OM Holdings Limited (OMH) Earnings Call Transcript & Summary

Great morning, everyone, and thank you for attending OM Holdings' webinar this morning. My name is Jenny from the IR Department of OM Holdings. Together with me is Ruiqi, and we will be hosting the webinar for today. OM Holdings is an international manganese and silicon smelting group and has just released its first half 2025 results last Thursday. I am delighted to have our Group Financial Controller, Eugene Tan, with me today. He will run through the key points following the release of the first half financial results, followed by a Q&A session. [Operator Instructions] So without any further ado, I'm pleased to hand over to Eugene for the presentation. Eugene, over to you.

Thanks, Jenny. Thank you very much. Very good morning to everyone. And thank you for dialing in to our presentation following the release of OM Holdings first half 2025 financial results last week. Just to recap and for the benefit of new investors joining the webinar, OM Holdings is a manganese and silicon company with over 30 years of experience in the industry. Our flagship smelter plant in Sarawak is anchored by a competitive 350 megawatts sustainable hydropower with prices that are locked in for 10 years until 2033. OMH is dual listed on the ASX and Bursa Malaysia, a unique exposure to both equity markets and is the lowest cost quartile smelter complex in Sarawak which is the largest of its kind in Asia outside of China. We continue to put our focus on the niche product portfolio that we have. These products are all critical alloying elements in the steel production process. On the manganese ore front, although our Bootu Creek manganese mine, which is located in Australia, has ceased production in December 2021, and the mine has been under care and maintenance since January 2022. However, manganese ore remains a core product of the group where we procure for internal consumption and also for sales to outside third parties exporting mainly to China. Manganese ore is the main raw material that is used to produce manganese alloys. For manganese alloys and silicon alloys, well, basically, these are the two products that are used in steelmaking, both of which are produced in our Sarawak plant. Essentially, they are used as an additive in steelmaking to strengthen steel. These alloys are not replaceable, and they have been part of the steelmaking process since long ago, since the olden days basically. If you take a look at the slides on the last column on the extreme right of the slide, right, that is silicon metal, which is essentially a 99% pure version of ferrosilicon. Silicon metal furnaces, they are basically modular and they can be repurposed to produce ferrosilicon, which is what we're currently doing in the interim given that there is this prolonged decline in market prices for silicon metal. I think for the next slide, basically, we're looking at the first half 2025 financial highlights. For this first half of 2025, we've demonstrated yet another resilient performance despite market challenges, especially on the ferrosilicon front. Revenue was generally driven by two product types, basically ores and alloys. During the first half of 2025, ore traded volumes were higher with higher average selling prices realized. However, this was offset by lower alloy volumes traded and weaker prices realized mainly from ferrosilicon. As you can see from the slides, right, while top line growth was modest, the loss after tax reflects industry-wide compression of margins as ferrosilicon prices fell to levels that we believe are not sustainable relative to long-run fundamentals. On the back of similar reasons, right, EBITDA was also at USD 19.1 million for the first half of 2025 against USD 46.6 million for the first half of 2024. And for 2025, we recorded a loss per share of USD 0.0125. For the market update, basically, we're going to be touching on basically the ferrosilicon and non-silicomanganese. So if you look at the top right-hand corner where that chart is, right, the graph is, right, if you look at the blue line, which is for ferrosilicon, generally, ferrosilicon prices have been on a downward trend since December 2024. And this sentiment has basically carried forward all the way through the first half of 2025. Apart from weaker downstream demand, we believe ferrosilicon prices are under pressure with increased competition from basically Russian origin materials, increasing the ferrosilicon supply into the market. According to Platts, on a year-on-year comparison, ferrosilicon prices has decreased by approximately 10.4% compared to the prices in the first half of 2024. I think we expect prices to stabilize in the near term as we believe the current prices that we see right now are unsustainably low. Now if we move on to silicomanganese, right, which is the brown line, that represents the price trend for silicomanganese. Silicomanganese prices have remained pretty stable, signaling relatively strong support on the back of stable manganese ore prices. If you look ahead, right, we expect manganese alloy prices to remain firm throughout the rest of this year and into the early part of 2026, into the early part of next year as well. And we do not expect major disruptions to the supply and demand which is -- we don't expect any major disruptions to the supply and demand anticipated in the near term. For our operations in Australia, I think the Bootu Creek manganese mine continues to be in care and maintenance. What we're doing right now is mainly rehabilitation. So the rehabilitation program is continuing. And the focus is mainly on the repair of the damaged land forms that are on the mine site itself. For our operations in Sarawak, they remain strong. As of today, two ferrosilicon furnaces have completed their major maintenance, which is a scheduled major maintenance, and we expect production volumes to be on track, which is well within our production guideline for the rest of this year. If you take a look at the revenue front, right, as I explained briefly in the earlier slides, although there was a modest growth led by higher manganese ore volumes that was traded, our gross profit margin, on the other hand, was impacted considerably by weaker ferrosilicon prices. GP margins, although compressed by ferrosilicon considerably, was cushioned by the group's ability to realize higher average selling prices for manganese alloys with opportunistic sales to the U.S. and our unique market position in Korea. And this supports basically the higher margins on our manganese alloy sales. These external factors eventually led to an EBITDA of about USD 19.9 million for the first half of 2025 as compared to about USD 46.6 million in the same corresponding period in 2024. The group continues to put our focus on cost and cash management, levers that are within our control. Our gearing ratio continues to decline, which is generally in line with the group's strategy to continuously lower our debt profile. If everyone remembers, in March 2025, we successfully refinanced the OM Sarawak project finance loans and also a revolving credit facility. This was also released as an announcement during that period, I think it was in March '25. These were replaced with new syndicated facilities and bilateral arranged working capital lines. These, together with lower utilization of trade financing and revolving credit facilities for the period basically helped us to lower our debt -- our total debt in the first half of 2025. I think, operationally, our business is still on a solid footing with stable cash flows, reflecting our ability to be sustainable during periods of cyclical lows. Looking at the strategic initiatives towards sustainability. I think this is also something that's on -- a very hot topic at this point in time. So I think on our sustainability journey, we continue to work on our initiatives which included repurposing our byproducts in an effort to support a circular economy. Year-to-date, I think we have repurposed almost twice the amount of silicomanganese slag that has been generated. Silicomanganese slag is actually a byproduct that is generated from the production of silicomanganese, right? And what happens is this silicomanganese slag, we have actually used it for road pavements and ground leveling work within our smelter complex in Sarawak itself. In addition to that, I think we continue to maintain the ISO certifications that we have obtained and aim to achieve ISO 50001 certification, which is for energy management, and also, ISO 17025 accreditation, which is for testing and calibration laboratories. This will be useful to ensure the -- that we maintain the highest operating standards. I think it's a pretty short and sweet basically presentation and webinar for this time around. But before I end the presentation, I think there are some key takeaways for today's presentation. OM Group being one of the largest manganese and silicon alloy producers in the region outside of China, of course, our operations actually sit firmly in the lowest cost quartile, and this gives the group a strong competitive edge. Over the years, we have built long and stable relationships with top-tier customers across the region, and these customers continue to place their trust in us. One of our key advantages is the access to affordable renewal energy, the hydropower that we use. And this positions us as a prime beneficiary in the transition to renewables amidst the rising value of power. Our operations are highly flexible. We continuously assess returns on an N+1 and N+2 basis, giving us the agility to adjust production in order to respond to changes in demand and raw material supply within the market. At the same time, our scale allows us to purchase ores in bulk and to secure supply well in advance, while many other producers in Asia may face challenges doing such sourcing. Together, these strengths underpin our resilience and ability to deliver value regardless of market cycles. I think in short, scale, cost, leadership, strong customers, renewable energy and flexibility, these are the strengths that set us apart. I think with that, I will end my presentation for today. Maybe we shall now move on to the Q&A session, Jenny?

All right. Thank you very much, Eugene, for the presentation. We will now move on to the Q&A session. So I think there is just a couple of questions here. And the first question is on carbon levy. So it says that Malaysia will implement a carbon tax on high emission sectors, including steel. This means that the production cost of steel producers will increase in Malaysia. So will this then impact the ferroalloy sector?

Thanks, Jenny, for the question. I think we've been receiving a lot of queries and questions on this topic as well. I think, in short, I think as we understand it at this point in time, right, the carbon tax will be introduced on the iron and steel and the energy industries by 2026. The Sarawak state government is also currently finalizing the carbon tax levy framework as we speak right now, right? So our operations in Sarawak falls under the Industrial Processes and Product Use, what they call the IPPU companies, the Industrial Processes and Product Use companies. And as such, OM Sarawak will likely be scoped in for the carbon levy. I mean, as it stands right now, we are still awaiting further details, and we will not be able to advise much at this point in time until further information and clarifications are obtained from the Sarawak authorities. And I think we are following up on this constantly and trying to get as much update as we can, but as it stands right now, I think we will need to get more information on that before we can comment further on this topic.

Right. Thank you, Eugene, for that. Now the second question is on tariffs. So this question is saying that, do you know what are the respective tariffs on export of ferrosilicon and manganese alloys to the U.S. from India, Brazil and Malaysia. And does Malaysia enjoy any competitive advantage from this?

Another very popular question that has been asked quite a lot in the last couple of months as well. Okay. So basically, in terms of tariffs wise, the U.S. does not apply reciprocal tariffs on manganese alloys, okay? They are specifically excluded under the U.S. trade policy. However, unlike manganese alloys, ferrosilicon, unfortunately, is subject to U.S. reciprocal tariffs. From what we understand right now, the tariff rates relating to the -- I think, the countries that you mentioned, U.S. -- India, Brazil and Malaysia, right? The tariffs right now, as we understand it, for Brazil, I think it's 50%, 5-0 percent. Same for India, also 50%, 5-0. And for Malaysia, as it stands right now, it's 19%, 1-9 percent, okay? I think on top of the reciprocal tariffs from the U.S. I think the U.S. also applies what they call antidumping duties and countervailing duties on certain countries as well, right? And I think for Brazil, if I recall, it's roughly around 18.6% or 18.7% thereabouts, okay? I think for OM, our rate that -- as we've been informed, our rate is actually at 7.91%, and for last country, India, India does not have any antidumping duties or countervailing duties imposed on ferrosilicon at this point in time. So I think based on those numbers, I think in short, we do have some advantage over other countries. But I think we will still need to further do additional market studies and assessments to see how things play out and we can then plan strategically around these tariffs.

Right. Thank you, Eugene, for that answer. And now moving on to the next question. So given the market volatility, has OMH actually implemented any hedging policy on the ferroalloy prices?

Okay. Thanks, Jenny. I think we do not have any hedging policies on ferroalloy prices at this point in time, right? Generally, I think there are currently no international futures market for ferro alloys. The futures market, I think the one -- there's one in China, right? The futures market in China is not directly relevant due to the taxes that are imposed for both imports and exports, although within China itself, I think they are commonly used domestically as -- within China itself, it is used, but yes, not internationally from that perspective.

All right. Thanks, Eugene. That's clear. And on to the last question. Given that we are selling off the OMH Mauritius and that's the Tshipi assets. Now how much actually does the manganese supply from Tshipi and Bryah contribute to?

Okay. Yes. So I think everyone has also seen the announcement that was made on the transaction on -- effective 13% in Tshipi mines. Our Tshipi manganese ore supply, this is primarily traded and exported to China, right, for which OM earns a fixed commission, okay? So I think in terms of the Tshipi ore, it is occasionally shipped to Sarawak for our own production consumption, but I think it is not significant in terms of the total volume in the grand scheme of things, as I think in general, it is not logistically efficient to do so. So I think the annual traded volume of Tshipi ore is around between maybe 420,000 to 460,000 tonnes per annum, okay? The other one you're referring to is Bryah, right?

Yes, that's right. Bryah.

So for Bryah, Bryah is still under exploration. So actually, for Bryah, there is currently no production, no manganese production out of Bryah at this point in time.

Okay. Thank you very much, Eugene. Now that appears to cover the majority of the questions for us today. If you do have any further questions still, we do welcome you to send it to [email protected], and we will be making a recording of this webinar available via OM Holdings' LinkedIn in the coming days. So this concludes our webinar for today. Thank you, everyone, for attending, and thank you, Eugene, for the comprehensive update.

Thank you, everyone. Thanks, Jenny. Thank you very much. Have a great day.