M’sia can be financing centre for mining assets

M’sia can be financing centre for mining assets
Business & Markets 2013
Written by Afiq Isa of theedgemalaysia.com
Monday, 03 June 2013 11:04


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KUALA LUMPUR: Malaysia’s tin mining sector may have lost its shine since the 1990s, but the country can still play an important role as a regional financing centre for mining-related assets.

Investec Bank plc, a specialist finance institution from South Africa, said the lack of capital markets in countries such as Myanmar, Laos and Cambodia, where mineral development is still at a relatively early stage, presents an opportunity for Malaysia.

“Malaysia’s reputation as a leader in Islamic financing will provide an alternative source of funding other than the traditional equity markets,” said Investec managing director Nanda K Menon in a recent interview with The Edge Financial Daily.

Nanda said a substantial portion of the Southeast Asian coastline is part of the “Ring of Fire”. This is where tectonic plate movement and volcanic activity have led to the existence of significant mineral deposits in the region estimated to be worth billions of dollars.

“The Ring of Fire has never been focused as a mining zone, except in Indonesia and Malaysia. A hundred years ago, the local sector contributed 90% of the global tin output, but now it is completely dead.

“However, there are a lot of emerging opportunities in countries around the region such as Myanmar, Laos and Cambodia where mineral development is still at a relatively early stage,” he said.

He said Investec, with its expertise in the mining and oil and gas sectors, can help with the listing of local mining companies and potential acquisition opportunities internationally. “We are able to offer them the necessary mining expertise in mergers and acquisitions, production growth prospects, and valuation of assets.”

Investec, listed on the South African and London stock exchanges, has a market capitalisation of US$6.5 billion (RM20.2 billion). It is one of South Africa’s foremost banking groups.

On why the local mining sector has been left underdeveloped for so many years, Nanda said the sheer complexity of the sector is a major factor in the lack of institutional mechanism to promote production growth.

“There is a lot of technical expertise involved in geological assessments and examining the cost structure of the mining operations. So, it is not just a question of a company having a robust business model,” he said.

Malaysia’s mining sector, according to the Malaysian Chamber of Mines, generated revenue of RM6.9 billion in 2012 from the various indigenous mineral and metal output.

If the mineral resources sector growth can be maintained at 10% for the next seven years, its contribution to the country’s GDP will double to RM150 billion in 2020, compared with RM69 billion presently.

In the light of this potential, several companies are already seeking to tap the sector. Mining-related special purpose acquisition companies (SPACs), such as TerraGali Resources Bhd and Australaysia Resources & Minerals Bhd, are expected to list on Bursa Malaysia this year.

On the advantages of a SPAC, Nanda highlighted the importance of having a local management team which is accountable under the Malaysian jurisdiction to protect investors.

“A SPAC will bring in the local management team beforehand and it has the expertise to analyse local assets before considering an acquisition,” he said, adding that the emergence of new mining entities on Bursa Malaysia will bring the sector to prominence and rejuvenate it after being overlooked for far too long.


This article first appeared in The Edge Financial Daily, on June 3, 2013.