Extracted from the Business Times

Go-ahead for RM7b smelter

By Adeline Paul Raj
Published: 2008/03/15

The aluminium smelter, once developed by Rio Tinto-Cahya Mata Sarawak venture, is expected to be one of the single largest foreign direct investments in Malaysia

RIO Tinto Alcan, part of the world's third largest mining group, has secured the Malaysian government's approval for a US$2 billion (about RM7 billion) aluminium smelter project in Similajau, Sarawak.

The Australian company and its Malaysian joint-venture partner for the project, Cahya Mata Sarawak (CMS), said yesterday that they had been granted a manufacturing licence from the Malaysian Industrial Development Authority.

The smelter, once developed, is expected to be one of the single largest foreign direct investments (FDIs) in Malaysia.

Rio has a 60 per cent stake in the venture, with CMS owning the remainder.

The FDIs coming in from this project is "quite significant" for Malaysia, says Lee Heng Guie, CIMB Investment Bank's chief economist.

"It's quite a good start for the year. The pull factors for FDIs - such as the various growth corridors, the continued rise in the Ringgit currency and the corporate tax rate coming down to 25 per cent next year - remain intact," he told Business Times.

Approved manufacturing investments in Malaysia rose 30 per cent to a record RM59.9 billion last year, of which the bulk - or RM33.4 billion - were foreign direct investments.

"This is a clear demonstration of the Malaysian federal government's confidence in the smelter project," Sandeep Biswas, Rio Tinto's senior vice-president for business development, said in a press statement.

He said the approval was a recognition of the significant benefits the smelter could deliver for Malaysia and the state of Sarawak.

The smelter is expected to contribute up to RM2.4 billion annually to Malaysia's economy and could generate up to 4,700 direct and indirect jobs.

It will have a production capacity of 550,000 tonnes a year in its initial phase, and this can later be expanded to 1.5 million tonnes.

On the stock market yesterday, CMS closed seven sen higher to RM1.98.

In August last year, Rio and CMS signed a heads of agreement to commence feasibility studies for the development of the smelter.

A detailed environmental impact assessment has begun, and international engineering consultant Bechtel was appointed to do an engineering study.

The project would require a lot of power and Rio Tinto reportedly wants to purchase electricity from the Bakun hydroelectric power plant.

In February, the joint venture - known as Sarawak Aluminium Co Sdn Bhd - inked a memorandum of understanding with Sarawak Energy Bhd, the state electricity utility company, to get supply of between 900MW and 1200MW of power, worth about RM5.25 billion, for the smelter plant.