By-Monthly Report of the MALAYSIAN CHAMBER OF

For Members Only March April 2011

MALAYSIAN MINERALS & METALS BULLETIN

INSIDE THIS ISGold Market Review Gold News Highlights Iron Ore News Highlights
Mining Giants Eye Chinas Western Re-

gions for Future Growth

Silver State Launches Dinar, Dirham Coins Rio and Guinea in Iron-ore Deal Pacific Mine to Reopen As Gold Fever

Grips Region Raub was the El Dorado of Malaya Physical Gold Still Very Much in Demand: Jewellers Gold Roars Past US$1,500 Cops: Gold Price Hike may Attract Negative Attention Gold Soars to Record in Sixth Straight Session Gold Mining Affected by Rocky Issues Golden Offer for Al Rajhi Customers Gold Strikes Record as Dollar Wilts

Coal News Highlights

Malaysia Smelting to Sell Asiatic Stake Rio in Talks to Buy Shares in Riversdale High Coal Price Hampers TNB Coal Prices at 4-month High

Other Minerals/Metals News Highlights

Aluminium News Highlights

Press Metal Picks Samalaju for Expansion Joint Agreement on RM5bil Aluminium

Smelting Plant
Chinalco, GIIG to Build Aluminium Smelter

Near Bintulu

Steel News Highlights

Demand Boost Seen for Korean, Taiwan-

ese Steel JFE Steel may Trim Output Posco Q1 Profit Misses Forecast on Higher Costs Vale may Cut Stake in Steel Mill JV with Korean Firms

Malaysian Steel Firms Seek Safeguards Taking a Risk for Rare Earths Lynas Must Meet Msian AELB Standards OMH Plans Sarawak Smelter Rare Earths Exports to Reach RM8bil Rio Tinto Eyeing Quality Mining Assets China to Raise Tax on Rare Earths in April BHP Spending US$9.5b to Boost Mining Ops Lynas of Australia Sheds Some Light on Controversial Project Chinas Minmetals Offers US$6.5b for Equinox Press Metal, Partners Sign Deal with Sarawak Energy Record Profits Seen for Rio, BHP Wild Weather Slams Rio Tinto Coal, Iron Ore Output Glencore Said to be Worth Up to US$69b Minmetals Withdraws Offer for Equinox New Rare Earth Plant Deal is a No-go,

MARKET REVIEW MARCH

Gold opened the first trading day of March on the London Bullion Market at US$1,420.75 per oz, higher than its closing price in February at US$1,411.00 per oz. Gold was traded during the March trading month between a price range of US$1,400.50 per oz to US$1,447.00 per oz. The average price for the month was US$1,424.02 per oz. The gold market during the month was very much influenced by the strength of the US dollar. Gold prices were in a somewhat flat momentum during the first and second trading weeks. During the third trading week, prices softened to their lowest level for the month at US$1,400.50 per oz on 15 March. Thereafter, supported by a weaker dollar and soaring oil prices, gold prices rebounded to US$1,447.00 per oz on 24 March, their highest level for the month, before sliding slightly as the fourth trading week ended with the precious metal's tra-

ditional inverse relationship with the dollar remained intact. During the final trading week, gold prices rebounded but were short lived as prices softened again to close the trading month of March at US$1,439.00 per oz.

APRIL
Gold opened the trading month of April at US$1,418.00 per oz, which was also the months lowest price level. The precious metal was traded within a price range of US$1,418.00 per oz to US$1,535.50 per oz during the month while its average price was US$1,473.81 per oz. Gold prices during the month were on an upward momentum due to the ongoing Eurozone sovereign debt crisis, political instability in the Middle East and North Africa, rising global inflation and worries over the fiscal stability of the United States. Gold closed the trading month of April at US$1,535.50 per oz, which was also its highest price level for the month.

Table 1 below shows the major gold markets' price performance during Table 1: GOLD MARKET OVERVIEW the months of (US$/OZ)
London Afternoon MARCH Low High Average APRIL Low High Average 1418.00 1535.50 1473.81 1419.90 1506.80 1470.32 1400.50 1447.00 1424.02 1387.80 1441.20 1422.55 NY Comex

MARCH & APRIL 2011 GOLD PRICES

Gold News Highlights

Silver State Lauches Dinar, Dirham Coins Perak yesterday launched the gold dinar and silver dirham coins for investment and saving transactions. The coins were officially launched by Perak Menteri Besar Datuk Seri Dr Zambry Abd Kadir. Kelantan was the first state in the country to launch dinar and dirham on Aug 12 last year as an alternative currency. Zambry stressed the coins were not launched as a currency but for diversifying investment, a hedge against inflation, as an option to be used as marriage dowry, as corporate gifts and medals for achievements."Global inflation is on the rise and gold has shown to be a good hedge against it... price of gold rises during times of economic distress and turmoil." A gramme of gold was RM30 in 2000 but now it is hovering at RM130. Silver price has been quadrupling in the past 12 months and the appreciation is 12.5 per cent more than gold. "Our gold dinar and silver dirham are 99.99 per cent pure, " he said in his launch address. Also present was GoldNet International Sdn Bhd executive chairman Datuk Rais Hussin Mohamed Ariff. The coins are minted by Mariwasa Kraftangan in Kuala Kangsar. The task of launching the coins was given to GoldNet International Sdn Bhd, jointly-owned by Gold Net (M) Sdn Bhd and Perak eOrganisation Sdn Bhd (a Perak State Economic Development Corporation subsidiary). (Source: New Straits Times, 1 March 2011)

New Guinea to New Caledonia, mines have often created conflicts between poor villagers and their governments over the distribution of wealth, leaving the South Pacific with little to show for its mining riches. Australia-listed Allied Gold said yesterday that it would begin pouring its first gold bars at its Goldridge mine near the Solomon Islands capital of Honiara later this week after spending A$150mil on development. We see opportunities in the South Pacific which I believe has been underexplored over the years, Allied Gold executive chairman Mark Caruso told Reuters in an interview in the Solomons. Gold is about US$3 away from last weeks record high of around US$1,440 an ounce, a level that has encouraged more digging in far-flung locations with little history of mining. If you look at the uncertain economic situation in the United States and whats going on in other parts of the world, its all supportive for gold, Caruso said, referring to golds reputation as a safe-haven asset. Unemployment in the United States remains painfully high and the Middle East is undergoing dramatic changes. Allied Gold, which has a market capitalisation of about A$675mil, is also listed in Toronto and on Londons AIM exchange. It aims to produce 120,000 ounces a year from its Goldridge mine, which had been abandoned a decade ago after tensions flared between rival bands of islanders. (Source: The Star, 8 March 2011) Raub was the El Dorado of Malaya

Pacific Mine to Reopen As Gold Fever Grips Region An Australian miner is due to restart a gold mine in the Solomon Islands this week, signalling that the commodities boom has finally caught up with one of the worlds most remote regions in the South Pacific islands. The miner, Allied Gold, is not alone. Papua New Guinea might resume mining of one of the worlds richest copper deposits by 2012, two decades after villagers attacked and sabotaged operations there. From Papua
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One of the first things Yee Chong Man likes to tell visitors to Kampung Bukit Koman, Raub, is that the place was once served by no less than four pork stalls when he was a little boy in the 1950s, when gold mining was the backbone of all economic activities in town. To him, the number of stalls at the time was a fairly good indication of the place's sizeable population and its level of affluence. Comparatively, when the town's gold mine ceased operations in 1961, the number dwindled to just one. "The butcher slaughtered just one pig for sale each day and even so,

he couldn't finish selling it," said the retired 66 -year-old. Today, there are only about 300-odd families in the village, most of them descendants of miners of old. As is the norm in rural spots without an anchor economic activity, many of the residents are either still schooling or retired with the young and able having migrated to urban areas in search of betterpaying jobs. This was a far cry from the bustling Bukit Koman of old, once regarded as the biggest and most important gold-mining area in the Raub district. The abundance of the exquisite mineral in Raub was once such that Peninsular Malaysia was named the Golden Chersonese, or the Golden Peninsula. There were even tales that one of King Solomon's mines was located here. During the time when the northern Malay rulers acknowledged the suzerainty of the Siam king, Raub was the place they sent their emissaries to get the bunga emas, or golden flowers, to be delivered as tribute to Siam. Raub is named after a Malay word meaning "scoop", suggesting that at one time, gold had lain in such abundance here that it could literally be scooped up by the handfuls from the land surface. It is said that gold mining in the area dates back over 800 years ago -- when Mon Khmer Cambodians came to Raub on elephants to obtain gold to adorn their majestic temples in Angkor Wat. For the longest time, mining was done very primitively and with heavy reliance on dulang washers who panned for gold in the river beds. It was only from 1889 that it evolved from simple panning to open-cast mining with the coming of the Raub Australian Gold Mining Syndicate, later known as the Raub Australian Gold Mining Company Ltd. The initial stages of exploration and mining were spearheaded by the company's manager, William Bibby, and centred around the Raub Hole, the main golddigging site which was open-cut by the Khmers. It was abandoned later, leaving behind a large pond in a dense forest. Interestingly, Bibby, regarded by some as the "founding father" of Raub, had not thought that highly of the place initially. In one account reported in the Straits Times, he had said that if not for the men he had brought
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with him there, he would have turned tail the next morning and headed home. "I had never been more disappointed in a place in all my life... there was nothing but jungle and swamp, swamp and jungle. The colour of gold was nowhere to be seen," he had said. Bibby, however, managed to turn things around when he stumbled across rich goldbearing seams some way from the Raub Hole. The discovery got him to build a new mining plant at Bukit Koman in 1894, an enterprise which soon transformed the swampy belukar into a prosperous township. About a year later, the nearby Bukit Jalis and Bukit Malacca sections were also opened up. Gold mining became such a huge enterprise here that Malaya's first power station was brought on-line in Raub on July 4, 1900, when the gold mining company built a small hydroelectric power station on the nearby Sempan River. In comparison, the Straits Settlements only got its first electrical supply some four years later. It is said that just before World War 2, the population on the gold mining company's lands, including families, neared 3,500. They even had their own police force. As the town thrived, so did colonial life, cricket games and all. But the money- and merry-making came to a halt when Japanese troops invaded Malaya in 1941 and the miners had to abandon Bukit Koman. To keep the wealth away from the hands of the invading army, they sabotaged the mine's machinery as they fled. However the Japanese were not deterred. According to published accounts, they caught the mine's manager and tortured him for information on the location of the richest seams of gold. Refusing to comply, he was eventually executed. The Australians eventually returned in March 1946 after the Japanese retreated but it was only after much effort and money spent that they were able to resume mining. However, all operations came to a grinding halt not long after, in about 1961, when the gold price dipped to some $30 per ounce. After the Australians left, a smattering of local small-time miners kept the industry going, although the level of mining activities never reached the scale of yesteryear. An estimated one million ounces of gold was

mined here from 1889 till the mid-1990s. Many thought the gold deposits in the area had been fairly depleted and as such, built the town over many old, abandoned mining shafts. Those who had worked in the Bukit Koman mines told the New Straits Times back in 1988 that the depth of some of the underground shafts reached more than 300 metres. Although it is hard to tell now, it was said that the shafts and tunnels zig-zagged all the way to Raub itself and that the townsfolk could feel the vibration of the earth under their feet whenever drilling and blasting took place. Pelayar Ingupasu, 56, was proud to recount that his grandfather had worked as a "bomber" in the mine after the Japanese left. The retired tractor driver now works at an estate neighbouring the Bukit Koman mine, which has been revived recently by surprisingly the Raub Australian Gold Mining Sdn Bhd. However, unlike its namesake, this is a Malaysian company wholly-owned by Peninsular Gold Limited, which is listed on the London Stock Exchange. "I don't remember much of my grandfather now but it feels good to see the return of the Bukit Koman gold heritage, to see the town getting to be as busy as it was during my grandfather's time," said Pelayar. Indeed, it seems that the district is set to see more interesting times ahead as the advent of new technology, coupled with the fantastic price of gold these days, have once again made Raub and its mines the focus of great commercial interest. "I had feared that Bukit Koman was becoming a dying town. But now, with the reopening of the Bukit Koman mines, young people are slowly coming back and many others will have a reason to stay put," said Yee, a father of four and grandfather of three. "It is good because all my children and grandchildren will have a reason to remain here, instead of leaving us oldies behind. By the way, I heard that even Secret Recipe is coming to town to open up a branch here!" (Source: New Straits Times, 13 March 2011)

for physical gold bars and coins, but the demand has softened somewhat with the advent of gold investment accounts from financial institutions. Yes, (the introduction of) gold investment accounts has affected demand for physical goldbut there remains a niche market of customers who prefer to hold their gold in the physical form rather than on paper, DeGem Bhd executive director Paul Choong told SunBiz in an interview. In fact, of late, we have seen a growing number of people buying gold bars as prices of gold have been rising. We have started selling gold bars since last month. They come in 20gm, 50gm, 100gm, 500gm and 1kg, he said, adding that gold bars in denominations of 20gm and 50gm have already sold out. The company plans to make selling gold bars a big part of its business. We have set up a division to do this, but we havent done any advertisement in a big way yet. We hope to generate about RM10-15 million in revenue each year, said Choong. For the financial year ended Dec 31, 2010, DeGem recorded revenue of RM185.3 million, which was slightly lower than the revenue of RM189.4 million achieved in 2009. Poh Kong Holdings Bhd executive chairman and group managing director Datuk Eddie Choon said the company started offering 1kg gold bars and 10gm wafers since two to three years ago. We have seen good response for these products and it is on an upward trend as people see it as another form of investment. But a lot of people still prefer to buy gold jewellery compared with gold bars because jewellery such as necklaces can be worn, he said. Choon said the majority of those who buy gold jewellery are middleaged. Young people also buy gold jewellery, but they prefer white gold and small diamonds. They also prefer more trendy designs and thats why we offer Tranz, a range of trendy gold jewellery targeted at younger customers, he added. (Source: The Sun, 21 March 2011)

Physical Gold Still Very Much in Demand: Jewellers Local jewellers are seeing a growing demand
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Gold Roars Past US$1,500 The price of gold topped US$1,500 (US$1 =

RM3.02) for the first time yesterday as a weaker dollar plus fears over high inflation and debt attracted investors into the traditional safe-haven precious metal. Gold reached US$1,505.65 an ounce at 0945 GMT on the London Bullion Market. It later traded at US$1,503.60. Silver meanwhile hit a fresh 31-year high of US$44.79 an ounce. "Gold remains comfortably underpinned with shortterm inflation pressures and economic woes triggering some fresh safe-haven inflows," said Andrey Kryuchenkov, commodities analyst at Russian financial group VTB Capital. The metal is seen as a safe store of value in troubled economic and political times. The dollar meanwhile fell against the euro, with the US unit troubled by concerns over Washington's ability to tackle its high debt in the world's biggest economy. Gold began its run towards US$1,500 on Monday after ratings agency Standard & Poor's revised its outlook on US sovereign debt to "negative" from "stable". S&P's move challenged Washington's gold-star "AAA"-rated standard as it warned that politicians seemed unable to agree a plan to reduce a huge budget deficit, which is running at around 10 per cent of gross domestic product. The downgrade had also sent global share prices tumbling on Monday, coming amid growing concerns over global inflation, with China, India and the eurozone struggling to control prices. Metals consultancy GFMS last week forecast that gold price would soar past US$1,600 this year, driven primarily by fears over high inflation. Kryuchenkov said that gold "shot up after S&P downgraded the US sovereign debt outlook to negative. The move came on top of existing economic woes over resurfacing debt troubles in the eurozone." "Gold has been acting as a currency in its own right, and that is why we are up at US$1,500," said Simon Weeks, head of precious metals at the Bank of Nova Scotia. "There is an awful lot of bad news in the price. The S&P comment the other day has given us the final kicker to get up here." Gold has risen 6 per cent since the start of the year, breaking a series of record highs along the way. It topped US$1,000 for the first time in March 2008. "Gold will remain well bid as long as the ongoing debt and

inflation worries persist," Ian O'Sullivan, Spread Co trading group analyst said. (Source: New Straits Times, 21 April 2011) Cops: Gold Price Hike may Attract Negative Attention The rise of gold price to an all-time high of US$1,500 (RM4,530) per ounce has not only stirred the interest of investors but also the police who are taking measures to ensure the precious metal stays with its owners. Federal police Criminal Investigations Department (CID) director Commissioner Datuk Seri Mohd Bakri Zinin said police are aware that a steep price rise in such commodities can lead to criminals targeting those who own it. He said when the price of copper went up years ago, thieves stripped power cables, telecommunication wires and water supply meter units at public places. This is no different. We are looking at the situation from this aspect and are aware of the possible targets of criminals. We are taking proactive measures to prevent or minimise these possibilities. Knowing the situation and to avoid any untoward incidents, we advise those who use gold jewellery to be cautious. Use it at the right place and time and store it in a safe place. Do not allow opportunity which criminals may take advantage of. he told theSun. He said goldsmith shops should also consider beefing up security at their premises and install close-circuit cameras if they had yet to do so. In Penang, checks at several goldsmiths on Campbell Street and Jalan Masjid Kapitan Keling indicate that it was business as usual. Penang Goldsmith and Jewellers Association president Lo Fook Kheong said customers are still changing their gold for cash or other jewellery, but there was no influx of consumers trading in their gold. Purchasing gold is the best form of investment. It is easier to get cash for gold compared with selling items such as cars or houses. Lo, who is also chairman of Lai Wah Goldsmith and Lai Yuen Company, predicted that the price of gold will increase. In 2008, one gramme of 24 carat
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gold was about RM109, and it has been increasing. This year, it is about RM172, he said. I believe the price of gold will continue to go up. (Source: The Sun, 22 April 2011) Gold Soars to Record in Sixth Straight Session Spot gold surged to a lifetime high on Friday in thin holiday trade, hitting a record for a sixth consecutive session on a weak dollar and factors ranging from geopolitical uncertainty to inflation concerns. Silver also raced to its loftiest in 31 years, notching the milestone for a seventh straight day and outstripping gold's weekly gains by a huge margin. The ongoing eurozone sovereign debt crisis, unrest in the Middle East and North Africa, rising global inflation, and most recently worries over the fiscal stability of the United States have fueled the record-breaking rally in these precious metals. Spot gold rose to a record of US$1,512.50 an ounce, before easing to US$1,507.69 by 0853 GMT, on track for a weekly gain of 1.5% - its sixth consecutive week of gains. Spot silver hit US$46.69 an ounce, its highest since 1980, on course for a weekly rise of 8.4%, its biggest weekly increase in two months. Silver has gained 51% so far this year, and gold 6%. This compares with a corresponding 1% rise in the London Metal Exchange price of copper, the bellwether of the industrial metals complex. Supporting precious metals, the dollar was languishing near a three-year low against a basket of currencies, and could take a run at the all-time low hit in 2008, pressured by record low interest rates and the crushing weight of the US budget deficit. So long as the overall environment stays supportive and the dollar remains weak, gold is expected to retain its strength. Price of bullion is seen to rise to US$1,700 an ounce by 2015, analysts polled said. However, a correction might be on the horizon after the recent rapid ascent, traders and analysts said.

"Gold is likely to consolidate around the US$1,500-level next week," said Li Ning, an analyst at Shanghai CIFCO Futures. "The angle of the recent rally is very sharp, and we are bound to see some correction in the near term." Spot gold has rallied more than US$50, or 4%, in the past eight sessions. (Source: The Star, 23 April 2011) Gold Mining Affected by Rocky Issues Gold mining may not be a new activity in Malaysia but it is sad to see minimal efforts being taken to develop the lucrative business on a larger scale. This is particularly when the country is endowed with huge gold deposits stretching from the major Eastern Gold Belt stretching from Kelantan, Terengganu, Pahang right down to Johor as well as in Sabah all waiting to be fully explored. What more with gold prices trail blazing since 2011 and currently showing no sign of losing steam. Gold spot price yesterday hit another new record to trade at US$1,517.40 an ounce on weaker US dollar as well as continuing tension in the Middle East and North Africa. Many traders and research houses have even predicted that the precious metal might hit US$1,600 an ounce before year-end. As reflected by the surging prices, gold remains a safe haven investment among investors to guard against inflation and geopolitical turmoil. Given such encouraging developments on the global front for gold, one may wonder whether there will be enough incentives for state governments to issue more exploration licences and mining leases for gold to attract mining investors. The safest answers could be a small yes on the part of some mineral-rich state governments but a big no from potential major gold miners. Pahang, for example, has the largest gold mine in Malaysia at Penjom, Kuala Lipis which contributed almost 95% to total domestic gold production. There are also five gold mines in Jeli, Kelantan as well as six gold mines in Raub and Kuala Lipis still being excavated for commercial mining. The latest

finding for the precious metal is in Mersing, Johor and Lubuk Mandi in Terengganu. Despite some state governments gradually issuing exploration licences and mining leases in mineral-rich states, there are several impediments among gold miners. Some quarters maintained that it would not be economical to undertake gold mining activities in Malaysia. The Eastern Gold Belt, for example, may be rich with gold deposits but it is mostly in hard rock formation. In other words, huge capital investment would be needed to undertake prospecting, exploration and mining. Apart from that, potential miners would also have to deal with other major costs issues. These include high tribute request (payment between the owner of the mining lease and the mining operator) which could reach up to 10%, standard royalty of about 5% paid to the state on the minerals to be produced, corporate tax for the rehabilitation fund and the corporate responsibility (CR) work. Therefore, it is suffice to say that only major mining groups are capable of undertaking such high risks. On the other hand, mid and small-scale miners might have to take a back seat even though gold mining prospects in Malaysia certainly look promising and lucrative. (Source: The Star, 26 April 2011) Golden Offer for Al Rajhi Customers Al Rajhi Bank (Malaysia) plans to capitalise on the recent gold rush by offering its first gold product in Malaysia. Gold has been on the uptrend since breaking the US$1,500 (RM4,485)-an-ounce mark last week. Precious metals consultancy firm GFMS has projected that gold will reach US$1,600 (RM4,784) an ounce by the end of the year on concerns of high inflation. Yesterday, the world's largest Islamic bank started offering its affluent customers, which have a total credit balance of RM250,000 and above, an opportunity to invest in physical gold through its Al Rajhi Gold-i programme. Al Rajhi's flagship Affluent Branch is in Bangsar. The product will only be available in all other branches by the third quarter of 2011. The programme offers Swiss gold wafers and
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bars at 999.9 purity, that range from five grams to one kilogramme. "We realise that demand in real physical gold is rising over the years. Our target customer segment consists primarily of retail individuals with deep and growing interest to diversify their existing asset allocations to include physical gold bars or wafers as an alternative investment," said Al Rajhi Bank (Malaysia) director of retail banking Sabry Ghouse. Globally, 70 per cent of gold is traded for jewellery, while only 20 per cent is by individual investors. However, according to the 2010 World Gold Council, the global demand for physical gold bar or coins has increased significantly as individual investors, primarily from India and China, prefer physical gold to create and preserve their wealth in the long term. Asian countries in emerging markets recorded the strongest surge in demand in 2010. On anothor note, Al Rajhi plans to open five more branches this year, two in the next couple of months, in Kota Kinabalu and Ipoh. The Kota Kinabalu branch will complete the bank's aspiration of covering the whole of Malaysia. Al Rajhi currently has 20 branches around the country. It will also launch another unit trust fund soon. (Source: New Straits Times, 28 April 2011) Gold Strikes Record as Dollar Wilts Gold hit record highs yesterday as the dollar's three-year low against a basket of major currencies attracted non-US investors, after the United States signalled it would retain accommodative monetary policy. Spot gold ascended to a lifetime high of US$1,534.30 an ounce, breaking records for the second straight session. It traded at US$1,530.54 an ounce at 1116 GMT, up from US$1,526.40 late in New York on Wednesday. US gold futures also hit an all-time high at US$1,535.1 an ounce. The dollar index, a measure of the greenback's strength against a basket of major currencies, dipped to a three-year low after the US Federal Reserve signalled no rush to reverse low interest rates in order to support economic recovery. The weakening dollar

has been a key driver behind gold's rally in recent weeks, alongside concerns over the ongoing crisis in the Middle East and North Africa region, sovereign debt problems in euro zone and rising inflation worldwide. Meanwhile, buyers snatched up gold in the physical market in Asia, undeterred by record -high prices, as they expected bullion to continue to break records in a macro environment favourable to precious metals. In India, the worlds largest gold consumer, traders stepped up purchases ahead of key goldbuying festivals and during the ongoing wedding season. Buying is good even at current price levels, said Haresh Acharya, head of bullion desk at Parker Agrochem. We dont know by how much the prices could rise. (Source: New Straits Times, 29 April 2011)

pany, Smelter Asia Sdn Bhd, will develop, own and operate the private aluminium smelting plant with an annual capacity of 370,000 tonnes. The smelter will be located in Samalaju Industrial Park, 60km from Bintulu and some 180km from the Bakun hydroelectric dam. The park has been earmarked by the state government for heavy industries under the Sarawak Corridor of Renewable Energy master plan. Smelter Asia also executed the principal terms of the power purchase agreement (PPA) with Syarikat Sesco Bhd, the whollyowned subsidiary of Sarawak Energy Bhd, for over 600MW of power supply to the proposed aluminium smelting plant. Smelter Asia and Sesco will jointly conclude the PPA by midyear. The global demand for aluminium is projected to grow by an average 4% over the next five years, with Asia driving the demand. Our strategic collaboration will bring the best in class technology to create a modern aluminium plant that will contribute to the socioeconomic growth of Sarawak state, Syed Mokhtar said in a media statement yesterday. Meanwhile, Alabbar said the plant would not only benefit the country but also support the Asean region's development thrust by providing aluminium, which is critical in driving the massive infrastructure projects that are being planned. This signing of joint-venture agreement marks a significant milestone in the course of project development. I believe Smelter Asia would become an indispensable driving force that dramatically stimulates Sarawak's economic growth, Aluminium Corp deputy general manager Zhang Chengzhong said. The agreement follows the execution of the heads of agreement for the JV in February. (Source: The Star, 29 April 2011) Chinalco, GIIG to Build Aluminium Smelter Near Bintulu GULF International Investment Group Holdings Sdn Bhd (GIIG) has entered into a joint venture agreement with Aluminium Corporation of China (Chinalco) to build a US$1.6 billion (US$1 = RM2.97) aluminium smelting
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Aluminium News Highlights

Press Metal Picks Samalaju for Expansion Press Metal Bhd (PMB) has picked Samalaju Industrial Park in Bintulu, Sarawak as location for its second phase expansion of its aluminium smelting operation. In a filing to Bursa Malaysia yesterday, the company said the expansion plan is to meet the growing demand of aluminium raw material in Asia. PMB, via its 80 per cent unit Press Metal Sarawak Sdn Bhd, has developed its Phase-1 aluminium smelting project in Mukah. The project will be funded by both internal funds and borrowings. (Source: New Straits Times, 6 April 2011) Joint Agreement on RM5bil Aluminium Smelting Plant Gulf International Investment Group Holdings Sdn Bhd, headed by local tycoon Tan Sri Syed Mokhtar Al-Bukhary and UAE-based business leader Mohamed Ali Rashed Alabbar, has entered into a joint-venture (JV) agreement with Aluminium Corp of China to develop a US$1.6bil (RM5bil) aluminium smelting plant in Sarawak. The JV com-

plant in Sarawak. GIIG is headed jointly by Malaysian tycoon, Tan Sri Syed Mokhtar Al Bukhary and UAE-based businessman Mohamed Alabbar. The signing in Kuala Lumpur was witnessed by visiting Chinese Prime Minister Wen Jiabao and Prime Minister Datuk Seri Najib Razak. The joint-venture, called Smelter Asia Sdn Bhd, will develop, own and operate the private aluminium smelting plant with an annual capacity of 370,000 tonnes. The smelter will be located in Samalaju Industrial Park, about 60km from Bintulu and some 180km from the Bakun hydroelectric dam. Samalaju Industrial Park is earmarked by the Sarawak state government for heavy industries under the Sarawak Corridor of Renewable Energy (SCORE) master plan. Smelter Asia has also signed the principal terms of the power purchase agreement (PPA) with Syarikat SESCO Berhad, the wholly owned subsidiary of Sarawak Energy Berhad, for over 600MW of power supply to the proposed aluminium smelting plant. "The worldwide demand for aluminium is projected to grow by an average of four per cent over the next five years, with Asia driving the demand," Syed Mokhtar said in a press statement. The modern aluminium plant is expected to contribute to Sarawak's the socio-economic growth, by creating new jobs and supporting industries. "Smelter Asia is a powerful example of global collaborations to create a dynamic socio-economic growth engine for Malaysia. The plant will not only benefit the country but also support the Asean region's development thrust by providing aluminium, which is critical in driving the massive infrastructure projects that are being planned," Mohamed Alabbar added. Zhang Chengzhong, Chinalco's deputy general manager said the Chinese group has been working closely with GIIG for the development of Smelter Asia Project over the past years. (Source: New Straits Times, 30 April 2011)

Demand Boost Seen for Korean, Taiwanese Steel South Korean and Taiwanese steel mills such as Posco and China Steel Corp could see a temporary surge in demand as their Japanese counterparts halt production at their plants after last Friday's earthquake and tsunami, OSK Research Sdn Bhd said, adding that an escalation in steel prices is likely, especially for flat products. The research firm sees South Korean and Taiwanese mills as major beneficiaries given that they are focused on premium flat steel products and are among only a few producers in this region that produce quality products matching that of the Japanese mills. "Other mills from China, the Commonwealth of Independent States (CIS) and Southeast Asia (SEA) may only substitute the supply since commercial grade products are not the main focus of Japanese mills. And while the flat products of some Chinese mills have attained quality of automaker standard, they are already heavily committed to their local customers," OSK said in a report yesterday. It said given that Japan is a major supplier in SEA and the Far East, the potential shutoff may lead to curtailment of supply. "The latest statistics from the Japan Iron and Steel Federation showed that Japan exported 43.4 million tonnes of steel in 2010, with flat and specialised steel representing the bulk of the total export tonnage of 57% and 18% respectively. The void left will be leveraged by mills from Asia-Pacific that would be more than eager to divert volumes to this region to make the best of the situation," it said. Still, the supply disruption is likely to be only a blip as OSK expects the steel production halt in Japan to be temporary. As other mills step in and fill the gap, we think they would be motivated by higher prices, and thus see an escalation in steel prices, it added. Meanwhile, the production halt by Japanese mills may result in a shortfall in demand of iron ore, scrap metal and coke, leading to a price drop in the spot market. The research firm has a neutral call on Malaysias steel mills as most of them are involved in long steel products, while for those which produce flat steel, their product quality may not match
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Steel News Highlights

Japanese standards, and hence are unlikely to be able to capitalise on the sudden shortage of flat steel exports from Japan. However, it believes most of the mills in Malaysia may benefit from a potentially shortlived escalation in steel prices. (Source: The Sun, 15 March 2011) JFE Steel may Trim Output JFE Steel Corp, the world's fifth-biggest steelmaker, is facing rising inventories due to weak demand from domestic manufacturers following last month's devastating earthquake and tsunami and may need to cut production ahead, the company's president said yesterday. Eiji Hayashida, also chairman of Japan's Iron and Steel Federation, told a news conference for the industry body that the impact of the quake on the output of steelmakers might have been smaller than expected in March, but that shutdowns of car and parts plants might take a heavy toll on steelmakers' production after May. The 9.0 earthquake and tsunami on March 11 has forced Toyota Motor Corp and many carmakers to operate at 50% of their target plans as the quake disrupted their parts supply chains and triggered power outages and an ongoing nuclear crisis. JFE will decide in early May whether it needs to cut output after seeing carmakers' production levels, Hayashida said. He said Japan's crude steel output in March might have been reduced by less than 1 million tonnes from February's 8.93 million tonnes, smaller than expected by many industry watchers. (Source: The Star, 20 April 2011)

spite rising interest rates, while raw material costs remain high partly due to persistent rains in Australia delaying production recovery. The devastating earthquake in Japan is also dimming overall demand prospects from key consumers such as carmakers, shipbuilders and consumer electronics goods makers as they struggle to normalise production amid rolling power blackouts. Japans JFE Holdings, the worlds No 5 steelmaker, reported a 67% fall in quarterly profit on Thursday after the March 11 earthquake curtailed shipments, and provided no guidance for the current financial year. South Koreas Posco, which trails Arcelor-Mittal and Baosteel, said its January-March operating profit was 921 billion won (US$852mil), below the consensus forecast of 1.1 trillion won by Thomson Reuters I/B/E/S. The profit compared with 1.44 trillion won a year ago and 519 billion won in the previous quarter, Posco said. Posco raised domestic steel prices by 16%18% this week in its first increase since July last year because of the surge in costs of raw materials such as iron ore and coking coal. Prices of spot iron ore have surged more than 30% since July. Shares in Posco, which counts billionaire investor Warren Buffetts investment vehicle Berkshire Hathaway Inc as its major shareholder, have little changed so far this year, underperforming the broader market, which renewed life-time highs this week, and lagging its home rival Hyundai Steels 18% jump. Prior to the result, Posco shares closed up 0.5% in a flat market. (Source: The Star, 23 April 2011) Vale may Cut Stake in Steel Mill JV with Korean Firms

Posco Q1 Profit Misses Forecast on Higher Costs Posco, the worlds No 3 steelmaker, reported a 36% fall in quarterly operating profit, missing forecasts, hit by high raw materials costs and low demand. The global steel sector, seen as a barometer of the broader economys health, is facing a margin squeeze as China continues to churn out record steel de12

Vale, the worlds largest iron ore producer, is in talks to reduce its stake in a joint venture with two South Korean firms to build an integrated steel mill in Brazil, a source with direct knowledge of the matter said yesterday. Local media reported that Vales stake may fall from 50% to 30% in the second phase of construction of the plant, while POSCO and Dongkuk Steel may increase their stakes to

35% each. POSCO, the worlds No 3 steelmaker, and smaller Dongkuk Steel agreed to hold an initial 20% and 30% stake in the project, respectively. POSCO and Dongkuk are in talks to increase their stakes in the joint venture with Vale in the second phase of construction, an industry source told Reuters, declining to elaborate further. But nothing has been decided yet as the second phase will start after the first phase is completed in 2014, he said, declining to be named due to the sensitivity of the issue. Last November, Vale signed a preliminary deal to take a 50% stake in the first phase of the steel mill with annual production capacity of three million tonnes. The project is expected to require US$4 billion (RM11.97 billion) in investments in its first phase. The plant, which will be located in Brazils Ceara state, will add another three million tonnes of capacity in the second phase of construction. (Source: The Sun, 26 April 2011)

just beginning to climb the steel intensity curve," Walsh said. Government efforts to redress the west-east income gap through intensive infrastructure construction will drive demand, he said, adding that per capita steel consumption in western and central regions was still not even half that of coastal regions. Luiz Meriz, China president of Brazil's Vale, the world's top iron ore producer, said on Tuesday that rumours of a slowdown in Chinese iron ore demand over the next few years were greatly exaggerated. "Steel intensity (the amount produced per unit of GDP) varies per region and it is still very low in western China, though it might have peaked in east coastal regions," he said. He said steel output in the east could peak by 2015, but growth in central and western regions would continue, adding that China's current 46 per cent urbanisation rate was expected to grow 1 per cent every year until it hits 70 per cent. Annual seaborne iron ore trade has more than doubled in the last 10 years to around 1 billion tonnes, driven primarily by demand from China's steel industry. The surge has prompted global mining giants to expand capacity, with Vale aiming to raise output to 522 million tonnes by 2015, up from 311 million tonnes last year and Rio planning an increase of more than 100 million tonnes by investing big in its Pilbara property and its Simandou project in Guinea. Official figures show that China imported 618.6 million tonnes of iron ore in 2010, down 1.43 per cent from the 2009 record, and the industry predicts a 6 per cent increase in imports this year. However, steel industry consultants MEPS said in a research report this week that Chinese demand is being underestimated to the tune of 118 million tonnes over the next t w o y e a r s . (Source: New Straits Times, 25 March 2011) Rio and Guinea in Iron-ore Deal Rio Tinto Plc said it would pay the Guinea government US$700mil under a mining settlement in a bid to start iron ore shipments by mid 2015. The Simandou project in the west African nation would require more than
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Iron Ore News Highlights

Mining Giants Eye Chinas Western Regions for Future Growth The world's biggest iron ore producers are looking to China's undeveloped western regions for future growth as steel output on the country's thriving eastern coast nears its peak. Speaking at a Metal Bulletin conference in Beijing, mining executives said the industrialisation and urbanisation of western regions like Xinjiang will need soaring volumes of steel and keep Chinese demand for imported ore at high levels. "Global iron ore demand for the foreseeable future is strongly driven by China," said Sam Walsh, iron ore director with Rio Tinto. "Steel use in high-intensity export-dominated cities like Shanghai, Tianjin and Beijing is already at the high levels of developed markets like South Korea, but what is truly remarkable is what is yet to come - inland provinces are

US$10bil of investment, Sam Walsh, chief executive officer of Rios iron-ore unit, said in a statement on Friday. The terms of the agreement wont be affected by current or future mining reviews by the Guinea government, according to the statement. Rio, the worlds second-largest mining company by sales, has said the project would demand tens of thousands of workers and would create 4,000 full-time jobs when production starts. The settlement between the London-based company and Guinea comes after President Alpha Conde ordered a drafting policy giving the country at least a onethird stake in mining projects. The agreement gives us the certainty we need to allow us to invest and move forward quickly, Walsh said in statement. The Guinea government had the right to as much as 35% of the project, Rio said. Rio has been involved in a dispute with Guinea since 2008, when the Government ordered it to hand over part of the Simandou venture, a stake later acquired by rival Vale SA of Brazil. Rio said last month it had already spent US$700mil on the project. Rio runs the Simandou project through the companys Simfer SA subsidiary. Rio has agreed to sell a 44.65% stake in Simfer to Aluminium Corp of China Ltd, or Chinalco, as the stateowned company is known. (Source: The Star, 25 April 2011)

per cent stake. The disposal will allow MSC to be focus on its core business, it added. (Source: New Straits Times, 18 March 2011) Rio in Talks to Buy Shares in Riversdale Rio Tinto Group, seeking to buy Riversdale Mining Ltd for A$3.9bil, is in talks to buy shares in the coal company from Cia Siderurgica Nacional SA, two people with knowledge of the matter say. They declined to be identified because the discussions are private. CSN, as the Brazilian steelmaker is known, owns 19.9% of Sydney-based Riversdale, according to data compiled by Bloomberg. Tata Steel Ltd owns 27%, the data shows. It wasn't clear how many shares Rio would buy from CSN. Rio confirmed it's in talks with a major shareholder after Riversdale halted its shares from trading yesterday in Sydney, citing notification by the Londonbased company of discussions. Gaining control of Riversdale's projects in Mozambique would boost Rio's reserves of steelmaking coal as prices double. If neither of these companies are sellers to Rio, I think Rio is likely to stay there with a minority interest of 40%, Peter Rudd, mining and resources research manager at Armytage Private Ltd, told Susan Li on Bloomberg Television's First Up programme. Maybe subsequently there's a share issue and they'd be able to take up their entitlement and maybe underwrite a shortfall and therefore increase their involvement. That's very speculative. Rio said on March 10 it would raise its offer to A$16.50 a share from A$16 should more than half of Riversdale's holders accept. The deadline for the sweetened bid was Monday, with the bid overall set to expire on April 6. Rio now owns 41% of its target, according to a filing yesterday. Rio rose 0.2% to A$82.01 at 12.10pm in Sydney trading. Riversdale closed on Monday at A$16.10. Tata and CSN have increased their stakes in Riversdale since the offer opened. Coal producers are being targeted as prices gain, forcing companies to spend more on acquisitions to secure reserves in nations

Coal News Highlights

Malaysia Smelting to Sell Asiatic Stake Malaysia Smelting Corp Bhd (MSC) has agreed to sell its 60 per cent stake in Asiatic Coal Pte Ltd for US$1.89 million (RM5.78 million) to Taurus Capital Ltd, which owns the remaining 40 per cent stake in Asiatic Coal. The disposal will be done in two parts, MSC said in a filing to Bursa Malaysia yesterday. The first involves MSC disposing of a 30 per cent stake in Asiatic Coal, while the second part involves Australia Oriental Minerals NL, a 76.91 unit of MSC, disposing of another 30
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from Australia to Mozambique as consumption in China and the developing world drives up valuations. A record US$30bil in deals may be completed in the coal industry this year as acquirers pay an average 33% premium, the highest in at least a decade and double the historical average, according to Bloomberg data. Rio genuinely believes that an outcome of those discussions is likely to emerge during the course of this morning, according to a letter from Rio's laywers Minter Ellison, lodged yesterday with the Australian stock exchange by Riversdale. Tata's managing director H.M. Nerurkar said on Feb 21 his company wanted to retain its stake in Riversdale. Tata also owns 35% of Riversdale's Benga coal project. Update: Rio Tinto cuts 50% condition on Riversdale bid. Meanwhile, Reuters reported Rio had lowered the acceptance condition on its A$3.9bil offer for Riversdale yesterday after entering into talks with CSN. Rio's offer of A$16.50 a share was now conditional on securing a minimum 47% of Riversdale shares by April 6, compared with 50%, the bidder said. If it failed to reach the new threshold, Rio would pay Riversdale shareholders only A$16 a share. (Source: The Star, 30 March 2011) High Coal Price Hampers TNB High coal prices have been working against Tenaga Nasional Bhd, and this has clearly been seen in its decreasing share price. Uncertainties in TNBs tariff mechanism has also seen foreign shareholding gradually decrease from a two-year peak of 12.7% in September 2010 to 10.4% in January 2011. With coal making up some 50% of TNB's fuel cost, even a small increase in the market price of coal greatly affects its bottomline. As it is, the supply of coal has already been tight. This problem was exacerbated with the flooding in Queensland, Australia. Australia is the world's largest supplier of coal, and thus, the floods caused coal prices to spike as fears of tight supply escalated. To make matters worst, the earthquake and tsunami tragedy hit Japan, and caused panic
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when its nuclear power plant threatened to emit radiation. There are now expectations for the Japanese to reduce its nuclear dependency and renew its purchases of coal for its thermal plants. This has caused coal to resume its upward trend. Coal prices have risen by 8% from last month to US$130 per tonne currently - 53% above the US$85 per tonne incorporated into TNB's current tariff structure. Currently, most of TNB's coal supply is purchased under term contracts with prices being negotiated annually based on current rates. A US$10 increase in coal prices will set TNB's net profit back by RM350mil to RM400mil. That's very significant, said a power analyst. AmResearch analyst Alex Goh maintains his financial year (FY) 2011 and FY12 coal cost assumption of US$100 per tonne, pending the developments in TNB's tariff review, scheduled bi-annually in July-August this year. Based on current coal prices and the current US dollar to ringgit exchange rate, the AmResearch analyst is estimating that TNB's FY11 to FY13 net profits could drop by 25% to 26%. We estimate that coal handling costs constitute about 0.6% of TNB's operating expenses given that coal makes up 50% of TNB's fuel cost; fuel costs, in turn, account for around 21% of operating expenses and coal handling costs are around 5% of coal cost, said an analyst from CIMB Research. Meanwhile, TNB's three-year coal transportation contract with Maybulk will expire in mid2011 and the rate is likely to be revised down significantly from the current high rate of US$60,000 to US$90,000 per day. Thus, TNB will benefit from lower handling and freight rates for its coal. However, we believe that this will be more than offset by the increase in coal price arising from extra demand from Japan for fossil fuels to compensate for the loss of nuclear power generation capacity. The national utility company has only managed to lock in 18% of the 18.1 million tonnes of coal that it expects to procure in FY11, said the CIMB analyst. ECM Libra research head Bernard Ching notes that power demand has been rising steadily from a low base in 2009. Power de-

mand has increased 8.9% from 83,353 GWh in 2009 to 90,771 GWh in 2010. Going forward, power demand growth will be driven by a potential rebound in Malaysia's Industrial Production Index (IPI), which in turn is driven by a steady recovery in the developed economies as well as successful implementation of projects under the government's Economic Transformation Programme, he said. Ching added that since the industrial sector accounted for the biggest source (44.3% or 40,186GWh) of electricity demand in 2010, any rebound in industrial production would in turn boost industrial electricity production, which would in turn positively impact overall power demand. Although the recent rise in coal prices will dampen the near term prospects of TNB, this will support its argument for a tariff hike which is likely to be implemented after the general election, according to Ching. Near term share price weakness presents an opportunity for accumulation as valuation is undemanding with financial year ending Aug 2011 price earnings at 12 times. The expectations of a tariff hike is premised on the Government's move to reduce subsidies to keep its budget deficit in check. With the general election speculated to happen this year, it would appear that hopes for a tariff hike is diminishing. A tariff hike may help the Government reduce subsidy expenses but it can also lead to inflationary concerns. TNB is now paying a subsidised gas price of RM10.70 per million British thermal units (mmbtu), which is lower than the market price of about RM12 per mmbtu. Last week, TNB acquired 22.1% of port operator Integrax for RM106.5mil. TNB has been looking into ways to reduce fuel costs amid the coal price surge. This was done via a share sale agreement with two substantial shareholders of Integrax. Halim Rasip Holdings Sdn Bhd and Rozia Hanis collectively agreed to sell 66.5 million Integrax shares to TNB. (Source: The Star, 30 March 2011)

Coal Prices at 4-month High Expectations that China would boost its coal imports over the summer months rose when its domestic thermal coal prices climbed further to scale a four-month high and port stocks dropped again to a five-month low this week. Coal with a heating value of 5,500 kcal/kg rose for the third week up to 785795 yuan (US$121.83) a tonne yesterday, while 6,000 kcal/kg NAR coal steadied at 845 yuan, according to industry data website SXCOAL. (www.sxcoal.com). On other price monitors such as the BohaiRim price index, the price of 5,500 kcal/ kg NAR coal has risen 1.9% from a week ago to hit 799 yuan this week, a sign that the price advantage for imports could be even wider. Stocks at top coal port Qinhuangdao posted its seventh straight week of declines, with stocks falling another 7% to 5.96 million tonnes, bringing total declines since the start of the month to 19.6%. (Source: The Star, 22 April 2011)

Other Minerals/Metals News Highlights

Malaysian Steel Firms Seek Safeguards Malaysian steel players are feeling the heat from their rivals in China and are seeking the government's help for safeguard measures. But local companies must make a case for this together with their peers in ASEAN, said the International Trade and Industry Minister Datuk Seri Mustapa Mohamed in a dialogue with the Malaysia Iron and Steel Industry Federation in Kuala Lumpur yesterday. Under the China-ASEAN free trade agreement, which came into effect from early 2010, steel firms have to compete against rivals in China.

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Meanwhile, aluminium industry players lamented that the Chinese producers are enjoying lower material costs by 10 to 15 per cent compared with Malaysian firms, which buy the metals based on the London Metal Exchange prices. "We have also advised the aluminium producers to talk with their ASEAN colleagues and come with a strong case before it is brought to the Chinese authorities as a joint submission," he said at a media briefing yesterday. According to the aluminium industry, many countries including India and the European Union, have implemented duties against the import of Chinese aluminium products. The steel players are also urging the government to follow the stand taken by Vietnam and Indonesia to ban the export of scrap metal, saying it is a local resource needed by domestic users. On the industry's outlook, the federation said the steel industry will continue to grow at a rate of 5 to 7.5 per cent this year. Although it is not specifically identified as a National Key Economic Area (NKEA), iron and steel products will become raw materials supporting the 19 projects and developments for the 10 NKEAs. They are keen to see the construction of the RM36 billion Mass Rapid Transit project, construction of hotels and resorts for tourism development and investments in the gas and energy sector. But they have to use scrap metal in their operations and have to contend with slightly higher scrap metal prices. Scrap metal prices have risen following the uptrend in iron ore and coking coal prices to about US$500 (RM1,520) per tonne from around US$400 (RM1,216) per tonne in December. The dialogue with metal industry players is the second held with industries in Malaysia to address non-tax issues. The metal industry comprises iron and steel and non-ferrous metal (tin, aluminium, copper, zinc and lead) sub sectors. (Source: New Straits Times, 2 March 2011) Taking a Risk for Rare Earths A colossal construction project here could
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help determine whether the world can break Chinas chokehold on the strategic metals crucial to products as diverse as Apples iPhone, Toyotas Prius and Boeings smart bombs. As many as 2,500 construction workers will soon be racing to finish the worlds largest refinery for so-called rare earth metals the first rare earth ore processing plant to be built outside China in nearly three decades. For Malaysia and the worlds most advanced technology companies, the plant is a gamble that the processing can be done safely enough to make the local environmental risks worth the promised global rewards. Once little known outside chemistry circles, rare earth metals have become increasingly vital to high-tech manufacturing. But as Malaysia learned the hard way a few decades ago, refining rare earth ore usually leaves thousands of tons of low-level radioactive waste behind. So the world has largely left the dirty work to Chinese refineries processing factories that are barely regulated and in some cases illegally operated, and have created vast toxic waste sites. But other countries wariness has meant that China now mines and refines at least 95% of the global supply of rare earths. And Beijing has aroused international alarm by wielding that virtual monopoly as a global trade weapon. Last September, for example, China imposed a two-month embargo on rare earth shipments to Japan during a territorial dispute, and for a short time even blocked some shipments to the United States and Europe. Beijings behavior, which has also included lowering the export limit on its rare earths, has helped propel world prices of the material to record highs and sent industrial countries scrambling for alternatives. Even now, though, countries with their own rare earth ore deposits are not always eager to play host to the refineries that process them. An American company, Molycorp, plans to reopen an abandoned mine near Death Valley in California. But Molycorp must completely rebuild the adjacent refinery to address environmental concerns. All of this helps explain why a giant Australian mining company, Lynas, is hurrying to finish a US$230mil rare-earth refinery here, on the

northern outskirts of Malaysias industrial port of Kuantan. The plant will refine slightly radioactive ore from the Mount Weld mine deep in the Australian desert, 4,020km away. The ore will be trucked to the Australian port of Fremantle and transported by container ship from there. Within two years, Lynas says, the refinery will be able to meet nearly a third of the worlds demand for rare earth materials not counting China, which has its own abundant supplies. Nicholas Curtis, Lynass executive chairman, said it would cost four times as much to build and operate such a refinery in Australia, which has much higher labor and construction costs. Australia is also home to an environmentally minded and politically powerful Green party. Despite the potential hazards, the Malaysian government was eager for investment by Lynas, even offering a 12-year tax holiday. If rare earth prices stay at current lofty levels, the refinery will generate US$1.7bil a year in exports starting late next year, equal to nearly 1% of the entire Malaysian economy. Raja Dato Abdul Aziz bin Raja Adnan, the director-general of the Malaysian Atomic Energy Licensing Board, said his country approved the Lynas project only after an inter agency review indicated the imported ore and subsequent waste would have low enough levels of radioactivity to be manageable and safe. Malaysia had reason to be cautious: Its last rare earth refinery, operated by Japans Mitsubishi Chemical, is now one of Asias largest radioactive waste cleanup sites. We have learned we shouldnt give anybody a free hand, Raja Adnan said. Despite such assurances, critics are not convinced that the low-level radioactive materials at the Lynas project will be safe. The word low here is just a matter of perception its a carcinogen, said Dr. Jayabalan A. Thambyappa, a general practitioner physician and toxicologist. He has treated leukemia victims whose illnesses he and others have attributed to the old Mitsubishi Chemical refinery. That plant, on the other side of the peninsula, closed in 1992 after years of sometimes violent demonstrations by citizens protesting its polluting effects. Now, in an engineering effort
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that has largely escaped the outside worlds notice, Mitsubishi is engaged in a US$100mil cleanup. Rare earths, a group of 17 elements, are not radioactive themselves. But virtually every rare earth ore deposit around the world contains, in varying concentrations, a slightly radioactive element called thorium. Radiation concerns along with low-cost Chinese competition eventually forced the closing of all rare earth refineries in Japan. It was during this phase-out that Mitsubishi moved its refining operation to Malaysia, where old tin mines had left behind thousands of tons of semiprocessed slag that was rich in rare earth ore. It also had extremely high levels of radioactive thorium. The new Lynas refinery, with nearly two dozen interconnected buildings and 50 acres of floor space, will house the latest in pollution control equipment and radiation sensors. A signature feature will be 4.8ha of interim storage pools that will be lined with dense plastic and sit atop nearly impermeable clay, to hold the slightly radioactive byproducts until they can be carted away. But carted to where? That is still an open question. Building the lined storage pools was one of the promises Lynas had made to win permission to put the refinery here, in an area already environmentally damaged by the chemical plants that line the narrow, muddy Balok River. Lynas Curtis insists the new factory will be much cleaner and far safer than the old Mitsubishi plant, which never should have been built, he said recently, as he led a tour of the sprawling Lynas refinery construction site here. One big difference, he said, was that the ore being imported from Australia is much less radioactive. It will have only 3 to 5% of the thorium per tonne found in the tin mine tailings that Mitsubishi had processed. And he said the Lynas factory would also process 10 times as much ore with only twice as many employees about 450 in all thanks to automation that will keep workers away from potentially harmful materials. But the long-term storage of the Lynas plants radioactive thorium waste is still unresolved. After using sulfuric acid to dissolve the rare

earths out of the concentrated ore, Lynas plans to mix the radioactive part of the waste with lime. The aim is to dilute it to a thorium concentration of less than 0.05 percent the maximum permitted under international standards to allow the material to be disposed with few restrictions. Lynas wants to turn this mixture into large concrete shapes known as tetrapods that are used to build artificial reefs for fish and as sea walls to prevent beach erosion. Local residents seem to be of two minds about the sprawling plant being built near the river. The river empties into the ocean several miles away, next to an impoverished fishing village, where on a recent evening a small group of fisherman sat at the end of a wooden dock. Muhamad Ishmail, 56, said that pollution from the chemical factories that started opening upstream in the 1990s had forced local fishing a river industry for generations to move primarily out to sea. Although one of his five children works in the nearby industrial district, Ishmail said he did not want Lynas or anyone else to open any more factories. This river used to be clean, and you could catch fish right here, he said. But Muhamad Anuar, 30, said his community needed the reliable paychecks that Lynas might offer. I have two kids, and I dont want them to be fishermen, he said. Its a hard job. (Source: The Star, 10 March 2011) Lynas Must Meet Msian AELB Standards Australia's Lynas Corp has to meet strict standards set by the Malaysian Atomic Energy Licencing Board (AELB) to secure a licence to operate its rare earth ore processing plant that is under construction in Gebeng in Kuantan. To get the licence, Lynas has submitted an application for pre-operations. It is still incomplete but they are beginning to provide documents,'' said AELB director general Raja Datuk Abdul Aziz Raja Adnan. The licence will only be issued after and interagency assessment is done.'' But before it begins operations, a pre-operating licence will be issued for Lynas to show proof of its claims that its raw materials are safe, nontoxic and are non-hazardous.''
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The board will have to verify and decide but of utmost (concern) to us is the safety and security of the workers, the community and the environment. If they (Lynas) do not meet the conditions set by the government, then there is little we can do to help,'' Raja Aziz told StarBizWeek yesterday. The Gebeng plant was thrust into the limelight after a New York Times report said the long term storage of thorium waste was still unresolved. The ore to be imported for processing in Malaysia will have 3% to 5% of the thorium per tonne found in the tin mine tailings that Mitsubishi had processed.'' This raised alarm bells and the critics are unconvinced - to them, the risks of radioactive pollution is very real because refining rare earth minerals usually leaves thousands of tonnes of low level radioactive waste behind. The stringent rules and layers of monitoring imposed by Malaysia is vital as it cannot afford a second tragedy after the contamination caused by the Mitsubishi Chemicals plant near Ipoh. The plant - Bukit Merah Asian Rare Earth - was shut down after a protest in 1992 and now the cleanup is complete. Raja Aziz said the site had been handed over to the local authorities. Lynas promises that it will set a precedent for leadership in environment performance. We are dedicated to zero harm and care and well-being of our people and the communities in which we operate is at our core. We have agreed to place funds with the Malaysian government to ensure safe management of any remaining residue as required by the AELB,'' Lynas vice president of corporate and business development Dr Mattew James said in an email. He added that the raw materials from Mount Weld has naturally low levels of thorium and according to Nuclear Malaysia, it is 50 times lower than the different raw materials used at Bukit Merah. How dangerous is this waste? This is not radioactive waste. It is under the category of industrial waste which contains normal radioactive elements and they are just the same as your granite walls in your house and the water in the ground. We are very careful as a precedent has been set in Perak,'' Raja said. Lynas, based in Sydney, is investing

US$230mil to build the world's biggest rare earth ore processing plant in Gebeng. This plant will provide materials critical for the manufacture of high tech goods. This is the first such facility to be built out of China for decades. The aim of the plant is to reduce China's monopoly on the global supply of 17 rare earth metals essential for making products like flatscreen TVs, mobile phones, hybrid cars and even weaponry. The raw material for processing will have to come from Western Australia. Lynas got MIDA's approval to set up the plant here three years ago and it will enjoy a 12year tax holiday. The report said about 2,500 workers are rushing to complete the construction so that operations can begin this year. Asked how Lynas will clean up the waste from the plant, Raja Aziz said: We have been monitoring and taking environmental samples (from the onset). We will make sure there is subsequent monitoring of the operations if (their application) is approved as it must not have an impact on the environment. That is our guarantee. We are not promoters but concerned for the public. We monitor the situation all the time and its impact on the workers, the public and the environment. If there is an impact, we have provisions to suspend the licence (if it is approved),'' Raja said. He said even before the construction began, the Environmental Impact Assessment (EIA) and Radiological Impact Assessment reports had been undertaken. It is a performancebased EIA, not prescriptive. This means we, and some other government agencies, have to monitor and measure the levels of radioactivity (all the time). There were no concerns in the EIA as (Lynas) is convinced that the radioactive levels will be below the (permissible) levels, but we will have to check it for ourselves,'' Raja Aziz said. (Source: The Star, 12 March 2011) OMH Plans Sarawak Smelter OM Holdings Ltd (OMH) plans to set up a manganese and ferro silicon alloy smelter under the Sarawak Corridor of Renewable Energy (SCORE) initiative. The company,
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which is listed on the Australian Securities Exchange (ASX), said as part of expanding its South East Asian smelting strategy, it was now assessing the commercial development, finance, construction and operation of the proposed smelter facility. The smelter facility is expected to have the capability to produce 300,000 tonnes of manganese ferro alloys and 300,000 tonnes of ferro silicon alloys (a year) for consumption by the growing Asian steel industry, OMH said in an announcement to the ASX. OMH said its preliminary feasibility study on the smelter project was due for completion by the middle of this year while the bankable feasibility study was expected to be ready in the third quarter. Its wholly-owned subsidiary, OM Materials (Sarawak) Sdn Bhd, has executed an exclusive memorandum of understanding (MoU) with Syarikat Sesco Bhd (SSB) for the supply of electricity to the proposed smelter. SSB, a wholly-owned subsidiary of Sarawak Energy Bhd (SEB), is licensed to generate, transmit and distribute electricity in Sarawak. It is in the process of acquiring power from Bakun hydroelectric dam to be supplied to energyintensive industries to be set up in Samalaju Industrial Park, Bintulu within SCORE. The 2,400MW Bakun dam, which is developed by Sarawak Hidro Sdn Bhd, is expected to produce its first 300MW in three to four months' time. Sarawak Hidro managing director Zulkifle Osman told StarBiz earlier this week that wet testing of the first of the eight turbines would be carried out next month when the water level at the dam reservoir reached 195 metres. The current level is 185 metres. He said negotiations on sales of Bakun power to SEB was progressing well, and that Sarawak Hidro and SEB were now nearer to reaching an agreement on tariff rates. OMH said under the key terms of the MoU, both parties would enter into exclusive negotiations regarding a long term power purchase agreement (PPA) for 500MW of power capacity to be utilised by the proposed smelter. Both OMH and SSB have entered into an indicative term sheet which outlines the negotiation process as well as the principal terms and conditions to be addressed in the PPA. Both parties are targeting to finalise

and sign the PPA by the third quarter. The PPA would be subject to certain conditions precedent being satisfied by both parties, including various approvals, compliance and regulatory requirements, added OMH. OMH is the second foreign company to invest in a manganese smelter in SCORE. According to Sarawak Chief Minister Tan Sri Abdul Taib Mahmud, Asia Minerals Ltd would invest in a manganese smelter with an annual capacity of 400,000 tonnes. OMH has roots in metal trading, including the sourcing and distribution of manganese ore products, and subsequently in processing ores into ferromanganese intermediate products. It now operates commercial mining operations, leading to a fully integrated operations covering Australia, China and Singapore. (Source: The Star, 18 March 2011) Rare Earths Exports to Reach RM8bil Processed rare earths exports from a Malaysian plant owned by Australia's Lynas Corp could hit RM8bil a year from 2013 based on current prices, a top company official said, as buyers chase supplies outside China. The forecast is more than nine-fold increase from earlier projections of RM880mil in 2009 and would be the equivalent of about 1% of Malaysia's gross domestic product, Lynas executive vice-president of strategy and corporate communication Matthew James said. The Lynas Advanced Materials Plant in Pahang is slated to begin production in September 2011, making it a key global supplier, after top rare earth producer China last year imposed export quotas to retain resources. Lynas is a key part of that supply response, James told Reuters yesterday. Malaysia will become the go to destination for value-added exports. Companies requiring rare earths would eventually locate on the east coast of Malaysia. Lynas is acting as a seed for future investments, he added. (Source: The Star, 19 March 2011)

Rio Tinto Eyeing Quality Mining Assets Rio Tinto Group, the worlds second-largest mining company, is looking to buy quality assets while maintaining a selective approach to takeovers, according to chief executive officer Tom Albanese. We will limit mergers and acquisitions to small and intermediate size, which we would define as single billion category, Albanese said yesterday at a conference in Hong Kong. First-tier assets are still few and far between. We are going somewhat cautious and circumspect. Albanese returned to takeovers this year, raising his offer for coal producer Riversdale Mining Ltd to A$3.9bil (US$3.9bil), after his purchase of Alcan Inc in 2007 left the London -based company with US$40bil in debt. A lack of new projects is forcing miners to expand through acquisitions. We want to look at high quality projects, Albanese said. Most of the stuff that Im seeing pitched in the investment universe now are resources that were discovered 10, 20 years, even 30 years ago. They were dogs then and they are coming to light because the economy is a little better. Rios shares were unchanged in Sydney trading at 1:28pm Sydney time. Theyve dropped 5.8% this year. (Source: The Star, 24 March 2011) China to Raise Tax on Rare Earths in April China will increase a tax on rare earths from April 1, according to a local media report yesterday. The report, carried on the website of State Administration of Taxation, said the resource tax would be raised to between 30 to 60 yuan a tonne, depending on type, a substantial increase from the current level of 0.53 yuan a tonne. China, the worlds dominant producer of rare earths, has restricted exports, forcing international prices up dramatically since July last year. (Source: New Straits Times, 25 March 2011) BHP Spending US$9.5b to Boost Mining Ops

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BHP Billiton has approved US$9.5 billion (US$1 = RM3.03) of capital investment to expand its Australian iron ore and coal mining operations, showing that planned mining and carbon taxes are not crimping its growth plans. The world's biggest miner has decided to expand its own operations and infrastructure rather than chase ambitious takeovers after three failed deals as it scrambles to meet rising demand from Asia. The investments announced for its Pilbara iron ore project, plus its Bowen Basin and Hunter Valley coal projects, mark the first details BHP has given of a planned US$80 billion in investments over five years. "This is putting meat on the bones with regard to timing, actual tonnes and the amount of capex," said Constellation Capital Management portfolio manager Peter Chilton. "Rio has done the same, trying to get more out of their existing assets. It's not like making a big acquisition, these are all things they have control over and manage already," he said. Other major capital projects include expanding the Olympic Dam copper and uranium mine. BHP has previously announced plans to spend around US$20 billion on that. Analysts estimate the massive Jansen potash project in Canada, still in the feasibility stage, could cost up to US$13 billion to build. Analysts have noted BHP's average annual spend over the next five years was not much bigger than rival Rio Tinto's plans for 2011 and 2012. BHP said the investment would develop port capacity and reduce bottlenecks so that port and rail systems could operate at full capacity, as mine production continued to grow. The announcements came just a day after Australian mining companies won a concession over a plan to tax their profits at 30 per cent, with the government agreeing to repay current royalties the miners pay to state governments. BHP ferrous and coal chief Marcus Randolph said the concession had been expected, and the profits tax on iron ore and coal mines had long been factored into the miner's plans. "We reached a framework agreement with the government quite a while back and our assumption was that agreement was going to
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be respected. So we continue to operate and invest on that premise," Randolph told a media briefing. Randolph said BHP had also factored a planned carbon tax into its analysis for several years, and such a tax would not make a big difference to these projects as they were not major users of energy. The top global miner said it would invest US$6.6 billion in a total investment of US$7.4 billion to continue production growth in its western Australian iron ore operations, to increase annual capacity to above 220 million tonnes. Strong demand from Asian steelmakers has sent prices of coking coal surging. Contracts for coking coal in Asia for delivery in the second quarter of 2011 are expected to settle at around US$330 per tonne, up from US$225 per tonne in the first quarter. (Source: New Straits Times, 28 March 2011) Lynas of Australia Sheds Some Light on Controversial Project Australia-listed Lynas Corp Ltd had received approvals to build a rare earth refinery in Australia and China but had picked Malaysia as the preferred location given its proximity to market, access to high quality chemicals, utilities and engineering skills' coupled with its transparent regulatory framework, said the company. Lynas said it had initially obtained all approvals for this project in Australia but several factors in the country made it not favourable such as water shortage, difficulty of finding a suitable location that met with all its required infrastructure needs, lack of industrial land and port capacity, short supply of engineering and construction skills and the relatively high costs. The company said this in response to queries sent by StarBiz. China which produces 97% of the world's rare earth supply, according to Lynas, had previously approved its plan to set up the processing plant in the country but the Chinese government had later imposed export limits on all final products as well as export taxes. The Chinese government now controls and restricts export of all rare earth materials and also applies import and export taxes of up to 25% specifically for rare earths. Lynas was

unwilling to invest in China and then have the export of final products controlled by the Chinese government, Lynas said. In recent weeks, protests over Lynas' project in Kuantan have gained strong momentum; the project has drawn much flak on the back of concerns over its potential health and environmental risk from the radioactive waste. By all international standards, the Lynas raw material is classified as safe, non-toxic and nonhazardous, it reiterated. According to Lynas, the project's operating expenditure is estimated at RM350mil a year while it expects to rake in export revenue of RM880mil a year. It said the project would create over 350 skilled and semi-skilled job opportunities. In an attempt to clear the air, the supplier of rare earths said it had initially proposed to set up its RM1.3bil plant in Kemaman, Terengganu as per the advice of Malaysian Investment Development Authority (Mida) in 2006 and had designed the plant for that specific location, having obtained all relevant approvals from AELB, DOE and the Kemaman municipal council. However, while waiting for the Terengganu government to allocate the land, Lynas said Mida had asked the company to consider relocating the plant to Gebeng, Pahang, which is where it is currently being built. Kuantan, the company elaborated, is well-equipped with multi-port facilities, available industrial land, plentiful water supplies, natural gas pipelines and stable electricity supply and it also has diverse chemical, high quality chemical supplies which the company can purchase from local companies. At no time did the Terengganu government reject approval for the Lynas plant. Lynas feels an obligation to respond to recent public statements made about the Lynas Advanced Material Plant in Malaysiastatements we believe are factually incorrect, statements which are taken out of context, and statements which are misleading to the public, it continued. The Lynas plant will process raw material sourced from its mine and concentration plant in Mount Weld, Western Australia which will be transported to the facility in Pahang. This is very different to the raw material processed at the Asian Rare Earth Plant in Bukit Merah
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which used tin mining tailings as its raw material. This contained high levels of thorium, which was the source of high levels of radiation, and ultimately this plant's closure. Under current regulations, the raw material processed at Bukit Merah could not be processed in Australia, Malaysia or China today, it said, adding that by contrast, the Lynas raw material contained naturally low levels of thorium 50 times lower than the tin tailings used by Asian Rare Earth. (Source: The Star, 31 March 2011) Chinas Minmetals Offers US$6.5b for Equinox Minmetals Resources, China's biggest metals trading firm, yesterday offered US$6.5bil to buy Equinox Minerals, chasing the target company's copper assets in Zambia and Saudi Arabia. China, which accounts for 40% of the world's demand for copper, is on a mining acquisition spree as prices for the red metal hover near record highs. Minmetals, which owns mining operations in Australia and Asia, said it would offer C$7 per share for Equinox, a 23% premium to Equinox's close in Toronto last Friday of C$5.71. It would be China's fourth-biggest outbound M&A deal, according to Thomson Reuters data. Equinox's Australian shares surged 29% to a record A$7.35, topping the value of the Minmetals' offer on expectations a rival bid may emerge. It's game on now, said Ausbil Dexia chief executive Paul Xiradis, a shareholder in Equinox. They'll be looking to defend their turf and it may entice another party to come in as well, looking for quality assets such as those held by Equinox. Minmetals' shares rose 2.4% to HK$6.72. Chief executive Andrew Michelmore told Reuters the Equinox offer was Minmetals' best price, adding he was not considering increasing it. It fits into a strategy of building a leading international diversified base metals upstream business, he later told a media conference in Hong Kong. It certainly fits in with the strategy in terms of growing the base metal size, particularly in terms of copper, said Michelmore, adding Minmetals would be the world's 14th largest copper producer after

the deal, from its current rank of 30th. The offer is conditional on Equinox dropping its C$4.7bil bid for Canada's Lundin Mining, which has been the subject of a separate takeover tussle between Equinox and Inmet Mining. Investors said it was possible rival bidders could emerge for Sydney and Toronto-listed Equinox, but said they might be deterred by Minmetals' financing power. While Minmetals has a market value of just US$2.5bil, the metals trading firm said its bid was being funded with credit from Chinese banks and equity investments by Chinese institutions. Ultimately no one wants to get into a bidding war with Chinese-related parties, given that Chinese companies are perceived to have a lower cost of capital relative to western companies, said Tim Schroeders, a portfolio manager at Pengana Capital. China, and to a lesser degree India, have been scouring the globe to secure resources to fuel their fast-growing economies. Chinese banks have loaned African nations billions of dollars and committed to fund major infrastructure projects as part of a drive to secure access to everything from copper to iron ore and food. Surging global demand for copper plus the high cost and long lead time to bring new resources to production has fuelled expectations of more takeover activity and a prolonged bull run in the metal. London Metal Exchange copper touched a record high of US$10,190 a tonne in February, and yesterday stood at US$9,350. It has risen some 120% in the past two years. Investors said Minmetal's offer premium was reasonable but not necessarily high enough, as Equinox's shares had declined in recent weeks on concerns about the Lundin deal. I would describe it as a realistic offer but not a knockout bid, said James Bruce, portfolio manager at Perpetual, which recently sold its Equinox shares. It's a cleverly timed bid by Minmetals. We thought Equinox were paying too much for Lundin and were taking on too much debt in that deal. This will be Minmetals' second major acquisition after it bought Minerals and Metals Group (MMG) for US$1.85bil from state-owned parent China Minmetals NonFerrous Metals Group late last year. It is already planning a
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new share issue of US$1bil to part-fund the MMG deal. Equinox said in a statement its board planned to meet to consider the Minmetals bid. It has not yet made a recommendation to shareholders to accept or reject the bid. A source familiar with Equinox said the Minmetals approach caught the company by surprise. Equinox executives are currently in Canada marketing the Lundin offer, which Lundin's board has urged shareholders to reject. The deal marks the latest in a string of Australian mining takeovers involving Michelmore, who has been criticised by some disgruntled investors for his track record on mergers and acquisitions. He was at the helm of WMC Ltd in 2005 when it was sold to BHP Billiton for US$6bil, a sale seen as too cheap after nickel prices rocketed shortly after the deal was completed. (Source: The Star, 5 April 2011) Press Metal, Partners Sign Deal with Sarawak Energy Press Metal Bhd and three foreign companies, which together plan to invest some RM9.5bil in energy-intensive industries in Samalaju Industrial Park, Bintulu, have signed separate power purchase agreement (PPA) term sheet with Sarawak Energy Bhd (SEB). SEB's chief executive officer Torstein Dale Sjotveit said Press Metal and the three companies OM Materials, Asia Minerals Ltd and Tokuyama Corp would require a longterm supply of 1,300MW to power their plants. The electricity will be supplied by the 2,400MW Bakun hydroelectric dam, which is expected to produce its first 300MW in three months. He said Press Metal, which owns and operates an aluminium smelter in Mukah, would invest RM5bil in a new smelter project in Samalaju. Press Metal, which also has operations in China, Singapore and Dubai, sold 20% of its stakes in Press Metal Sarawak to Japan's Sumitomo Corp about six months ago. OM Materials, a Singapore company listed on Australian Stock Exchange, and has operations in China, Australia and Africa, will invest US$300mil (RM903mil) in a manganese and ferro-silicon

smelting plant. Asia Minerals Ltd, a Hong Kong company with current operations in Mongolia, China, South Africa and Brazil, will also set up a manganese smelting plant with an investment of US$200mil (RM602mil), added Torstein at the PPA term sheet agreement signing ceremony witnessed by Sarawak Chief Minister Tan Sri Abdul Taib Mahmud here yesterday. He said Tokuyama Corp would invest RM3bil in a polycrystalline silicon factory, which is now under construction. The proposed plants of the four companies, which are the first batch of investors in Samalaju in Sarawak Corridor of Renewable Energy (Score), are expected to start commercial production next year and in 2013. Torstein said SEB would finalise the PPA with the four companies. He said SEB was concluding the PPA term sheet with another three Score investors, which planned to invest close to RM3bil. He did not name these investors. The seven investors are expected to create about 30,000 jobs when their plants are fully operational. SEB, together with the State Planning Unit, is also in various levels of discussions with up to 20 other potential Score customers, he added. Torstein said the signing of the PPA term sheet signified the positive development towards the success of Score, one of the five regional economic corridors in Malaysia. Score holds the most compelling comparative advantage for Sarawak in that the state has abundant energy resources, predominantly the hydro power, an area which SEB has been tasked to develop. He said it was a big challenge for SEB to develop up to 7,000MW by 2020 as being planned by the authorities. About 75% of the 7,000MW would be from hydro dams. SEB is now constructing the 944MW Murun dam, upstream of Bakun dam. (Source: The Star, 13 April 2011) Record Profits Seen for Rio, BHP Rio Tinto Group and BHP Billiton Ltd will report record profits this year as Australia ships more iron ore than ever and still fails to meet
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Chinese demand that has increased sevenfold in a decade. The biggest ore-exporting nation will send 425 million tonnes overseas, 5.5% more than in 2010, according to the Australian Bureau of Agricultural and Resource Economics and Sciences, the Governments commodities forecaster. Global seaborne supply of the raw material for steel will fall about 15 million tonnes short of demand, compared with an 11 million-tonne surplus last year, according to Macquarie Group Ltd. The Sydney-based bank is forecasting a 12% jump in prices this year, on top of 2010s 84% advance, showing why analysts estimate that Rio and BHP will report gains in profit of as much as 74%. Demand will also strengthen as Japan, the worlds second-biggest ore importer, rebuilds after its worst-ever earthquake. That still wont be enough to make shipping rates in the spot market profitable. Chinese appetite for iron ore isnt showing any signs of abating, said Chris Hall, who helps manage US$4bil of assets at Argo Investments Ltd in Adelaide, including shares of BHP. Add to that all the steel Japan will need to help rebuild after the earthquake and its looking like Australias iron-ore exporters are in for a good year. Record profit for mining companies wont necessarily mean profitable rates for the shipping firms hauling the material. Rates for capesizes, carriers three times the size of the Statue of Liberty, slumped 62% this year because of a glut of vessels, according to the London-based Baltic Exchange, which publishes daily rates for more than 50 maritime routes. Forward freight agreements, traded by brokers and used to hedge or bet on future transport costs, are pricing in a fourth-quarter rate of US$14,586 a day. While thats 92% more than now, its still less than the US$25,000 a day owners of capesizes valued at US$60mil need to cover expenses such as crew and financing, according to HSBC Shipping Services Ltd in London. Rates are volatile, rising or falling 10% or more in all except two of the last 30 months. The capesizes fleet of 1,082 vessels will expand 17% this year, compared with a 7% gain in demand to ship iron ore, the biggest

cargo, according to Clarkson Plc, the worlds largest shipbroker. About 90% of global trade moves by sea, according to the Round Table of International Shipping Associations. With the amount of new ships on order, it will not really be enough to make a massive difference, said Peter Norfolk, an analyst at Freight Investor Services Ltd, a broker of shipping derivatives in London. It will help, but I wouldnt expect it to lead to a significant increase in rates later in the year. Investors are already concerned that demand for commodities may weaken as China seeks to restrain growth. The Peoples Bank of China raised interest rates for a fourth time in six months on April 5, before a report forecast to show consumer prices climbed 5.2% last month from a year before, the fastest pace since 2008. Chinas growth of 9.5% this year, compared with 10.3% in 2010, will still be three times bigger than the US and five times that of the eurozone, according to the median estimates in Bloomberg surveys of as many as 89 economists. The anticipated surge in iron-ore exports to Japan may be delayed because the country first has to repair the ports and roads damaged by the earthquake and 2 tsunami on March 11. (Source: The Star, 13 April 2011) Wild Weather Slams Rio Tinto Coal, Iron Ore Output Global mining giant Rio Tinto yesterday said Australia's wild weather had seen first-quarter iron ore output shrink three per cent from a year earlier and steelmaking coal slump 12 per cent. The Anglo-Australian firm said production had dropped sharply as Australia's north was hit by record flooding and tropical cyclones hammered the vast continent's east and west coasts. "Our Australian coal, iron ore, uranium and alumina operations were affected by the extreme weather in the first quarter, but most are recovering and are benefiting from continued strong prices," chief executive Tom Albanese said. Global iron ore fell three per cent from the first quarter of 2010 to 42 million tonnes - a 16 per cent plunge on the previous record26

breaking quarter as cyclones and flooding struck the mineral-rich Pilbara region. "The impact of three tropical cyclones and additional tropical low depression systems caused out-loading operations to be suspended several times during the quarter, with the resultant loss of approximately nine shipping days," Rio said in its first-quarter operations report. "Severe monsoonal rains" in coal mining Queensland state saw coking, or steelmaking, coal output slip 12 per cent on year to 1.6 million tonnes, which was 29 per cent lower than the fourth quarter of 2010. Thermal coal, burned to produce electricity, held at a consistent level of 4 million tonnes, with other Australian mines making up the shortfall. Rio had to declare force majeure at all four of its Queensland coal mines after heavy flooding swept the state, swamping tens of thousands of homes and killing more than 30 people. One of the mines remains closed. Albanese said Rio had successfully taken control of Mozambique-focused coal miner Riversdale and "plan to accelerate the development of these significant tier one coking coal assets." It had also expanded iron ore capacity in the Pilbara by five million tonnes in the quarter to 225 million tonnes per annum. Rio is targeting 333 mtpa by the second half of 2015. Rio flagged annual iron ore production of 191 million tonnes, 9.3 million tonnes for steelmaking coal and 18.2 million tonnes for thermal coal. Analysts said Rio's numbers were disappointing, but broadly in line with expectations after weather-related disruption. "We are all aware of the weather issues and no one was really expecting production to be in line with the fourth quarter," analyst Richard Knights at Liberum in London said. Rio Tinto forecast its iron ore production for 2011 to total 191 million tonnes, roughly in line with market expectations. (Source: New Straits Times, 14 April 2011) Glencore Said to be Worth Up to US$69b Glencore is already worth as much as US$69 billion (US$1 = RM3.02), with its earnings set to double in two years, according to research from two banks underwriting the commodity trader's potentially record-breaking listing.

Glencore's banks are distributing research to potential investors to help convince them to back the previously insular trader as it seeks to raise as much as US$12.1 billion. Research from Barclays Capital and Credit Suisse - not distributed to the media but seen by Reuters - also forecasts rapid growth in key measures of profitability, such as earnings before interest, tax, depreciation and amortisation (Ebitda). Barclays says Glencore's equity is now worth US$52.5 billion to US$69.2 billion, while Credit Suisse values the Swiss firm, led by former coal trader Ivan Glasenberg, at US$53 billion to US$68.6 billion. Pre-flotation research typically excludes funds raised by selling new shares, in this case up to US$8.8 billion. If that is the situation here, it would mean the banks think that Glencore could ultimately be worth as much as US$78 billion after a listing - even more than the top of the US$45 to US$73 billion range implied by Glencore's own figures. The banks declined to comment. Valuation is a challenge for a complex business that is part trader, part miner, and part investor - a 34.5per cent stake in Xstrata plc is Glencore's biggest listed holding. Glencore is aiming to sell a 15 to 20 per cent stake worth US$9 to US$11 billion, including US$2.2 billion of existing shares and the option to sell an extra 10 per cent. Barclays says earnings will hit US$8.86 billion in 2012 - or more than double last year, when net profit was US$3.8 billion. Glencore's Ebitda will also far surpass 2007's record US$7.7 billion by 2012, the duo forecast. In the next two years, Barclays says it will more than double to hit US$12.9 billion, while Credit Suisse predicts it will touch US$11.76 billion. The rise far outstrips analysts' average forecast of a 48 per cent rise at Xstrata. The banks use a range of measures to value Glencore, including "sum of the parts" valuations and price-to-earnings and enterprise value to Ebitda ratios. On an EV/Ebitda basis, Glencore should fetch a premium to European miners, because of a lower tax base and less volatile earnings thanks to its marketing business, Barclays says. It says a long-mooted merger
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with Xstrata would make "a very attractive company" but the financing of such a deal "remains unclear" and would require significant debt or equity funding. Glencore chief executive Ivan Glasenberg said in a newspaper interview last Saturday that bringing Glencore and Xstrata together would add value but is not on the agenda at the moment. (Source: New Straits Times, 18 April 2011) Minmetals Withdraws Offer for Equinox Minmetals Resources Ltd, controlled by Chinas largest metals trader, withdrew its offer to buy Equinox Minerals Ltd after Barrick Gold Corp trumped it with a C$7.32bil (US$7.68bil) cash bid. The price offered by Barrick is above our most optimistic assessment of value, Andrew Michelmore, chief executive officer of Hong Kong-based Minmetals, said in a statement yesterday. Competing with Barrick at these prices would, in our view, be value destructive. The withdrawal clears the path for Torontobased Barrick to take control of the Lumwana mine in Zambia and Saudi Arabias biggest copper deposit, in the worlds most expensive copper mining takeover. Minmetals plunged in Hong Kong trading on concern it missed an opportunity to shore up copper reserves as Chinas demand grows. Minmetals had wanted to diversify its non-ferrous metal businesses by adding copper assets, said Helen Lau, a Hong Kong-based analyst with UOB Kay Hian Ltd. To become a world-class mining company, it has to do a lot of acquisitions. Minmetals dropped 7.9% to HK$5.26 at 2:28pm in Hong Kong yesterday, after falling as much as 13%. The company, controlled by state-owned China Minmetals Group, will concentrate on other opportunities and developing its own assets that include the worlds second-biggest zinc mine and projects in Australia, Laos and Canada. The Equinox offer by Minmetals was already Chinas largest ever proposed takeover of a mining company, and the 32% premium over the 20-day trading average would have been the most a Chinese company has paid for a mining deal

greater than US$500mil, according to data compiled by Bloomberg. China will continue to be very prudent buyers of assets, Chris Weston, an institutional dealer at IG Markets in Melbourne, said by mobile phone yesterday. They will be prepared to pay up for the right company at the right time. They may have looked at Barrick and said: They want it more. We dont want to get into a huge bidding war.

The offer from Barrick, the worlds biggest gold company, values Perth, Australia-based Equinox at 13.5 times earnings before interest, taxes, depreciation and amortisation, a record level for a copper takeover, according to data compiled by Bloomberg. It is priced at C$8.15 a share, 16% more than Minmetals offer and 17% more than Equinoxs average share price over the past 20 trading days. The bid values Equinoxs equity at 28 times net income, the highest for an acquisition in the industry and topping the 24 times multiple that underpinned Minmetals abandoned proposal. Equinox is expensive, but nothing is cheap now, said UOBs Lau. Minmetals may have to wait until resource prices fall, but its unlikely to happen anytime soon. (Source: The Star, 27 April 2011) New Rare Earth Plant Deal is a No-go, says Perak The Perak government will not allow another rare earth plant to be built in the state, executive councillor Datuk Hamidah Osman said. For any exploration work to be carried out, an application must be submitted to the state government through the mineral committee chaired by the Mentri Besar. The procedure is required for all mining projects, added Hamidah, who heads the state Industry and Investment committee. She was responding to an MoU signed between a Hong Kong company and state-owned Perbadanan Kemajuan Negeri Perak (PSDC) to explore and mine rare earth in the state. In a filing to the Hong Kong Stock Exchange dated April 18, CVM Minerals Ltd said it had entered into an understanding with PSDC, which reportedly agreed to carry out the project on a jointventure basis in Bukit Merah. The Hong Kong company, through its local subsidiary CVM Metal Recycle Sdn Bhd, has applied to the states land and mineral office for a licence to explore an area covering 250ha. Bukit Merah was the site of Malaysias rare earth plant 20 years ago, which is still undergoing a massive RM300mil cleanup of alleged radioactive waste. Hamidah said the Perak government has absolutely no interest to give the green light for such a sen28

sitive project to take off. The issue was blown out of proportion as the MoU clearly stated that both parties would only enter into a joint-venture should there be approval from the authorities. There is none and I do not foresee there will be any forthcoming, she told The Star at her office here yesterday. Hamidah said the matter was done without the state governments knowledge and it has advised PSDC chief executive officer Datuk Samsudin Hashim to refer to the government before entering into any future agreements. Meanwhile, Samsudin said the MoU had no binding effect and would expire in six months. (Source: The Star, 29 April 2011)

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