Malaysian Minerals Bulletin July-Aug 2011

8/4/2019 Malaysian Minerals Bulletin July-Aug 2011

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Bi-Monthly Report of theMALAYSIAN CHAMBER OF

For Members OnlyJuly - August 2011

MALAYSIANMALAYSIAN

MINERALS & METALSMINERALS & METALSBULLETINBULLETIN

Gold Market ReviewGold Market Review

Gold News HighlightsGold News Highlights

The Gold Rush is On Central Banks Add US$6b Gold to Re-

serves Hindus Rush for Gold During Auspicious

Akshaya Tritiya Higher Gold Items Exports Value Seen Nobles Pot of Gold in Ghana Canadian Gold Miner to Acquire Mengapur

Project Newmont: Gold to Top US$1,600 in 2012

Aluminium News HighlightAluminium News Highlight

Press Metal Offers Sumitomo Stake in Sec-ond Smelter

Steel News HighlightsSteel News Highlights

India Gives Nod for US$12b Steel Plant Ann Joo Plans Expansion China Firm in Talks to Buy Amsteel Stake Baosteel Will Add Roar to Lion Strong Objections to Additional Import Duty

on HRC

Iron Ore News HighlightsIron Ore News Highlights

7 Shortlisted for Vale Mega Project

Vale Turns Focus to Malaysia

Gadang Set to Win RM200m Vale Deal

Coal News HighlightCoal News Highlight

MMC Unit to Build Coal-fired Power Plant

Rare Earth News HighlightsRare Earth News Highlights

Rare Earth Prices Surge As Demand Out-strips Supplies

Rare Earth Radiation Level Lower ThanBitumen, Says Adnan

Lynas: Its Safe to Transport Rare Earths Chinas Rare Earth Exchange Lynas Under The Spotlight Lynas Panels Meetings, Site Visits Go

Smoothly No Bypassing Safety Standards Strict Safety Checks Done Business and Job Spin-offs Await

Other Minerals/Metals News High-Other Minerals/Metals News High-

lightslights

BHP Sees Fragile Global Economy Indias Reliance to Invest in Indonesia LME, SGX to Start Lead, Steel Futures

Trade in Q3 Tariff Hike to Hit Millers

StatisticsStatistics

Malaysian Minerals Production, Number ofMines and Workers, Imports and Exports

INSIDE THIS ISSUEINSIDE THIS ISSUE


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MARKET REVIEWMARKET REVIEW

JULY

Gold opened the first trading day of July on theLondon Bullion Market at US$1,483.00 per oz,which was the lowest price level for the month. Itwas also lower than the closing price in June atUS$1,505.50 per oz. The precious metal wastraded during the month of July between a broadprice range of US$1,483.00 per oz toUS$1,628.50 per oz. The average gold price forthe month increased to US$1,572.81 per oz. fromJunes average of US$1,528.66 per oz.

The gold market in July was very much influencedby the value of the US dollar. Prices were on an

upward momentum throughout the trading monthas the greenback weakened. However, there wasa minor decline during the middle of the third trad-ing week as the US dollar strengthened slightly.Another decline was recorded during the secondlast day of the trading month before pricesstrengthened slightly to close the month atUS$1,628.50 per oz, which was Julys highestprice level.

AUGUST

Gold opened the trading month of August atUS$1,623.00 per oz, which was the months low-est price level. The precious metal was tradedduring the month within a wide price range ofUS$1,623.00 per oz to US$1,877.50 per oz. Itsaverage price for August was US$1,755.81 peroz.

The gold market continued to be influenced by thevalue of the US dollar. It continued to strengthenfurther during the month. Prices during the firstand second trading weeks increased substantiallybut were interrupted by technical corrections dur-

ing the last few trading days of both weeks.

During the third trading week, prices rose furthertowards the first day of the fourth trading week torecord the highest level for the month atUS$1,877.50 per oz on 22nd August as the USdollar weakened. However, the climb was againchecked by some technical corrections during thenext three days of that week. Thereafter, the mar-ket rebounded to close the month on a high noteat US$1,813.50 per oz.

London Afternoon NY Comex

MAY

Low 1478.50 1479.80

High 1541.00 1556.70

Average 1511.34 1512.80

JUNE

Low 1498.00 1477.70

High 1552.50 1552.90

Average 1528.66 1526.30

Table 1: GOLD MARKET OVERVIEW(US$/OZ)


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JULY

JULY

--AUGUST

2011GOLD

PRICES

AUGUST

2011GOLD

PRICES


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Aluminium News Highlight

Alcom Plans Upgrade to Higher-MarginProducts

Aluminium Company of Malaysia Bhd (Alcom) isinvesting RM16 million to upgrade its factory tochurn out products that can fetch higher marginslike cap-stock, lacquered foil and composite pan-els, said managing director Sachin Satpute. "Thesharp increase in electricity and gas (tariffs) ishaving a significant impact on our operating costs.Freight cost and other consumables have alsomoved up with energy prices," he told reportersafter the company's shareholders meeting hereyesterday.

Effective June 2011, the government raised elec-tricity rates by 7 per cent. There was also a 20 percent price hike for natural gas across industries.Heavy gas users like Alcom, which consumesmore than two mmscfd (million standard cubic feetper day), are paying RM16.07 per mmBtu (millionmetric British thermal unit). "The fuel hike hasaffected our competitiveness among regional play-ers in Thailand, Indonesia, Japan and South Ko-rea. It's a big concern as it is now no longer a levelplaying field. It is very difficult to pass on theadded cost to clients," Satpute said.

The weakening US dollar has had eroded Alcom'sprofits of its exports. When asked on mitigatingmeasures the firm is undertaking to counter profitcompression, Satpute said: "We're investingRM16 million to upgrade our facility to get the rightproduct mix. We're also exploring new markets inTaiwan, India and South Korea." As at March2011, Alcom has cash reserves amounting toRM51.4 million.

Alcom is the largest maker of rolled aluminiumproducts in Malaysia. It operates from a sheet andfoil plant at Bukit Raja, Klang. Its unit Alcom NikkeiSpecialty Coatings Sdn Bhd makes coated fin-stock, a component in air-conditioners, at thesame site. Alcom is a subsidiary of Novelis Inc,the world's largest producer of rolled aluminiumand global leader in recycling beverage cans. Itsoperations span 11 countries and it employsnearly 11,000 people. In 2007, India's HindalcoIndustries Ltd, a member of the Aditya Birla Groupof Companies, bought US-Canadian aluminiumgiant Novelis Inc for US$6 billion (RM17.94 bil-lion).

(Source: New Straits Times, 26 August 2011)

Steel News Highlights

MISIF views Megasteel Suggestion Negatively

Malaysian Iron and Steel Industry Federation(MISIF) expects Megasteel Sdn Bhd's petition fora safeguard measure on imported hot-rolled coils(HRC), if approved, will negatively impact its cus-tomers and their clients as well. Megasteel, thesole producer of HRC in the country and ownedby Lion Group, has filed a petition for the imposi-tion of safeguard measures for the imports of cer-tain HRC. This is because the alleged surge inimports of HRC has affected the production and isdetrimental to Megasteel.

The Ministry of International Trade and Industry

(Miti) has initiated a safeguard investigation onthe petition lodged by Megasteel that saw the re-quest of restrictive and/or punitive duties on top ofthe existing 25% import duty on HRC. A publichearing had been conducted at Miti on June 28 onthe matter. In the petition, Megasteel has re-quested the Government to impose a safeguardduty rate of 35%, with the rate gradually reducedover a five-year period, on the imports of HRC.MISIF president Chow Chong Long said the peti-tion, if approved, would enable Megasteel to raiseprices substantially behind the tariff wall with nocompetition. This will then compromise

Megasteel and its downstream customers' abilityto export should other countries initiate anti-dumping duties on Malaysian products if the pricegap between Malaysia's HRC and steel productswidened as a result of significant Megasteel priceincrease, he told a briefing on the matter yester-day. It will also increase the cost to domestic con-sumers of many products that include electronics,white goods and automotive that will ultimatelysupport the escalation of inflation.

If a company exports a product at a higher pricethan it sells in its own local market, it is said to be

dumping the product. Thus, an anti-dumpingmeasure intends to discourage importation andsale of foreign-made goods at prices substantiallybelow domestic prices for the same items. Chowsaid this would also cause many foreign investorsto rethink their existing Malaysian assembly,manufacture and distribution businesses in areassuch as electronics, white goods, electronics,automotive, steel pipes amongst many others.And if Megasteel refuses or is unable to supplythe HRC products timely, it will negatively affectcertain businesses (given they could not afford toimport HRC with high safeguard duty). It, too, will


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raise the possibility of HRC supply delay and inter-ruption as previously occurred from time to time,including supply rationing, he said.

On a broader picture, Chow said the safeguardduty, if implemented, would trigger other countries

to petition Malaysia and World Trade Organisationfor equivalent concession. Indirectly, it may ad-versely impact on other Malaysian export sectors,he said. Moreover, Chow said this would also runcounter to the Government's long-established pol-icy in liberalising trade that included the steel in-dustry.

MITI is expected to announce the development ordecision of the safeguard investigation by the endof this month. However, it has the option to extendthe investigation for another month. Chow saidfollowing its written submission and the inputs

from other interested parties, there were amplegrounds for the Government to see the petition'sown flaws.

(Source: The Star, 28 July 2011)

China Steel makes Offer for Lion Groups SteelAssets

China Steel Corp, Taiwans largest maker of themetal, has offered to buy the steel businesses ofLion Group, said two people with knowledge of thematter. China Steel had made a binding offer forLion Group assets including Amsteel Mills Bhdand Megasteel Bhd, said the people, who declinedto be identified because the information is confi-dential. The deal might be valued at more thanUS$1bil, one person said.

China Steel, whose first-quarter profit fell 40% asit failed to pass on higher costs, said last week itwas evaluating an investment in Megasteel, whichis controlled by the Lion Group. The commentscame after Economic Daily News reported that the

company was planning to invest NT$10bil(US$347mil) in Megasteel. The Taiwanese com-pany is competing with Baosteel Group Corp,Chinas second-biggest steelmaker, which is indiscussions to buy steel assets from Lion Group,according to people with knowledge of the matter.

In June, three units of Lion Group said they werein talks with various parties regarding possiblestrategic collaboration. Lion Corp, Lion IndustriesCorp and Lion Diversified Holdings Bhd said inseparate statements to Bursa Malaysia that dis-cussions were exploratory.

Any agreement to sell Lion Groups steel assetswas probably at least a month away, one personfamiliar with the matter said. Kaohsiung, Taiwan-based China Steel was targeting the emergingmarkets in Asia such as India, Thailand and Indo-nesia because of limited growth potential on the

island, the Taipei-based Economic Daily Newsreported in April, without saying where it got theinformation. The issue is still under evaluation,Steve Lee, a China Steel vice-president, said in atelephone interview about the possible purchaseof Lion Group assets. He declined to comment onwhether China Steel has made an offer.

(Source: The Star, 2 August 2011)

MISIF: Decision is Timely

The Malaysian Iron and Steel Industry Federation(MISIF) has lauded the Government's decision toterminate investigations into the import of hotrolled coils (HRC). The industry body said thedecision was good for the healthy growth of theentire iron and steel industry instead of benefitingone company. The decision is timely, and it hasat least resolved many uncertainties faced bycompanies for the past few months and now theyhave a clearer path to move their businesses for-ward, MISIF said in a statement yesterday.

It hoped all parties would cooperate to strengthenthe growth and development of the iron and steelindustry through mutual support and understand-ing. Although Megasteel Sdn Bhd has not beensuccessful in its safeguard petition to impose aduty rate of 35% for HRC imported into Malaysia,it is still being protected by the existing 25% HRCimport duty, MISIF pointed out. As at press time,Megasteel had yet to respond to queries fromStarBiz.

MISIF and Megasteel, the sole producer of HRC,were at loggerheads over this issue, with the fed-

eration arguing that a hike in import duty wouldnegatively impact customers. Megasteel chair-man Tan Sri William Cheng countered that thecountry has been flooded with imports of HRC byunscrupulous importers who are exploiting loop-holes in the import regulations. On Monday, theInternational Trade and Industry Ministry an-nounced that it had terminated its investigationsinto the imports of HRC, saying they had notcaused or threatened to cause serious injury tothe domestic iron and steel industry. The investi-gation was launched in May 1, after Megasteelhad submitted a petition. In its petition, the com-


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pany had asked that additional duty be imposedon imported HRC, which currently attracted animport duty of 25%. Megasteel claimed that theimports of HRC had increased from 2007 to 2010,and had caused serious injury to the domesticindustry.


Iron Ore News Highlights

OSK Upbeat on Perwaja Prospects

Manufacturer of primary steel producer, PerwajaHoldings Bhd, is likely to bid for and secure sev-

eral parcels of mining land concession in Pahangand Terengganu soon. This is highly possiblegiven the fact that Perwaja had recently madeknown its intention to venture into iron ore mining,a raw material which could be used in the newiron ore pelletisation plant in Kemaman, Tereng-ganu, expected to be operational in the first half ofnext year.

"It (the concession) may result in a surge in Per-waja's earnings," said OSK Research. In the firstquarter ended March 31 2011, Perwaja registereda pre-tax loss of RM24.282 million compared with

a pre-tax profit of RM22.66 million chalked up pre-viously, while revenue dropped to RM426 millionfrom RM373.7 million registered earlier. The min-ing concession follows Prime Minister Datuk SeriNajib Tun Razak's pledge to encouraging stateswith iron ore and coal reserves to allocate moreland for steel manufacturers to undertake com-mercial mining to enhance their operations.

"We understand from our market intelligence thatthere are a few parcels of mining land in Pahangand Terengganu, which are set to be awarded bythe respective state governments anytime soon,"

said OSK, adding that there was a strong possibil-ity Perwaja would grab at least one of the newmining plots, especially in Terengganu. Perwaja'splant, strategically located in Kemaman and itsnew pelletisation plant in Kemaman, is set to en-hance the value of bare iron ore fine, which couldbe used as feed material for its direct reduced ironplant.

The fact that Perwaja was originally a nationalproject also raised the possibility of the companysecuring any upcoming iron ore mining conces-sion in Terengganu or Pahang, said OSK. OSKrecapped that Terengganu Menteri Besar DatukAhmad Said had recently said the state's Minerals

and Geoscience Department was conducting a six-month study on the viability of reopening the ironmine in Bukit Besi.

(Source: New Straits Times, 20 July 2011)

Two Mining Firms Sue State

Two iron ore mining companies are suing the Ter-engganu Government and Mentri Besar Incorpo-ration Terengganu Darul Iman for alleged breachof contract. Terengganu Anshan Iron and Steel

Sdn Bhd and China Anshan Corporation Sdn Bhdclaimed that the state government and China An-shan had agreed to a basic working arrangementto promote heavy industry and mining in Tereng-ganu.

Under the arrangement, the state would providemining land and a long lease while China Anshanwould explore the feasibility of mining iron ore onits land. Anshan China claimed that it had com-menced preliminary exploratory work in January1990 covering an area of approximately 40sq km,which was completed in February that year. Thework showed that mining iron ore was feasible.

The plaintiffs are now claiming for a declarationthat the undertaking given by the state govern-ment in 1990 to secure a mining lease for theplaintiffs at Bukit Besi, Terengganu, covering697ha for a period of at least 21 years is valid.They are asking for a declaration that by virtue ofthe undertaking given by the state governmentand their joint venture agreement, they have ac-quired proprietary irrevocable rights to the miningsites.

The two are applying that an order of specific per-formance be granted against the TerengganuGovernment compelling it to comply with its un-dertaking. They are also asking for an injunctionthat the defendants be restrained from awardingthe mining leases to any party other than Tereng-ganu Anshan. The two companies filed the suit atthe Terengganu High Court last month and theclaim was made available to the press yesterday.



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OSK Research Upbeat on Kinsteel

OSK Research remains upbeat that Kinsteel Bhd'sdownstream operations will generate stable albeitlower margins, especially since demand may pickup with the rollout of various government projects.

"We see any award of an iron ore mining conces-sion to Perwaja as the next rerating catalyst, withKinsteel's portion of the blue sky DCF (discountcash flow) value at an additional 89 sen pershare," it said in a report.

The research house has maintained its neutral callon Kinsteel with a fair value at 73 sen based on itsrich valuation, although the outlook of its 37%-owned Perwaja is set to improve on the commis-sioning of its new iron ore processing plant. Per-waja's new iron ore concentration and pelletisationplant which is scheduled for commissioning in H1

FY12, may potentially contribute to savings ofUS$50 per tonne of iron ore pellet. "But Perwaja'sFY12 bottomline would still barely break even be-cause we are conservative on the mere half-yearcontribution," said OSK.

It believes Perwaja may get the lion's share if anynew iron ore concession is up for grabs due to itspolitical backing, advantage of being a local mill,its plant's ability to add value to iron ore, and ironore will be used as feedstock for its iron and steelmaking operation. "As the local cost of miningiron ore is less than US$50 a tonne versus theore's current selling price of above US$160 pertonne, any mining concession would certainly belucrative. "Our back-of-envelope calculationshows that any such concession may translateinto a DCF valuation of US$775 million, or an ad-ditional 89 sen per Kinsteel share based on its37% stake, although we see only gradual attain-ment of this money-spinning valuation," it said.

It recently upgraded its forecast for Kinsteel'sFY12 earnings to RM45.1 million from RM22.9million but retained its FY11 estimates. It also

tweaked up its fair value to 73 sen on rolling overto FY12 valuations on a combination of 8x EPSand 1.27x BV on FY12 numbers.

(Source: The Sun, 22 July 2011)

Pellet Plant to Boost Earnings

Perwaja Holdings Bhd is confident it can securesteady iron ore supply from nearby mines in Ter-engganu to feed the group's pellet processingplant that is slated for production by the middle of

next year. A mining concession of its own wouldnot only ensure steady supply, but also be a bigboost to bottomline with iron ore prices more thandoubled in the international market over the pasttwo years.

Executive chairman Tan Sri Abu Sahid Mohamedsaid the RM400 million iron ore processing plantwill help the company save at least 15% on pro-duction cost. "People say we are taking a big riskinvesting a lot of money in this plant without a min-ing concession of our own,'' Abu Sahid told agroup of reporters after the ground-breaking cere-

mony for Perwaja's "concentration and pelletisa-tion" plant at the group's sprawling steel-makingfacility in Kemaman, Terengganu. "We view theexpansion into iron ore mining as a natural pro-gression,'' he said.

Perwaja's iron ore processing plant is the firstsuch production facility in Southeast Asia. It will bebuilt by Chinese contractors. Iron ore pellet is thebasic material used to make primary steel prod-ucts like sponge iron, beam-blanks, as well as hotrolled coils. At present, all iron ore pellets re-quired by local mills are imported from Brazil,Chile, Bahrain and Mexico. "We have identified apotential iron ore mining site at Bukit Besi, and thereserves there are sufficient to meet Perwaja'srequirement,'' Sahid said. Presently, the iron oreproduced in the state is exported overseas forprocessing before it is imported back by local mill-ers.

Sahid said pelletising will help the local steel in-dustry save about RM600 million a year. It is esti-mated that Perwaja's new plant will require twomillion tonnes of iron ore a year to produce 1.2

million tonnes of pellets during its first year of op-eration. Pellet production is expected to double to2.4 million tonnes a year after the planned secondphase is completed in 2013. That means theplant will need to consume four million tonnes ofiron ore a year to meet its production target. Hav-ing its own mine nearby could save the companyas much as US$50 a tonne in cost.

(Source: The Sun, 1 August 2011)


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Perwajas Calculated Move for a Concession

Easy access to iron ore mines and a deep-waterport that enables big ships to come close to shorehave made this small town in Terengganu a hiveof heavy industrial activity. The presence of natu-

ral gas in the area helped fuel a booming steelindustry. As it is, Perwaja Holdings Bhd is build-ing the first iron ore processing plant in the regionat its sprawling 162ha steel-making complex. Ear-lier this month, smaller rival Hiap Teck VenturesBhd said a unit will construct an integrated steelmill not too far away. The iron and steel businessis not new to Terengganu, which had been pro-ducing iron ore on a commercial scale since the1920s.

The raw iron ore is exported for processing, andlocal steel millers then import back the iron pelletsto make primary steel products. But with 75% ofthe world supply controlled by three big compa-nies, prices of iron pellet had more than doubledin the past two years. Some steel millers are nowforced to move further upstream to gain bettercontrol of production cost. And Perwaja's RM400million bet to build a plant to process iron orecould be a calculated move to secure access tohigh-grade reserves located just 80km away. "Webelieve we can work together with the state gov-ernment to breathe new life into the local miningindustry,'' Perwaja executive chairman Tan SriAbu Sahid Mohamed said.

An estimated 50 million tonnes of high-grade ironore are yet to be extracted from mines at BukitBesi in Dungun, while 25 million tonnes of slightlylesser quality are to be dug out in Kemaman.Winning a lucrative mining concession would be amajor boost to Perwaja's bottomline. But Perwajais not the only one eyeing the deposits, although atacit approval from Menteri Besar Datuk SeriAhmad Said on Saturday must have come as arelief to the company.

"We have agreed in principle, but have yet to de-cide how we will do it,'' Ahmad told reporters inKemaman on Saturday. He did not rule out a jointventure between the state government and thecompany, but declined to say when the final deci-sion will be made. "There are other interestedbidders for parcels of mining rights at Bukit Besi,including from overseas,'' Ahmad said. He saidTerengganu proposed to break up the iron orereserve areas at Bukit Besi into several miningparcels. Previously, it had issued long-term miningleases, including one at Bukit Besi to a joint ven-ture between the state and Chinese partners

called Terengganu Anshan Iron & Steel Sdn Bhd.

A dispute, however, had stopped production fromthat mine. As iron ore prices race higher, themines at Bukit Besi may soon be open again.

(Source: The Sun, 1 August 2011)

Perwaja Poised to Reap Huge Cost Savings

Perwaja Holdings Bhd has received approval inprinciple from the Terengganu state governmentto mine iron ore in Bukit Besi near Dungun. Theapproval, announced by Terengganu Menteri Be-sar Datuk Seri Ahmad Said over the weekend, willhelp Perwaja bring down its costs, especially im-porting and shipping costs significantly. "We've inprinciple agreed to Perwaja's request to mine ironore in Bukit Besi and to have it pelletised here,"Ahmad said.

Two weeks ago, OSK Investment Bank, in itsnotes to investors, said if Perwaja secures an ironore mining concession, its immediate savingswould be US$100 (RM296) a tonne because thecost of mining was less than US$50 (RM148) pertonne. The firm added that the potential marginfrom pelletising should benefit Perwaja as trans-portation costs would be below US$10 (RM29.60)per tonne compared with the current capesizebulker freight of more than US$10 and US$20(RM59.20) per tonne from Australia and Brazil,

respectively, to bring iron ore here.

OSK's analysis was based on the assumption thatPerwaja secures a 400ha iron ore mine in BukitBesi with an initial capital outlay of US$10 million(RM29.6 million), producing 500,000 tonnes ofiron ore in 2012, one million tonnes in 2013 andup to two million from 2014 onwards to 2031.Ahmad said the approval was given on conditionthat there will be job creation and opportunities forTerengganu youths to acquire the necessary skillsin iron mining and steel milling.

"We would be happy if at least 60 per cent of Per-waja's additional workforce are from Terengganu,"he added. Ahmad was speaking to reporters afterofficiating at Perwaja's ground-breaking ceremonyto build a concentration and pelletisation planthere last Saturday. According to surveys done byseveral geologists, we estimate that there's stillsome 50 million tonnes of high grade iron ore inBukit Besi and another 25 million tonnes of me-dium grade in Kemaman," he said.

The menteri besar said apart from Perwaja, therewere several others which had also had applied to

mine iron ore in Terengganu. He declined to iden-


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tify them. "We'll announce our final decision whenthe time comes. We don't want to just dish outmining licences. We want to do what is in the bestinterest of the people of Terengganu," he said.Industry observers felt that Ahmad did not want toelaborate because of a suit that is pending court

judgment.

Two months ago, China Anshan Corp Sdn Bhdand its joint venture company, Terengganu An-shan Iron & Steel Sdn Bhd, filed a suit at the Ter-engganu High Court. They claimed that the Ter-engganu state government, via Menteri Besar In-corporation, had allegedly breached its contractover rights to mine iron ore over a 697ha site inBukit Besi, Terengganu. China Anshan claimedthat it had started detailed prospecting and explo-ration works at Bukit Besi in June 1991, whichwas completed in November 1992. It also stated

that the state government at that time had ac-corded it a 21-year mining lease expiring Novem-ber 2013.

China Anshan is seeking a court order to declarethe undertaking given by the state government inJune 1990 to accord iron ore mining lease at BukitBesi for at least 21 years as valid. It also wantedan injunction to restrain the Terengganu state gov-ernment from awarding the mining lease to anyother party other than Terengganu Anshan, untilfurther orders from the court.


New Plant will Cut Perwajas Reliance onImported Pellets

Perwaja Holdings Bhd's upstream investment inan iron ore pelletisation plant will help save atleast 15 per cent in production cost in the medium-term, said executive chairman Tan Sri Abu SahidMohamed. He said the new plant will improvePerwaja's operational efficiency and reduce its

dependency on imported iron ore pellets. "Everyyear, we import two million tonnes of iron ore pel-lets from Brazil, Chile, Bahrain, Mexico and Swe-den," Abu Sahid told visiting reporters after Ter-engganu Menteri Besar Datuk Seri Ahmad Saidofficiated at the pellet plant groundbreaking cere-mony here, recently.

Also present at the briefing were Perwaja manag-ing director Tan Sri Pheng Yin Huah and chiefexecutive officer Datuk Henry Pheng Chin Guan.Perwaja is borrowing RM200 million from RHB

Bank, Standard Chartered and OCBC Bank tofund the RM400 million pelletisation plant in Ke-maman. The plant construction will be carried outin two phases. The plant will eventually be able toprocess 2.4 million tonnes of iron ore pellets annu-ally. In the first phase, the plant, which is sched-

uled to start operation by mid-2012, will have anannual capacity of 1.2 million tonnes. The secondphase should be completed by the end of 2013.

Asked on the energy tariff hikes, Henry Phengsaid Perwaja is paying the new rates. "We're pre-pared for it. With the new pellet plant coming onstream a year from now, we should be able tobring down production costs," he added. The gov-ernment had, since June this year, raised electric-ity tariffs for industrial, commercial and domesticconsumers by an average of 7.12 per cent. Thereis also a 20 per cent price hike for natural gas

across industries. Heavy gas users like somesteel millers, who consume more than twommscfd (million standard cu ft per day), now payRM18.35 per mmBtu (million metric British thermalunit) instead of RM15.35/mmBtu previously.

Two years ago, Petroliam Nasional Bhd filed acourt case against Perwaja for unpaid gas billsamounting to RM85.7 million plus interests. Per-waja, in its defence, said it had made full paymentto Petronas based on international market naturalgas price less the discount accorded by the gov-ernment. "While the court case is still pending judgement, we cannot speculate or comment onthe old gas bills. Meanwhile, we continue to payour electricity and gas bills at the new tariffs an-nounced by the government," Henry Pheng said.Perwaja Holdings is 37 per cent owned by Kin-steel Bhd. Kinsteel controls 51 per cent of Gurunfactories via Perfect Channel Sdn Bhd.

On whether Kinsteel has any plans to relocate thebulk of its steel milling operations in Kedah to Ter-engganu to cut transportation costs, Yin Huah,who is also managing director of Kinsteel said,

"Two years ago, I was asked this question and theanswer is there's no plant closure. We continue tooperate as usual." Henry Pheng, who is also Kin-steel chief executive officer, explained that theGurun plant in Kedah, which employs 500 localskilled workers, halts production from time to timefor safety maintenance, due to the governmentrequirements.



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Coal News Highlights

Peabody, ArcelorMittal Bid for Macarthur Coal

Peabody Energy has teamed up with ArcelorMittalto offer US$5bil for Australia's Macarthur Coal, theworld's biggest producer of pulverised coal, asdemand for steel-making raw material intensifies.The offer of A$15.50 a share is at a 40% premiumto yesterday's close and comes only a day afterAustralia unveiled a plan to tax carbon emissionsfrom the nation's worst polluters or about 500companies including coal miners. Despite blackeyes from environmentalists, the global market forcoal has never been better, with prices for theunique PCI coal mined by Macarthur trading at anarrowing discount to hard coking coal.

Macarthur, named after famed US General Doug-las Macarthur, was the subject of a three-way bid-ding war in 2010 and agreed to enter talks withPeabody, the highest bidder with a A$16 offer.However, talks collapsed after Peabody cut itsoffer when the centre-left Labour governmentslapped coal and iron ore miners with a miningtax. Steel giant ArcelorMittal is the second-largestshareholder with a 16.2% stake in Macarthur, ac-cording to its website.

Citic Resources, Macarthur's biggest shareholder,

said it would study the offer. The proposal wasconditional on receiving regulatory nod and getting50.01% stake. The board makes no recommen-dation in relation to the indicative proposal but willseek to engage with Peabody and ArcelorMittal inrelation to the price and terms, Macarthur said ina statement.


30 Firms Keen to Develop Aussie CoalHarbour

Australias Queensland state said 30 coal compa-nies globally are interested in a A$6.2 billion(US$6.6bil) expansion of Abbot Point that wouldmake the port the worlds biggest coal-export ter-minal. Craig Wallace, the ports minister of thenortheastern state, joined company representa-tives touring the port as part of an expression ofinterest to expand its shipment capacity six-fold to300 million tonnes annually, the government saidyesterday on its website.

Coal demand is rising as China and India, theworlds fastest growing major economies, producemore electricity and steel. Supply disruptions inAustralia, the worlds biggest coal exporter, be-cause of record rainfall and rail and port bottle-necks have pushed up prices to a record this year.

The worlds top coal companies are showinghuge interest being part of the development, Wal-lace said in the statement, Global demand forQueenslands coal is increasing and judging bythe fantastic interest shown here today by indus-try, well have customers and investors on hand todeliver this major project.


Perseverance, Guts and Luck

KIKI Barki is veteran Indonesian coal miner and abillionaire. A friendly and very pleasant gentle-man, I had the pleasure of meeting him when hegave a speech to welcome a business delegationorganized by Malaysia Chinese Chamber of com-merce (ACCCIM/KLSCCCI) and HSBC bank toJakarta at the end of May. The most interestingpart of his speech was when Barki related how inthe late 80s, he signed a long term contract tosupply coal from one of his mines to an Asianelectric company, when coal prices were less thanUS$20 per tonne.

The world's coal prices subsequently increasedsignificantly, before his shipments were ready; toadd to his misery, cost escalated at the sametime. He knew he was in dire straits, even beforedeliveries begin. To uphold his reputation as atrusted businessman, Barki said he made his firstdelivery, and then told the buyer that his losseswould mount with every shipment. While he wouldnot renege on his contract, he would neverthelessquickly go bankrupt. The only way out (for both)was for the buyer to sign another supply contractat the then market price, to give his company an

average price that they can survive on. Fortu-nately, the buyer agreed, the company survivedand Kiki Barki persevered.

Today Kiki Barki's stake in coal mining companyTanito Coal group vaulted him to 2011 Forbesmagazine list as the 11th richest man in Indonesiawith an estimated fortune of US$2bil. While thismay be an interesting snippet from an entrepre-neur's success story of perseverance, guts andluck; it is also an amazing story of the phenome-nal growth of coal mining in Indonesia, which iselectrifying (literally) many parts of Asia. This


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amazing story takes off in 1988, when Indonesiancoal mining shifted from being predominately asmall government owned enterprise (largely inSumatra) to mainly big privately owned companieswith mining concessions, run largely according tointernational standards (mainly in Kalimantan, with

the then untapped rich coal deposits).

During this 23 years period, exports of Indonesiancoal increased by an astonishing 30% a year from4.4 million tonnes in 1988 to 80.8 tonnes in 1999;and then by more than 13% a year from 58.3 ton-nes in 2000 to 198.0 tonnes in 2010. Today, Indo-nesia is the world's top exporter of thermal coal(Australia is distant second). Exports of mineralfuels (mainly coal) amount to US$18.5bil in 2010(vs. US$6bil in 2006); contributing to Indonesia'stotal trade balance of US$22.1bil in 2010.

Indonesia's top two coal export markets are alsothe world's fastest growing, big and energy hungryeconomies of China and India; both countries im-ports 95 tonnes and 58 tonnes of Indonesian coalrespectively in 2010, and are expected to increaseto 118 tonnes (+24%) and 106 tonnes (+83%) re-spectively by 2015. Other major export marketsare Japan, South Korea, Taiwan and Malaysia.Indonesia's success of course starts with beingblessed with large deposits of high quality thermalcoal deposits in Kalimantan and then private in-vestments played crucial roles.

It is fortunate too that the largest Kalimantan coalmines are close to major rivers and ports (so thatcoal can be barged, railed and transportedcheaper to export terminals in the coast), and be-ing geographically closer to major Asian marketsby sea makes Kalimantan coal mining viable.This means Indonesias coal exports to China forexample, has a significant price advantage intosouthern Chinese ports, when compared with thelanded costs of domestic coal (for example fromInner Mongolia) into the same southern Chineseports. Indonesia's coal mining success story is no

doubt also due to Indonesia's improving politicaland economic stability in the past decade thatraised investor confidence.

With investor confidence, many private miningcompanies could raise more capital to invest innew mines and transport infrastructure such asroads, barges and rails. The future for Indonesiacoal mining will likely become brighter with twomajor pending improvements. First, Standard andPoor's signalled it may raise Indonesia's sovereigndebt rating to investment grade citing strength inthe economy, which the government expects to

grow up to 6.5% in 2011, the fastest pace inseven years. More Indonesian companies willthen find it relatively easier and cheaper to raisecapital.

Second, Indonesia's land acquisition reform bill

will likely be passed by lawmakers sometime thisyear. This reform bill will resolve difficulties inland acquisitions that have hindered the pace ofinfrastructure developments vital for industrializa-tion and continued economic growth (Indonesia's2010-14 development plan has US$220bil in infra-structure development). In Indonesia, the govern-ment is paving the way with the right fundamentalchanges for businesses to succeed. In thesechallenging times, it is easy to be bullish on Indo-nesia, when you see government policies and pri-vate companies move with the same economicimperatives, to the equal benefit of all.


Hostile Bid for Macarthur

ArcelorMittal and Peabody Energy Corp will puttheir bid valuing Macarthur Coal Ltd, the worldsbiggest maker of pulverized coal, at A$4.7 billionto shareholders after talks for an agreed dealbroke down. Peabody, based in St. Louis, andArcelorMittal, the worlds biggest steelmaker,would proceed with their A$15.50 a share cashbid after rejecting Macarthurs proposal for anagreed deal if the offer was lifted to A$18 a share,the Brisbane-based company said in a statementyesterday.

Buying Macarthur would give Peabody and Arce-lorMittal, its second-largest shareholder, minesproducing steelmaking coal in Australia as pricestrade near a record and suitors vie for targets.Macarthur, which is trading above the offer price,said it was in talks with other parties for alternativeoffers. If cash is going to be successful, I would

think the price should be markedly higher thanPeabody and ArcelorMittals initial offer, AndrewPedler, a senior analyst at Wilson HTM Invest-ment Group in Brisbane, said by phone. I would-nt discount an alternative offer.

Peabody and ArcelorMittal confirmed in a state-ment their A$15.50 a share cash bid, valuing Mac-arthur at about A$4.7 billion. Macarthur sharehold-ers will also be entitled to retain any final dividendup to 16 cents a share, without reducing the offerprice, the two companies said. This representedtotal value of A$15.66 a share, or a 41% premium,


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they said. The offer was being made by PEAM-Coal Pty, to be owned 60% by Peabody and 40%by ArcelorMittal, the companies said. The biddingcompany already had a 16.1% stake in Macarthurand financing had been secured, they said.

Peabody and ArcelorMittal had been willing toraise their offer to A$16 a share, which included aprovision barring talks with potential rival bidders,Macarthur said. The Australian company said itwould recommend the A$16 proposal, subject toits own conditions including an increase to A$18 ashare once the suitors held more than 90% of itsstock. Peabody and ArcelorMittal rejected thecounter proposal.

The offer appears opportunistic, MacarthurChairman Keith DeLacy said in the statement.The board is strongly of the view that it should do

all that it can to facilitate potential rival bids, thecompany said. Macarthur told its shareholders totake no action in regard to the offer. The offer isthe second-biggest coal deal announced this year,after Alpha Natural Resources Inc.s US$7.1 bil-lion takeover of Massey Energy Co. in January,according to data compiled by Bloomberg. It is thebest first half in at least 12 years, according to thedata, with US$21.3 billion in announced deals.

Credit Suisse Group AG last month raised its priceforecasts for coking coal by an average 15% for2014-2018, citing unrelenting demand. Pricesrose 47% to a record US$330 a tonne in the sec-ond quarter. Macarthur is being advised byJPMorgan Australia Ltd. and Corrs ChambersWestgarth. ArcelorMittal is advised by RBC Capi-tal Markets LLC and Mallesons Stephen Jaques.UBS AG, Bank of America Merrill Lynch, MorganStanley and Freehills are advising Peabody.

Following due diligence, Peabody and ArcelorMit-tal attempted to negotiate a bid implementationagreement (BIA) with Macarthur, the two compa-nies said. However, Macarthur was not willing to

engage on a BIA on customary terms even withPeabody and ArcelorMittals willingness to im-prove the price from the original proposal if such aBIA could be agreed.

Teck Resources Ltd. and Anglo American Plccould be potential rival bidders, the Australian Fi-nancial Review said in its Street Talk column onJuly 27 without citing anyone. Rio Tinto Groupand Yanzhou Coal Mining Co Ltd may also beinterested, the newspaper reported on July 18without saying where it got the information.


Macarthur Bows to Sweetened Bid

Peabody Energy and Arcelor-Mittal have won overMacarthur Coal with a sweetened A$4.9bil(US$5.2bil) takeover offer, after a rival bidderfailed to emerge for the Australian coal miner.

Macarthur caved in at an offer well below what ithas previously said it was worth, after fending offfour takeover attempts in three years and openingits books to other potential suitors. It's probablyclose to done based on that bid, said CLSA ana-lyst James Stewart. Given that they know who'sin the data room, I'd be sceptical of them expect-ing a higher bid.

Top US coal miner Peabody and Arcelor-Mittalraised their offer for the world's biggest producerof pulverised coal by 3% to A$16 a share. Thelatest bid includes a 16 cents a share dividend fora total offer value of A$16.16. Macarthur has pre-viously said it was worth closer to A$18 a share,but analysts have long questioned that valuation.Macarthur's shares rose just 8 cents to A$15.88yesterday, indicating investors do not expect anyhigher bid to emerge. Although it remains possi-ble that a superior proposal might be made, nonehave emerged to date and there can be no assur-ances that any will emerge, Macarthur said in astatement.

At A$16, Peabody and Arcelor-Mittal's offer was afair control premium based on a valuation of thecompany around A$12 a share, CLSA's Stewartsaid. Macarthur had said a number of other par-ties were taking a look at the company, but did notname the potential bidders. China's Citic Group,its biggest shareholder with a 24.5% stake, said10 days ago that it was considering its options.Miner Anglo American was one of the parties inthe data room, three sources familiar with thesituation had told Reuters. Anglo American de-clined to comment on whether it was looking atMacarthur.

Investment bankers said most major miners hadbeen expected to take a look at the company'sbooks even if they did not intend on bidding. Pea-body and Arcelor-Mittal, the world's top steel-maker, went hostile on Aug 1 after failing to se-cure an agreed deal with Macarthur's board. Theboard representative for Citic Group was not partof the latest resolution, Macarthur said. Citic,which owns its stake partly through its listed armCitic Resources, could be a stumbling block to thenew offer, although Peabody only needs 50.1% ofacceptances and could still do a deal without itssupport. Arcelor-Mittal owns 16% of Macarthur.

South Korean steel maker Posco is Macarthur'sthird-largest shareholder, with a 7.25% stake.


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A Posco spokesman in Seoul declined to com-ment on yesterday's announcement. Under theagreement, Macarthur must cease any talks withother potential bidders and close down a dataroom currently open to potential suitors. The dealincludes a break fee of A$48.3mil. The bid for

Macarthur is a substantial bet on strong andsteady demand in Asia, particularly from Chinaand India, where steel production is booming.This is a major step forward in our acquisitionprocess, Peabody Energy chief executive Greg-ory Boyce said in a statement.

Macarthur is the world's biggest producer of pul-verised, cleaner-burning coal and has been atakeover target for over a year as Asia's rapid in-dustrialisation has created insatiable appetite forthe steelmaking commodity. PCI or pulverisedcoal injection-coal which is crushed into a fine

powder and injected into blast furnaces, is usedas a replacement for coke in the production of pigiron. JPMorgan is advising Macarthur on the deal,while UBS and Bank of America Merrill Lynch areadvising Peabody. RBC Capital Markets is advis-ing Arcelor.


Copper News Highlight

Glencore Buys into Peruvian Mine

Swiss mining giant Glencore said yesterday itwould buy a majority stake in Peruvian mineowner Marcobre for US$475 million (RM1.43 bil-lion) in cash. Glencore International AG, a wholly-owned subsidiary of Glencore International plc,today announced that it conditionally agreed toacquire from CST Mining Group Limited a 70%interest in Marcobre S.A.C, the group said in astatement.

Marcobre owns Marcona Copper Property and thepropertys exploration and development projectMina Justa, which contains resources of 413.3million tonnes containing 0.79% copper. The dealis expected to be closed in October.


Rare Earth News Highlights

IAEA: Lynas Plant Safe

The International Atomic Energy Agency (IAEA)has concluded that Lynas Corp Ltd's proposedRM700 million rare earth plant in Pahang is safe.Following the report of the nuclear watchdog thatit had not found any instance of any non-compliance with international radiation safetystandards in the project -- construction of LynasAdvanced Materials Plant in Gebeng will continuewith its construction.

In a joint statement issued yesterday, InternationalTrade and Industry Minister Datuk Seri MustapaMohamed and Science, Technology and Innova-

tion Minister Datuk Seri Dr Maximus Ongkili saidthe IAEA conclusion was consistent with the gov-ernment's view that Malaysia's Atomic Energy Li-censing Board (AELB) and the Department of En-vironment had professionally discharged their du-ties in ensuring that Lynas had complied with thenecessary safety standards.

AELB director-general Datuk Raja Abdul AzizRaja Adnan told a news conference that the reportwas based on an inspection carried out by eightIAEA experts from May 29 to June 3. "The reporthas clarified that the plant is safe for the public,

workers at the plant as well as the environment,"he said. Raja Abdul Aziz said the team had how-ever identified areas of improvement, including ona number of technical areas, which needed to beconsidered before the next licensing phase for theplant.

To date, Lynas has only been granted site andconstruction licences. The next stage is for thecompany to apply for a pre-operating licence fromAELB. Raja Abdul Aziz said the authorities wouldbe monitoring the construction of the plant to en-sure that all recommendations of the IAEA would

be implemented. "Our officers will be there roundthe clock before the pre-operation stage to ensurethe plant is completely safe. If there is any indica-tion of leakages or non-compliance of the outlinedstandards at the plant, we will suspend activitiesand stop construction immediately," he said.

Meanwhile, International Trade and Industry Min-istry secretary-general Datuk Dr Rebecca FatimaSta Maria said public safety would remain a top


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priority throughout the construction process. "Wewill do whatever is necessary to ensure the safetyof the people will not be compromised," she said.The plant in Gebeng, Pahang has stirred up con-troversy among many quarters, especially Kuan-tan residents who had objected to the project due

to safety issues. Many had questioned the long-term impact of the plant on people living in thearea due to radioactive emission.

Rebecca Fatima said the government was of theview that the rare earth industry should be prop-erly managed, but not avoided. She said: "Therare earth industry is strategic for the production ofhigh technology and green technology products."In fact, this is used in your iPhone, electrical carsand many gadgets and appliances today."


We will Comply with all Recommendations,says Lynas

Lynas Corporation Ltd has declared that it fullyaccepts the International Atomic Energy Agency(IAEA) recommendations. Lynas accepts the rec-ommendations and together with the regulatoryauthorities, we will implement the recommenda-tions in full, its executive chairman Nicholas Cur-tis said. In a statement yesterday, he said the

rare earth plant by Lynas in Kuantan was safe andfully compliant with all international standards.Curtis said the IAEA had validated the Lynas' fun-damental approach to put community and opera-tional safety first in everything it did.

The IAEA report, he said, stated that Lynas hadan obligation to do more for the Kuantan commu-nity. We acknowledge that not enough has beendone to engage with the community and we willcorrect that now, he said, adding that Lynas com-mended the Malaysian Government for calling onthe IAEA to conduct its study. He said the con-

struction of the Lynas Advanced Materials Plant inGebeng, Kuantan, will proceed and is expected tobe commissioned by the end of this year.

Curtis, who also spoke to local and internationalpressmen here yesterday, said the plant would beready to deliver its first products next year, with itsfull production ramped up by the second half ofthe year. He refuted allegations in a New YorkTimes report that the plant contained constructionand design flaws. There is no truth at all to thereport and we will issue a statement on this at a

later time, said Curtis, adding that all contractingparties of the Australian miner were satisfied by itsengineering standards.

Curtis also added that the independent IAEAmight review the plant's operational progress

within one to two years. We have permission forstorage of residue during the operational phase ofthe plant but the question that the IAEA asked isthe site for a permanent residue storage once theplant closes in 30 to 50 years' time. We will puttogether a plan (for the latter) based on scientificdata and we are perfectly comfortable with therequirements set, he said. Curtis admitted thatthe company had erred by not actively engagingthe Kuantan community. We intend as of today tohave an active engagement with the communityand we welcome consultation with representativesof the community, he said.


Lynas must meet all Conditions

The Lynas rare earth plant in Pahang will be al-lowed to operate only if the company complieswith all recommendations made by the independ-ent review panel appointed by the InternationalAtomic Energy Agency (IAEA). InternationalTrade and Industry Ministry secretary-general Da-tuk Dr Rebecca Fatima Sta Maria said the com-pany had to meet all conditions. We will followthe recommendations (by the IAEA panel) to theT, she said during a media briefing yesterday.

The nine-member IAEA panel did not find any in-stances of non-compliance with international ra-diation safety standards at the Lynas project byAustralia's Lynas Corp Ltd. Members of the panelwho were in Malaysia from May 29 until June 3had visited the construction site as well as re-ceived submissions from concerned stakeholdersincluding residents' associations, non-

governmental organisations, professional bodiesand political parties. The panel, consisting of ex-perts in disciplines related to radiological healthand safety, submitted its report to the Governmentyesterday.

The ongoing construction of the RM700mil rareearth oxides plant by Lynas Malaysia Sdn Bhd, asubsidiary of Lynas Corporation Australia, at theGebeng Industrial Estate had sparked controversydue to concerns it would emit radiation detrimentalto public health. The IAEA panel identified 11 is-sues where it said improvements were necessary.


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Among others, it recommended that Malaysia'sAtomic Energy Licencing Board (AELB) requireLynas to submit, before the start of operations, aplan setting out its intended approach to long-termwaste management, in particular the managementof the water leach purification (WLP) solids after

the closure of the plant.

The report said Lynas should address issues suchas future land use (determined in consultation withstakeholders) and safety functions containment,isolation and retardation. Sta Maria declined tocomment on a New York Times report yesterdaywhich alleged that the Lynas project in Pahangwas plagued by environmentally hazardous con-struction and design problems. In Kuantan, theStop Lynas committee chairman Tan Bun Teetsaid the IAEA panel's findings would not deteropponent groups from rejecting the plant. The

committee will continue with its stand to stop anyparty from setting up hazardous industries in Ma-laysia. We hope the Government will eventuallycome to terms with the people's decision that wedo not want the plant here, he said yesterday.


Lynas Will Comply with Recommendations

Lynas Corp Ltd chairman Nicholas Curtis saidthere will be no delays in construction and arevery confident that they will be able to meet the 11recommendations cited by the InternationalAtomic Energy Agency (IAEA) in their report,which was released by the government yesterdayafternoon. "The IAEA confirmed that the LynasAdvanced Material Plant in Kuantan, Malaysia, issafe and is fully compliant with all internationalstandards.

"Lynas accepts the IAEA's recommendations andtogether with the regulatory authorities we will im-plement the recommendations in full, " Curtis said

at a specially arranged press conference hereyesterday two hours after the IAEA report wasreleased. "The IAEA report specifically mentionedthat Lynas has an obligation to do more for theKuantan community. We acknowledge that notenough has been done to engage with the com-munity and we will correct that now. Lynas recog-nises that, arising from the IAEA recommenda-tions, a considerable body of work must be com-pleted before the pre-operating license is granted.Lynas is confident that completion and commis-sioning of the plant will be achieved before theend of the year. In addition, there will be ongoing

work after the grant of the pre-operating licence tocomply with the IAEA recommendations and Ly-nas will undertake that ongoing work," he added.

The investment for Lynas's rare earth plant hasreportedly cost RM700 million to date, though Cur-

tis refused to confirm how much of that moneyhad been invested so far. However, he did saythat it would cover cost right up till it is fully opera-tional by the second quarter of next year. He didnot think that the new recommendations added bythe IAEA would further escalate investment for theplant. Curtis also said he was also willing to meetKuantan member of parliament Fuziah Salleh inprivate first.

He also said there was no truth to a New YorkTimes report that claimed the plant was plaguedby environmentally hazardous construction and

design problems, according to internal memosand current and former engineers familiar with theproject. "There is no truth to that report. We arenot sure of the source for that report. "We canconfirm that there are no engineering issues in-cluding financial gains and no compromise for theengineers to not meet any standards. We knowthe plant is safe and we will be issuing a state-ment to NYTsoon," added Curtis.


China may Lose Grip on 21st-Century Gold

China's monopoly over rare-earth metals could bechallenged by the discovery of massive depositsof these hi-tech minerals in mud on the Pacificfloor, a study on Sunday suggests. China ac-counts for 97% of the world's production of 17 rare-earth elements, which are essential for electriccars, flat-screen TVs, iPods, superconductingmagnets, lasers, missiles, night-vision goggles,wind turbines and many other advanced products.These elements carry exotic names such as neo-

dymium, promethium and yttrium but in spite oftheir "rare-earth" tag are in fact abundant in theplanet's crust.

The problem, though, is that land deposits of themare thin and scattered around, so sites which arecommercially exploitable or not subject to toughenvironment restrictions are few.As a result, the 17 elements have sometimesbeen dubbed "21st-century gold" for their rarityand value. Production of them is almost entirelybased in China, which also has a third of theworld's reserves. Another third is held together by

former Soviet republics, the United States and


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Australia. But a new study, published in the jour-nal Nature Geoscience, points to an extraordinaryconcentration of rare-earth elements in thick mudat great depths on the Pacific floor.

Japanese geologists studied samples from 78

sites covering a major portion of the central-eastern Pacific between 120 and 180 degreeslongitude. Drills extracted sedimentary cores todepths that in place were more than 50m belowthe sea bed. More than 2,000 of these cores werechemically tested for content in rare-earth ele-ments. The scientists found rich deposits in sam-ples taken more than 2,000km from the Pacific'smid-ocean ridges. The material had taken hun-dreds of millions of years to accumulate, deposit-ing at the rate of less than half a centimeter perthousand years. They were probably snared byaction with a hydrothermal mineral called phillip-

site.

At one site in the central North Pacific, an area ofjust one square kilometer could meet a fifth of theworld's annual consumption of rare metals andyttrium, says the paper. Lab tests show the de-posits can be simply removed by rinsing the mudwith diluted acids, a process that takes only a cou-ple of hours and, say the authors, would not haveany environmental impact so long as the acids arenot dumped in the ocean. A bigger question iswhether the technology exists for recovering themud at such great depths -- 4,000 to 5,000m and,if so, whether this would be commercially viable.China has slashed export quotas, consolidatedthe industry and announced plans to build nationalreserves, citing environmental concerns and do-mestic demand.


Govt to Ensure Lynas Follows AtomicAgencys Advice

The government said yesterday it will ensure thatLynas comply with all recommendations of theInternational Atomic Energy Agency (IAEA) panelbefore the company can proceed with its rareearth plant in Gebeng. "Until this is done, thestatus quo remains: there will be no importation ofraw materials into the country and no operationalactivities will be allowed on site," said a joint state-ment by International Trade and Industry MinisterDatuk Seri Mustapa Mohamed and Science,Technology and Innovation Miniser Datuk Seri DrMaximus Ongkili.

They also said Lynas had to provide a compre-hensive long-term plan for waste management,

including at the decommissioning and remediationlevel, before further licensing could be consideredby the government. On June 30, the governmentmade public the IAEA report on the health andsafety aspect of the proposed Lynas project. The55-page report covers issues of radiation protec-

tion, waste management, decommissioning andenvironment remediation, transport and safetyassessment. The IAEA panel, which comprisedworld-renowned experts in radiology health andsafety, did not find any non-compliance with inter-national radiation safety standards, but made 11recommendations for the project to move forward,covering technical and communication aspects.

In the statement, the ministers also said the gov-ernment was committed to improving the AtomicEnergy Licensing Board and other agencies, ashighlighted in the IAEA report. "We will also

strengthen the communications aspect of the project to improve public understanding of actionstaken by regulatory bodies, especially those relat-ing to inspection and enforcement at the Lynasplant," they said. "Rest assured, the governmentwill continue to undertake the required monitoringand enforcement measures to ensure that all as-pects of public health and safety of the project aresatisfactorily addressed. "Public health and safetywill not be compromised at all times," the ministerssaid.

In Kuantan, the Pahang Fire and Rescue Depart-ment may make it compulsory for Lynas to join anemergency response team known as "GebengEmergency Mutual Aid" (Gema). State director,Datuk Abdul Wahab Mat Yasin, said the movewould allow the company and other industry play-ers to cooperate in the event of an emergency."The company has shown interest in joining theteam," he said after attending an event tostrengthen coordination between Gema and thedepartment. Meanwhile, the department's assis-tant director-general, Datuk Soiman Jahid, whoopened the event, said the department would dis-

cuss with Lynas the preparations to face anyeventualities at the plant. Soiman said the discus-sion would include training.

The RM700 million plant, currently being built atthe Gebeng industrial area, has been the subjectof debate, with environmentalists claiming it poseshealth and environmental hazards. Gema, aninitiative that was launched in February 1998, nowhas 20 members, comprising companies in Ge-beng.



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Lynas must Join Gebeng Crisis ResponseGroup

Lynas Malaysia Sdn Bhd, which is planning to setup a rare earth processing plant near here, will beasked to join a local group that shares resources

to tackle emergency situations. Pahang Fire andRescue Department director Datuk Abdul WahabMat Yasin said the department would make itcompulsory for the Australia-based company to bea member of the Gebeng Emergency Mutual Aid(Gema) committee, comprising government agen-cies and private companies at the industrial site.

Abdul Wahab, who is Gema chairman, said LynasMalaysia would also be asked to set up its emer-gency response unit with facilities and equipmentto counter mishaps or accidents, especially thosethat were radioactive in nature. Gema is a volun-tary crisis management organisation in the indus-trial zone and its main objective is to render sup-port to each other in cases of emergencies.However, it will be made compulsory for Lynas tobe a member once its plant commences opera-tions,'' Abdul Wahab said after the handing over ofGema's amended manuals to member organisa-tions here yesterday.

The manuals were handed over by departmentassistant director-general (operations) Datuk Sai-mon Jahid, who also presented a hazmat(hazardous material) fire engine and rapid rescuevehicles, costing about RM3mil, to the Gebeng firestation. The International Atomic Energy Agency(IAEA) recently concluded that the rare earth plantat Gebeng was safe but the Australian companymust make improvements in various technical ar-eas before it could proceed to the next stage ofoperations. The construction of the plant sparkedcontroversy following claims that it would emit ra-diation detrimental to the environment and publichealth.

Gema secretary Zaili Wahid said Lynas Malaysia

had expressed its interest to join the grouping butit would have to wait until the company had suffi-cient resources. In Kuala Lumpur, the Govern-ment said it would ensure that Lynas fully com-plied with IAEA recommendations before it couldstart operations. Until this is done, the status quoremains: there will be no importation of raw mate-rials into the country and no operational activitieswill be allowed on site, the Government said in a joint statement issued by the International Tradeand Industry Ministry and the Science, Technol-ogy and Innovation Ministry yesterday. Publichealth and safety will not be compromised at all

times, the statement added.


Lynas Mulls Magnet Plant in Malaysia

Lynas Corp Ltd, the Australian rare-earth devel-oper, is looking at Malaysia as a possible destina-tion to build a magnet manufacturing plant, in aplanned joint venture with German engineering

conglomerate Siemens AG. Lynas executive vice-president for strategic and corporate communica-tion, Dr Matthew Jones, said it is very natural forthe company to want to locate the plant near tothe controversial Lynas Advanced Materials Plant,near Kuantan.

"We are still assessing where best to locate theplant, but the east coast of Malaysia is one of thepreferred sites. We will finalise the final location bythe end of this year," he said in a telephone inter-view with Business Times yesterday. Lynas is-sued a statement yesterday that it has signed a

letter of intent with Siemens to establish a joint-venture company for the sustainable production ofneodymium-based rare-earth magnets. The mag-nets are to serve Siemens' production require-ments for energy-efficient drive applications andwind-turbine generators.

The joint venture will be 55 per cent held by Sie-mens and 45 per cent by Lynas. Jones said thefinancial details of the shareholding are currentlybeing worked out and will most likely be an-nounced within a few months. "It will be a size-able investment by us because we are building aglobally significant manufacturing plant," he said,adding that the magnet production plant is ex-pected to commence operations in the first half of2013.

Jones said Siemens has high demand for rare-earth magnets for its windturbines and is lookingfor a secure supply chain outside China, whichcurrently produces 95 per cent of the world's rare-earth magnets but imposes export restrictions.Under the proposed joint venture, Lynas will pro-duce the magnets and Siemens will be its main

customer.

In the press statement, Siemens chief executiveofficer Ralf- Michael Franke said the joint venturewould be a strategic pillar for the Germany-basedcompany to pursue a long-term and stable supplyof high performance magnets. Jones, meanwhile,said there is an increasing demand for rare-earthmagnets which can be used in hybrid cars, hard-disk drives, speaker phones and personal com-puter devices.



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Lynas-Siemens JV to Source Raw Materialsfrom Gebeng Plant

Australians Lynas Corp Ltd, which signed a letterof intent with a unit of Siemens yesterday to forma joint-venture (JV) company for magnet produc-

tion, will source raw materials for the partnershipfrom its Gebeng rare earth plant in Kuantan. Itsexecutive vice-president strategy and corporatecommunications, Dr Matthew James, said the JVcompany with the German Siemens Drive Tech-nologies Division was expected to be incorporatedby year-end while production was expected tostart in the first half of 2013.

The JV company will be established for the sus-tainable production of neodymium-based rareearths magnets to serve Siemens production re-quirements for energy-efficient drive applicationsand wind turbine generators. The capacity of thesupply for the JV has not been determined as weare still finalising the partnership which will beavailable by end of this year.Only then we will beable to talk about the capacity, he told Bernamain a phone interview from Australia yesterday.

Mining giant Lynas, which had been embroiled ina controversy over its proposed rare earth plant inGebeng, will hold 45% stake and will provide rawmaterials for the JV through a long-term supplycontract. The magnet to be produced by the JVwill be one of the products for which the raw mate-rials will be sourced from the Gebeng plant. Thelocation of the JV for magnet production is notconfirmed but Malaysia is the top consideration.This location of the JV will further attract down-stream industries, he said. The partnership willsecure a long-term and sustainable end-to-endsupply chain from mine to magnet to end applica-tion.

Meanwhile, in a statement yesterday, Lynas ex-ecutive chairman Nicholas Curtis said rare earthmagnets had tremendous growth potential in this

field. We are pleased to be able to provide thenecessary ingredients of a stable, secure eco-nomically and environmentally sound supply chainwhich is required to enable this market to grow toits full potential, he said. The Government onMonday said it would ensure Lynas complied withall recommendations made by the InternationalAtomic Energy Agency before proceeding withany operations at the plant.


Radiation Monitors for Lynas

Lynas Corporation will enhance the safety aspectsat its rare earth processing plant in Gebeng here,including installing two units of the EnvironmentalRadiation Monitoring System worth a total of

RM1.4 million in the area. The first unit will beinstalled at the Atomic Energy Licensing Board(AELB) office at the site while the second one willbe placed at a yet-to-be identified spot at a nearbyresidential area. In reassuring the public of thesafety of its plant, Lynas Malaysia Sdn Bhd man-aging director Datuk Mashal Ahmad said the de-vices would help detect the presence of radioac-tive particles in the air.

He said the aerosol-type device was widely usedin European countries, especially by those whichoperated nuclear plants, to check the air quality

and the existence of radioactive materials. "TheAELB will handle the device which operates roundthe clock. "The public will also be allowed tocheck the readings and judge for themselveswhether the air is contaminated with radioactivematerials or not," he said after handing over thekeys to AELB's temporary office at the Lynas Ad-vanced Materials Plant (LAMP) site yesterday.Mashal said the AELB officers would be availableat the site office to answer questions and arrangevisits to the plant upon request.

He said Lynas would purchase the detectors fromAustria. The first unit is due in October. To boostthe public's confidence in the RM2 billion rareearth plant, Mashal said the AELB had agreed tostation four officers at the construction site tomonitor the progress of the project.

"Since the AELB officers will be here around theclock, I am sure they can help avoid any mis-takes."

On the New York Times'report that the Lynas rareearth plant was plagued by construction and de-

sign problems, Mashal said such issues were nor-mal in the construction of any plant and gave anassurance that the matter would be solved."These are technical matters which can be solvedby our experts and contractors. "This is normaland there is no need to blow the issue out of pro-portion."

AELB director-general Raja Datuk Abdul AzizRaja Adnan, who was also present, said the li-censing board had been monitoring the plant con-struction and would not issue the pre-operatinglicence if Lynas failed to comply with all the safety


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requirements. He said the AELB had been look-ing into all the complaints, including those fromthe public and the New York Times' report. Yes-terday, more than 100 residents from nearby ar-eas were invited to the site to witness the handing-over ceremony. They were later taken on a tour

around the factory.


Lynas Plans Next Phase of Plant

Rare earths supplier Lynas Corp Ltds Malaysiansubsidiary will spend up to US$210 million(RM634 million) on the second phase of construc-tion of the planned refinery plant in Kuantan, Pa-hang. The Australian Associated Press (AAP)reported that Lynas Malaysia had signed a letter

of award with Thai engineering company, Toyo-Thai Corp, for the second phase of work on theLynas advanced materials plant at the GebengIndustrial Estate in Kuantan. The letter of awardis for a fixed lump-sum price of between US$180million and US$210 million.

Subject to the receipt of approvals, construction isscheduled for completion in the last three monthsof 2012. Completion of the first phase of the ad-vanced materials plant is expected by the end ofthe year, AAP said. Earlier this month Lynasshares plunged because of media reports theplant could be delayed by one to two years. Ly-nas denied the reports. The company mines 15metallic elements which are used in electronics,computers and many green electrical products.


China Almost Doubles Rare Earth ExportQuota

China yesterday nearly doubled the export quota

of rare earths for the second half of the year to15,738 tonnes amid tensions with trade partnersover its grip on the shipments of raw materials.The quota for the next six months of the year is up97.3% from the 7,976 tonnes set for the same pe-riod last year, according to data from the Ministryof Commerce. It was unclear whether the quotacovered iron alloys containing rare earths - a ruleBeijing announced in May as part of efforts to fur-ther tighten control over the increasingly lucrativemetals.

European Union trade commissioner Karel DeGucht, who met with Chinese commerce ministerChen Deming yesterday to discuss a range of is-sues including rare earths, declined to commentspecifically on the quota changes. But De Gucht,a vocal critic of China's restrictions on the highly-

sought-after metals, said that what industryneeds is predictability and he urged China to pub-lish the quotas more in advance. They havealready indicated that they are going to changetheir policy and they realise that they have tochange the policy, he told reporters after a four-hour meeting with Chen.

China produces more than 95% of the world's rareearths 17-elements critical to manufacturing eve-rything from iPods to low-emission cars and mis-siles. Beijing, keen to burnish its green creden-tials and tighten its grip over the highly-sought-

after metals, has started cleaning up the industryby closing illegal mines, restricting overseas ship-ments and hiking export taxes. In December, itslashed the export quota of the metals for the firsthalf of the year to around 14,450 tonnes, down35% from the same period in 2010, after cuttingthe maximum by 72% for the second half of 2009.


Taskforce set up to Monitor IAEARecommendations

A special taskforce has been set up to ensure allthe International Atomic Energy Agency's recom-mendations on the Lynas plant here are adheredto. International Trade and Industry Minister Da-tuk Seri Mustapa Mohamed said the Governmentis monitoring the situation closely and will not is-sue a pre-operating licence until it is satisfied thatLynas has met all the conditions. Mustapa alsoexpressed the Government's thanks to the peopleof Kuantan for raising pertinent issues. With theextra conditions, Kuantan folk will be more confi-

dent in the safety of Lynas' operations, he saidafter visiting the BASF Petro-nas Chemicals(BPC) plant in Gebeng near here yesterday.

Mustapa said BPC was the biggest employer inthe Gebeng Industrial Park with a workforce of610 workers. Newly-appointed BPC managingdirector Dr Joachim Quiesser said the company isalso conducting feasibility studies on new invest-ments.



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Group hopes PM will Halt Lynas

Green Surf, a coalition of environmental groups inSabah, is confident that Prime Minister Datuk SeriNajib Razak will listen to the people of Pahangwho oppose the rare earth processing plant in

their home state. It said although the plant wasunder construction, it was not too late for him tointervene and halt the Australian-owned LynasAdvanced Materials Plant in Kuantan.

The coalition said concerns over the plant shouldnot be viewed as anti-development and that the1Malaysia vision of people first was a reminderon the importance of the voice of local communi-ties. The movement said in a statement yesterdayit had decided to speak up as the issue impactedall Malaysians irrespective of location.

Green Surf spokesperson Wong Tack said at atime when citizens in Sabah were told that theonly option to stabilise power supply in the statewas a coal-fired plant, Najib listened to the peopleand put a stop to the proposal, earning Malaysiaaccolades from international groups and energyexperts. Green Surf faced many challenges infighting the coal-plant but we always believed thatone day the country's top leadership would listen.Sure enough, the PM heard us.

We sympathise with the people in Pahang andalthough we are across the South China Sea, weare worried that our nation is taking on a projectthat is known to have serious health implications,all of which have been repeatedly raised not onlyby people in the area but also the Malaysian Medi-cal Association and the Malaysian Bar as well asAustralian groups and individuals, he said.


Lynas Exceeds Plan for Rare Earths

Australian miner Lynas Corp, looking to breakChinas grip on the global market for rare earths,is running ahead of plan for metal recoveries fromits recently commissioned Mount Weld concentra-tor, the firm said yesterday. Lynas aims to meet20% of world demand for rare earths from its op-erations in west Australia. Currently, China pro-duces about 97%t of world supply of rare earths,which are used to make hightech electronics,magnets and batteries.

In Beijing, state-owned trader Minmetals hascalled on all firms in the rare earth sector to ad-here to a national output quota by suspending pro-duction starting from the beginning of August.


Siemens to Ensure Lynas Heeds Rules

Siemens AG has assured the public that it willhold Lynas Corp Ltd to a high standard of conductfollowing its decision to form a joint venture com-pany for magnet production with the Australianrare earths processing company. Siemens Ma-laysia chief executive officer and president M.Prakash Chandran said yesterday the terms of the joint venture included ensuring that the quality ofraw materials to be sourced from Lynas' contro-

versial rare earths processing plant in Kuantanmet Siemens' stringent code of conduct for suppli-ers.

"The code, which applies to all our suppliers, wasdrawn up to ensure that they comply with localregulations and laws and includes taking into ac-count environmental issues." Kuantan member ofparliament Fuziah Salleh said Siemens had alsoagreed to consider public concerns when assess-ing Lynas' suitability as a supplier of raw materi-als. "Siemen's willingness to listen to the publicon this matter has been very reassuring," she saidafter meeting with Siemens' senior officers yester-day. Siemens, she said, was noted for their com-mitment to green technology as well as environ-mental sustainability.

The agreement between Lynas and SiemensDrive Technologies Division was announced lastmonth, with the joint venture company expected tobe incorporated by end of the year. Siemens willhold a 55 per cent stake in the joint venture, withproduction expected to begin in the first half of2013. The joint venture company will be estab-

lished for the production of high-powered rareearths magnets and is expected to be based inMalaysia.



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PAS MP Defends Lynas Rare Earth Plant

Hulu Langat MP Dr Che Rosli Che Mat has comeout in defence of the Lynas Corp rare earth plantin Gebeng, Kuantan. He also criticised KuantanMP Fuziah Salleh, who has been opposing the

construction of the plant, for frightening the pub-lic.

She is frightening the public by saying that Lynasis a nuclear plant when its function is only to proc-ess natural materials like rare earth from MountWeld in Western Australia, which has less radia-tion compared to an ore mine. As the issue wasbrought up by the PKR, I've kept quiet and evenbeen given a warning by the PAS information de-partment not to comment. I've been silent so far,but this is unfair. They've been making commentsin every issue of Harakah in a tone we are uncom-fortable with, said the PAS MP, who is also anexpert in nuclear science.

Dr Che Rosli said as a PAS member, he felt em-barassed by the stance taken by PKR's Fuziah.So, I've made the decision as a nuclear scientistto come forward to comment today, he said in aninterview over TV3 news here yesterday. He saidresidents in Kuantan need not worry about thesafety of the Lynas plant.

The accusations made are unscientific and not atall academic. The people need not be worried.Once Lynas is built, they can go into the plant andsee for themselves the safety measures put intoplace for both the workers and the public, hesaid. Fuziah had earlier spoken out against theproject, citing health concerns and radiation fearsfrom the rare earth plant.


Pas wants its MP to Clarify on Lynas

Pas will ask its Hulu Langat member of parliamentDr Che Rosli Che Mat to explain his remarks onthe Lynas Corp rare earth plant in Gebeng, Kuan-tan. Pas information chief Datuk Tuan IbrahimTuan Man said the party had never imposed a gagorder on Dr Che Rosli to bar him from issuingstatements on nuclear-related matters, especiallyon Lynas. Dr Che Rosli, formerly a nuclear sci-ence lecturer at Universiti Kebangsaan Malaysia,said in a TV3 news interview on Wednesday thatPas had warned him not to issue comments onthe matter.

He also said Kuantan MP Fuziah Salleh had beentrying to stoke public fear by drawing parallels be-tween the Lynas Advanced Material Plant (Lamp)and nuclear facilities. "The accusations made areunscientific and not at all academic," Dr Che Roslisaid. He also made known his displeasure with

politicians resorting to arguments without scientificor academic facts.

Dr Che Rosli said Kuantan residents need notworry about the safety of the Lynas plant as itsfunction was only to process natural materials likerare earth from Mount Weld in Western Australia,which had less radiation compared with an oremine. Meanwhile, Fuziah has rubbished Dr CheRosli's explanation and defence of the plant'ssafety as "overly simplistic".


Other Minerals / MetalsNews Highlights

OM to Build Plant in Q4

OM Holdings Ltd (OMH) expects to start construc-tion of its proposed US$70mil (RM210mil) manga-

nese smelting and sintering plant in TanjungLangsat Industrial Complex, Johor Baru in thefourth quarter this year. The Australian public-listed company said land clearing works for theproject site was now being carried out by JohorCorp. The project, which will be supported by alogistics and distribution centre, will have an an-nual production capacity of 66,000 tonnes of man-ganese alloy and 300,000 tonnes of manganesesinter.

A detailed environmental impact assessment iscurrently under way and will be completed by the

first quarter of 2012. Production is expected tocommence in the first quarter of 2013, OMH saidin its latest operational, corporate and strategicupdate to the Australian Securities Exchange onJuly 5. The proposed stockpiling, blending anddistribution centre will be capable of handling upto 500,000 tonnes of raw materials. OMH's wholly-owned subsidiary OM Materials (Johor) Sdn Bhdhas acquired 40ha for US$20mil for the project,which is 80%-financed by a US$16.9mil term loanfrom CIMB Bank Bhd.


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The company said the feasibility study of the project indicated a payback period of less than fiveyears with the total US$70mil investment. TheJohor project represents OMH's first phase invest-ment in a Malaysian smelter. The second phaseof investment is in a US$450mil (RM1.35bil) man-

ganese and ferrosilicon alloy smelter in SamalajuIndustrial Park, Bintulu within Sarawak Corridor ofRenewable Energy (SCORE). OM Materials(Sarawak) Sdn Bhd, a wholly-owned subsidiary ofOMH, awarded a RM70mil contract to KKB Build-ers Sdn Bhd on July 7 to carry out the earthworkspackage of the proposed Bintulu smelter project.

KKB Builders, a wholly-owned subsidiary of KKBEngineering Bhd, was given 12 months to com-plete the contract. OMH said the award of theearthworks package was critical and a pre-requisite to its power purchase agreement (PPA)

negotiations with Syarikat Sesco Bhd (owned bySarawak Energy Bhd) to supply 500MW of powerfrom the 2,400MW Bakun hydreoelectric dam tothe smelter. The PPA negotiations are expectedto be completed by September. OMH said theBintulu smelter was expected to begin commercialoperations in early 2014. It has an annual produc-tion capacity of 300,000 tonnes of manganeseferro alloys and 300,000 tonnes of ferrosilicon al-loys. Full capacity production is targeted to bereached by the first quarter of 2015.

OMH has also entered into a memorandum of un-derstanding (MoU) with Cahya Mata Sarawak Bhd(CMSB) for an exclusive negotiation of businessventures and opportunities offered by the Bintuluproject. An 80:20 joint-venture company betweenOMH's subsidiary OM Materials (S) Pte Ltd andCMSB's subsidiary Samalaju Industries Sdn Bhdwas proposed to be set up to undertake any busi-ness, like the supply of raw materials to thesmelter. The Malaysian manganese and ferrosilicon smelting project is underpinned by

Documents

Malaysian Minerals Bulletin July-Aug 2011