UPDATE: Sherritt To Buy Controlling Stake In Indonesian Nickel Project

Sherritt International Corp. (S.T) said Wednesday it will acquire a controlling stake in the Sulawesi nickel project in Indonesia from Rio Tinto Ltd. (RIO) for an undisclosed amount.

Sherritt, a Toronto-based diversified international mining company, will become the project's operator. The company said it plans to use its expertise in nickel laterite mining to exploit Sulawesi, which is considered one of the largest undeveloped nickel projects in the world.

Rio Tinto has found 162 million tonnes of nickel at the Sulawesi project, for which it obtained a mining permit in March. The Anglo-Australian mining group said mining would initially yield 46,000 metric tons a year, and could eventually expand to more than 100,000 metric tons a year. The project is estimated to be worth at least $2 billion, and is a key part of Rio Tinto's plan to become one of the top 10 nickel producers.

After the Indonesian government uses an option to acquire a 20% interest in the project, Sherritt would have controlling interest and a 46% economic interest, with Rio Tinto maintaining a 34% economic interest.

BMO Capital Markets analyst Tony Robson noted that Sulawesi has been under consideration since 1999 and warned investors to expect delays. "Development would take at least seven years to potential first production, based on the challenges of laterite projects generally and potential regulatory delays in Indonesia," Robson wrote in a note to clients.

Sherritt, which has operations across the world including in Canada, Cuba and Madagascar, said it has executed an earn-in and shareholders agreement in connection with the deal and has also committed to fund $110 million towards producing a feasibility study from which a development decision will be made.

Sherritt shares rose 1.3% to C$7.97 in recent trading on the Toronto Stock Exchange.

-By Edward Welsch, Dow Jones Newswires; 403-471-3855; edward.welsch@dowjones.com

(Carolyn King contributed to this article.)

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