Malaysia Smelting Corp -
Chapter On PT Koba Tin Ends
We see the end of PT Koba Tin’s contract of work (CoW) as a letdown, despite its minimal financial impact. The recent spike in tin prices also brings little cheer as SMELT is unable to fully capitalise on it. We are also mindful of a potential impairment on its investment in KM Resources. We exclude MYR0.50 per share from our 1.0x FY14F P/BV valuation. Maintain SELL and MYR2.35 FV.
- PT Koba Tin to close down. Yesterday, SMELT told Bursa Malaysia that the company was finally informed by Indonesia’s Ministry of Energy and Mineral Resources that PT Koba Tin’s CoW in Bangka Island, Indonesia, has been terminated, effective retrospectively from 31 Aug 2013. SMELT’s board does not expect this development to have any material financial impact for FY13 as it had made a MYR128.4m impairment and provision on this 75%-owned subsidiary in the previous financial year. Meanwhile, it plans to appeal against the decision although we believe the likelihood of a re-instatement is low. We deem
this formal termination a negative for investors.
- Other potential impairment risks. After a series of impairment since 2009, SMELT made another MYR3.7m impairment on its investments in Asian Mineral Resources (ASC CN, NR) and Alphamin Resources Corporation (AFM CN, NR) in 2QFY13 following a prolonged drop in their share prices. Thus, we maintain watchful on SMELT’s investment in KM Resources (KMR), whose limited proven mine reserves amid lower gold and copper prices also suggest the potential of impairment risk.
- Reiterate SELL. Although tin prices have recovered to around USD23,000 per tonne since early this month, this may only benefit SMELT’s local mining operation, which produces a mere 200 tonnes of tin ore a month. The group is unable to tap further into this positive trend, especially now that its CoW via PT Koba Tin is history. Furthermore, Indonesia’s restrictions on exports of tin ore below 99.9% purity had resulted in lower smelting volume at its Butterworth, Penang-based plant. All in, we continue to exclude MYR0.50 per share from our 1.0x FY14 P/BV valuation, after factoring in the potential impairment in KMR.
We maintain our MYR2.35 FV and SELL recommendation.
Publish date: 27/09/13