2nd UPDATE: BHP Billiton, Adaro In Indonesian Coal Joint Venture

BHP Billiton Ltd. (BHP.AU) said Wednesday it has entered into a joint venture with a subsidiary of PT Adaro Energy (ADRO.JK) for a coal project in Indonesia.

Adaro will take a 25% stake in the project, which covers seven contract areas in East and Central Kalimantan provinces, where undeveloped metallurgical and thermal coal resources are estimated at 774 million metric tons, it said.

"These agreements with Adaro provide a strong local partner to ensure the successful development of our world-class metallurgical coal interests in Indonesia," Hubie van Dalsen, BHP's metallurgical coal president, said in a statement.

The agreement on the Maruwai coal venture still needs to be approved by the Indonesian government.

A senior Indonesian official said BHP's decision to sell only a 25% stake might could be an indication of a healthy investment climate in Indonesia.

BHP had previously considered an outright sale of the Maruwai project.

"I don't know the reason why BHP didn't go ahead with the plan to sell its stake entirely, but it could be an indication that the investment climate in Indonesia is still good," Bambang Setiawan, Director General of Minerals, Coal, and Geothermal Resources at the Mines and Energy Ministry told Dow Jones Newswires.

Another example was Rio Tinto PCL's (RIO.AU) decision to invest billions of dollars in a nickel mining project in Sulawesi, Setiawan said.

Adaro Energy's Director of Corporate Affairs and Corporate Secretary Andre Mamuaya said the Maruwai project was still in an exploratory phase.

"We are also doing a feasibility study to determine when we can start production," Mamuaya said.

He didn't provide the value of the Adaro unit's investment in the project.

In December, Macquarie Securities said Adaro's $1.3 billion fundraising in late 2009, comprising a global bond and standby loan, would allow "significant" acquisitions such as BHP's Maruwai project.

Adaro, the country's second-ranked thermal coal miner by output, plans to mine around 45 million tons of low-sulfur thermal coal in 2010 versus around 41 million tons in 2009, and to export 70%-75% of production in both years, the company said in December.

Earlier Wednesday, Adaro Energy posted a near five-fold jump in 2009 net profit to IDR4.37 trillion, due mostly to a sharp increase in revenue.

-By Cynthia Koons; Dow Jones Newswires; 61-2-8272-4691; [e-mail]

-Edhi Pranasidhi and Deden Sudrajat in Jakarta contributed to this article.