Business & Markets 2013
Written by Wei Lynn Tang of theedgemalaysia.com
Tuesday, 29 October 2013 10:22
KUALA LUMPUR: Malaysia Smelting Corp Bhd (MSC) is looking forward to a better 2014 financial year ending Dec 31 (FY14) as it seeks to complete its divestment of unprofitable tin mining operations in Indonesia by the end of this year.
Once the divestment is completed, the company expects to have more positive profit prospects and a cleaner balance sheet. PT Koba Tin, MSC’s 75% owned subsidiary, did not receive the Indonesian government’s approval to renew the Contract of Work (CoW) which expired in March.
Group CEO and executive director Datuk Seri Dr Mohd Ajib Anuar said at the iCapital.biz Investor Day last Saturday that MSC had written off its assets in PT Koba Tin.
“Making this full impairment is not necessarily bad, as we are eliminating non-performing assets that have dragged down our profits in the past two years,” said Mohd Ajib.
He noted that the group is looking to complete the clean-up by year-end and this impairment will not have an impact on earnings for FY14.
MSC reported a net profit of RM10.17 million for the first six months of FY13 ended June 30, an improvement from a net loss of RM40.54 million registered in the same period last year.
The company’s strategy for FY13, besides the divestment of non-profitable operations, will include continued improvements in the performance of two profitable assets: its international tin smelting operations in Butterworth, Penang, and the Rahman Hydraulic tin mine in Klian Intan, Perak.
On the outlook for the industry, Mohd Ajib said MSC is optimistic as demand from the electronics sector is expected to increase, and supply has to grow to meet this increasing demand even at a “higher cost”.
“Tin smelting is a margin business irrespective of market conditions, and for every dollar of increase in tin price, it goes to our bottom line,” he said.
Mohd Ajib said long-term investors should be looking at emerging trends in the industry moving forward. He cited factors such the fall in tin production mainly in China and Indonesia, a positive 2% to 3% growth in tin demand, falling grades, and the increase in production cost due to sustainability issues.
“MSC is well positioned to take advantage of these opportunities,” he said.
Looking at long-term growth, Mohd Ajib said there are options for the group, which could include mergers and acquisitions as there are many tin assets in the world.
“Because of the unanticipated shortfall in supply and demand, there will be advanced exploration assets that can be developed into a profitable mining company. The world needs more tin from new mining areas from new deposits.”
On MSC’s gearing of 2.3 times as at the end of the second quarter (2Q) of FY13 against 2.21 times as at end-2012, Mohd Ajib said most of MSC’s borrowings are to finance its working capital. Hence, they are short term and revolving in nature.
In a related development, Jakarta Post newspaper reported that state-owned tin miner PT Timah had obtained a principal agreement to hold a majority stake in a joint venture (JV) to be established with local administrations to run the mining area previously operated by PT Koba Tin.
Timah corporate secretary Agung Nugroho said last Friday that the company had already held discussions with local administrations on the JV. The local administrations, which will partly own the JV company, are Bangka-Belitung province, South Bangka regency and Central Bangka regency administrations.
Employees of PT Koba Tin will be able to work in the new JV company after settling their rights with PT Koba Tin.
Following the Indonesian government’s termination of PT Koba Tin’s contract, the mining site is now considered state-owned property. The government has asked Timah, which holds a 25% stake in PT Koba Tin, to keep the assets, but it is not allowed to carry out production activities until the permit is issued.
This article first appeared in The Edge Financial Daily, on October 29, 2013.
Publish date: 29/10/13