The Straits Times / The Business Times News on GMG

Rubber to change penny stock's fortune Nov 12, 2000 The Straits Times With commodity price set to soar, GMG Global, which is involved in rubber production in Africa, will reap benefits AT A mere five US cents a share, Sesdaq-listed GMG Global is one of the cheapest stocks on the Singapore Exchange. But this is one penny stock whose activities are no small change. For the agricultural group is heavily involved in rubber production - and the price of this commodity is tipped to soar after sinking to a 30-year low last year. GMG Global's jewel in the crown is its 90-per-cent stake in a rubber plantation that is two-thirds the size of Singapore in Cameroon, Central Africa. And it is gearing up for an upswing in rubber prices, which are projected to rise all the way through 2015, with prices forecast to hit 10 per cent above the pre-regional-financial-crisis level of US$1,800 (S$3,100) per ton by 2005. Currently, they are US$600 per ton. GMG president and chief operating officer Elson Ng said market observers, including the World Bank, have projected that rubber prices will rise, because supply is expected to shrink as a result of reduced or delayed planting programmes. A further boost to prices will come from rising demand as Asia's industrialisation efforts recover after the recent economic crisis. "We are focusing on the effective management of our business to improve core competency, our product base and quality standards ... to better position the group to reap the future benefits of a recovery in rubber prices." A new management team was put in place in September to run the plantation. Mr Ng said: "To operate more like a commercial entity, the plantation is going through a performance-culture change - to be more pro-active in its operational approach." He is confident that he can obtain cost efficiencies by better deployment of people and capital assets. With total annual production of around 42,000 tons, the plantation accounts for 50 per cent and 14 per cent of Cameroon's and Ivory Coast's annual rubber exports respectively. Mr Ng says the company intends to consolidate its rubber business, and has plans to expand rubber hectarage. He also added that "we are open to having a partner who can provide synergistic fit in terms of adding value to our operations and growth". Last year, global rubber prices sank to a 30-year low, reaching a shade below US$500 per ton, hit by the Asian financial crisis. However, for the next two years, according to price charts by the Economic and Social Institute at the Free University of Netherland, the two-year average price for tyre-grade rubber is projected to rise to US$1,000 per ton. Mr Ng said this will result in "a positive contribution to the group's sales and profitability for the future years". Meanwhile, Mr Ng's most sensitive challenge is not managing the plantation, but the feelings of the local population who insist on sharing their best local delicacies with him. Both plantations in Cameroon and Ivory Coast were acquired from the State of Cameroon and the State of Cote d'Ivoire respectively via privatisation drives. Listed last November, GMG was set up by white knight Joseph Gondobintoro, an Indonesian businessman, and his family as a takeover vehicle for loss-making video-tape maker Electro-Magnetics Ltd (EML). EML's shareholders exchanged five of their EML shares for two of GMG's. For the 18 months ended June 30, GMG achieved a net gain of $1.4 million on a turnover of $74.9 million. 'In its efforts to operate more like a commercial entity, the plantation is going through a performance-culture change - to be more pro-active in its operational approach.' - Mr Elson Ng (above), GMG's president and chief operating officer