PT Adaro Energy Indonesia's biggest coal producer by market value, said on Thursday that it has agreed to pay $350 million for a 25 percent stake in BHP Billiton's Maruwai coal project.
BHP Billiton, the world's biggest mining group, said on Wednesday that it had chosen Adaro as its local partner to help develop its Maruwai coal mine in Indonesia, less than a year after canning the project.
"We are agreed to pay $350 million pending government approval," said Andre Mamuaya, Adaro's corporate secretary. "Application for approval is ongoing."
BHP Billiton will retain a 75 percent stake in the project, which is located in East and Central Kalimantan. Maruwai has undeveloped metallurgical and thermal coal resources estimated at 774 million tonnes.
The Maruwai coal project is expected to start commercial production in 2014 and output is then seen reaching 6 million tonnes of both thermal and coking coal within five years, a BHP official in Indonesia told Reuters.
Thermal coal is used in power plants, while coking or metallurgical coal is sold to steel mills.
"We believe the outlook for coking coal remains strong on account of steel demand growth and supply pressure due to insufficient infrastructure capacity," said Andreas Bokkenheuser, mining and commodities analyst at UBS Securities, in a note to clients.
BHP Billiton said in June last year it would not go ahead with the first stage of the project because it did not fit with the company's long-term investment strategy, but later said it would sell a stake and opened up bidding.
A sharp recovery in coal prices following the downturn was one reason why BHP decided to restart the project, the company saidThe project will need between $500 million and $1 billion to produce 6 million tonnes, a BHP official has said. BHP plans to build a railway connecting the mine to the nearest barge-loading ports to help expand production.