Salco power deal talks under way

CMS seeks funding for 40% stake in aluminium smelter

KUALA LUMPUR: Cahya Mata Sarawak Bhd (CMS), which sees exciting times ahead with the implementation of the Sarawak Corridor of Renewable Energy (SCORE), is looking at raising funding on a non-recourse basis for its 40% share of the aluminium smelter at Samalaju.

Managing director Datuk Richard Curtis said negotiations for a power purchase agreement for the Salco (Sarawak Aluminium Company Sdn Bhd) aluminium smelter were ongoing and once concluded, final feasibility studies on the design, construction, commissioning and operation of the smelter would commence.

“Negotiations between CMS, Rio Tinto Alcan and Sarawak Energy Bhd to finalise a power purchase agreement for the Salco smelter are ongoing,’’ he told StarBiz in an email reply.

“Progress is being made towards a mutually agreeable set of terms that will underpin a long-term relationship spanning decades. While these negotiations have taken longer than initially expected, it is important for all parties to work through the details of the contracts to ensure that they stand the test of time.’’

Salco is a 40:60 joint venture between CMS and Rio Tinto Alcan (a subsidiary of Rio Tinto Aluminium, a leading global mining company based in Australia) to undertake the construction and operation of a huge smelter in Samalaju, Sarawak with a projected initial production capacity of 720,000 tonnes per year.

CMS will gain RM353.9mil from the sale of its stake in UBG Bhd and up to RM352.5mil has been earmarked for potential investment capital to take advantage of business opportunities that Sarawak and SCORE have to offer.

Until those investments have been identified, that money would be placed in liquid low-risk investments and with banks, according to Curtis.

“A major investment in the horizon for CMS will be the aluminium smelter at Samalaju,’’ said Curtis, adding that with it having a 40% interest in the project, CMS’ intended equity participation will be at a manageable level and would commensurate with its ability to meet the group’s financial obligations.

“We intend to raise project financing on a non-recourse basis for the balance required for our share in the project; the details of which will be announced in due course,’’ he said.

On Salco, Curtis said progress has already been made on its public detailed environmental impact assessment (DEIA) and those studies would continue alongside the feasibility studies to ensure all impacts (social, environmental and economic) were examined and evaluated prior to commencement of construction.

“The Sarawak government has also announced that power from the Bakun Dam will be used in SCORE projects. The Salco smelter is a key component of the next wave of development of Sarawak under the SCORE initiative,’’ said Curtis.

SCORE is one of the five regional development corridors being developed throughout the country and is a government initiative to transform Sarawak into a developed state by the year 2020.

It is seen as a major driver of business for the CMS group as the government’s plans for 3 growth nodes in Tanjung Manis, Mukah and Samalaju would translate into higher demand for construction materials.

“As the leading construction materials producer in Sarawak, CMS is well-positioned to play a major role to support the implementation of SCORE,’’ he said.

“We are gearing our operations to meet the growing demand for construction materials such as cement, concrete products, stone aggregates, premix for road surfaces, wires, water pipes, steel pipes, etc. We are keeping a close tab on the state’s plans and development needs, and are already initiating new investment opportunities in our core businesses with more under scrutiny to ensure adequate supply of construction materials to meet demand.’’

Curtis said CMS was also on the lookout for opportunities in which the group could participate in upcoming construction contracts or other investment opportunities as a result of SCORE and the 10th Malaysia Plan.

“CMS’ involvement may either be on our own, or in collaboration with partners armed with specialist skills and a proven track-record for quality and project delivery,’’ he said.

Apart from directly benefiting from SCORE, CMS feels that associate companies such as KKB Engineering Bhd would add to its position as a one-stop supplier of construction materials in Sarawak.

Curtis said another associate of the group, K&N Kenanga Bhd, was aggressively looking to expand its business by helping companies already in the state or hoping to enter Sarawak with advisory services or funding in order to participate in the growth of SCORE.

“After attempts to seek out business opportunities beyond Sarawak in 2006, we made a conscious decision to align our businesses and focus on strengthening our capabilities in markets that we knew well,’’ he said.

“CMS Group is focused on strengthening our core businesses in construction materials and property development of our large land bank around Kuching. We are optimistic of CMS becoming a major metals producer in the region in the future, and are also looking to realise increased returns and growth in shareholders value from our strategic investments in steel fabrication and financial services which we believe to have a high growth potential.”