OM Holdings Ltd
ASX:OMH
Earnings Call Analysis
Summary
Q4-2023
OM Holdings, a manganese and silicon smelting company, wrapped up 2023 with strengthened ties to trade partner JFE Shoji through a share subscription agreement and looks forward to 2024 with optimism. In 2023, they repaid USD 9.3 million of project financing debt and achieved their revised guidance with 434,000 tonnes of ferroalloys production. As they repurpose furnaces for ferrosilicon production and prepare to restart their Ultra Fines Plant, OM HOldings expects a stronger performance in 2024 with production output guidance set at 430,000 tonnes and capacity utilization predicted to be around 85-90%. While the prices for ferrosilicon and silicomanganese fell over 20% in 2023, causing compressed margins, the company anticipates market rebalancing and a recovery in prices, with robust demand continuing in Asian markets.
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All right. A very good morning, everyone, and thank you for joining OM Holdings Quarterly Investor Webinar this morning. Now my name is Jenny, from the IR Department of OM Holdings. Together with me is [ Richie ] and we will be hosting the quarterly webinars, moving forward.
Now, OM Holdings is a manganese and silicon smelting company, with vertical exposure in mining and trading. So with me today also is Joint Group Financial Controller, Eugene Tan. He will run through the key updates following the release of our Q4 2023 production and market update. The presentation will then be followed by a Q&A session.
[Operator Instructions] So without further ado, I'm pleased to hand over to Eugene, who will present the Q4 key updates. Eugene, over to you.
Thanks, Jenny. Thanks for the nice short introduction. A very good morning to everybody. And thank you, everyone, for dialing in and taking time off to attend our webinar. This is our first presentation for 2024. We will try to update you with everything that's happened in the final quarter of 2023, which is -- which we have just closed. I think without any further ado, lets basically start with our usual update.
Next slide, please. Okay. I think to start off on the corporate front, we have completed a share subscription agreement in the early part of December before JFE Shoji, which is one of our trade partners that has been with us for, I think, more than 20 years. And for this transaction that was for consideration of [ AUD $13 million ], where we issued with about 27.6 million shares to JFE at an issue price of AUD 0.472 per share.
I think the announcement was also released on the ASX, I think if I remember correctly, on the 1st of December 2023. So for those investors and shareholders who have not -- want more information about this, I think you can check up the announcement as well.
I think a lot of our shareholders will know that this coincides with the end of a long-term loan that JFE Shoji has had with the company since the inception of the OM Sarawak smelter project.
With this, we -- with this transaction, I think we continue to strengthen the relationship that we have with JFE for further developments and partnerships [ down the line ]. I think you go to the middle box, I think you could see that we have also repurposed our silicon metal furnaces for production of ferrosilicon. And this is still ongoing, as we have previously communicated with our shareholders and our investors.
We are looking to commence our silicon metal production for one furnace, I think, in the first half of 2024. The reason why we're doing this basically is to ensure that all the technical capabilities are ready, we don't get any surprises and that we stagger the commissioning of the 2 metallic silicon furnaces in the first half of 2024.
In the fourth quarter of 2023, I think in accordance with our milestone payment plans, we have also repaid approximately USD 9.3 million to our project finance standards for the Sarawak project as part of our regular utilization of the project finance debt.
Okay. I think these are generally some of the quick updates basically on the corporate front. We move on to the production side.
So in terms of production, I think shareholders and investors will note that we have actually delivered production in accordance with our guidance, and we have actually revised our guidance in 2023 as well.
I think with that, we closed the guidance with ferroalloys production at [ Sarawak ] exceeding 400,000 tonnes, with a total final number of -- see, I think, about 434,000 tonnes for FY 2023. I think that's -- you can see that basically on the left-hand side, the bar chart, basically.
With that, we also managed to catch up in the last quarter of 2023 with shipments, more or less coinciding with the total production of ferroalloy in [ Bursa ]. Okay.
I think we also want to take this opportunity to update shareholders on our intention relating to the restart of the Ultra Fines Plant [ OMM ] in the UFP at [ OMM ], which is our Australian subsidiary. We're looking to restart this, and we are preparing to launch tentatively by the end of 2024. So things are all ongoing at this point in time to get this project on track.
One thing to note for FY 2024, this is our initial guidance that you can see on the screen on the left-hand side, the dotted bars. We're looking to outperform what we've achieved in 2003, okay? Given that prices have constantly declined since the peak during the COVID super cycle, we expect that for 2024, we would -- we will see stronger performance, I think, more from the production as well as recoveries from market prices.
Next slide, please. Thank you. In this slide, I think here, we actually see the plans and the breakdown of our FY 2024 guidance against what we achieved in 2023.
We expect to perform at least an output of about 430,000 tonnes for 2024. And of course, this would then include our silicon metal furnaces production volumes as well, which will be within the range of 0 to 2 -- sorry, 0 to 2 meaning 0 at the start of the year -- 0 furnaces at the start of year and 2 furnaces by the end of 2024. I think throughout the year, we expect to produce at or close to 85% capacity utilization, with the high end of the range being closer to about [ 90% ].
Okay, we'll take you to the next two slides. I think in the next two slides, we will generally touch briefly on the silicon and the manganese alloy market just as an update to our shareholders.
I think for a lot of our shareholders, I think if you look at the ferrosilicon price charts, you will know that we have set for a very long time. Now that prices have declined as they have, they will generally find new natural landing spot, which in -- I think in the last 2 to 3 months or so, we have observed ferrosilicon prices remaining probably above the $1,200 levels, skewing more towards the $1,300 levels.
We also note that in FY 2023, prices overall have declined by over 20%, as evidenced by the last 23 months ferrosilicon prices, which was published by [ S&P Platts ]. From our point of view, we believe we are in a recovery phase, with production declining around both in Europe as well as in Russia.
Next slide. Moving on from ferrosilicon, I think -- we can see that for manganese alloys, the trend very much remains the same as for ferrosilicon, with both the ore as well as the silicomanganese prices declining over 20% -- about 20% for the full 12 months of FY 2023.
We also note that for silicon, manganese -- silicomanganese in particular, I apologize, declined by about 26%, which is roughly about 5% more than manganese ore, and this has compressed margins basically.
If we move into 2024, I think we firmly believe the supply and demand factors will rebalance, and the pre-COVID trend will generally reestablish itself. Looking at the price chart for the silicomanganese, in particular, I think for the last about 6 to 7 months, we can see that it has actually tested a price flow of around USD [ 850 ] twice and most recently rebounded in the last 2 to 3 months as well.
We believe a lot of our competitors are facing challenges [ completing ] and producing at this level -- at this price level, and it will remain a near-term support level for silicomanganese prices, we believe.
Against the backdrop of all these cost pressures, we've also observed that competing countries of origin are generally importing less ore in the near term. On the demand side, demand from our Asian ore markets remain robust. We also see firm demand from Southeast Asia and the -- also from the mature East Asian economies like Korea and Japan basically.
We also note that while steel production has been very depressed globally in 2023, most forecasters expect some form of recovery to happen in 2024.
So I think in general, for this year, for 2024, we believe the destocking for silicomanganese and more generally for ferroalloys has about run its course, and we are confident that we are positioned for a recovery from that front.
I think that generally takes me into the end of this very quick presentation and a short update in terms of what has transpired in the last 3 months. I think, with this last slide, I think I'm just going to leave -- I think -- I will not take more time in terms of the presentation, which I think shareholders have the opportunity to go back and read. I think we're just going to leave a little bit more time for Q&A.
But I think in general, nothing has changed. Our story remains very much the same. Basically, the focus is still on strong margins, very stable foundations that we have. And the focus is just on strong organic growth plans basically.
We will continue to remain the prime beneficiaries in this high-priced [ power ] cost environment with our PPA. The world is also starting to put a price on carbon. So the hydro power that we are utilizing in Samalaju, I think, while currently, that is not being monetizable, that will increasingly become even more of an asset to the company, moving forward. Okay. I think I will stop here, give you some time for question and answers. Thank you.
All right. Thank you very much, Eugene, for your presentation. Now we will move on to the Q&A session. So the first question relates on hedging policies. So does one hedge implement any hedging policies on ferroalloy prices?
Thank you. We get asked this a lot actually from various people. I think Jenny, the answer -- the simple answer to that is no. We generally do not have any hedging policies on ferroalloy prices.
Well, there are no international futures market for ferroalloy, right? The futures market that's in China, is not directly relevant because of the taxes that are imposed at both the import and the export front, although they are prominently used within China domestically, right? So I would say -- I think the answer to this would be no, we have not implemented any hedging policies for ferroalloy [ prices ].
All right. Thank you, Eugene. And the next question relates to Tshipi and Bryah. So how much actually does one -- does the manganese supply to all [indiscernible] does Tshipi and Bryah contribute to?
Tshipi and Bryah, manganese ore supply?
Yes, that's right.
I think Tshipi's manganese ore supply is primarily traded and exported to China, for which OM Holdings basically earns a fixed commission.
It is -- I would say, it is occasionally shipped to Sarawak for our internal, own consumption. But I think the volume is not significant in the scheme of things. The reason being that logistically, I think, it's not so efficient. So I think the annual traded volume for Tshipi ore is, if my memory serves me right, around 420,000 to about 460,000 tonnes per annum. So yes, that's about Tshipi. I think Bryah -- well, for Bryah, I think -- Bryah is still under -- is still currently under the exploration phase. So I would have to say that currently, there is no production coming up from Bryah at this point in time as we speak.
Right. All right. Thanks, Eugene, that's very clear. So the third question actually relates to our report from Q4, that's on the decline in sales of ore and alloy's volumes. So 36% ore looks rather -- is there any specific reason for that decline?
Yes. I think 36% is -- I mean, is quite a huge chunk. I think generally -- well, this relates to basically the volume of ores and the volume of alloys that are traded basically within the year. It's mainly due to lower volume of manganese ores treated, and this is not fully in line with the decline in Tshipi's production in Q4 as well.
We -- I think there was a decline of roughly about 26% -- 27.6% or 27% -- about -- roughly 27% decline in the Q4 production. We also see a decline in volumes from our offtake partners, that's Element 25, basically, given the current market pressures. I think having said that, the total sales for both ore and alloys has actually increased by 32% year-on-year for the full year of 2023. I think for FY 2023, volumes for like -- about 1.9 million versus FY 2022 of -- I think it was just under 1.5 million tonnes.
Thank you, Eugene. I think that's very clear. So overall, compared to last year, the full-year volume of ores and alloys [ traded ] to 32% higher, you mentioned you, right?
Yes, that's right.
All right. Okay. And -- all right. Moving on to the next question. So this one relates to shipments. Will there be any more shipments carried forward to the first quarter of 2024, similar like what happened in the last quarter in 2023?
Thanks, Jenny. I think well, this is something that I think -- for all suppliers that ships internationally, I think it's something that we all face. Shipments will generally always [ grow naturally ] with several days of the [ labor ] vessels, especially towards the year end. I think the company's policy is generally to -- not to hold excessive inventory towards the year-end.
There are things that basically we do not have control over. Natural slips could occur due to things like port congestion, I don't know, timing issues. These are things that actually are -- things that basically we do not have control over.
But slips like that do generally occur. And for -- I think, for the year end of 2023, I think there would be some, but I don't think that it is expected to have any significant impacts to the [ year ].
Okay. And for our next question, also relating to shipment, so do you foresee any increment in the shipping costs? And if yes, what is the strategy for management to overcome this?
Thanks for the question, Jenny. I think shipment costs something that is faced by all exporters more or less equally, right? And basically, that shipment cost will eventually be passed on to customers, and this will be reflected in the [ CRM ] price, the same price.
So I think, in general, our strategy, basically, is just to maximize the returns. And as such, we have -- and as a result, we have then focused on Southeast Asia as a region. I think our freight will always be relatively lower as -- if you -- if the focus is on Southeast Asia, I think our freight will always be relatively low, when compared against our competitors in the same [ region ].
Right, right. So the strategy is to really maximize return and focus around the -- mostly on the Southeast Asia region, right? Okay. And all right. The next question is relatively straightforward. So will -- are we expecting all 16 furnaces to be up and running in the first quarter 2024?
Yes. I think -- this is probably something a lot of shareholders [ wanted ]. We've been short of around 16 furnaces for quite a while now, for various reasons, major maintenance, so on and so forth. I think for -- well, will 16 furnaces be up and running in 1Q 2024? I think we expect about 14 to 15 furnaces to be running at full capacity in the first quarter of this year.
But having said that, I think we are taking into consideration things like furnace maintenance, furnace recommissioning and also keeping in mind that we will also be preparing one metallic silicon furnace for recommissioning in the first half of 2024. So I think in short, I would say, for Q1, we are expecting about between 14 to 15 furnaces to be running at full capacity within this quarter.
All right. Thank you, Eugene, for that. The next question relates to dividend. Is there any possible increments in dividend?
Thanks for this question. Yes. I think we are currently -- so we are currently going through the year-end audit, finalizing our numbers with the auditors. So in terms of the final full-year numbers, it's not -- I would say, it's not finalized but almost there, it's not finalized yet.
But I think having said that, I'm looking at it from not the dividends perspective, I think we've always stood by this, I mean the dividend payout will obviously be based on the dividend policy that we announced, I think, sometime in the early part of last year, and we will continue to stand by that, basically, right? So generally, it should fall between, I think, 10% to 30% of the group's NPAT that is attributed to our [ openers ]. Of course, that is subject to a cap of 50% free cash flow and also other considerations. And well, whatever is proposed by management has then to be approved by the Board as well.
So yes, so any decisions in terms of dividends will only be announced after the full-year financial results are finalized, and that should be roughly available around, I think, by the end of February.
All right. Thank you, Eugene. So maybe just a reminder to shareholders, we actually made the announcement on our dividend policy just last year. You may refer to the announcement for more details. And the announcement is actually made on 28th February 2023, to be exact. And also our next financial results -- and sorry, it will be out by end February, right, Eugene?
Yes, that's right.
Yes. All right. Now I think we have time for just one last question, and this one is on tax exemption. So any updates on the tax exemption, Eugene?
Yes. Before I start, I think I just want to thank and show my appreciation for shareholders, who've been very patient with us from this angle. I think this question has been also one of the very hot questions that have been asked by many people relating to our tax exemption.
As it stands right now, I think there are no changes to the status of the 5-year tax exemption yet. I think just as a reminder to our shareholders and especially those shareholders who are new, why is the first 5-year tax exemption different from the second 5-year exemption?
I think the conditions for the first 5 years tax exception was basically -- it was an investment condition basically, right? So which means that once you put an investment, you've done the investment, basically, right, by default, you would then have met the requirements and be eligible for the first 5-year tax exemption. For the second 5-year next exemption, it's a little bit different. The conditions and targets are a little bit different. Basically, this has got to do with things like ongoing compliance, the company's ongoing efforts to develop the local suppliers, the contribution to the local employment environment, which are on these targets, basically a very forward-looking targets.
But having said that, I think we have been working very hard with the authorities on this. And suffice to say, I think we are confident that we are -- we will be able to satisfy all these requirements. I think it's something that shareholders want to know because I think the exemptions would actually impact our NPAT quite significantly in that sense. So with that, I think we will continue to keep our shareholders and investors abreast of the development, especially on this tax exemption front, whenever we get the opportunity.
Right. Thanks, Eugene, for that answer. Now that appears to cover the majority of the questions from our audience today. So -- but if you do have any other further questions, please forward them to investor.relations@ommaterials.com. We will make a recording of this webinar available through our OM Holdings LinkedIn page in the coming days.
Now this concludes our webinar for today. Thank you, everyone, for attending. And thank you, Eugene, for the comprehensive update.
Thank you, everyone, for attending. Thanks, Jenny. Thanks always to you.
Thank you.
Thank you very much.