Talks continue between Smelter Asia and SEB for supply of power

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KUCHING: Smelter Asia Sdn Bhd’s (Smelter Asia) proposed 370,000-tonne smelter is set to boost the infrastructure sector in the future as news circulated on the company’s negotiations with Sarawak Energy Bhd (SEB) for the supply of power.

“The negotiation between the two party is for the supply of power in excess of 600 megawatts for the development of an aluminium smelter in Samalaju Industrial Park, Bintulu. We gather that negotiations are still ongoing although it is uncertain at this juncture how long the talks would continue,” AmResearch Sdn Bhd (AmResearch)

The research house explained that Smelter Asia was a joint venture between Gulf International Investment Group Holdings Sdn Bhd (GIIG) and Aluminium Corp of China (Chalco).

Both parties inked a pact last April to jointly construct a US$1.6 billion (RM5 billion) aluminium smelting plant with an annual capacity of 370,000 tonnes.

According to the report, the proposed new smelter would be almost of a similar capacity as Press Metal Bhd’s (Press Metal) facilities which was said to be of 240,000-tonne capacity. The latter’s facility was expected to commence operation by the end of the third quarter this year.

“The reported US$1.6 billion valuation for the Smelter Asia facility is higher than our estimate of US$900 million for both of Press Metal’s facilities in Mukah and Samalaju combined,” highlighted AmResearch.

The latest development followed an announcement by Sarawak Aluminium Co to call off its plans to build a RM7 billion smelter after it failed to strike a deal to purchase electricity from SEB. AmResearch understood that the negotiated power tariff was for the supply of 750 megawatt for the project.

“We maintain our view that Press Metal has already stolen a march over its rivals as Phase 2A of its Samalaju smelter is targeted for commissioning by September, followed by Phase 2B in mid 2013,” the research house said.

Press Metal was among four pioneer investors that had already secured long-term power supply agreements with SEB at attractive rates. Its Samalaju smelter was expected to take in 480 megawatt of power, adding to the estimated 200 megawatt it already received in Mukah.

The research house gathered that it would take two to three years for any new start ups, including Smelter Asia, to commence operations.

AmResearch continued to like Press Metal for its strategic transformation into the largest integrated producer of Aluminium products within Asean as the stock was only trading at financial year 2012 to 2014 forecast price earnings of six times to ten times against robust earnings per share compound annual growth rate of 23 per cent.