Good money in mining

  • Business
  • Saturday, 27 Jul 2013

MINING in Malaysia is not the big business it used to be. Tin mining tycoons are now corporate folklore, no thanks to the collapse of the global tin market in 1985.

The industry was then overshadowed by industrialisation and the oil palm industry. Its glorious past is manifested by the oil and gas industry which is the multi-billion ringgit industry it deserves to be due to planning and the work undertaken by Petroliam Nasional Bhd.

Apart from oil and gas, minerals are being mined by small-time miners in a rather ambiguous manner in most mineral-rich states.

But that is about to change.

The sector is now focusing on large-scale mining of major minerals such as gold, iron ore and coal. It’s no longer the domain of tin.

Last year, iron ore topped other major minerals in terms of production with 10.7 million tonnes mined valued at RM2.02bil. That is followed by gold with 4.6 million gm (RM700.8mil), coal at 2.95 million tonnes (RM442.2mil) and tin-in-concentrate at 3.66 million tonnes (RM236.5mil) respectively.

Furthermore, it’s no longer the purview of locals. There has been strong involvement by foreign investors, either indirectly or via stratagic joint ventures with domestic players in recent years.

Given the capital-intensive nature of the sector, raising the much-needed capital has been the biggest hurdle in the development of the mineral resources and mining sector in Malaysia which is said to have mineral deposits valued at RM336bil at current market prices.

“The past decades of lull in the mining industry had resulted in the slowing down of supplies in metals. The imbalance in the supply-demand curve thus pushes prices up, encouraging the exploration and development of new mining projects.

“This is perhaps the most exciting time in the history of the mining industry,” says Malaysian Chamber of Mines (MCOM) executive director Muhamad Nor Muhamad.

The industry

The local mining scene in Malaysia in recent years has been dominated by foreigner players or joint ventures with locals with deep pockets.

There are now 98 iron ore mines, 15 gold mines, 14 tin mines and seven coal mines in operation in the country.

Despite the encouraging growth in the mining sector, many feel that the disclosure over the handouts of mining leases, concessions, exploration permits as well as the scale of existing mining companies’ operations, profitability, mining royalty and taxes still lack transparency. Details are strictly kept from the eye of the public.

A check with the Department of Minerals and Geoscience (DMG) reveals that there are no specific breakdown in details of the annual mining leases or concessions granted by the respective state governments in terms of major minerals mined.

The DMG can only provide the total number of concessions and mining leases given out annually.

Over the past five years, there has been an inconsistent number of mining leases and concessions handed out.

For example, the latest available DMG statistics show that only 67 concessions issued in 2011, fewer than the 139 granted in 2010. In 2009, the number was 204 versus 71 in 2008.

In addition, there have been complaints by prospective mining investors over the long waiting period for approval of applications for mining leases or concessions at state level.

In Malaysia, the two main legal instruments that govern activities relating to “minerals” are the Mineral Development Act, 1994 and the State Mineral Enactment.

The Mineral Development Act came into force in August 1998, while the State Mineral Enactment is currently at various stages of being adopted by the respective state governments.

The Mineral Development Act 525 of 1994 defines the powers of the federal government for inspection and regulation of mineral exploration and mining and other related issues. The State Mineral Enactment provides the states with the powers and rights to issue mineral prospecting and exploration licences and mining leases and other related matters.

To date, eight states have adopted the enactment.

According to mining experts, the top three mining-friendly states are Pahang, Perak and Kelantan. Johor, Trengganu and Kedah are also gradually opening up to sustainable mining activities, say mining experts.

Meanwhile, MCOM president Datuk Seri Dr Mohd Ajib Anuar points out that Malaysia still holds the attraction as a good mining investment destination even though the country “has never been a major mining country compared with Australia, Indonesia, the Philippines and Vietnam.”

He attributes the current euphoria in mining to mineral policy, law and regulations pertaining to exploration and mining development, which are complete and transparent.

“There have never been any changes in the goal post so to speak once exploration licences and mining leases have been granted.

“Miners too have not experienced any mid-way changes of rules and conditions in the midst of undertaking exploration or mining activities,” he says.

Furthermore, easy access to facilities such as water, electricity and roads makes mining less costly in the country.

Due diligence

He however admits that: “The issuance of leases or concessions to individuals or joint ventures by the state governments can vary from a couple of years to many years.”

This is because the various technical departments at state level have to undertake their own due diligence process and checks on the applications before giving their respective comments.

Despite the long wait to secure mining leases and concessions, the lure of huge mineral deposits in Malaysia at current market prices estimated at a whopping RM336bil, continues to attract mining investors.

In terms of individual minerals, gold resource is pegged at RM14bil, coal higher at some RM124bil, tin at RM54bil and iron ore estimated at RM17bil.

“Prices may have softened lately but the near-term outlook is positive and trending upward by 2014,” says Ajib, who is also the CEO of Malaysia Smelting Corp Bhd and an experienced miner for over 40 years.

Under the present scenario, he envisage that if the mineral resource sector manages to maintain its 10% annual growth for the next seven years, the contribution to gross domestic product (GDP) can double to RM150bil by 2020 from the present RM69bil.

Last year, mineral and metal mining output from Malaysia generated annual revenue of about RM6,9bil, a 9.8% increase from 2011 and well above the country’s GDP growth of 5.6%.

In fact, the value added process normally increases the value of minerals by about 10 times, which means mineral-based products manufacturing contributed about RM69bil or close to 10% of the nation’s GDP, says Ajib.

Meanwhile, Australia-based mining consultant Lee Kong Leng says Malaysia may not match the rank of major global mining players but “it can be an important mining player in the region.”

It has a strategic geographical location and sizeable mineral deposits, all just waiting to be exploited.

Kedah-born Lee who has 35 years experience in handling mining investments related portfolios in Australia, Africa, China and South-East Asia concurs that big-scale mining will be the future trend in Malaysia’s mining scene.

He expects minerals that will continue to ignite mining interests among local and foreign investors in Malaysia includes gold, iron ore, coal, tin, copper, bauxite (aluminium) and limestones.

“Given the sizeable mineral deposits in Malaysia, I expect the mining sector here can be transformed into a good commercial business whereby it will be able to contribute positively to the country’s GDP in the near term,” adds Lee.


Gold mining used to be small-scale back then, but the emergence of foreign investors has resulted in large-scale mines in the famous gold locations such as Penjom, Selingsing and Raub in Pahang.

To date, there are three “decent” gold mines in Malaysia operated by foreign mining groups with minimum production of about 50,000 ounces per year.

The top three most productive gold mines in Malaysia belongs to PT J Resources Asia Pacific Tb in Penjom, Canada-based Monument Mining Ltd in Selingsing and Raub Australian Gold Mine.

Lee pegs these gold miners’ average cost of production in the region of US$300-US$400 per ounce.

“At the (gold) peak, miners can sell as high as US$1,000 per ounce. Just imagine the good margins to be made from gold mining and this is why foreign gold miners continue to flock to Malaysia.” adds Lee.

Muhamad Nor says Malaysia has never been a huge producer in gold, but the prospects have changed as “more players are granted permission to explore deeper into primary deposits that have remained untapped all these years.”

Malaysia produced about 4.6 million gm of gold valued at RM700.8mil from 15 mines last year.

“This might be a small number, but most notable is that top producing mines in the central gold belt are mostly foreign-owned,” adds Muhamad Nor.

It is reported that at least five gold mines in Malaysia are under foreign listed companies.

This include SGX-listed CNMC Goldmine Holdings Ltd in Sokor, AIM-listed Peninsular Gold Ltd which owns Raub Australian Gold Mine, TSX-listed Monument Mining Ltd and TSX and ASX dual-listed Olympus Pacific Minerals Inc.

Iron ore

Iron ore is also actively mined in Malaysia following more mining concessions secured in recent years, says Lee.

He says mining iron ore can be lucrative “if you are at the right place and the right time.”

“Just look at the world’s largest iron ore producers Rio Tinto and BHP Biliton. Their cost of production is only about US$50 per tonne but their selling price are marked up to US$180 per tonne at the peak period. Presently the selling price is US$120 per tonne,” adds Lee.

Last Tuesday, steel producer KINSTEEL BHD secured the latest exclusive rights to mine iron ore and other minerals on 500 acres at Kuala Lipis.

Terengganu in recent years has also been granting concessions for iron ore mining at Bukit Besi.

The recipients include Perwaja Steel Bhd, Eastern Steel Sdn Bhd and a joint venture between Hiap Teck Ventures Bhd and Beijing-based China Shougang and ChinaCo Investment Pte Ltd.

Lion Group, a JV between Takaso Resources Bhd and Golden Pharos Bhd are also reportedly eyeing similar concessions in Terengganu.

Another player known to the industry is Johor-based Aras Kuasa Sdn Bhd that owns six iron-ore mines in the country, and has exported over 1.5 million tonnes of iron ore since 2005.

Apart from big names like Perwaja and Eastern Steel, Muhamad Nor says most small iron ore mines with low grade deposits are located in Pahang, Johor, Perak, Kelantan, Kedah and Malacca.

The highest quality iron ore is in Bukit Besi which is believed to hold 50 million tonnes of reserves at 70% Fe content on 2,400 ha.

He says of late, most states are dishing out mining leases as well as prospecting and exploration licenses to interested parties.

“While Terengganu have been dishing out sizable leases to players, Pahang has never issued any lease on a big scale, with just leases of 100 acres and less, which will only be sustainable for two to three years.

“To have a sustainable and environmentally friendly operation, mines must be operated on a large scale, relative to the mineral that is mined.

Take iron ore for instance. It is a volume business, and mines should be 10 to 15 times larger than the ones currently issued in Pahang.


According to Lee, tin mining in Malaysia should not be left out despite the latest craze in mining gold and iron ore here

“Even though the cost of production here is high at about US$10,000 per tonne but the international price is still holding steady at US$20,000 per tonne.

“To mine tin in Malaysia is also less costly given the local alluvial tin content making it easier to mine.”

Last year, tin in-concentrates production has increased to 15,262 tonnes valued at RM980.95mil while tin exports were at 37,191 tonnes valued at RM2.4bil.

There may be a revival of the (abandoned) world’s largest tin mine in Sungei Lembing, Pahang via a joint venture between local and foreign parties, according to sources close to the industry.

Meanwhile for Sabah and Sarawak, Lee says both coal and copper mining should be further explored. “There is a large deposit of coal in Sarawak while copper is found at the Mamut Copper Belt in Sabah,” he adds.

For example, coal is a strategic energy mineral used in power generation and feed stock for manufacturing industries.

The largest reserves of coal are located in Merit Pila, Sarawak, Maliau and Malibau in Sabah.

Output in 2012 was at 2.9 million tonnes and produced primarily from seven mines in Sarawak.

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