Ann Joo Resources expects to sustain operational costs - MD

Monday, 14 Feb 2011

It is reported that Ann Joo Resources Bhd, the largest steel firm in Malaysia by market capitalization, expects to sustain operational costs in the short term despite rising coal prices.

Mr Datuk Lim Hong Thye MD of Ann Joo Resources Bhd said that however, over the long term, the group and other steel mill players would need to pass the escalating costs to end users. He added that "We managed to get two shipments of coal before prices started to increase in the wake of floods in Queensland in Australia. We managed to get two shipments of coal before the price started to increase>"

He added that "This will help us in the short term. As the coal price has been increasing for the past two weeks and gives rise to concerns among the players, we expect continued increase in the steel price, which end users will have to absorb."

Mr Lim said that the group, which has a market capitalization of MYR 1.54 billion, was currently trying to source half its coal supply locally after relying on about 75% of imports. He added that "We have bought 20,000 tonnes of coal from some small suppliers in the local market and are now looking for the right local supplier that can suit our needs."

The new blast furnace project, which is essentially the iron making plant, is expected to be completed by the end of April 2011.

He said that "This blast furnace project is part of the group's expansion plans. It will help save electricity consumption by up to 40% in our existing steel making plant and provide the flexibility in feed materials whereby we are now able to switch between iron ore, coke and scrap, depending on the price levels."

Mr Lim said that the project would also shorten the melting cycle of the existing electric arc furnace, thus boosting steel output from 800,000 to 1.1 million tonnes. He added that "The project will also improve our product quality, especially steel purity, thus enabling Ann Joo to start producing engineering grade steel products."

He said that for its financial year ended December 31st 2010, the group exported 40% of its output to the region, and is aiming to maintain that level in the current financial year. He added that "Our target market will still be the local and regional markets, apart from the Middle Eastern countries."

The issuance of MYR 500 million bonds is for the group to finance its investment in the blast furnace project, which consists of a 450 cubic meters blast furnace and 75 square meters sintering plant as well as upgrade its electric arc furnace.

The bond issuance, jointly lead managed by Affin Bank Bhd, Affin Investment Bank Bhd, Alliance Investment Bank (M) Bhd, OCBC Bank (M) Bhd and United Overseas Bank Bhd, will have a tenure of up to five years.

(sourced:thestar.com.my)