Long one of the pillars of the country’s economy, Malaysia is now looking to build on the value of its timber industry, aiming to expand into new markets, while guaranteeing the sector’s future through improved management practices, higher investments and a greater emphasis on sustainability.

Malaysia has a wide range of hard woods, raw materials that have been much prized down through the centuries both locally and increasingly abroad. Last year, Malaysia’s timber sector earned $6.6bn in exports, second only to palm oil as the country’s leading export commodity, while generating a further $2.2bn in the domestic market and providing direct employment to more than 300,000 people.

Though the increased demand for Malaysian wood and timber products has benefitted the economy, it has also come at a price. There are still concerns over deforestation, with Malaysia not being immune from claims that illegally felled timber is making its way into the market and that aggressive logging activity is harming the environment.

The government has acted to quell these concerns through a number of measures. In February, the government unveiled the National Timber Industry Policy (NATIP), the first comprehensive policy plan for the sector, setting out future directions for the industry until 2020.

At its core the NATIP stresses the need for higher-value-added downstream activities, aiming to more than double export earnings to $15.6bn by the end of the next decade, mainly through increased sales of further processed timber products.

To achieve the objectives of the NATIP, the state and its agencies are to work closely with the private sector to strengthen the timber industry’s structure, guarantee and expand the supply of raw materials, foster innovation and technology, improve marketing and promotion activities, build on human capital development, provide additional funding and incentives, and bolster Bumiputera participation.

According to Dr Jalaluddin Harun, the director general of the Malaysia Timber Industry Board (MTIB), the state body tasked with promoting and coordinating the sector, the way forward has to be through adding value to existing raw materials and increasing the supply of resources, using the NATIP as a guideline.

“Our role is to focus, with the government, to push the industry towards value-added products,” he told OBG. “The supply from natural forests will not be very high, if we rely just on that we won’t be able to continue for very long. We need to enhance the forest plantation in terms of supply of natural timber as well as develop the downstream industry.”

With the support of state funding, 25,000 ha of land will be added to Malaysia’s forest plantation every year up to 2020, expanding existing timber estates by 375,000 ha, Jalaluddin said, with the focus being fast-growing and marketable species.

“So in the future it is not only about generating raw material but revenue,” he said.

On October 16, the plantation industries and commodities minister, Tan Sri Bernard Dompok, said that loans worth $68m, out of a total budget allocation of $315m, had been signed off to fund the development of 52,435 ha of forest plantation.??

Announcing a loan of $4m with the Sabah Forestry Development Authority to fund the planting of 2500 ha of land through the Forest Plantation Development, the minister said he hoped more companies would apply for the loan facility to help achieve the 375,000-ha target.

Another plank in the platform of improved sustainability and stable revenue is the conclusion of a bilateral Forest Law Enforcement, Governance and Trade voluntary partnership agreement (VPA) with the EU. Talks have been ongoing since 2007, with a final agreement expected to be signed by early next year.

Under the proposed agreement, authorities would provide guarantees that all timber sold to the EU was legally sourced and logged. In return Malaysia wants the bloc to give it a special priority to enter the EU’s timber market and pay a premium for Malaysian legal timber.

Malaysia has taken the lead in trying to put in place best practice deals such as the VPA, having been the first tropical timber producer to start talks with the EU. The agreement will be vital to the Malaysian timber industry, which currently exports some $900m worth of wood and products to member states within the bloc.

According to EU officials, the VPA agreement would provide Malaysian exporters with a significant advantage as they would not need to prove the sustainability and legal compliance of their wood.

While seeking to protect and indeed expand its premium markets, such as the EU, Malaysia is also working to increase its profile further afield, says Cheah Kam Huan, the chief executive officer of the Malaysian Timber Council.

“Emerging markets are very important for the industry to diversify our overseas markets. We promote our products more actively there to encourage importers in these countries to buy directly from us, so emerging countries are vital in growing the industry,” he said in an interview with OBG.

Through boosting funding to the sector and reinforcing regulations to guarantee products meet the high standards set by overseas clients, Malaysia is ensuring its timber industry will continue to grow and remain a solid contributor to the economy.

Marc Faber

Earlier this month Mongolia was approved for a $229.2 million stand-by loan from the International Monetary Fund to help the country stabilize its economy. “Mongolia has been severely affected by the global financial crisis through a sharp reduction in the prices of its main mineral exports, notably copper,” said IMF Deputy Managing Director and Acting Chairman Takatoshi Kato. “The authorities are committed to restoring macroeconomic stability and putting in place the conditions for strong and equitable growth.”

Today, however, copper prices rose to its highest in almost six months in London based on speculation that demand from China, the world’s largest buyer of the metal, would decrease inventories. According to Bloomberg,China’s 4 trillion-yuan ($590 billion) economic-stimulus plan spurred the first increase in manufacturing in six months and a sixfold surge in bank lending in March. “Only 2% of global copper reserves are in China, and they can still expect a strong industrial boom for the next couple of years,” remarked one analyst.

Mark Mobius, an emerging market fund manager for Templeton Asset Management, concurs. “We continue to see countries such as China form alliances to secure the long-term provisions of commodities,” Mobius said. “While in the short-term, the country will be impacted by the recent correction in commodity prices, a long-term uptrend in commodity prices will benefit Mongolia.” Additionally, the country has attracted roughly $1 billion of private equity in the past 24 months, according to Robert Lepsoe, its honorary consul.

Mongolia’s MSE Top 20 Index has fallen 8.7% this year, compared with the 5.8% drop in the MSCI Asia Pacific Index.

Rio Tinto today signed an Investment Agreement with the Government of Mongolia for the development of the Oyu Tolgoi copper-gold complex in Mongolia’s South Gobi region.

Rio Tinto and Ivanhoe Mines Ltd, the development partners for the project, will now move forward with the government to address the conditions precedent and commence the development phase.  Production is expected to commence in 2013, with a five year ramp up to full expected production of 450,000 tonnes of copper per year and 330,000 ounces of gold.

Bret Clayton, chief executive of Rio Tinto Copper and Diamonds group, said that Oyu Tolgoi is consistent with Rio Tinto’s strategy of investing in large, long life, low cost ore bodies.

“While the size and grade of the existing Oyu Tolgoi ore reserves and mineral resources are already world class, we are also excited by significant exploration upside that still remains,” he said.  “We plan to be a partner here in Mongolia for decades to come.”

Mr Clayton said that the Oyu Tolgoi project holds great potential, both for the parties investing in its development, and for the people of Mongolia. ” We believe Oyu Tolgoi will bring far reaching benefits for employees and communities directly linked to the mine, as well as for the people and industries indirectly connected to our operations.”

Under the terms of the Investment Agreement and associated Shareholders’ Agreement, the Government of Mongolia will own 34% of Ivanhoe Mines Mongolia Inc LLC, the license holder of the Oyu Tolgoi Project. Key terms include a stable operational and tax environment, provisions dealing with the Government’s equity participation and financing arrangements.

Rio Tinto (NYSE:RTP) initially made a US$303 million investment in a 9.95% shareholding in Ivanhoe Mines Ltd in October 2006 under the terms of a Placement Agreement, and has the obligation to invest US$388 million for a further 9.95% holding at the conclusion of an unconditional investment agreement with the Mongolian government (Tranche 2). Rio Tinto and Ivanhoe have recently agreed to a short term, month by month extension of the October 27 deadline for completing Tranche 2.

Under its current agreements with Ivanhoe Mines (NYSE:IVN), Rio Tinto has the right to acquire up to 43.1% of Ivanhoe’s shares under fixed price options, with a right to further increase that interest to 46.65% through on-market purchases.

With this years iron ore contract prices still up in the air, many Chinese steelmakers are taking a different approach, rather than wait on Rio Tinto.

The alternate route is to find small and medium-sized Australian miners for equity cooperation to enable them to avoid having much to do with the world’s three monster iron ore providers.

Business data provider Dealogic says that Chinese companies’ planned & completed investment in Australian mining firms has reached $9.7 billion so far in 2009, about triple that in 2008  & the trend is gathering pace.

Most small and medium-sized iron ore projects in Australia are open to foreign investment, and are now under increasing Chinese scrutiny. China’s steel firms have technological advantages & demand, but it is their solid finances that these mining companies find truly attractive.

In early September, Baotou Iron & Steel (Baogang) set up a joint venture company with the Australian iron ore exploration company Centrex Metals (ASX:CXM) on the Bungalow Magnetite project, aiming to establish a project with an annual output of three million tons of fine ores. Baogang is required to invest AU$40 million, paid in three phases, and as a result, will gain a 50% stake in the project.

Late August saw Australian miner Aquila Resources (ASX:AQA) signing a strategic cooperation agreement with China’s largest steel group Baosteel to develop iron ore, coal and manganese projects. Baosteel will invest AU$285.6 million to obtain a direct 15% stake in Aquila through the placement of 43.95 million shares at AU$6.50 per share, making Baosteel its second largest shareholder.

The deal marks Baosteel first direct investment in an Australian mining company.

A consortium of three local governments in Indonesia have appointed PT Multicapital to help finance the purchase of a 10 percent stake in a unit of Newmont Mining Corp, a local mining official said on Saturday. The governments of West Nusa Tenggara province, West Sumbawa regency and Sumbawa regency, the three areas where the mine is located, and Multicapital would form a joint venture company to negotiate a price with Newmont, Heryadi Rachmat, the head of West Nusa Tenggara provincial mining office, said.

“Out of six potential investors, we find Multicapital to have the best interest for the local government and a good track record in investment,” Rachmat told Reuters by telephone.

There was an initial agreement for the local governments and Multicapital to split revenue 25 percent and 75 percent respectively, Rachmat said without elaborating.

Local media has reported Multicapital is a subsidiary of PT Bumi Resources, Indonesia’s biggest coal miner. A Bumi spokesman could not immediately be reached for comment. Bumi has previously tried to buy shares in PT Newmont Nusa Tenggara, which operates the Batu Hijau copper and gold mine in Sumbawa island, eastern Indonesia. Last year Bumi, which is linked to the family business of Indonesia’s welfare minister Aburizal Bakrie, entered an initial agreement to buy 31 percent of Newmont’s local unit. Under a memorandum of understanding, the governments of Sumbawa regency, Sumbawa Barat regency and Nusa Tenggara Barat would buy the shares but turn them over to Bumi. The deal did not materialize.

The new investment plans follows a prolonged dispute between foreign shareholders at PT Newmont Nusa Tenggara (NNT) and the government over divestiture obligation.In late March, an arbitration court ordered the foreign owners of PT NNT to sell a 17 percent stake to the Indonesian government within six months, of which a 10 percent stake should go to the local governments. Under the terms of the contract, foreign investors in PT NNT must sell 51 percent of the shares in the unit to local investors.

PT Pukuafu Indah, an Indonesian mining group, previously bought 20 percent of the unit, while Newmont and Japan’s Sumitomo Corp own 45 percent and 35 percent respectively.The foreign owners began offering NNT shares for sale in 2006, initially offering a 3 percent stake for $109 million. The following year they offered a 7 percent stake worth $282 million, and another 7 percent stake worth $426 million in 2008.

A resolution of the case is seen by analysts as crucial for Indonesia’s plans to attract foreign investment into sectors such as mining to drive economic growth and create jobs. But following the arbitration court’s ruling, the two sides have failed to reach an agreement on a valuation for the unit.

Newmont has valued the whole of NNT at $4.9 billion and has started negotiations with the government over the price. The government said it planned to use an independent appraiser to value the unit.