Mitsubishi buys into Indonesian mining project

Japan's Mitsubishi Corporation said yesterday it will buy a one-third stake in a nickel project in Indonesia from Eramet for $145 million.

The project, referred to as Weda Bay, is currently owned 90% by Eramet and 10% by Antam, a local mining company 65%-owned by the government of Indonesia. The price Mitsubishi has agreed to pay for a minority interest translates into an equity value of $435 million for the company.

The Weda Bay deposit is an undeveloped nickel project on the island of Halmahera in Indonesia, with a targeted annual capacity of up to 65,000 tonnes of nickel. The project will use a hydrometallurgical process developed by Eramet at its research centre in France. Paris-headquartered Eramet is a producer of nickel, manganese, high-speed steels and closed die forged parts for the aircraft and power industries.

The project was initially granted by the Indonesian government to a joint venture between Weda Bay Minerals Company -- a Canadian base metals exploration and development firm focusing solely on this nickel- and cobalt-laterite project in Indonesia -- and Antam. Antam's main products are ferronickel, nickel ore, gold, silver and bauxite.

In March 2006 Eramet emerged the winner in a process run by RBC Capital Markets on behalf of the board of directors of Weda Bay Minerals to find a financial-cum-strategic investor to take over the project. Eramet bid C$270 million ($215.6 million) and proceeded to delist the firm from the Toronto Stock Exchange.

Mitsubishi, Japan's largest general trading company, is now buying 33.4% of the project from Eramet. This will reduce Eramet's stake to 56.6%. Antam will continue to own 10%, but has an option to raise its stake to 25%.

 "Weda Bay is a world class deposit, which has the potential to become a major producer of nickel for the long term," says Patrick Buffet, chairman and CEO of Eramet, in a written statement. "Studies for the Weda Bay project will continue with the support of Mitsubishi Corporation, in full agreement with our Indonesian partner, Antam."  

One of the trends driving mergers and acquisitions activity in 2008 was Asian buyers seeking to deploy reserves to secure supplies of natural resources. And 2009 year-to-date has been the same. The Mitsubishi announcement follows announcements by two Chinese state-owned-enterprises, Aluminium Corporation of China (Chinalco) and China Minmetals Corporation.

Chinalco is seeking to increase its equity stake in Rio Tinto to 18% and acquire direct minority interests in nine Rio Tinto projects at a total outlay of $19.5 billion. Minmetals, meanwhile, is offering A$2.6 billion ($1.7 billion) for Melbourne-headquartered Oz Minerals, the world's second largest producer of zinc and a substantial producer of copper, lead, gold and silver.