Friday, September 27, 2013

M’sia Smelting falls 3% on mining contract termination

Hot Stock M’sia Smelting falls 3% on mining contract termination
Business & Markets 2013
Written by Chong Jin Hun of    
Friday, 27 September 2013 11:18

KUALA LUMPUR (Sept 27): Malaysia Smelting Corp Bhd (MSC) fell as much as 3% after Indonesian authorities terminated the firm's tin-mining contract in the neighbouring country.

At 10.59am, MSC which was Bursa Malaysia's sixth-largest decliner, changed hands at RM2.76 with 105,100 shares done. The stock had earlier fallen as much as nine sen to RM2.75.

MSC said yesterday that Indonesian authorities had "affirmed the ending of the contract of work" between the Indonesian government and MSC’s unit PT Koba Tin. This is for Koba Tin’s mining operations within the Bangka Belitung islands.

MSC said Koba Tin may appeal to authorities in the neighbouring country to extend the contract.

Analysts said the termination of the mining contract does not augur well for MSC. "We deem this formal termination a negative for investors," RHB Research Institute Sdn Bhd analyst Ng Sem Guan wrote in a note today.

Ng said although tin prices have risen to some US$23,000 (RM74,060) a tonne since early this month, the trend is only expected to benefit MSC's Malaysian operations following the termination of the Indonesian contract.

He said MSC's Malaysian operations produce 200 tonnes of tin ore a month.

"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,” Ng said.

Ng said RHB is maintaining its target price of RM2.35 and "sell" call for MSC. The recommendations have taken into account the exclusion of 50 sen from RHB's one-time price-book valuation for MSC in financial year ending December 31, 2014.

The 50 sen exclusion is by virtue of a potential impairment in KM Resources where MSC has investments.

"Thus, we maintain watchful on SMELT’s (MSC) investment in KM Resources , whose limited proven mine reserves amid lower gold and copper prices also suggest the potential of impairment risk," Ng said.

Meanwhile, BIMB Securities said in a note today that the technical immediate support and resistance for MSC shares are seen at RM2.83 and 2.85 respectively.

Publish date: 27/09/13

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