VietNamNet Bridge – The Vietnam Coal and Mineral Industries Holding Corporation (Vinacomin) has said that its Tan Rai bauxite mining and processing project in the Central Highlands will incur losses for up to four years upon the start of its operations last October, instead of two years as previously calculated.

In its report reviewing one-year alumina production released last week, Vinacomin said it has revised the financial performance of the Tan Rai project in the Central Highlands province of Lam Dong, based on the actual operations of the project since October 1 last year.

According to the latest calculation of the group, the net present value (NPV) of the project is more than VND2.9 trillion and the internal rate of return (IRR) is around 6.86-8.59%.

These figures are lower than those in the joint report of Vinacomin and the Ministry of Industry and Trade sent to the National Assembly in May, and much lower than the ministry’s prediction at the time when the Tan Rai project started.

In its revised calculation, Vinacomin also said the project will rack up losses for four years, instead of two years as stated in its May report, and need 11.5 years to recoup investment capital compared to 12-13 years as predicted previously by the industry-trade ministry.

The group explained that it cannot ensure a good balance sheet for the project in the first four years and can only pay the loan interest and part of the principal although the selling price has been higher than production cost.

However, depreciation and loan interest are not factored into selling prices, and the group will have to use another source of income to cover bauxite losses.

After scaling up investment in the Tan Rai project by 30% early last year, Vinacomin announced an annual loss of around VND176-258 billion in the project.

Despite losses, Vinacomin still affirms that the project’s NPV will increase, the period of accumulated losses will be shortened, and the time for recouping capital is shorter.

The group also keeps its forecast for pre-tax profit at VND161 billion per year and payment to the State budget inclusive of charges and fees at VND400 billion per year.

In reality, it paid only around VND100 billion to the State budget last year and the target of VND400 billion can only be achieved when the project operates in a stable manner.

Also in its latest report, Vinacomin puts forward two reasons that will help bring good business results for the project, which are the corporate income tax being slashed from 25% to 20%, and that Indonesia, the biggest alumina provider for China, has stopped its shipments since this year, leaving a big chance for Vietnam.

The group exported 251,000 tons of alumina in the first seven months, raising the total export volume of the product to 411,000 tons in the period from June last year up to date.

FOB (free-on-board) export prices of alumina have been raised to US$330-340 per ton since early this year as the product quality has been improved.

Vinacomin expects a total export volume of 150,000 tons for China-based Yunnan Copper Company Limited year. It has also signed a contract to ship around 200,000 tons of alumina to Japan’s Marubeni Corporation.

SGT/VNN