Rio in tax pact with Indonesia on nickel mine

SYDNEY, April 29 (Reuters) - Rio Tinto Ltd/Plc (RIO.AX), under pressure to broaden its reach in commodities as it fights a takeover by BHP Billiton Ltd (BHP.AX), said on Tuesday it had agreed to tax clauses with Indonesia needed before it can develop a nickel mine costing $1.5 billion.

Rio (RIO.L) has largely been absent from nickel mining and hopes to start mining the metal in Indonesia's Sulawesi province in about seven years. BHP (BLT.L) (BILJ.J), with operations in Australia and Colombia, is the world's third largest nickel producer.

BHP has criticised Rio's lack of assets in areas such as nickel and oil, where BHP also is active.

Sulawesi is Rio Tinto's second step into nickel. In December it approved development of its Eagle mine in the United States at a cost of $300 million. It has previously said production from the Sulawesi project could begin in 2015.

Rio said the agreement with Indonesia provides sufficient certainty to support a multi-billion dollar investment in the project and was based on a combination of fixed rates and prevailing regulations. It did not elaborate further.

The next stage will be to seek pacts with local governments near the project site over contracts of work, it said.

The project is earmarked to initially yield about 46,000 tonnes of nickel a year, potentially rising to about 100,000 tonnes. Nickel is chiefly used as an alloy for stainless steel and currently sells for about $30,000 a tonne MNI3.

The Eagle mine is expected to produce about 16,000 tonnes of nickel a year starting in 2009.

Rio has rejected BHP's proposal of 3.4 of its shares for every Rio share, worth $147 billion when it was pitched in February, arguing that it is better off independent given its growth prospects.

Last year it paid $38.1 billion for Canadian aluminium group Alcan and has set out multi-billion dollar plans to dig more iron ore mines in Australia. (Reporting by James Regan)