the holding company that owns the Sulawesi Nickel Project (Sulawesi Project) in Indonesia.
The Sulawesi Project is located on the island of Sulawesi in the Republic of Indonesia. Based on exploration completed to date, the project includes a large, high-grade resource. Identification of further mineralization will be achieved through additional exploration and completion of a feasibility study. Sherritt is the operator and will license its commercially proven, proprietary technology to the project. Work on drilling to define the resource is expected to begin in the second quarter of 2012.
Sherritt said recently that the project progressed well with US$9.3 million of expenditures last year, mostly related to pre-feasibility work. Due to permitting delays in 2011, this agreement was subsequently amended as of January 23, 2012. Pursuant to the terms of the amended agreement, Sherritt may elect to acquire a 57.5% interest in a holding company that owns the Sulawesi Nickel Project in Indonesia upon funding US$30.0 million and meeting certain other conditions by October 1, 2013. Rio Tinto would then own the remaining 42.5% in the holding company. In compliance with Indonesian Mining law, local Indonesian interests are expected to acquire a 20.0% stake in the Sulawesi Project after which Sherritt and Rio Tinto’s economic interest will be 46.0% and 34.0%, respectively.
If Sherritt acquires its 57.5% interest, the amended agreement also provides that Sherritt can elect to spend an additional US$80.0 million by June 30, 2017 towards producing a feasibility study from which a development decision will be made. If the additional US$80.0 million is not spent, the Corporation’s interest in the Sulawesi Project will be forfeited.
Activity in 2012 is anticipated to include the commencement of a resource drilling program in second half of 2012, which is expected to bring total spending on the project to approximately US$30.0 million, or 27% of the total funding requirement to obtain Sherritt’s 46% economic interest in the project. The environmental and social baseline studies are expected to be completed mid-year 2013.
So, despite pressures from local authorities (please refer to our earlier reports), Sherritt seems to believe that it can proceed with the Lasamphala project.
Interestingly, we just heard from sources in Sulawesi that Valle has also decided to focus on development of its own ferronickel project and terminated cooperation with Chinese company.
Slowdown of Chinese economy might affect the dynamics of competition in the area. The upcoming elections, local and nationals, will eventually add the flavor….
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