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ublicly listed nickel miner PT Central Omega Resources (DKFT) signed an agreement on Thursday with Asiazone Co Ltd, a subsidiary of Taiwan-based E United Group, for the creation of a joint venture in the nickel-smelting business.

Central Omega will own a 40 percent stake in the new company, to be named PT Yieh United Omega, while Hong Kong-based Asiazone will control the remaining 60 percent. The venture company will operate on a 500-hectare site in Sulawesi, where Central Omega has its nickel mines.

The total investment in the Yieh United Omega project is estimated at US$700 million, which includes a $280 million smelter, a $350 million power plant and $70 million in infrastructure work.

Central Omega and Asiazone will together come up with 30 percent of the total investment funds, while the rest will come from bank loans, according to Central Omega president director Kiki Hamidjaja.

“We have had talks with several foreign banks, some of which are from Hong Kong and mainland China. They are very interested in funding this project, but we have not inked any deal yet,” he said, adding that his company would also welcome cooperation offers from Indonesian banks.

Kiki said that Central Omega and Asiazone would start looking for potential bank partners in the middle of 2013 when the infrastructure construction would begin.

Out of the 30 percent funds provided by Central Omega and Asiazone, the former will provide 40 percent or approximately $84 million, which was raised from a rights issue held by the company last year.

“We generated a total of $120 million from last year’s rights issue. The sole purpose of the rights issuance was to raise funds for this project,” Kiki added.

According to Kiki, his company decided to build the smelter to comply with the government’s new
regulations.

Under the 2009 Mineral and Coal Law, exports of unprocessed minerals will no longer be allowed starting from 2014. As a consequence, miners need to establish their own smelters or cooperate with independent smelting firms to process their mineral ores.

The infrastructure work and the construction of the smelter will begin within the next six months, but the exact location of the smelter has not been determined yet, according to Kiki. Central Omega currently has two mines in North Konawe, Southeast Sulawesi, and Morowali, Central Sulawesi.

The smelter will be constructed in two phases, each lasting for about a year. It will have a total production capacity of 200,000 tons of ferronickel, with 10 percent nickel content.

All of the production will be exported to China and be used by E United’s manufacturing division. The division produces 3 million tons of stainless steel every year.

Central Omega operations director Ciho Bangun said his company expected to generate higher profits once the joint-venture company started producing ferronickel, citing the high nickel price.

“Nickel ore currently stands at between $30 and $40 per ton, while the global nickel price stands at around $17,800 per ton,” he said.

To produce the required ferronickel, the smelter will require an annual supply of 2 million tons of nickel ore. Central Omega’s North Konawe and Morowali mines currently have monthly production capacities of 200,000 tons and 100,000 tons of nickel ore, respectively.

Last August, Central Omega signed a memorandum of understanding (MoU) with state utility firm PT Perusahaan Listrik Negara (PLN) for the supply of electricity to the smelting plant. Kiki said they company also planned to build a 200-megawatt power plant within the smelter project site to backup the main supply.

During the first-nine months of this year, Central Omega produced and sold a total of 1.5 million tons of nickel ore. Its sales jumped 114.7 percent from last year to Rp 500 billion ($52 million). It booked Rp 210 billion in pretax gross profits, up 77.5 percent from 2011.

As of September 2012, Central Omega’s total assets reached Rp 1.4 trillion. Its liabilities amounted to Rp 159 billion and its equity stood at Rp 1.24 trillion.