[Ferro-Alloys.com]Cahya Mata Sarawak Bhd (CMS) has further raised its investment in OM Materials (Sarawak) Sdn Bhd (OM Sarawak), which owns a ferrosilicon and manganese smelting plant in Samalaju Industrial Park, Bintulu by subscribing to the latter’s convertible preference shares (CPS).

 

The subscription of 110 million CPS at an issue price of RM1 apiece for RM110mil in cash was made by CMS’s wholly-owned subsidiary Samalaju Industries Sdn Bhd (SISB) on April 7.

 

The money for the subscription was from internally generated funds, CMS said in a filing with Bursa Malaysia.

 

SISB has a 25% stake in OM Sarawak, with OM Materials (S) Pte Ltd owning the other 75% equity interest. The 110 million CPS subscribed by SISB forms part of up to 450 million CPS to be issued by OM Sarawak.

 

Of the total amount, up to 300 million CPS will be issued to SISB and the balance of 150 million to OM Materials or any other wholly owned subsidiary of Australia-listed OM Holdings Ltd.

 

The CPS will mature 10 years from the date of issuance. On maturity, the CPS will be automatically converted into new ordinary shares in OM Sarawak.

 

On the rationale for the CPS subscription, CMS said this will strengthen OM Sarawak’s financial position to enable it to meet its financial obligations and commercial objectives on a timely basis. The move also fits into the company’s investment strategy and vision.

 

OM Sarawak is currently ramping up its production of ferrosilicon and plans to diversify its production by converting six units of furnaces from ferrosilicon into manganese alloy, subject to project lenders’ approval.

 

“The ferrosilicon and manganese alloy industry remain challenging as the demand will still depend on the growing of steel industry, which is still uncertain in the short to medium term.

 

“However, a modest increase in prices has been observed early this year off the back of significant production cut in China.

 

“While management recognises that this immediate recovery is not guaranteed to continue, the current market landscape does reinforce the message that current prices are not sustainable for all producers and that the market is in the process of shedding capacity to return to viable level.

 

“By then, the price shall recover modestly going forward,” CMS said in an overview and outlook of the industry.

 

However, CMS said it is confident about the fundamentals of the OM Sarawak project and that it can retain its cost competitiveness in the long run.

 

[Ferro-Alloys.com]“The project would potentially be a market leading producer,thanks to its core cost competitiveness, scale, location and other advantages,” it said, adding that the smelter would continue to improve its operational efficiency.

 

According to CMS group managing director Datuk Richard Curtis, OM Sarawak produced 113,157 tonnes of ferrosilicon from September 2014 to December last year.

 

A total of 12 out of 16 furnaces were commissioned, with all of them going into operation at the end of last year.

 

“The production output of ferrosilicon continues to move towards meeting the nameplate production capacity of 308,000 tonnes of ferrosilicon alloys a year,” he said in the newly released CMS 2015 annual report. OM Sarawak recorded a net loss of RM35mil for the financial year ended Dec 31, 2015. Curtis attributed the loss mainly to the depressed commodity market and the delay in the Samalaju plant’s ramp up schedule.

 

“In the short term, record-low commodity prices continued to affect profitability and studies are underway to see if the mix of furnaces needed to be re-configured which may involve a partial shutdown.

 

“With very strong technical teams who understand how to optimise competencies and resources and operating costs firmly in the first quartile, management is confident of returning back to profitability,” he added.

 

Curtis said the OM Sarawak smelter is expected to reap the benefits of competitive energy costs, a 10-year tax holiday with no import and/or export duties and its strategic proximity to the growing east Asian markets. Besides, OM Sarawak has binding market price-linked offtake arrangements with leading industry players, including in Japan, for over 60% of its production.

 

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