Extracted from Malaysiakini

Taib wants smelter plant to proceed

Tony Thien | Dec 13, 08 1:30pm

Sarawak Chief Minister Abdul Taib Mahmud is not bothered by reports about the huge debt pile of a major Australian partner in a proposed US$3 billion aluminium smelter plant in Similajau, Bintulu, saying the project will proceed as planned.

The project is a 60:40 equity joint venture between Australia-based Rio Tinto Alcan and Cahya Mata Sarawak Bhd (CMSB), Taib’s family-controlled business group. It will have an initial annual production capacity of 550,000 tonnes and this will eventually increase to 1.5 million tones for the export market.

Commenting on a Malaysiakini report that the debt-saddled mining giant is laying off 14,000 jobs and selling assets to trim its nearly US$40 billion debt pile, Taib said in Kuching yesterday that the proposed smelter plant would go on as planned and that negotiations were still going on after the signing of what is called the Heads of Agreements between the parties in August last year.

According to Taib, Rio Tinto had informed him the project cost would likely be in the region of RM10 billion (US$3 billion) which he described as a good estimate as the price of commodities such as steel had come down due to recession and that this was the best time to invest.

The financial question surrounding the project is not the only issue, according to analysts. Another issue is the environmental  impact assessment  (EIA) studies which have not been approved and made available for public comment and scrutiny.

Malaysiakini understands that while the Malaysian partner is anxious to proceed with the project which has met with strong opposition from politicians and NGOs concerned about the environmental and other negative impacts, especially on the locals living around the area, Rio Tinto officials have indicated that they would be very transparent and open about the whole thing before it would invest huge sums in the project.

If everything goes well, production is scheduled to begin in the fourth quarter of 2011 at the earliest and it will tap cheap power made available by the nearby hydro dams in Bakun (which is two years behind schedule) and  Murum (which has yet to start construction).

More bad news

Meanwhile, Bloomberg has also reported more bad news about Rio Tinto, the world's second largest iron-ore producer, which has been ordered by the government of Guinea to hand over half of the country's Simandou deposit to a company controlled by Israeli diamond investor Beny Steinmetz.

Guinea ordered "a compulsory relinquishment of the northern half of the Simandou concession", while confirming Rio's right to the southern half, the miner said in a statement.

Steinmetz's BSG Resources took over the northern section, BSG chief executive Marc Struik said overnight in Johannesburg.

Rio complied with its obligations, is entitled to the entire licence and is working with Guinea to resolve the issue, it said.

The Edge said Rio, which is struggling to cut debt by slashing 14,000 jobs and reducing capital spending by more than half, said yesterday it would postpone non-essential investments in Guinea.

In August, the company which has been studying a US$6 billion project to develop iron ore at Simandou, said Guinea's president sent it a letter "purporting to rescind a mining concession".

Rio Tinto’s expanded sale of assets to pay down debt could net the group more than US$40 billion in better times. But the prospect of having to accept knockdown prices means Rio could struggle to meet its initial target of slashing US$15 billion from its debt by the end of next year,according to The Edge.

Rio increased the scope of its asset sales programme in its self-rescue plan announced on Wednesday. The plan included cutting 14,000 jobs from the group's global operations, freezing annual dividend payments and slashing US$7.5 billion from planned capital expenditure next year.