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PT Krakatau Steel (Persero) ("PTKS")
and PT Antam Tbk ("Antam") (ASX: ATM, IDX: ANTM),
signed a Joint Venture Agreement (JVA) today
to develop steel industry in South Kalimantan.
Initially the companies will build an
iron ore smelter to produce Direct Reduced Iron with
a capacity of 315,000 tonnes. All of the production
will be consumed by the PTKS steel mills in Cilegon,
West Java. The investment cost for the project is
estimated at about US$60 million, which will likely
be funded 35% equity and 65% debt provided by
Indonesian local banks. PTKS will own 66% of the
project while Antam will hold a 34% portion.
The companies will soon establish a
joint venture company, named PT
Meratus Jaya Iron & Steel.
The smelter construction is planned
to start in November 2008 and begin operations in
2010. It will likely become the first steel company
in Indonesia to use local resources, as most iron
ore is imported.
In the long term, if it has
sufficient reserves of dedicated raw materials and
it matches with the business strategies of both
companies, the next phase of development would be to
build an integrated steel facility. Expanding its
operations down stream to steelmaking and rolling
smelters, the facility could have a capacity of up
to 1 million tonnes of steel. The total project cost
is estimated at about US$600 million, excluded the
cost for infrastructure. Currently, PTKS is still
conducting preliminary studies by PTKS. If the
studies show the project is technically and
economically feasible, the best way to proceed will
be determined, which may include seeking other
strategic partners.
For PTKS, the project is part of its
efforts to produce five million tonnes per year of
by 2011 to meet domestic steel demand.
Antam sees the project as part of its
business strategy to increase product
diversification. The project will increase the
company's competitiveness and deliver good return on
investment to its shareholders.
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