OM Holdings Limited (OMH) Earnings Call Transcript & Summary

Now a very good morning, everyone, and thank you for attending OM Holdings Webinar this morning. My name is Jenny, and I'm from the IR Department of OM Holdings. So together with me is [ Richie ] and will be hosting the webinar. OM Holdings is a manganese and silicon smelting company with vertical exposure in mining and trading and has just released its March 2024 quarterly production and market update on Tuesday. I'm delighted to have OMS Managing Director, Adrian Low, with me today, he will run through the key points followed by a Q&A session. [Operator Instructions] If you are unable to present your question to Adrian, we will attempt to address the query post the webinar. So without any further ado, I'm pleased to hand over to Adrian for the presentation. Adrian, over to you.

Thank you. Thanks, Jenny, and thanks, everyone, for dialing in this morning. Just working slight slow. Okay. So look, I think Q1 has passed in terms of our overall production uneventfully in terms of the volumes that we were looking to put out. So if we could move on to the slide. Maybe just to do a quick recap in terms of operational matters at OM Sarawak. So I think investors and shareholders would have noted that the silicon metal commissioning, which was paused in the middle of last year, is now looking to resume towards middle of this year, so it's in a couple of months' time. And all the rectification works that were need it for the silicone metal furnace relating to dedusting equipment as well as the electrical appliances [indiscernible] appliances electrical engineering have been completed. And so all of these were done a couple of months ago, and we look forward to restarting the commissioning process. I think silicon metal as a product within the product mix for the company still remains a strategic objective, albeit, certain headwinds in the silicon markets. So as we have explained previously, these furnaces are not idle. They are still producing ferrosilicon at the moment in a temporary campaign to just maximize all the furnaces on site as well as to maximize reutilization of the [ PPA ]. So that's essentially what has been happening in Sarawak. In terms of our mining operations at OMM those remain in care maintenance, and we look forward to restarting the UFP at the end of the year with all necessary approvals having been obtained towards the end of last year. In terms of the financial front, I think we repaid $12.3 million to project lenders in the last quarter. And so this is a slight step-up from our regular payments in the past as a kind of mutual arrangement with PF lenders. And I think shareholders and investors who have also noted in the past that we talked about refinancing and looking for the right time to convert what is currently a project finance structure into a more regular term structure. And in fact, 2024 marks the 10th year anniversary from the first time we tapped which was in September 2014. So this is the right time perhaps to look towards new financing options and the way we structure financing. In terms of volumes that we put out in Q1, so these are all in a quarterly update. And I think there are no surprises there, as I mentioned at the start of the presentation. And I think based on what our trajectory looks like we should be doing better than FY 2023. So I expect just looking at the ranges what we've done in Q1 to hit perhaps the mid 400,000 tonnes for both ferrosilicon and manganese alloys combined. So that's in a nutshell, a quick update on operations. And so I think perhaps a lot of shareholders and investors would have looked at a recent transaction in our markets. And I think this is perhaps where I'd like to spend a bit more time discussing it. And obviously, we can have questions at the end of the presentation. In terms of ferrosilicon, I think what we've seen is a lot of action, a lot of discussion and debate around what's happening in Russia. So -- if shareholders are not aware, Russia is the world's second largest exporter of ferrosilicon at least in this part of the world they used to be a dominant supplier of ferrosilicon. And with the nationalization of the largest ferrosilicon asset in Russia, there are -- I wouldn't say large and direct impact at this point, but we are definitely seeing movements at least with our key customers around how they're positioning for the removal and for the absence of Russian material from markets. So this generally means that people are reaching out for spot inquiries, people are looking to trial our material and then people are looking at potentially changing and mending the way they procure ferrosilicon because in the past, I think, very often for East Asian markets -- for Southeast Asian markets, the main suppliers would be Russia, China and Malaysia. So now there's only 2 left, which puts us in a much stronger position. In terms of near-term price action, I think, look, China remains the marginal supplier of ferrosilicon to the world, in fact. And so we very often look to what's happening in China for ferrosilicon prices. And this, obviously, is the very low commodity grade stuff. So in terms of what's happening in China, I think in the near term, there is some weakness in steel. But looking further out, I think we see a lot of parallels between what's happening now and sort of historical downturns. So if we look at 2020, if we look at 2016, those are all periods characterized by a very sharp decrease in Chinese ferrosilicon production, which I mean, if you look at the chart [indiscernible] coming on in cycles in the last 18 months or so. And the key difference between now and then is that we are now at range bound between 1,200 to 1,300 whereas historically, I think this point has been closer to $1,000. And you have to keep in mind that Sarawak's cost -- OM Sarawak's cost structure overall has not really changed, but the cost structure of a lot of our competitors have changed. So I think there's a big difference in ferrosilicon pre and post COVID, and we are the better for it at this point in time. I think we see prices fall at this level. And you have to keep in mind that with RMB trading at between 7.2 to 7.3, this is very different from the past where the RMB was trading at 6.3, 6.4 around these periods. And even with that, I think we're seeing kind of a slow uptick in prices, at least in the last 2 weeks or so. So we look forward to bringing more positive news, and this is definitely an area we'll focus a lot of our attention on. Moving on to manganese alloys. I think -- thank you -- there has been a lot more discussion, I think, around what's happened in the last couple of weeks. And so for investors, who are not aware, South32, one of the world's major suppliers of manganese ore, declared force majeure following cyclone a couple of months ago. And so since then, I think the price speaks for itself, basically, if you look at the charts, prices have increased quite substantially. And I think if you look at it from a month-on-month basis, I know the chart doesn't look like it. But the uptick, if you look at single week, price is in excess of 35% increase on a month-on-month basis. Silicomanganese prices likewise have trended up. Investors remember that at the end last year 2023, I think around November, S&P Platts, CNFEOL had been printing prices at around $840 to $850. And since then, I think if you look at the Platts' price from 2 days ago, meaning 1st of May, this Wednesday, they're printing $990 to $1,030. And just anecdotally, due to the [indiscernible] and what's happening in the market. I think we're hearing numbers that are even higher than this. So this is obviously something that's evolving very, very rapidly and changing on a weekly basis, and that's something that the company is focusing on as well. And both in terms of how we're managing our costs and purchasing the ores as well as how we are positioning our sales to maximize really the return of silicomanganese and then that very often includes decisions around what we're doing for silicomanganese. The subproducts that we choose to produce as well as the changeability between silicomanganese and high-carbon ferromanganese. So I think the outlook is very much price action has really been catalyzed by -- also by concerns. But I think more broadly speaking, a lot of investors would have heard this from me a couple of times. But really, there's huge volatility in the markets we operate in. And very often, when there's a downturn, we have this recency bias looking at what's happening in terms of pricing. But what goes down must come up? There's profitability though, I think, for all players in this industry and Sarawak really remains first quartile cost producer. So look, I think we're very confident that this recovery will run its way. And obviously, the [ oil ] price catalyst really came in kind of at the right time to really show that there is gap between demand and supply, given that throughout 2023, I think a lot of producers have reduced production just on a sort of year-on-year basis between January 2023 and December 2023 looking at statistics, I think we can count multiples of OM Sarawak sort of leaving the market. So that eventually will catalyst recovery. Okay. So I think that's all I have to share in terms of operation and in sort of market updates. Just want to be mindful of time and then leave some time for questions.

Thank you so much, Adrian, for the quick update. Since we're on the good side of the manganese alloys. The first question actually do relates to that, and it's on the price difference between high carbon ferromanganese, medium carbon ferromanganese and low carbon ferromanganese. So what is also the difference -- breakdown of such production mix for our company?

Yes. So that's -- I mean that's a mystery question. It's not really directly relevant to us at this point because we're not producing medium carbon and low carbon. But for the broader public, these products are produced when you want a lower common footprint in your product. And typically, that's used by steelmakers who have their requirement whether they're making specialty steel, stainless steel or what have you. And so then you would be producing ferromanganese, which is generally 25% iron and 75% manganese with carbon content of 1%, 0.5%. And those premiums tend to -- they would range from 10% to 20% above and beyond the price of ferromanganese, obviously, that's not something we're tracking on a daily basis. But every now and then the company does look at it and sort of evaluates the options of whether we should be producing these products. And I would say, once a year, we look at it and look at sort of ROI of reinvesting in these facilities. I think generally, the current product mix, what we have between silicomanganese and high-carbon ferromanganese has worked well us, and there's no immediate plan to be producing any of these refined ferromanganese products?

And so moving on to the second question. I think we covered this question quite a fair bit, but maybe just to let everyone know again. So what is actually the smelting furnace uptime over the long term? So -- or in other words, how frequent do you think our major maintenance is needed. And what is the maintenance CapEx per annum?

Sure. Yes. Look, I think sustaining CapEx in terms of maintenance, we're really looking at less than USD 5 million per annum just to keep the furnaces going. We've just done a round of major maintenance, obviously, post COVID that took us between 12 to 24 months, let's say. And really -- it could be done in a faster span of time. Really, I think the idea was spread it out and minimize the impact in operations and not have that volatility in output volumes as well as on our purchase contracts. In terms of how long, how often we have to do that? I think we -- so we commissioned in 2014 the first furnace. We ramped up in stages. I think the manganese alloy furnaces came up at the end of 2016. So since then from 2016 until, I think, 2022, 2023, that was 1 cycle. So generally speaking, the recommendation is to in 5 to 7 years do major maintenance, and that typically costs something between $20 million to $30 million every 5 to 7 years. Obviously, the company has the ability to sort of manage production around those bands. And so you will note that, I think, during COVID when prices were really, really high, we decided to sort of postpone all the major maintenance to capture what was then a very, very tight market. So, yes, that's -- in very, very broad strokes, that's sort of the CapEx required and the amount of sort of regular maintenance, sustaining maintenance CapEx as well as sort of major maintenance CapEx required.

So I think just to remind everyone that we have recently completed a major maintenance. So 14 furnaces out of 16 furnaces have already completed. So the other 2 ferrosilicon furnaces is actually due for maintenance in 2025. And all right, I think we have the last question here and it's on tax issues. So this question relates to the progress of the company in terms of the tax rebates. And can you actually give us some light on this one?

Sure. Yes. So look, I mean, the first 5 years of the tax incentives, the Pioneer tax incentives has lapsed. And so we're really in the second 5 years. So I'm aware that we're sort of fairly deep into the second 5 years. And while historically in the past we've said we have recognized Texas and basically more conservative with respect to that. I think the company is on track and sort of progressing to meet its KPIs with respect to the authorities in terms of the second 5 years, and we look to sort of receiving official confirmation basically an approval for the second 5 years. And so that will not be on 100% of income, but will be on 70% of income. And the remaining criteria revolve around local vendor support as well as training opportunities that the company is confident that will be able to meet that.

Now that actually appears to cover the -- all the questions from our audience today. But in case if any of you do have any further questions, please forward with them to [email protected]. We will be making a recording of this webinar available via OM Holdings link in the coming days. Well, this concludes our webinar for today. Thank you, everyone, for attending, and thank you, Adrian, for the comprehensive update.

Thank you. Thanks, everyone, for dialing in. See you next time.