OM Holdings Ltd

ASX:OMH

Q1-2025 Earnings Call

[Jenny Voon, executive]

Good 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 Rishi, and we 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 Q1 2025 quarterly production and market update last Monday. 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.

If we are unable to answer your question, we'll attempt to address the query post webinar. So without any further ado, I'm pleased to hand over to Adrian.

[Adrian Low, executive]

Thank you. Thanks, Jenny, and thanks, everyone, for dialing in today. So I think let's skip to the main slide. So in the first quarter of 2025, I'll go over the production stats in a second. But just looking at the main achievements. So OM Sarawak received the Merit award at the 11th Premier of Sarawak Environmental Award ceremony. So this is something that we're very proud of. I think we're very, very engaged locally in Sarawak on the ground in terms of what we're doing with the circular economy as well as other measures to sort of reduce the waste that we are emitting and also the recycling efforts that are in place.

OM Sarawak was also awarded the ISO certification for quality management. And so that's another achievement that we're very proud of. More significantly, I think, in the first quarter of 2025, and this is something that I've spoken about at a couple of webinars and presentations. And we finally sort of achieved and closed the exercise. And so I'm referring, of course, to the refinancing exercise at both OM Singapore as well as OM Sarawak. And so we placed $168 million in syndicated debt facility as well as just over $1 million -- $100 million, sorry, through working capital and bank guarantees.

Now I think it's very important to sort of bear remembering that prior to this refinancing, what we had in terms of the project finance structure was a structure that was initially meant to see us through the greenfield phase of the project. Now along the way, I think from -- when we did that in 2011 and when production commenced in 2014, several milestones and several sort of iterations of projects took its own life -- sorry, took a life of its own. And so in 2016, 2017, we actually reinvested proceeds into converting a couple of furnaces to manganese alloys.

More recently, we did another round of conversion. And in 2023, we closed an exercise in which we acquired 25% shares of OM Sarawak from our joint venture partners. So I think the point I'm trying to make is along the way, we have used the same vehicle for a purpose beyond that which it was originally envisioned for. And so in closing the refinancing exercise, I think the company and management is very pleased that we are able to sort of unlock value, both in terms of the cost of interest to the company, meaning more for shareholders as well as really finally achieving a sort of more balanced capital structure that will support our needs and as well as provide flexibility for growth in the years to come. And so that has been concluded.

And in terms of the capital structure that we are aiming for, I think this is more or less close to the ideal. On the operation front, I think for smelting, for ferrosilicon and manganese alloys both, we are more or less on track. So if you look at the numbers in the chart in the bottom left corner, that's more or less on track for the full year guidance. And so for our smelting business, I think given that all our sort of maintenance schedules, sort of power downtime, scheduled downtime, that's all planned out way in advance. I think shareholders and analysts will note that there haven't been much surprises in the last 2 years or so, okay?

In terms of Bootu Creek operations, so I think we're very pleased to share that the UFP trials, the second trial has achieved the grades and yield that we had budgeted for. So with that, I think we are just one step near to completion. And so the third trial that is sort of underway as we speak is a full sort of commercial trial involving hydro mining. And so once that is completed, I think we will be in place to deliver that project, okay? So that's all in terms of the quarterly updates. Now can we move on to the market updates. Thank you.

So in terms of ferrosilicon market, I think, again, for a lot of shareholders, a lot of people that own the stock, ferrosilicon prices and manganese ore prices are not always the most transparent. But every quarter, I think we want to take the opportunity to answer questions as well as to shed some light as to what's happening in terms of global alloy prices and what the demand and supply levers look like. So for ferrosilicon in the first quarter of 2025, not much has changed really. I would say that China obviously remains the marginal supplier to the market. And we still see downward pressure on prices mainly due to lower demand as well as competition from Russian products.

So what we are seeing is China importing material from Russia. And I think if you look at the statistics, it's something like 10,000 to 20,000 tonnes per month. And so with this gradual downward pressure, I think we've seen ferrosilicon prices decrease down to $1,120 per ton to Asia. So given these pressures, I think -- and obviously, as a company, we track very closely what the cost of production in China looks like, and we do this for major regions and major competitors. So we do see significant cost pressures. I think even with the raw material prices like semi coke coming down to an almost all-time bottom, we still see cost pressures for a lot of our close competitors.

And indeed, I think it's heartening to note that there have been entire plants that shut as well as several furnaces shutting at major competitors. So I think on the sort of demand and supply front, we are at a point where supply has been gradually reducing month-on-month in order to create that deficit that will eventually take care of the overhang. And in terms of overhang, I think we very often look at Russian inventory. And indeed, I just mentioned that China has been importing material from Russia, whether that's for domestic consumption or then later on resold.

That's not something that's 100% transparent. But I think looking at the cost structure and also looking at the duration over which this has happened, that overhang must surely also be slowly chipping away now. So with that, I think we'll move on to the manganese markets. So for manganese markets, again, there's always this tension and dynamic between the ore and the alloy. And obviously, as a smelter company with exposure to mining as well, we pay attention to both very, very closely. And so on the ore front, I think we've seen ore prices normalize, come down to sort of a near-term bottom several months ago.

Since then, it has rebounded. So I think this quarter, manganese ore prices for the high grade closed at almost $5. And historically, I think we've always seen the ranges between $4 to $6 for the benchmark high grade ore what used to be called the 44% index. And I think what we're seeing is obviously an overshoot in the correction a couple of months ago. And off the back of that, then silicomanganese has also seen an improvement from $885 to $965 CIF Japan.

Now I think in the background, this is obviously kind of very linear. I think if you put all the prices on a [ scatter plot ], you will see the sort of linear relationship. But beyond that, I think what we're trying to understand, obviously, is also what is the net destocking effect that is happening behind the scenes that we don't necessarily -- we can't necessarily sort of shine a light on, both on the ore front as well as the alloy front. Now on the ore front, it's relatively more transparent. So if you look at the shaded area in the background, and we've had this chart for a long time, but it's not always referred to.

If you look at the shaded area in the background, that's ore inventory in Chinese ports. And so you will note that it's come down very, very sharply from its peak of just above 6 million tonnes. And so this is due to 3 things. One, obviously, the supply of ore has reduced with South32's GEMCO mine being out of action for such a long time. Notwithstanding that prices are not increasing because why? Second reason demand has decreased, right? And so this is a global phenomenon. I mean it's not just in China. I think around the world, steel production has been very weak. But this sort of balance between ore demand and ore supply has -- is the reason why oil prices have been kept at around its sort of traditional balance between $4 to $6.

And so the third reason is just the fact that the amount of financing out there, dollar financing to hold this inventory in port has reduced, right? And then this is not as exciting a way for people to deploy capital as it was in the past, right? And so I think overall, the size of the market has shrunk. But having said that, it's not had an impact on profitability. So if you look at the spread between what the alloy prices look like, the blue line and what oil prices look like, that spread has reestablished itself, right, after the sort of anomaly after the blip in the middle of last year. And so I think that's what we mean by prices normalizing, alloy prices are in a place where healthy margins can be made with the sort of contemporaneous oil price.

And so in saying that sort of going back to what I was saying a couple of minutes earlier, that's really what we've been trying to understand in terms of how much overhang is there in terms of manganese alloy inventory out there. And I think when you look at the net closures, net closures of manganese alloy smelting capacity over the last, call it, 12 to 18 months, you will note -- and sorry, in saying this, also keeping in mind that there are a few major plants that will close in a couple of months' time. I think we're seeing, again, not dissimilar to the ferrosilicon story that smelters are shutting and supply is being reduced to the point at which it is just under demand and sort of creating that deficit to eat away at the overhang.

And so I think if you look in the region, both sort of East Asia and South Asia, we see supply reduction. When we look in the West, we also see supply reduction. And in China as well, I think that's a bit more dynamic, but we see that playing out as well. So this overall reduced utilization globally will add to price stability. And I think that's why we see sort of manganese alloy as being a healthier market in 2025. Okay. So with that, I will end the presentation. I understand as usual, there are a couple of questions, and so I'll be happy to take them.

[Jenny Voon, executive]

Thank you, Adrian, for the presentation. So the first one relates to Tshipi and its ore supply. If Tshipi mine was to be sold or closed for some reason, how easy would it be for OM to buy manganese ore from the market?

[Adrian Low, executive]

Okay. Well, I mean, that's a good question, right? And so you could substitute Tshipi with any other manganese mine. But I think we're not wholly dependent on any single mine, just as I think before GMO closed at -- well, somewhere around this time last year. We were consuming at one point in time, more than 50% of the ore was -- it was coming from Groote Eylandt and I'm very happy to report that nothing changed in terms of the cost structure of OM Sarawak. And so I think the same applies for Tshipi. The only difference, obviously, is the grade of ore that Tshipi supplies. So Tshipi supplies a semi-carbonate ore, and that's produced by a few major producers in South Africa, notably South32, Assmang, UMK. And so I think it's not difficult to source semi-carbonate ore.

And obviously, at the most extreme, what if the supply of semi-carbonate ore disappear completely? Well, then you would just get the necessary chemistry, you need to present to the furnace through a combination of items you could add, right? Just to substitute the calcium, you could add limestone and to get the right manganese iron ratio, you simply have to tweak the sort of high-grade ore versus low-grade ore you're feeding the furnace. So I think we're not concerned if any single supplier sort of were to close or disappear.

I think in terms of the sort of non-Sarawak economics with respect to what we're doing with distributing our share of the GP, obviously, that would then be impacted, but that's sort of a relatively minor contribution, I think, in the scheme of things.

[Jenny Voon, executive]

Thanks, Adrian. Now the second question is, has private bond of AUD 30.9 million be repaid? If not, will the new working capital facility be used to finalize this debt? Or will the repayment be funded from cash flow?

[Adrian Low, executive]

Yes. Okay. That's a good question. I mean, cash is fungible at the end of the day. But yes, I mean, the answer is yes. The entire refinancing exercise has been conducted with this in mind as well.

[Jenny Voon, executive]

All right. Thanks, Adrian. And the third question is what kind of catalyst could help actually push ferroalloy prices to a much higher level? Is there any potential of this scenario happening anytime soon?

[Adrian Low, executive]

Yes. So I mean, sort of barring the fact that across the board, obviously, alloy prices recover when inventory runs out, right? So that is an obvious truism. And I guess what the question is once we reach a state where this alloy overhang has once again been depleted, what sort of catalysts might we see with current market environment -- with the current market environment that could make people realize that we've actually collectively run out of alloys.

So I think historically, this has happened in a few -- in sort of various forms, most notably in sort of during COVID when we saw sort of power prices increase multiple fold and when China had like 3 days of coal inventory or something like that. That was a catalyst. We've also seen this happen in terms of trade restrictions. So I think what could play out -- one scenario that could play out this year is given the tariffs that are sort of flying through the air, something could happen that would lead to a sort of massive shortage of alloys in a position -- in a location where it's not the most convenient to sort of ship to, and that could trigger -- that could be a catalyst for price recovery.

I think in terms of Asia, obviously, one catalyst would be what's going to happen in China basically in terms of the government's stance for steel production, but then that's always something that people watch. So it wouldn't really come as a surprise. So I would point to factors like tariffs, the trade war as well as issues that might revolve around production, such as cost of power, availability of power, environmental regulations and so on.

[Jenny Voon, executive]

Thanks, Adrian. So moving on to the next question relating to silicon metal. Given the current market, the silicon metal market doesn't seem to be such a good investment when considering the amount of silicon metal plant or currently produced. So would you be able to shed some light on that?

[Adrian Low, executive]

Yes. So the question is was the silicon metal investment at mistake, right? Look, I think -- so silicon metal as a product is listed as a critical mineral in Europe, in the U.S., the cost of production in these countries is very, very high, right? I think much higher than even what our sort of trial production cost look like just given sort of the power price spread. And silicon metal is obviously the dominant application of silicon metal in the world is in the production of polysilicon. Polysilicon eventually ends up in solar panels.

And so I think it is a very critical resource. I think it is absolutely imperative that we have the option to produce it. And its time will come. And the key thing, I think, is that the timing was really, really bad. And so I think when you look at where we are today, the U.S. has initiated a new round of antidumping investigation on silicon metal production around the world. Ironically, Malaysia has already been part of that investigation. So we in a sense sort of sheltered from that.

I think if you look at how potential tariffs and sort of the trade war is going to fracture the world's sort of demand centers of silicon metal to fracture that from the supply sources, then I think we have bought ourselves the option to plug and play as and when the situation arises and as and when the market conditions are fulfilled. And I think in saying that, perhaps I'd just like to share briefly on what's happened in the silicon metal markets, right? Because I think we're seeing prices below $1,500 now. When we commenced production, prices were around $2,000 per tonne. When we initiated the project, I think prices were around $1,600, $1,700 per tonne, right? And so these are all sort of Asian prices.

I think from the time we commenced the project to today, I think we have seen silicon metal production, monthly production in China double. And so at its peak, it probably reached just above 0.5 million tonnes a month, right? And so when you look at that output versus at its peak in China, the demand for silicon metal must have been at most 450,000 tonnes. So we're seeing just incremental addition of silicon metal into sort of the social inventory in China. And this obviously has been exacerbated by 2 things: one, an excessive capacity building in China; and two, very, very recently in the last 6 months or so, a massive reduction in the consumption of silicon metal in China.

So I think if you look at the Q1 stats between 2024 and 2025, the consumption of silicon metal for polysilicon, and this is the dominant sort of application of silicon metal that has halved in China. Will that remain at the level it is today? I don't think so. Will that go back to 0.5 million tonnes per month? Probably not in the near term, right, if I'm being honest, if you look at the sort of pricing and demand-supply of polysilicon that eventually ends up in solar, the world needs that, but it will not in the near term, sort of immediately go back to 0.5 million tonnes per month in terms of consumption.

So I think that's -- those are the dynamics in play for silicon metal. And I think as a company, just given our position, given our power cost, given our strengths, silicon metal is a useful product to have in our portfolio. Will we produce it in 2025? We may or may not, right? It really depends on what the market pricing looks like and how quickly we can sort of move things around. So I think that's sort of the full answer to that question.

[Jenny Voon, executive]

Thanks, Adrian, for the comprehensive answer there. I think we have just one last question. Was there any impact to sales since the declaration of the reciprocal tariff that was subsequently put on hold?

[Adrian Low, executive]

Yes. I mean, okay, so this -- it's a good question to ask you because we get asked this a lot, right, by analysts, by our shareholders, by our bankers. So manganese alloys are listed in Annex 2 of the reciprocal duties. And so manganese alloys are exempt from the tariffs. Having said that, ferrosilicon is not. There is a sub HS code of ferrosilicon that is in Annex 2, but unfortunately, it doesn't apply to our product. We don't know exactly why it was done this way. But keep in mind that ferrosilicon, there is an active antidumping investigation, ADD/CVD investigation for ferrosilicon that's ongoing. It's about to close. I think a lot of the sort of near final tariffs have been released, and we are obviously very pleased that we are fairly low sort of in the scheme of things, right? So we're sort of between 5% to 10% if you add the ADD and CVD components.

Having said that, if the reciprocal duties were to come into play, right, then what the analysis that we would have to do is add these things together and then look at how we stack up against other countries that are producing ferrosilicon. So Russia, obviously, although it is not -- a sort of not in the list of the reciprocal duties, it has a huge number on the ADD front. So that puts them out of the picture. China is out of the picture. And so I think when you look at that list and you add these things together, the picture becomes a lot more nuanced. And I think it wouldn't be unfair to say that this could be an opportunity for us distributing ferrosilicon in the U.S. rather than really than a risk of threat.

In terms of what's actually happened to sales and shipments, I will say this, nothing much has happened. The investigation, the antidumping investigation has happened -- has been going on for over a year now. And so everything that had to be done was already done last year. And so we have covered all our obligations to our customers with whom we've signed contracts. And in terms of the manganese front, because it's an Annex 2, nothing really has changed in terms of how customers are drawing down and consuming the manganese alloys.

I think the only thing it has done is create a lot of uncertainty for our customers for steelmakers in the U.S. And so to the extent that, that might affect their own utilization rates, the consumption and what that might mean for business in 2026, I think only time will tell. So that's the full answer for the tariffs. So in short, not much has changed. In the long term, I think it really depends more on sort of the U.S. domestic situation.

[Jenny Voon, executive]

Thank you, Adrian. Now that appears to cover the majority of the questions from our audience today. If you do have any further questions, please forward them to [email protected]. We will make a recording of this webinar available via OM Holdings LinkedIn in the coming days.

This concludes our webinar for today. Thank you, everyone, for attending, and thank you, Adrian, for the comprehensive update.

[Adrian Low, executive]

Thanks. Thanks, everyone, for dialing in.