An Indonesian metal firm plans to set up a copper smelter next year with an annual production capacity of 200,000 tonnes of copper cathode, a company official said on Tuesday.

    PT Nusantara Smelting Corp will build the smelter in Bontang in east Kalimantan with an investment of $850 million, said Juangga Mangasi, director of the locally owned firm.

    The smelter will secure raw material from copper producers, such as the Indonesian unit of U.S. mining group Freeport-McMoRan Copper & Gold, PT Freeport Indonesia, and the local unit of Newmont Mining Corp, which operates the Batu Hijau copper mine in Sumbawa island.

    "The rest of the copper concentrate will be imported," Mangasi told Reuters.

    Development of the smelter will start in the first half of 2009 and is expected to start operating in the second half of 2011, he said.

    The smelter will be the second copper smelter in Indonesia after PT Smelting's smelter in Gresik, East Java. PT Smelting is 60.5 percent-owned by Japan's Mitsubishi Materials Corp.

    The new smelter project aims to be in place before a new mining law that will require mining products to be processed at home before they are exported, Mangasi said.

    "We need to have proper infrastructure when the law is in place. Otherwise the domestic market will be flooded," he said.

    The mining law, which has been in the works for several years and is being held up by a parliamentary committee, will require miners to turn raw ore into metal by setting up smelters or team up with a smelting firm.