Perwaja poised to reap huge cost savings

Kemaman: Perwaja Holdings Bhd has received approval in principle from the Terengganu state government to mine iron ore in Bukit Besi near Dungun.


The approval, announced by Terengganu Menteri Besar Datuk Seri Ahmad Said over the weekend, will help Perwaja bring down its costs, especially importing and shipping costs significantly.

"We've in principle agreed to Perwaja's request to mine iron ore in Bukit Besi and to have it pelletised here," Ahmad said.

Two weeks ago, OSK Investment Bank, in its notes to investors, said if Perwaja secures an iron ore mining concession, its immediate savings would be US$100 (RM296) a tonne because the cost of mining was less than US$50 (RM148) per tonne.

The firm added that the potential margin from pelletising should benefit Perwaja as transportation costs would be below US$10 (RM29.60) per tonne compared with the current capesize bulker freight of more than US$10 and US$20 (RM59.20) per tonne from Australia and Brazil, respectively, to bring iron ore here.

OSK's analysis was based on the assumption that Perwaja secures a 400ha iron ore mine in Bukit Besi with an initial capital outlay of US$10 million (RM29.6 million), producing 500,000 tonnes of iron ore in 2012, one million tonnes in 2013 and up to two million from 2014 onwards to 2031.

Ahmad said the approval was given on condition that there will be job creation and opportunities for Terengganu youths to acquire the necessary skills in iron mining and steel milling.

"We would be happy if at least 60 per cent of Perwaja's additional workforce are from Terengganu," he added.

Ahmad was speaking to reporters after officiating at Perwaja's ground-breaking ceremony to build a concentration and pelletisation plant here last Saturday.

"According to surveys done by several geologists, we estimate that there's still some 50 million tonnes of high grade iron ore in Bukit Besi and another 25 million tonnes of medium grade in Kemaman," he said.

The menteri besar said apart from Perwaja, there were several others which had also had applied to mine iron ore in Terengganu.

He declined to identify them.

"We'll announce our final decision when the time comes. We don't want to just dish out mining licences. We want to do what is in the best interest of the people of Terengganu," he said.

Industry observers felt that Ahmad did not want to elaborate because of a suit that is pending court judgment.

Two months ago, China Anshan Corp Sdn Bhd and its joint venture company, Terengganu Anshan Iron & Steel Sdn Bhd, filed a suit at the Terengganu High Court.

They claimed that the Terengganu state government, via Menteri Besar Incorporation, had allegedly breached its contract over rights to mine iron ore over a 697ha site in Bukit Besi, Terengganu.

China Anshan claimed that it had started detailed prospecting and exploration works at Bukit Besi in June 1991, which was completed in November 1992.

It also stated that the state government at that time had accorded it a 21-year mining lease expiring November 2013.

China Anshan is seeking a court order to declare the undertaking given by the state government in June 1990 to accord iron ore mining lease at Bukit Besi for at least 21 years as valid.

It also wanted an injunction to restrain the Terengganu state government from awarding the mining lease to any other party other than Terengganu Anshan, until further orders from the court.