another-shutdown-at-an-indonesian-nickel-mine-may-reduce-output

Another shutdown at an Indonesian nickel mine may reduce output

IndonesiaÆs PT Antam Tbk says it will shutdown for repairs the new FeNi III smelter for about three months, likely reducing its target nickel output.
IndonesiaÆs PT Antam Tbk announced Thursday (July 6) that it will shutdown for repairs the new FeNi III smelter for about three months. It has been unofficially operating since mid-February, and at capacity since mid-May.

Because of the shutdown, AntamÆs 2006 production target for nickel contained in ferronickel will be lowered to around 13,000 û 16,000 tonnes from a May target of 19,000 tonnes, although the company says ôit is too early in the investigation to determine exactly what amount.ö

An Antam spokesman says the mining company has been informed by the turnkey, or engineering, procurement and construction (EPC) contractors that built AntamÆs new smelter that a leak from the metal tap hole of the smelter will require a shutdown for roughly three months. The metal tap hole is located at the bottom of the furnace, where molten crude ferronickel is extracted from the furnace during a ômetal tapö.

The FeNi III smelter is located at a historic plant in the province of Southeast Sulawesi - on grounds once bombed by the Americans when the Japanese occupied the site, and operated a nickel matte factory during World War II.

The $320 million project had been first forecast to double overall annual nickel capacity for the company to 25,000 tonnes next year, but shut-downs have been altering that expectation. That said, even before the operation got up and running, Antam had been increasing its nickel output from its other smelters. It produced 2,706 tonnes of contained nickel in ferronickel in the first quarter of the year, which was a 104% increase compared to the same period a year earier.

The FeNi III smelter project, however, has been riddled by problems. It was first started up in November 1997 when the company's initial public offering raised Rp556.4 billion; 73% of that IPO money was targeted for FeNi III. In October 1998, Mitsui & Co were selected as preferred bidder to become the contractor. But by July 1999, Antam announced it was delaying the production due to the region's debt crisis - the devalued rupiah, made construction costs too expensive.

A parallel tender was finally held again in May 2000 for an alternative EPC contractor. This time around, Antam selected Tessag Ina (today known as RWE) of Germany as preferred bidder for the contract work and the German bank IKB as financial advisor to help arrange an export credit scheme from Germany's export credit agency, Hermes. But again, currency issues muddled the process as the strengthening Euro vis-a-vis the dollar made the contract costs too expensive.

By March 2003, the financing scheme through IKB Hermes failed to go through, so in August of that year Japan's Mitsui Co Ltd and Kawasaki Heavy Industries resigned as contractors. A month later, Antam Finance Ltd Issued a $200 million eurobond to fund FeNi III. And in October, 2003 it received a $60 million bank loan to help finance it as well.

Finally, in November 2003 Antam signed another contract with Wartsila Finland to actually build the 102-megawatt diesel power plant. Construction began on FeNI III smelter on January 12, 2004. On February 12, 2006 the company switched on the FeNi III ferronickel smelter, but not at full capacity, which was supposed to be imminent.

On May 2, the company announced that the full-capacity commencement of commercial operations would be delayed until to the middle of the month. As a result of that delay, Antam had to lower its production target to 19,000 tonnes of ferronickel. The reason cited in May was "small technical problems along the production process" - about which the company wouldn't elaborate, except to say such delays were normal for a project this size.

After mid-May production seemed to be ticking along at its new mammoth plant where men in hard-hats and body-protection suits labour over 1,600 degree-celcius smeltering nickel. Analysts say this latest delay though shouldnÆt hurt Antam too much, given that nickel remains a hot commodity. Even if Antam's average nickel selling price drops by $1.00 per pound (which doesn't look likely given this yearÆs price surges), President Director Dedi Aditya Sumanagara says "we will still make 2.5 times more revenue from ferronickel, or $250 million.ö
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