Bernama reported that Malaysian steel producer Perwaja Holdings Bhd is likely to bid for and secure several parcels of mining land concession to be awarded by the Pahang and Terengganu states soon.
The mining concession follows Prime Minister Mr Seri Najib Tun Razak's pledge to encouraging states with iron ore and coal reserves to allocate more land for steel manufacturers to undertake commercial mining to enhance their operations.
This is highly possible given the fact that Perwaja had recently made known its intention to venture into iron ore mining, a raw material which could be used in the new iron ore pelletization plant in Kemaman, Terengganu, expected to be operational in the first half of 2012.
Perwaja's plant, strategically located in Kemaman and its new pelletization plant in Kemaman, is set to enhance the value of bare iron ore fine, which could be used as feed material for its direct reduced iron plant.
OSK Research said that "The concession may result in a surge in Perwaja's earnings."
In the first quarter ended March 31st 2011, Perwaja registered a pre tax loss of MYR 24.282 million as compared with a pre tax profit of MYR 22.66 million chalked up previously, while revenue dropped to MYR 426 million, from MYR 373.7 million, registered earlier.
OSK said that "We understand from our market intelligence that there are a few parcels of mining land in Pahang and Terengganu which are set to be awarded by the respective state governments anytime soon." It added that there was a strong possibility Perwaja would grab at least one of the new mining plots, especially in Terengganu.
OSK said that the fact that Perwaja was originally a national project also raised the possibility of the company securing any upcoming iron ore mining concession in Terengganu or Pahang.
OSK recapped that Terengganu Menteri Besar Mr Ahmad Said had recently said the state's Minerals and Geoscience Department was conducting a six month study on the viability of reopening the iron mine in Bukit Besi. He added that "If there is any mining to be done there, the state government itself will do it by forming a JV with private companies."
OSK also said that in the event Perwaja secured an iron ore mining licence or concession, its immediate savings would be a hefty MYR 300 a tonne as the cost of mining was less than MYR 150 per tonne.
Besides, the potential margin from palletizing should benefit the company as transportation costs would be below MYR 30 per tone compared with the current capsize bulker freight of more than USD 10 and USD 20 per tonne from Australia and Brazil, respectively.
OSK said in the event Perwaja secured an iron ore concession and, based on the assumption that the iron ore mine would start operations in January 2012, a production cost of USD 50 per tonne and tax free mining should result in Perwaja utilizing its MYR 1.6 billion tax credit on unabsorbed tax losses.
It added that "Our back of envelope discounted cash flow computation shows that the iron ore mining concession is worth a mouth watering MYR 4.15 per share."
This analysis is based on the assumption Perwaja manages to secure a 400 hectare iron ore mine in Bukit Besi with an initial capital outlay of USD 10 million, produces 500,000 tonnes of iron ore in 2012, one million tonnes in 2013 and up to two million from 2014 onwards to 2031, production cost remained at USD 50 per tonne throughout the concession tenure and with iron ore selling prices averaging about USD 120 per tonne in 2012.
(Sourced from www.btimes.com.my)
