OM HOLDINGS LIMITED (ARBN 081 028 337) No. of Pages Lodged: 9 8 November 2011 Company Announcements Office ASX Limited 4 th Floor 20 Bridge Street SYDNEY NSW 2000 Dear Sir/Madam OM SARAWAK FERRO ALLOY SMELTING PROJECT- DEFINITIVE FEASIBILITY STUDY The Board of OM Holdings Limited ( OMH or the Company ) is pleased to announce the completion and approval of the Definitive Feasibility Study ( DFS ) for the development of the Company s Ferro Alloy Smelting Project in Sarawak, Malaysia ( Project ). HIGHLIGHTS Completion of the Definitive Feasibility Study on the development of the OM Sarawak Ferro Alloy Smelting Project confirms a strategically, operationally and financially robust Project The OMH Board has approved the Project s final development Key operating and financial modelling of the Project (on a 100% basis) within the DFS includes: Annual production capacity Project CAPEX Average annual turnover (at full production capacity) Average annual operating cash flow (after tax) Project NPV @ 10% (after tax) Project Internal Rate of Return (IRR) (after tax, ungeared) Payback period (excluding the construction period) 600,000tpa of Ferro Alloys consisting of 310,000tpa of Ferro Silicon alloys and 290,000tpa of Manganese ferro alloys USD 502 million USD 924 million USD 158 million USD 667 million 30% 3 years Funding of the Project is anticipated to be structured via a 70% project financing facility and 30% equity funding to be provided by the Project s shareholders (in the proportion of 80% by OMH and 20% by Cahya Mata Sarawak Berhad). Project financing discussions with regional and international banks are well advanced. Proposed funding of OMH s equity share of the Project s capital cost of approximately USD120 million is expected to include (1) the application of surplus funds from a five-year term facility of USD125 million currently being negotiated by OMH (after refinancing existing OMH term loans) (2) the divestment of non-core ASX listed investments and (3) the assessment, if required, of a top-up equity capital raising to strategic investors supporting the Company s and the Project s underlying fundamentals. #08 08, Parkway Parade 80 Marine Parade Road, 449269 Singapore Tel: 65-6346 5515 Fax: 65-6342 2242 Email address: om@ommaterials.com Website: www.omholdingsltd.com ASX Code: OMH 1
Commercial production of the Project is expected to be executed on a phased ramp-up basis. Production is expected to commence no later than the 1st quarter of 2014 with full commercial capacity scheduled to be reached no later than the 2nd quarter of 2015. Legal, commercial and technical negotiations relating to a Power Purchase Agreement ( PPA ) with Syarikat Sesco Berhad (SESCO) for the supply of 500MW of power for 20 years are in their final stages and all related agreements are expected to be executed by the end of the 4 th quarter of 2011. Project Rationale OMH is an integrated manganese producer with a proven track record of exploration, mining, ferro alloy smelting, sintering, marketing and trading. At the present time, China accounts for approximately 70% of global ferro silicon and approximately 50% of global manganese alloy production. China s ferro alloy production capacity is currently undergoing fundamental changes driven by the limited availability and increasing cost of power, increasingly stringent environmental regulations, rising labour costs as well as government imposed financial disincentives on energy intensive exports, including ferro alloys, which are currently subject to export duties ranging from 20% to 25%. Ferro silicon is an alloy consumed in the steelmaking production process, similar to manganese alloys. It is used as a source of silicon to deoxidise molten steel. Ferro silicon alloy is used extensively in the production of automotive and electrical steel grades. The intensity of ferro silicon usage depends on the grade of the particular steel products but it traditionally ranges between 3kg - 6kg per tonne of liquid steel. The dynamic transformation of the global and Chinese export ferro alloy industry driven by the cost and availability of energy, the development and commissioning of the Bakun Hydroelectric Dam and Malaysia s Sarawak Corridor of Renewable Energy ( SCORE ) initiative represents a unique opportunity for OM Sarawak to establish one of the world s lowest cost and strategically located greenfield ferro alloy plants with unparalleled competitive advantages. The Project s unique competitive advantages include, but are not limited to, access to 500MW of competitively priced long term hydroelectric power supply, coastal industrial land with direct access to a dedicated future port facility, geographical proximity to both raw materials and Asian steel mills, tax incentives, no import and/or export duties as well as comprehensive purpose built industrial infrastructure. Project Background OM Materials (Sarawak) Sdn Bhd ( OM Sarawak ) was incorporated in Malaysia on 21 September 2010. OM Sarawak has been seeking to construct a ferro alloy smelter in Sarawak, Malaysia with an annual production capacity of 600,000 tonnes of ferro alloys. The Project is located on approximately 500 acres with a 60 year leasehold in the Samalaju Industrial Park of Sarawak, Malaysia. The Project is part of the SCORE initiative of Sarawak, Malaysia. 2
The Project is located approximately 95km north-west of the recently commissioned Bakun Hydroelectric Dam. Strategic Project Partner OM Sarawak has executed a Shareholders Agreement and Subscription Agreement with Samalaju Industries Sdn Bhd ( SISB ), a wholly-owned subsidiary of Cahya Mata Sarawak Berhad ( CMSB ) for a 20% direct equity participation in the Project. SISB will be fully funding its equity contribution in the Project s development. CMSB is a company listed on the Malaysian stock exchange with a current market capitalisation of over A$200m, with interests in cement and construction materials, construction and road maintenance, steel pipe manufacturing and various aspects of the development of the Samalaju industrial area. DFS Consultants / EPC Contractor OM Sarawak has engaged the services of PricewaterhouseCoopers (Malaysia) for financial modelling, CRU Strategies, a division of CRU International Ltd, for long term Ferro Silicon market assessment (Market, cost and price outlook to 2025 study), Chemsain Konsultant Sdn Bhd (Malaysia) for environmental impact and protection analysis, and OM Hujin Science and Trade (Shanghai) Co Ltd as in-house consultants for the technology, construction, production and raw material assessment components of the DFS. OM Sarawak has completed the review process for appointing an Engineering, Procurement and Construction ( EPC ) contractor, and has shortlisted Sinosteel Jilin Electro-Mechanical Equipment Co., Ltd, a subsidiary of Sinosteel Corporation ( Sinosteel ). Sinosteel Corporation, a Fortune 500 corporation, is engaged, through its subsidiaries, in the development and processing of metallurgical mineral resources, trading and logistics of metallurgical raw materials and products, provision of related engineering technical services, and the manufacture of equipment. Sinosteel Jilin Electro-Mechanical Equipment Co., Ltd is one of China's largest manufacturers of submerged electric-arc furnaces, furnace automation and control systems, furnace transformers and equipment for graphitization of carbon electrodes, and has designed and built more than 200 submerged electric-arc furnaces. OM Sarawak is in the process of negotiating and formalising the terms and conditions of the EPC contract. 3
Project Operating Parameters Key operating and financial modeling parameters of the Project are as follows: Description Number Units Expected life of smelter 20 Years Number of furnaces 24 sets of 25.5MVA submerged fully and semi enclosed ferro alloy furnaces Products 1 set of 5MVA ferro alloy refining furnace Ferro Silicon alloys Manganese ferro alloys 310,000 290,000 tonnes per annum tonnes per annum Manpower (at full production capacity) 3,000 Personnel Expected Project timeline Finalization of PPA Q4 2011 Finalization of DEIA and Project financing Q1 Q2 2012 Expected Construction commencement (subject to completing the Project financing and DEIA approval) Construction period Expected first production (commissioning and phased production rampup commencement) Full commercial operation (at full capacity production) Q3 2012 ~ 30 months Q1 2014 Q2 2015 Project Operating Equipment The Project s key operating capital equipment is anticipated to consist of: 24 sets of 25.5MVA submerged fully and semi enclosed arc furnaces and 1 set of 5MVA refining furnace with associated transformers, raw material feeding, casing/product handling and process control infrastructure, 1x36m 2 sinter strand with a capacity of 300,000tpa of manganese sinter ore, 1 lime kiln with a capacity of 40,000 tonnes per annum, 2 rotary kilns (for raw material moisture management), furnace de-dusting systems, a comprehensive waste heat recovery system, compressed air plant, an approximately 4km long purpose built conveyor system connecting the smelter with the future Samalaju Port with a dedicated loading/discharging facility, and associated other buildings and infrastructure including water treatment plant, warehouses, workshops, laboratory and office buildings. 4
Product Margins Annualised product production tonnages and forecast gross margins, assuming full production capacity, are detailed below. Product Annualised Production Tonnage Forecast Gross Margin Ferro Silicon 310,000 tonnes 27% Manganese Alloys 290,000 tonnes 15% Project Capital Cost Breakdown The total forecast pre-production capital cost estimate for the Project based on supplier quotations covering approximately 80% of total expected capital costs obtained through competitive tenders and quotes by OM Sarawak are as follows: Capital USD 000 Land acquisition and all associated earthworks 37,000 Buildings and Infrastructure 172,500 Plant and Equipment 220,400 Engineering, Consultancy, Insurance, Others (including EPCM) 36,600 Contingency 35,500 Total 502,000 Financial Analysis A summary of the expected financial metrics of the Project are as follows: Description Average annual turnover (at full production capacity) Project IRR (after tax, ungeared) Average annual operating cash flow (after tax) Project NPV @10% (after tax) Payback period (excluding the construction period) Construction period USD 924 million 30% USD 158 million USD 667 million 3 years ~ 30 months 5
The following key assumptions have been used in the Project s financial modelling: Description Unit Comment Corporate tax 25% Tax free for first 5 years Cost of financing 6% - 6.25% 70% project financing assumed Depreciation plant and equipment 20 years From commencement of operation Depreciation land 60 years Leasehold land, depreciation commending in 2015 Weighted Average Cost of Capital (WACC) 10% MYR/USD 3.10 SGD/USD 2.24 RMB/USD 6.38 Project Material Volumes Incoming raw materials Manganese Ore : 640,000 tonnes per annum Silica Quartzite : 570,000 tonnes per annum Reductant : 480,000 tonnes per annum Outgoing finished products Manganese Alloy : 290,000 tonnes per annum Ferro Silicon Alloy : 310,000 tonnes per annum Samalaju Port Development The Company understands that the design and engineering of the future Samalaju Port is currently being finalised and the detailed port design and blueprint documents are expected to be made available in 2012. In the interim, barging berths with a 7.0 metre deep channel is expected to be completed by the end of 2012, which will enable direct barging of equipment and bulk raw material products into the Samalaju Port. Capacity at the existing Bintulu Port is also expected to be available as an interim port for such purposes. Raw Material Sourcing Manganese Ore - OM Sarawak will be sourcing its high grade manganese ore requirements predominantly from the Company s 100% owned 1mtpa capacity Bootu Creek Manganese Mine in Australia, supplemented from the Tshipi Manganese Mine in South Africa in which the Company holds a 13% effective interest, and which is expected to reach its projected production target of 2.4mtpa by 2013. OM Sarawak is expected to further complement its manganese ore sourcing requirements from third party seaborne, regional and domestic sources if and when appropriate. Quartzite - OM Sarawak expects to source its quartzite requirements from China s abundant supply through direct imports. OM Sarawak is in detailed discussions with various Chinese suppliers of quartzite in order to finalize long-term supply agreements. OM Sarawak will continue to investigate viable production and/or sourcing options of local and regional quartzite on an on-going basis. 6
Reductants - OM Sarawak expects to source its reductant requirements from China through direct imports and is in detailed discussions with several Chinese suppliers of suitable quality reductants to finalize long term supply agreements. OM Sarawak will continue to investigate the availability of local and regional sources of reductants as well as the potential future inhouse production of reductants. Marketing, Sales and Off-take The Project s target markets for its Ferro Silicon and Manganese Alloy products are Japan, Korea, South East Asia, the Middle East, Europe and North America. The strategic operating objective for the Project is to secure 60% of the Project s production by way of off-take agreements with major steel mills by mid 2012 and aligned to completing the Project Financing. OM Sarawak is in advanced stage discussions with a number of major steel mills, marketing/sales agents and distributors regarding specific product off-take agreements covering both product specific and/or geographical sales targets and objectives. OM Sarawak has signed a Memorandum of Understanding with JFE Shoji Trade Corporation of Japan, a member of the JFE Group which includes JFE Steel Corporation, for potential direct equity investment in OM Sarawak s Ferro Silicon production capacity together with an off-take agreement for up to 100,000 tonnes per annum of Ferro Silicon product produced by OM Sarawak. The parties are currently in the final stages of finalizing a term sheet following which JFE s due diligence process will commence. Licenses and Approvals On 20 September 2011 the Ministry of International Trade and Industry of Malaysia issued a manufacturing licence to OM Sarawak for the production of sintered manganese ore and ferro silicon, silicon manganese, high carbon ferro manganese and refined ferro manganese alloys. Environmental management in Malaysia is regulated by the Department of Environment (DOE), a department of the Federal Ministry of Natural Resources and Environment and on a State Government level by the Natural Resources and Environment Board of Sarawak. OM Sarawak has commenced the Detailed Environmental Impact Assessment ( DEIA ) process by submitting the Terms of Reference for the DEIA to the DOE. Malaysia s largest environmental consultancy firm, Chemsain Konsultant Sdn Bhd, has been engaged to deliver the Project s DEIA study. The DEIA is expected to be completed by Q2 2012. Bakun Hydroelectric Dam Project and Power Purchase Agreement At the Bakun Hydroelectric Dam the testing and commissioning of the 2 turbines installed during the middle of 2011 has been completed. Currently the 2 operating turbines are generating 410MW of power. The remaining turbines are scheduled to be put in operation in line with the requirements of the Sarawak State grid system, specifically focused on meeting the demands of the industries engaged in the Sarawak Corridor of Renewable Energy (SCORE) initiatives. The total installed capacity of the Bakun Hydroelectric Dam is expected to be 2,400MW once all turbines are operational. In March 2011 OM Sarawak entered into a Memorandum of Understanding and signed a Term Sheet with SESCO (formerly known as the Sarawak Electricity Supply Corporation) for the supply of 500MW of power capacity on competitive terms and conditions via a 20 year Power Purchase Agreement ( PPA ). The legal, commercial and technical negotiations of the final PPA contract are now in their final stages and the PPA is anticipated to be executed by the end of Q4 2011. 7
Project Funding The total capital cost of the Project is estimated to be USD502m, which is anticipated to be funded by way of 70% project financing and 30% equity. The Company is seeking to secure non-recourse project financing of up to 70% of the Project s capital costs and is currently in discussions with several interested regional and international banks and is also in process of appointing a financial advisor to assist in achieving financial close of the Project prior to commencement of construction. Proposed funding of OMH s equity share of the Project s total capital cost is expected to be approximately USD120 million and is anticipated to be funded by: the availability of funds from a five-year term facility of USD125 million which is currently being negotiated and includes the refinancing of the Company s existing term loans, providing additional available funds towards OMH s equity commitment to the Project; Divestment of non-core ASX listed investments, including the imminent finalization of a formal mandate for the execution and coordination of the divestment process; and If required and/or appropriate, the assessment of an equity capital raising exercise to strategic investors, who support the Company s underlying fundamentals and specifically the Project s opportunity for significant value accretion in the medium to longer term. Project Risks The Project carries certain risks associated with its on-time and on-budget execution. These key risks at the current point of time include, but are not limited, to two major categories, namely: The timely approval of the Project s Detailed Environmental Impact Assessment by the relevant authorities, potentially impacting on the scheduled commencement of the Project s construction, and The timely completion of the Samalaju Port facility allowing the importation and discharge of bulk production raw materials for the testing, commissioning and operation of the Project. The PPA agreement to be signed between OM Sarawak and SSB requires OM Sarawak to achieve the Project s financial close (including the finalization of all Project financing arrangements and the DEIA) by the end of 2012, and also affords OM Sarawak with appropriate force majeure protection in the event of delays associated with the Samalaju Port s construction and commissioning. Yours faithfully OM HOLDINGS LIMITED Heng Siow Kwee/Julie Wolseley Company Secretary 8
BACKGROUND PROFILE OF OM HOLDINGS LIMITED OMH listed on the ASX in March 1998 and has its foundations in metals trading incorporating the sourcing and distribution of manganese ore products and subsequently in processing ores into ferro-manganese intermediate products. The OMH Group now operates commercial mining operations leading to a fully integrated operation covering Australia, China and Singapore. Through its wholly owned subsidiary, OM (Manganese) Ltd, OMH controls 100% of the Bootu Creek Manganese Mine ( Bootu Creek ) located 110 km north of Tennant Creek in the Northern Territory. Bootu Creek has the capacity to produce 1,000,000 tonnes of manganese product annually. Bootu Creek has further exploration potential given that its tenement holdings extend over 2,800km 2. Bootu Creek s manganese product is exclusively marketed by the OMH Group s own trading division with a proportion of the product consumed by the OMH Group s wholly-owned Qinzhou smelter located in south west China. Through its Singapore based commodity trading activities, OMH has established itself as a significant manganese supplier to the Chinese market. Product from Bootu Creek has strengthened OMH s position in this market. OMH is a constituent of the S&P/ASX 200 a leading securities index. OMH holds a 26% investment in Ntsimbintle Mining (Proprietary) Ltd, which holds a 50.1% interest in the world class Tshipi Borwa manganese project in South Africa. OMH also holds the following strategic shareholding interests in ASX listed entities: 16% shareholding in Northern Iron Limited (ASX Code: NFE), a company presently producing iron ore from its Sydvaranger iron ore mine located in northern Norway; 8% shareholding in Shaw River Resources Limited (ASX Code: SRR), a company presently exploring for manganese in Namibia, Western Australia and Ghana; and 15% shareholding in Scandinavian Resources Limited (ASX Code: SCR), a company presently exploring for iron ore, manganese, gold and copper in Sweden and Norway. 9