Oman Chromite Company SAOG (OCCI) Earnings Call Transcript & Summary

We'll start the meeting now. I can see the participants, English speaking. But because this is a recording meeting, quickly, I'll go through a quick statement in Arabic, then we can speak in English. I will give a summary in English about 2024, just briefly. The company achieved good results in 2024 in different areas. The most important achievement was the company was able to get the tender for concession 11A. We won that area. The area of this concession is around 1,438 kilometers in the north part of Oman. The company also achieved annual production of more than 70,000 tonnes in 2024. The profit was around OMR 1 million. It was a good profit, but it was less than the profit of last year. The main reason for the decrease in the profitability of the company compared to last year, the company mines are old and the concessions of the chromite ore produced from low grade, and we have low-grade ore produced from these areas. High production costs due to high stripping ratio. And the third reason is the company was affected by the floods in the first half of the year. Despite this challenge, the company was able to achieve profits of around 30% of the paid-up chemical. The company is making its plan to strengthen its current position and developing its future plans, focusing on the main area or main pillars, which is making strong human resources and competency of its workforce, focusing on exploration and setting new, using a new technology for our complex mine like underground mining. This is a brief summary of our 2024 results, and we'll open for any discussion. So, colleagues, participants, if you have any questions, we can answer you.

So, who's here on the platform? Sam and Mike.

This is Abbas Muslemi from Vision Capital, I work as a Portfolio Manager with Vision. Can you talk a little bit about this Block A and what sort of opportunity are you seeing here? And how soon can you realize mining the actual chromite ore from here? Can you just talk a little bit about this?

Thanks, Abbas. The government changed its way of giving permits. It used to give small permits in the focus area where the ore is located. But in the last 3 years, they changed the principle, and they give big areas, wide areas. The purpose of this is to give more economies of scale, so almost each concession area is more than 1,000 square kilometers. The concession which we won is in the north part of Oman. We are, as Oman chromite working in the chromite for more than 30 years here, so we select that area. We compete for it based on previous knowledge. The idea of the concession agreement with the government is that we are going to do the exploration, not only for chromite for everything. So general exploration plus detailed exploration. So up to now, we handle that, we have good results. I cannot announce a discovery because discovery has certain definitions, technical definitions. But we have, we can call it prospect or occurrence, which encourages us to do further exploration in the area. Normally, the cycle for the chromite is around 2 years between the exploration until you make it to production. It can change to between 1.5 to 2.5 years but in general it's around 2 years. So yes, we have a challenge in the short term, but we are optimistic about the long term.

Very clear. So, I guess even this year, we'll go in trying to explore and by discovery, we should only be able to find out next year based on the time line that you gave, right, logically?

You have an idea, time is tough for us. We try to find alternative solutions, accelerate the exploration, whatever we can do. We try to also develop old mines in a different way, okay, like underground mining, which we want to introduce. So, I can say it's a challenge, but it's a good challenge because it makes us stronger actually technically because we are finding solutions here. Our expectation for the profit for this year and next year to be around 2024 results in a loss where with this big area, later, after these 2 years, we expect a big increase in the, let's say, in the results or the total result of the production. I can say that we are working on an alternative plan. It's difficult to disclose it now because we are discussing with other concession owners that we're going to produce for them also. So maybe it will be a positive surprise also next year. Let's see.

Okay. So right now, you have your current concession area that you've been mining and by 2022 was this, I think you mined close to 105,000 tonnes, and that number is close to 70,000 to 75,000 tonnes right now. Is that, are those numbers more or less correct?

Look, yes, we expect to keep 70,000 tonnes production, plus or minus, okay? With the new technology, we try to keep the same production level. The challenge will be maybe the ore become, the quality of ore become more, let's call it, more lighter, okay? But again, a solution will come. It's just, we will not grow as fast as we plan, but after 2 years, we expect high growth.

Correct. So, for the current concession, what is the reserve to production approximately, ratio?

We don't call it concession. We call it permits, mining permits. And mining, we have 2 things. We have reserves and we have resources, okay? So reserve is available up to now only, I have what for 2025. So, what I plan to produce around 74,000 tonnes in 2025 is the reserve. Normally, each year, we're adding reserves to, which equals to the production. So, in simple language, I don't have any reserves for 2026. I have too many resources. The resources are around more than 200,000 tonnes, but it needs a new principle of working to make it economic. So around, if we manage to work on the underground mining plan or other new mining concession areas we are working now, even without the new area, we are going to unblock wider, let's say, resources that we'll be able to convert it to. A challenging period now for us.

So sir, when you speak about these new technologies, which will able to, for you to be able to sort of mine these resources, you're talking about 200,000 tonnes. And then in your management discussion, you mentioned that you've managed to keep your production cost at below OMR 32 per tonne. So, with the new technology, are you seeing the production cost going up? And if yes, by how much?

No, it should not go up actually because going up will not be economic. That's why it's still a resource, okay?

Now I understand. Yes, sir, please.

No, that's for the others. Normally, its resources become reserves if that's feasible to produce either economically or also you have the permits, you have no issue with the surrounding area or these things. So, the main challenge for us is the cost, which is the, if it's increasing, you reduce the margin and become not economic to produce it. If we go for underground mining, we don't have to remove a big amount we call stripping ratio. So, we don't have to remove a big amount of rocks or a big volume of mountain to get a small quantity. We call it the stripping ratio. So, if the stripping ratio 1:5 means for each 1 ton I produce, I have to remove 5 tonnes of rocks. As older the mine, stripping ratio going up and become more expensive. So, we try to get underground mining because within underground mining, you go directly to the ore. You don't have to remove the mountain above it.

In terms of the price outlook, you mentioned that prices have gone down towards the end of 2024. Can you give a little bit more background in terms of how did prices behave throughout 2024? And where do you see the price outlook for Chromium in 2025, sir?

Yes, we noticed increase, slight increase now. Let's speak about 2024 was low price. I don't have the figures in front of me, but it's increased by around 40% from beginning of 2024, okay, to the peak and then drop again. Drop of the prices at the end of 2024 was lower than the beginning of the year, dropped too much actually, more than 50%. Now we noticed a slight increase. So, the price is going up. And in this market situation, it's very difficult to predict actually. It's too many factors, not only for chromite for all the communities. But in general, mid of the year, we see increase in the price. We don't expect the prices to come up to the 2024 levels. There's a lot of factors here, economy, global economy, China factor. But it will be comfortable. That's what we expect. So, our challenge or our target is how to maintain our cost lower than what we have in 2024.

And in terms of I was reading about this, and obviously, you're the sector expert. And I was reading that there are different qualities of chromium ore and the pricing is not one and the same for everything. So, from the quality of ore that you produce, what should the benchmark be? What is the global benchmark that we can track for us to get a better idea about prices on an ongoing basis?

This is a good question because it's, we face problem in how to make the pricing of the ore, okay? Each ore is having different chemical composition. And then it's difficult to say what is the reference ore for the chromite. In the oil, you have the Brent or all these things are applied. Here, you got the biggest producer in South Africa. They don't have the best quality, but because of their volume, they become like the reference in terms of the price going up or down. Second is also the middle Asian countries, Turkey and Kazakhstan, okay? They are having higher grade, higher chemical, let's say, attractive composition. So, and they are also increasing their productions. I think the trend will be in the future to make like a basket of different countries ore, and then we can benchmark where we are from this basket. Up to now, there is no clear, let's say, methodology. It's just supply and demand.

Can you then share what was the average sales price per tonne of your ore last year, just historically?

Yes, you can say it was OMR 65, this year might come to OMR 60 or below OMR 60.

So, we can sort of look at that and then try and make sense of the different benchmarks that are available in the market. So, what you are saying is you've kept a very good lid on your production cost. Your sales volume that you expect for 2025 should be more or less consistent with 2024. And you've already given some sort of a pricing guidance. There might be a 10% decline depending on the 2024 average. So, this is the year in store for you. And then you are excited about this new area that you've gained almost 1,400 square kilometer and that will become viable inshallah in the next couple of years. And then you're also saying that you're not just looking at chromium, you're looking at other mining other minerals. Is that correct as well?

Yes, the concession, the terms of the concession that we obligate or we have to explore everything, not only the chromite. We are specialized. We have experience in the chromite. So, if we found for example, the cobalt, okay? Of course, we will do the initial exploration activities. And then we have the right to bring any party who is expert in the cobalt to joint venture with us. At that time, we'll decide, are we going to enter a joint venture or we can sell the full area of the cobalt to them. That's a new principle in Oman actually. And we are, hopefully, we find also indication of cobalt there. To give you an idea, the cobalt is long investments, it's long-term investment. When I told you the cycle for the chromite 2 years for the cobalt might be 5 to 7 years between exploration to the production and heavy investment.

Can we speak about the low-carbon ferrochrome project that went live last year? I remember you had spoken about this in the previous call as well. And then you, in the first year itself, you managed to break even and in fact, make profits. What is the outlook for this particular business for you?

No, its outlook is good, actually unless there is a big drop in the market, up to now, the things going right. We start with one furnace. Now this second year we switch on the second furnace now in 2025. The principle here is to make it in higher grade. So, we use the ore, we take it to the furnace and convert it to the ferrochrome. We start with the premium here, low carbon ferrochrome, which is more premium than high-carbon ferrochrome. Currently, just to give you, to make it clear, currently, we are importing chrome from outside, the ore, I mean, and silicon chrome from China, converted to low carbon ferrochrome and select. We start with this project because keep in mind for the future, we'll add one more line to make the raw material, make Oman or, let's say, fits to be a fit for this plant. So, it's a very good model if we continue with it. We are a minor player. We have 20% shares in this project. So, we just enter for a purpose of building experience for us as a chromite in the furnace business or the ferrochrome business. In the future, we have to see how, what we are going to decide, either to increase our percentage or continue with it and make bigger, make the plant bigger. Main business focus now for us as Oman Chromite is the exploration of the new area because as more you know about your ore, as better you can plan for the future.

And those costs -- those exploration costs are all capitalized, right? They're not expensed, is it?

Yes, we capitalize it, yes. Okay.

So you will not see a P&L impact, a profit and loss impact this year?

This year, I should not.

From a cash flow point of view, how much expenses are you looking at exploratory expenses on an annual basis?

Yes, around OMR 1 million, Oman. That's our commitment.

For this year and next year each?

Yes. Yes. And when we capitalize, we have to keep healthy things. We don't capitalize without reason. So, there is of course, there is something either data, which is confident or fair value of the data, okay? And there is a good indication of exploration that can incurring more expenditure and then more capitalization.

And how are you going to find this OMR 1 million for the next 2 years? Is it, sorry, is it 1 million per year? Is it 1 million this year and 1 million next year?

Yes, yes. Our commitment is OMR 4.5 million for 5 years with okay? Most likely, we are going to spend more because when you find targets, and we already have some, let's say, call it, target, you spend in exploration as minimum requirement by government, but normally, you spend more because when you do proper exploration program, you will have better mining plan. So, you reduce the mining cost. So, it's 4.5 minimum. We are financed by our internal resources now. We have cash in the company. But if we want to grow, I think we will need, not I think it's guessed we know we will need working capital. If I found discovery and I want to switch from, let's say, a little bit of 70,000 to 300,000. And long term, I will not need it. But if I want to do it fast in 3 years' time, for example, I will need cash for working capital.

Okay. And at no point are you looking at rights issue or private placement in the next couple of years? Do you feel your internal cash flow with the cash we have in the balance sheet, the debt you have the potential to raise, you will be comfortable meeting these obligations on your own?

I think we'll be better positioned to discuss this next year based on the discovery because if the discovery is high, I think I will approach the shareholders with the proper, with the proper plan based on facts, based on the data. And because now you cannot ask for increased money without really having plan.

Very clear.

So the money we have now is enough for the exploration for this give us good indication about what the potential of the area.

Thank you. You've been so, I mean this is, thank you very much. You've been very, very helpful. It's always a pleasure interacting with you. All the best to you, sir. Thank you.

No, thanks for your interest, you and your colleagues here. I think it's mining need attention. It's happening in our mind. Last 30 year, there was no through exploration in the country. So, the mountains, which you can see in my background is virgin. It just needs more exploration. So, we are optimistic. And my advice, keep eye on it. I think as soon exploration starts to turn on, this sector might be for a big positive surprise for the country.

Sir, because you're the expert now that I was reflecting on something as you were speaking, you're saying that the, there's still, you used the word virgin in the sense that it's still untapped, right, the potential of Oman as a mining destination. So, my question is that when it comes to this particular concession area of 1,400-plus square kilometer, has the government offered you multiple blocks? And based on your experience and your pre-geological studies, are there some areas more suitable or with more potential than the others or the government gives you this area? I'm just, I'm obviously not an expert in the mining profession, and I want to understand how this works. So, do they give you 5, 6 blocks and you choose one of them or they give you this block? That's my question. How do these work?

No, the government issue a tender, okay, or bid actually for auction. Last year, actually 1.5 years, they announced 4 concessions; one in the North of Oman and 3 in the East part of Oman. We chose -- we, again, it's bidding process. So, we put our weight and our commitment in this north part of Oman because of our knowledge about the area, we are in the country compared to somebody from outside. And also, we get logistic advantage of the area as well because it's close to the port. So that's why we put more value for the, more price for the area and government give to us based on the auction results, commercial plus technical capability because they have to check taking the area for 5 years have to be able to do proper explorations.

And what is this tender involved? The technical side, I understand, but the commercial terms, what is the government looking at from your point of view? Is it...

It's -- they're looking for how much you will spend more now, how much you commit to spend because if you block the area for 5 years, you have to commit for like, for example, I commit OMR 4.5 million. I understand my commitment was higher than the other, my competitors. And this OMR 4.5 million, if I do nothing, the government will take the money from us as a cash. So, there is a binding term that I have to spend the OMR 4.5 million.

Okay. Got it. There is no negotiation on royalty or taxes. That's not what you're bidding for effectively, then you can offer more than someone else. That's not the terms of the tender. It's more about how much you're willing to spend to explore that area.

Yes. That's the main way it was for the exploration. There was for -- because what I did in the model with government, the reality is to be discussed after the discovery.

Okay. So, the royalty discussion has not happened yet. But typically, what is the royalty in the sector?

10%.

From the sales.

What -- yes, of the sales. Plus 1%, they take it as what they call social contribution, so a total 11%. But the government this time, it was for the old way 10 plus 1 fixed. Now we keep it open because that depends on how feasible the project. This complex system they make it okay, if the project will not be feasible with 10. So, for example, it will be feasible with 5, they will be open to allow this, okay?

Excellent. Okay.

But at the same time, they call it -- there will be base royalty. For example, if the royalty made and the project become economic based on $200 the market later on become $300.

Right.

The projects become more feasible. The government may say, no, at that time, they will increase the royalty. There is some equation in this.

And they will -- if the prices fall to $100, let's say, they will decrease the royalty also?

I hope, but normally, it doesn't work this way.

Okay. Understood. Clear. Thank you. It's always good to talk to you. We learn so much about the sector.

Thank you. Any other question from other participants?

Yes. Am I audible?

Yes, yes. We can hear you.

Hi. This is [ Shahul from Vision Capital ]. Sir, I just had a couple of questions regarding your 2024 revenue. We saw that there is a decline in this year's or in 2024's revenue, and you have cited the reason that this decline was due to the prices. What sort of, so if I go into your notes, there is a significant decline in the export sales. You mentioned that your current year's production would be close to the last year's production. What about the sales? And I have also seen that there is a good chunk of inventory that you have kept on your balance sheet. So, what is the volume of sales that you are expecting this year?

No, this year, we want to keep, normally, we keep inventory, yes for any, let's say, emergency around 40,000 tonnes, we try to keep the little of the inventory. And we want to sell, our sales will be equal to the production, so around 75,000, something like this. We can have plus or minus depends on what we want to achieve as more PL or also we want to see the market condition. Maybe sometimes we expect the price to go up, so we don't sell. This is -- we review this tactics, what I call it every quarter, and we take decisions.

Right. And I've also seen that there is a lot of working capital stuck here in this year. So, did you expect some of that to be released some pressure on your cash flows?

What do you mean by working capital, if you...

So there's OMR 1 million of working capital stuck this year only, out of which close to OMR 800,000 was in the receivables. So, I was wondering if this is some payment from some party or something that your cash is stuck.

No, we, just because sometime at the end of the year, we sell very high. We are selling under secured terms. So, the money coming to us straight after the sales. We don't have money in the market. Normally secured by LC, which does not exceed more than maximum 90 days. The rest is paid against cash. Sometimes at the end of the year, if you sell high quantity because to the moment the ship arrived to the port in China, for example, or to the client, that's the value of the floating amount.

OMR Right. And sir, another question from my side is on the understanding of the business. So obviously, your sales are very much connected to international pricing of the commodity. But since you are mining, your costs are not that volatile, right? Your cost would be consistent. Is that correct?

Well, we cannot control the market price. We have to live with it, okay? So, if there's a big drop, we have to accept that the profit will go lower. But at the same time, we, as a company, we have to always ensure we are lower cost than our competitors to keep us in a comfortable position in the cost curve. And that's actually the main driver here for us. One of the main things can reduce the cost is the new technology, what we speak about it before. And second thing is increasing the production. So, we have to run forward. We have to produce more, so our unit cost will be lower.

Okay. So, you have been by more efficient, obviously, you'll get the per tonne cost.

Yes.

Right. Okay.

No, and the efficiency of the things. When you speak about new technology, not only underground, for example, even the efficiency of the blasting, for example, we want to bring a new blasting method in our mine. The more you spend in the blasting, the less you spend in the overall cost, for example. This is normally the role. Sometimes if you bring expensive blasting technology, but it can reduce our work and break the mountain by mechanical. This is one of the main drivers for reducing the cost for this year actually.

Right. And sir, what is the cost that is incurred on actually after you get the ore from the mine, you have to process it and then sell it. So, what's that processing? Are there some additional chemicals involved or something that you import and then supply on that? Or is it just in the law firm exported to the...

Look, in the mining after removing the rocks from the mine, let's call it, the ore from the mine, we call it Run of Mine, ROM. So, after a run of mine, we're making this mechanical sorting or manual also by breaking the rocks and then let's say, manual removing of the waste. We realize this is not feasible with the increase in production now. So recently, we decided to buy an automatic, let's call it, automatic sorting machine, which works in the X-ray. This will enable us to, let's say, clean the rocks or remove the waste in a faster way. Still, we don't call it beneficiation it's sorting, okay? So good development can happen and enable us to grow our production while keeping the QC or quality control in the right way. This machine is we just signed a purchase order to buy it and it's supposed to reach us in the, let's say, the second half of this year. The impact of it will be in the next year in terms of increasing the profitability and reducing the cost of the sorting. The second thing is we are also thinking about how to increase the grades by adding beneficiation plants. Beneficiation plants, it can take, for example, the ore, whose concentration is fairly low, like the ore of below 24, which has no market price. And then after grinding and let's say, doing gravity sorting, it goes to around 20 degrees above. So, it will be like 24 to be like 41 or 42 or 44. We are studying this. And there are a lot of factors. It's not only about buying the equipment, it's where to make it, what is the best logistic place to keep this wash plant or concentration plant, what they call it, is under study now. So just to make it simple for you, currently, we are producing and selling it sort it and then sell it in the form of ROPs. The future plan is to make it also concentrated ore.

Right to increase the quality, obviously. My final question regarding the sector would be that, obviously, this is a commodity business, and there are some very high margins that I have not seen in any other commodity business. Is it so that Oman is blessed and so we have some very high-quality chromium here and then you are able to sell it at a premium? Or like these high margins, would you be able to explain it to us, sir?

Look, the efforts to mine low-quality or high-quality are the same. So, you're right, if you are lucky and you have a high grade, then yes, you are lucky, so you have better profits. If you have a lower grade, you have to do some investments to make it to increase the grade. And Oman now, I cannot say if we have high grades or we don't have because we are doing the exploration. There is an indication of good grades, okay, and also low grades. If that comes, of course, we will decide where to produce ferrous all these things, what is the best plan for long and short and long-term plans. It's too early. I don't think Oman will be a big surprise in terms of quality, but maybe in terms of the volume, okay? And if we have good volume, okay, then we have a good scale of economy to make all that we put in mind as increase the concentration or whatever we can do.

Right. So, what you're saying is that we have good quality. We just need good numbers to be able to consistently keep producing this.

The economy of scale. As more scale you have, you can do a lot of things. If you have small, small mines, that's what was the driver of the government to remove the old way of giving small permits and give big concessions, so the concession owner can plan better and invest better. Any other questions from the colleagues? If no questions, then I'll conclude the meeting. Thank you very much. First, it was a very good discussion. And hopefully, with the result of the exploration for next year or the next meeting, I will have more, let's say, data that we can speak about future plans in a more structured way or more clear way. So, thank you very much for your interest. Keep an eye on the mining. I think mining in Oman can be a new story for the country. Thank you very much.