by Musicwhiz » Mon Jan 23, 2012 9:06 am
(Vested)
Business Times - 23 Jan 2012
Boustead takes strategic 8.6% stake in OM Hldgs
Could be precursor to involvement in OM's US$500m smelting project in Sarawak
By VEN SREENIVASAN
(Singapore)
MAINBOARD-LISTED Boustead Singapore has clinched a critical claw-hold in the resources sector through the purchase of an 8.6 per cent stake in Sydney-listed manganese producer OM Holdings (OMH).
The A$17.5 million (S$23.3 million) that Boustead is paying for the 50 million new OMH shares also marks the first step in the Singapore company's participation in the Australian company's ambitious plans to expand downstream into ferro-manganese alloy smelting in Malaysia. The purchase price of 35 Australian cents per share represents a discount of 8.8 per cent to the 15-day and 5.2 per cent to the 30-day volume-weighted average price of OMH's shares on the Australian Stock Exchange (ASX).
OMH, controlled by its Singaporean founder and executive chairman Low Ngee Tong, is one of the top manganese ore producers globally.
On Jan 17, it provided financial guidance to the ASX that although its 2011 financial year would be positive in EBITDA terms, it could post an operating loss after tax of approximately A$12 million after expensing various non-recurring items. On a proforma basis, net loss attributable to Boustead's 8.6 per cent subscription shares would be S$1.4 million.
Still, OMH has been a fast- growing and profitable company which enjoys strong demand for its manganese from markets like China and India. Established 13 years ago and listed on ASX in March 1998, the company's stock has been a constituent of the S&P/ASX 200 index since 2008.
It controls 100 per cent of the Bootu Creek Manganese Mine, located 110km north of Tennant Creek in the Northern Territory. Just over a year ago, it also bought into Tshipi Borwa manganese mine in South Africa.
Recently, it announced plans to invest some US$500 million to build up a vast ferro alloy smelting operation in Sarawak, beside the massive 1,800MW-capacity Bakun Hydroelectric Dam. It has inked an 80:20 joint venture with KL-listed CMS Bhd to set up the joint-venture operation on a 202 hectare site in the Salamaju Industrial Park in Sarawak. The 600,000 tonne ferro alloy plant has signed a deal to tap 500MW of power supply for 20 years from 2013 at a long-term sustainable competitive tariff.
Manganese is the key ingredient in steelmaking, adding tensile strength to the metal. It is also an important chemical component for 200-series stainless steelmaking. Some 90 per cent of the world's high-grade manganese ore is mined in South Africa, with other major sources being Australia and Gabon. The industry has undergone integration in recent years, resulting in the emergence of larger and more dominant players like BHP Billiton, Eramet and Assmang.
Boustead is already an established player in engineering, power and project management. The purchase of the OMH stake appears to be a bid to inject new recurrent income streams to smoothen out its 'lumpy' project-based revenues.
Company CEO and executive chairman FF Wong is also a firm believer in the resources sector.
'Despite the recent pullback in prices for some of the natural resources such as manganese, I firmly believe their demand will continue to be strong and prices will recover in future,' Mr Wong told BT. 'The Chinese and Indian economies, which drive global resource demand, are still growing at high single-digits. As an established global engineering company, we have a lot of expertise which can be deployed in the development of these natural resources, especially in our region. OMH's Sarawak ferro-manganese project makes a lot of sense to us.'
Boustead's investment in OMH could be a precursor to its involvement in OMH's US$500 million smelting project in Sarawak. Boustead's strong financial position (no debt, and a cash balance of some S$200 million) and strong reputation could also ease the way for OMH to raise funding for the massive project, whose other shareholders include the Sarawak state government.
Mr Low told BT that the Sarawak project - which would make OMH one of the top three integrated manganese operations globally - has the advantage of being close to both its manganese sources and a market of 60 per cent of the world's crude steel production base in East Asia.
'It is an excellent place to be in terms of logistics,' Mr Low said. 'The smelter project is a best alternative for steelmakers in the region who realise they cannot be over-reliant on Chinese supply, as well as to secure domestic supply of this essential additive for steelmaking.'
He added that the tie-up with Boustead was synergistically beneficial for both companies.
'In time, we will look into jointly investing in more energy- related industries, with Boustead as the builder and OMH a consumer of energy.'
