Tuesday, April 26, 2011

Malaysia is a huge heaven for gold mining?

By The Star

GOLD mining may not be a new activity in Malaysia but it is sad to see minimal efforts being taken to develop the lucrative business on a larger scale.

This is particularly when the country is endowed with huge gold deposits stretching from the major Eastern Gold Belt stretching from Kelantan, Terengganu, Pahang right down to Johor as well as in Sabah all waiting to be fully explored.

What more with gold prices trail blazing since 2011 and currently showing no sign of losing steam. Gold spot price yesterday hit another new record to trade at US$1,517.40 an ounce on weaker US dollar as well as continuing tension in the Middle East and North Africa.

Many traders and research houses have even predicted that the precious metal might hit US$1,600 an ounce before year-end.

As reflected by the surging prices, gold remains a safe haven investment among investors to guard against inflation and geopolitical turmoil.

Given such encouraging developments on the global front for gold, one may wonder whether they will be enough incentives for state governments to issue more exploration licences and mining leases for gold to attract mining investors.

The safest answers could be a small “yes” on the part of some mineral-rich state governments but a big “no” from potential major gold miners.

Pahang, for example, has the largest gold mine in Malaysia at Penjom, Kuala Lipis which contributed almost 95% to total domestic gold production.

There are also five gold mines in Jeli, Kelantan as well as six gold mines in Raub and Kuala Lipis still being excavated for commercial mining. The latest finding for the precious metal is in Mersing, Johor and Lubuk Mandi in Terengganu.

Despite some state governments gradually issuing exploration licences and mining leases in mineral-rich states, there are several impediments among gold miners.

Some quarters maintained that it would not be economical to undertake gold mining activities in Malaysia.

The Eastern Gold Belt, for example, may be rich with gold deposits but it is mostly in “hard rock” formation. In other words, huge capital investment would be needed to undertake prospecting, exploration and mining.

Apart from that, potential miners would also have to deal with other major costs issues.

These include high “tribute” request (payment between the owner of the mining lease and the mining operator) which could reach up to 10%, standard royalty of about 5% paid to the state on the minerals to be produced, corporate tax for the rehabilitation fund and the corporate responsibility (CR) work.

Therefore, it is suffice to say that only major mining groups are capable of undertaking such high risks. On the other hand, mid and small-scale miners might have to take a back seat even though gold mining prospects in Malaysia certainly look promising and lucrative.

* After reading this article by the Star, is that true that Eastern Penisular Malaysia is so rich in gold?