Indonesia's Medco to invest $500 million to build copper smelter after Newmont deal

Indonesian oil and gas producer PT Medco Energi Internasional Tbk plans to invest $500 million to build a copper smelter following its deal to buy control of Newmont Nusa Tenggara (NNT), its president commissioner told Reuters. The purchase of a majority stake in NNT, which runs Indonesia's second-biggest copper and gold mine, will help Medco to offset the volatility of oil and gas prices, Muhammad Lutfi said in an interview on Friday.
Oil prices have tumbled by more than half since mid-2014 due to oversupply, although they have now nearly doubled from lows hit in January to trade around $51 a barrel. And while copper prices have also fallen around 30 percent over the last two years because of slowing demand from top consumer China, Lutfi said Medco is mainly targeting Indonesia's domestic automotive, electronics and cable industries with the NNT and smelter output.
"This asset can be a game-changer for us," said Lutfi, a former Indonesian trade minister. "For us, it's about diversification," he said, adding that copper and gold may contribute 30-50 percent to Medco's revenue in future. Automobile sales in Southeast Asia's largest car market rose 12.5 percent in July from a year earlier, according to industry data released this week, amid a broad-based consumer demand recovery.
"Many car factories in Indonesia have been increasing their production capacity," Lutfi said, and in the long run he sees Indonesia growing as an exporter of both auto components and fully-built vehicles. Part of the funds to build the NNT-fed copper smelter - which would turn out refined metal that could eventually be used for car parts and cables - with an annual capacity of 500,000 tonnes will come from bank loans, with Medco aiming to start operations in 2021, Lutfi said.
A consortium consisting of oil and gas tycoon Arifin Panigoro, who founded Medco, and banker Agus Projosasmito announced in late June that it will spend $2.6 billion to buy 82.2 percent of NNT. The Indonesian group is buying 56 percent of NNT from US miner Newmont Mining Corp and Japan's Sumitomo Corp and its partners. It will buy the remaining 26.2 percent from local companies.
Jakarta-listed Medco will own at least 50 percent of NNT, while Projosasmito's vehicle, AP Investment, will hold the remaining stake, Lutfi said. Medco shares have doubled so far this year, driven by market speculation about the acquisition. Three state-controlled banks will lend $750 million to the group for the purchase and the remaining funds will come from equity and loans from other financial institutions. Medco is targeting a 25 percent increase in copper concentrate production at the Newmont mine to 500,000 tonnes by 2019, Lutfi said.
Oil and gas will nevertheless remain a core business for Medco, which is currently exploring the acquisition of offshore oil and gas blocks in Indonesia, he said. "Newmont will be part of Medco Energi, but we are still an oil and gas company," Lutfi said.