DOWNSTREAM DEVELOPMENT
UPDATE AND CHALLENGE
AGUS SUHARTONO
Vice Chairman of APEMINDO
Chief Operating Officer of Ibris Nickel Ltd.
February 2013
Key To Indonesia’s Downstream Development
Strong Government and Sponsor Support
Clearly Defined
Laws and
Regulations
Access To
International
Financial
Markets
Financial
Incentives For
Investments
Sponsors With A
Proven Track
Record
Mineral Resource
Infrastructure
Technology
Proven Resource Base
With Mineable Reserves
Transport and Distribution
Infrastructure
Proven Processing Technology
And Know-How
Quality Management and
International Standards
Access to Power, Energy and
Other Raw Materials
Sustainable International and
Domestic Demand
2
Key Success Factors and Development
Challenges
Government and Sponsor
Challenge
Lack of clarity in laws and regulations
 Sudden significant changes to mining laws deters foreign
investment due to uncertainty

Regulations
Success of capital intensive downstream processing projects
requires reliable local sponsors with a proven track record of
delivery
 Must seek reputable and reliable JV partner for technology

Sponsor
No clear tax incentives for investor
 Indonesia has a history of introducing new mining taxes, adding
uncertainty to long term returns

Government Support

Capital Cost
High investment cost due to:
– Requirement to build infrastructure and power as part of
downstream project
– Inability to source locally
– Limited access to financing due to risks
3
Key Success Factors and Development
Challenges
Mineral Resource
Factor
Challenge
Most downstream projects require 20+ year mine life to justify
downstream investment
 However:
– Indonesian assets have generally undergone limited
exploration which was not conducted according to
international standards
– The IUP system adds restriction and limitation to resource
size
– Too many overlap and non CNC assets adds to resource
uncertainty

Resource Base

Nickel ore mining is relatively new in Indonesia and lacks
experienced management teams and quality standards

Traditional nickel downstream processes are too expensive to
build while new technology/NPI process does not have
internationally recognized standards
Quality Management
International Standards
4
Key Success Factors and Development
Challenges
Infrastructure
Factor
Challenge
Lack of power infrastructure and access to grid
 Power plant must be constructed as part of the project since there is
no access to the power grid
 Addition of power plant increases cost and risk of the development
 Power plant operators and mineral processing usually requires
different JV partners

Access to Power
No existing location with suitable infrastructure – shipping, jetties,
power and roads must be constructed as part of the project, adding
to the investment cost
 Distribution infrastructure – lack of pipelines, energy storage
terminals and deep water access imposes limitations on processing
plant design and production capacity

Infrastructure
Based on different processing technologies, various raw materials
are required, such as coal for power, coking coal and limestone for
blast furnace operations and natural gas for advanced processing
technologies
 Indonesia lacks reliable suppliers of raw materials as well as the
necessary infrastructure to access them
 Certain developments are not possible due to the inability to secure
a stable long-term supply

Access to Raw Materials
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Key Success Factors and Development
Challenges
Technology
Factor
Challenge
Blast Furnace – relatively lower development cost; high
operating cost (currently negative margins); low grade product
with questionable long term demand
 Electric Furnace – high development cost; lower operating costs
(currently break-even); medium grade product with China as the
only consumer market
 Other Technologies – high development costs with technology
risk; not sustainable with current commodity prices

Proven Processing Technology

Domestic Market Demand
Currently no domestic demand for NPI, making it difficult to
have a contingency plan if international demand softens
Demand for NPI product currently from China only
 China has over capacity for NPI production and will only import
from Indonesia if there is a shortage
 More and more Chinese plants are becoming integrated and may
not need to buy intermediary nickel products such as NPI

International Market Demand
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Case Study –
Project Overviews and Updates
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Roadmap for Downstream Project
Phase I
(Industrial Park I)
Resources
Processing
Power
Nickel Asset
Nickel Ore
Nickel Ore
Phase II
(Industrial Park II)
Product
Electric Arc
12% Ni NPI
Furnace
[x[mtpa
Rotary Kiln
NPI/Ferronickel
Electric Furnace
[x]mtpa
Power
Coal Asset
Coal
Power Plant
(Stage I – 4x65MW)
(Stage II – TBD)
Power
Power
Coal
Coal Drying/
Upgrading
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Coal
Upgraded / Dry Coal
Coal Gas
Proposed Materials Flow
Asset Location
Processed Nickel
Phase II Area
Nickel Ore
Phase I Area
Nickel Assets
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1. Industrial Park Development
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Industrial Park I – Development
Overview




Location of Site
Industrial Park I will include infrastructure and energy storage to
accommodate downstream processing plants and auxiliary
facilities
The location was strategically chosen for its access to deep
water, allowing the construction of a jetty capable of servicing
sea borne vessels
The development will include a deep water jetty, a terminal for
energy storage as well as infrastructure for an integrated
industrial estate
Company will lease a portion of the land at the industrial park for
Phase I of its downstream project and will have access to the
existing infrastructure and transport facilities
Industrial Park I
Location
Progress of Work


Survey Work
Industrial Park I currently includes 64 hectares of land for the
industrial estate and survey work on the area is in progress
Work completed thus far includes:
–
Bathometry
–
Topography
Soil investigation
–
Preliminary site planning
A suitable area has been identified for a deep water jetty/port and
various design parameters are currently being considered
–



The AMDAL for the terminal storage is currently in progress and
is expected to be completed in Q2 2013
An independent consultant has been engaged to perform
additional planning and analysis for a pre-feasibility study
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Overview of Phase II Industrial Complex
Overview





Industrial Complex Layout
The ultimate purpose of the Minerals Processing Complex
is to provide an attractive location for mining industry
players to construct downstream processing facilities. The
target location for the industrial estate is in East
Kalimantan, near the Coal asset
Planning for the industrial estate began in 2010, when
Consultant was engaged to produce a pre-feasibility for the
project
Company continues to move forward in its plan to develop
the site and is currently engaged another consultant to study
the feasibility of the project
Company intends to leverage its nearby coal resource to
produce low-cost power that will serve the entire estate,
thereby providing a competitive advantage compared to
other projects in Indonesia
Phase I of the project will consist of a Nickel Pig Iron
(“NPI”) plant, 4x65MW power stations and port facilities
– Nickel ore will be transported from Sulawesi to the
site by barge or small vessel
– The low cost coal will fuel the power stations, which
will in turn provide electricity to the NPI facility
– The NPI facility will then process the nickel ore into
NPI product, which will be exported to the
international market
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2. Phase I Downstream Development
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Phase I – Electric Arc Furnace
Overview


EAF Design
Company is in discussions with a major Chinese entity to jointly
construct an Electric Arc Furnace (“EAF”) in Phase I of its
nickel downstream processing strategy
Power cables
Hatch for nickel ore,
lime and other material
The Chinese partner will contribute capital, technology and
nickel refining experience to the partnership

The technology decision for Phase I was made after careful
consideration of the availability of power, coking coal and other
raw materials in the planned industrial estate area

The processing facility will produce a ~10% Ni NPI product
which will be sold to the Chinese partner through an long-term
offtake agreement
Oxygen inlet



Tapping spout
for molten NPI
Door for
removing slag
Molten NPI
Technology Background

Electrodes
Furnace Details
Arc furnaces have been in use in the metallurgical industry since
the late 1800s but have only recently started gaining acceptance
in the area of smelting ores such as nickel laterite
Advantages of the arc furnace:
–
Ability to treat directly ore particles less than 1mm in size,
improving overall efficiency
–
Gas produced by furnace can be used as a reducing agent as
well as a supplement for energy requirements
–
Ability to fun at an optimum slag temperature due to the
open-bath mode of operation
The electric arc furnace is capable of processing nickel laterite
into NPI product in the range of 10% - 20%
Major cost components include nickel ore and electricity,
although transport, coal and calcium lime can also be major
factors depending on availability at the plant location
Location
Annual Processing
Capacity

Product
Advantages






Disadvantages


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East Kalimantan (Industrial Estate 1)
950k WMt nickel ore
10k Mt nickel metal
~10% NPI
Coking coal not required, reducing
processing costs compared to blast
furnace
Higher value product compared to
blast furnace
Not as capital intensive as Rotary
Kiln Electric Furnace (RKEF)
technology, reducing risk
High electricity consumption
Shorter life of refractory lining
3. Phase II Downstream Development
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Phase II – Rotary Kiln Electric Furnace
Overview




RKEF Design
Company has engaged a consultant to perform a pre-feasibility
study for a large scale nickel processing plant for Phase II of its
downstream strategy
Company is in discussions with potential Chinese partners to
contribute capital, technology and nickel refining experience to
the project
The facility will be built on a second industrial estate near coal
asset in East Kalimantan (Industrial Park II). Coal fired power
plants will be part of the Phase II development to supply
electricity to the RKEF plant
Company hopes to construct a world class project to bring
Indonesia to the forefront of the global nickel processing industry
Technology Background


Furnace Details
RKEF technology was developed in the 1950s and is currently
the basis of new, world class nickel refining facilities producing
ferro-nickel via pyrometallurgy
Process flow:
–
Ore treatment – crushed, mixed and proportioned with
reductive and sent to the rotary kiln
–
Rotary Kiln Calcination – drying, heating and calcining.
The roasting of ore eliminates moisture, reducing weight
by approximately 30%
–
Ore Furnace Smelting – material discharged from the
rotary kiln is smelted in the electric furnace. Lime and
limestone is added to ensure suitable smelting temperatures
–
Purification – additives to eliminate phosphorus, silicon,
coal and sulphur in the converter. Further purification to
reduce iron from the nickel-iron liquid produced in furnace
Location
Annual Processing
Capacity

Product
Advantages






Disadvantages


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East Kalimantan (Industrial Estate 2)
4.7mm WMt nickel ore
31.9k Mt nickel metal
12-15% NPI
Modular design allows staged
development for production ramp-up
Capable of producing ferro-nickel up
to 25% Ni
Ability to modify the RKEF furnace
to directly produce 300 series
stainless steel
Very capital intensive
Lack of skilled workers and local
materials will increase costs
Phase II – Downstream Development on a National Scale
EXPLORATION
RESERVE &
RESOURCE
MINE
CONSTRUCTION
PRODUCTION
FUEL SOURCE
POWER
GENERATION
MINERAL
PROCESSING
REFINED PRODUCT
COAL
GASIFICATION
COAL UPGRADING
OTHER MINERALS
DEEP SEA PORT
Minerals
Resource
Downstream
Processing
Expansion
Potential
National Project
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Phase II – National Project
Minerals
Resource
Energy
Resource
Downstream
Processing
Future
Development
NICKEL ASSET
 Nickel mine is located in Southeast Sulawesi and its operations employ over 1,000 staff and contractors
 JORC compliant resources of 105mm Mt of nickel ore and ongoing exploration work is in progress to
significantly increase the resource base
 Current monthly production rate of ~350k Mtpm with plans to ramp up to ~500k Mtpm
 Nickel mining company has entered into a long-term offtake contract with an Australian entity
COAL ASSET
 Company holds a coal concession in East Kalimantan
 Current SNI complaint resources of 550mm Mt of low rank, high moisture coal
 Company is undergoing an intensive drilling program to significantly increase its resource base and to convert
its current resource estimates to JORC compliant standards
INDUSTRIAL PARK II
 Company intends to develop an industrial complex near the coal asset concession
 Stage I of the project will consist of a Nickel Pig Iron (“NPI”) plant, 4x65MW power stations and port
facilities and Stage II will include a ferro-nickel smelter
 Low cost coal will fuel the power stations, which will in turn provide electricity to the NPI facility to process
nickel ore into NPI product
 In addition to constructing infrastructure capable of supporting coal mining and the industrial estate activities,
the project will also include a jetty to be utilized for the transport of ore and processed minerals
FUTURE DEVELOPMENT POTENTIAL
 With a low cost power source, the complex will provide an attractive location for mining industry players to
construct downstream processing facilities
 Future expansion plans include:
– Coal gasification
– Coal upgrading
– Ferronickel plant and other mineral processing facilities
– Deep sea port facilities
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