Kinsteel secures rights to mine iron ore in Pahang

Kinsteel secures rights to mine iron ore in Pahang
Business & Markets 2013
Written by theedgemalaysia.com
Tuesday, 23 July 2013 19:32

KUALA LUMPUR (July 23): KINSTEEL BHD [] announced it has secured the exclusive right to mine iron ore and other types of minerals at Kuala Lipis, Pahang.

The mining area covers approximately 500 acres, according to a statement issued by the company.

The mining agreement was signed between the Ruler of Pahang, Sultan Haji Ahmad Shah Al-Musta'in Billah Ibni Al-Marhum Sultan Abu Bakar Ri'ayatuddin Al-Mu'adzam Shah, and Kinsteel’s chief executive officer Datuk Henry Pheng Chin Guan.

The Sultan of Pahang was quoted as saying, “The mining operation is expected to bring economic spill over benefiting the State as well as the Rakyat.”

Pheng said, “The award of the mining rights is timely and in line with the Kinsteel group’s business. We expect the mining operation to enhance future earnings.”

The mining operation is expected to commence in 3-6 months.

lol.. ini memang actor...

Kenanga downgrade to hold -.- previously TP 0.58, now 0.26

Downgrade to HOLD. Though we are positive on the long-term impact of the iron ore mine award to Kinsteel, we do not think it will alleviate the group’s near-term liquidity issues. The stock may have bottomed given that: (i) the share price has already fallen 17% in the past week amid its debt servicing concerns; (ii) it is trading at close to its historical P/B lows of 0.48x. However, we downgrade the stock to HOLD with a new TP of MYR0.26 from MYR0.58, based on its historical P/B low of 0.45x (from 1x) as we think its cash-strapped situation will cap upside.

Secures mine concession. Kinsteel has entered into a mining agreement with KDYMM the Sultan of Pahang for the exclusive right to carry out mining of all types of iron ore and other minerals in Kuala Lipis, Pahang. The site measures approximately 500 acres and Kinsteel will commence mining operations in 3-6 months. However, details (i.e. reserves, annual output, concession tenure) are unavailable, thus we are unable to assess the incremental value to Kinsteel.

Long-term value in mine. In addition to selling iron ore to third parties (potentially the export market), Kinsteel could also reap the benefit of this relatively cheaper local iron ore by consuming it internally vs importing, which would lead to a much better cost structure. However, this will only materialize when its subsidiary Perwaja’s pelletizing plant comes onstream in 2Q14.

Cash-strapped. According to MARC, as at 6 July, Kinsteel had failed to build up the compulsory Finance Service Reserve Account (FSRA) by MYR5m in respect of its MYR100m medium term notes (deadline: 28 July). This has raised concerns over Kinsteel’s ability to meet its principal repayments of MYR40m and MYR10m in Aug and Sep 2013 respectively. We understand that the company is able to service these two upcoming debt repayments, but it remains to be seen whether it will be able to refinance its upcoming debt maturities.

Key risks include a potential equity raising exercise (via placement of new shares or a rights issuance) in view of the capex required for the mining activity and the need to refinance its current borrowings. Our forecasts are retained for now.