BERMUDA-based resources company OM Holdings (OMH) has had its fair share of ups and downs in recent years.
The integrated minerals group has three key business elements: the mining of manganese at its flagship Bootu Creek operation; the production of ferro alloys at its Qinzhou smelter in China; and the marketing of products through its trading division in Singapore.
OM (Manganese) Limited (OMM), the Australian subsidiary of OMH, is operator of the Bootu Creek manganese project, about 170km from Tennant Creek in the Northern Territory.
Bootu Creek has been producing manganese since 2006. It has an annual export capacity of one million tonnes per annum and an expected mine life of 13 years.
The project was initially designed to produce 550,000tpa but the opening of a second ore body in 2008 enabled production capacity to reach 700,000tpa.
Now, in 2012, targeted annual production is 850,000t which, according to the company’s 2011 annual report, was made possible by strong demand from China and OMM’s move to a lower cost mining strategy.
“The current record-high Chinese imported manganese ore demand environment, along with a near-record low benchmark price for high-grade ore, required the Bootu Creek mine’s operating strategy for 2012 to be further optimised so as to further
reduce operating costs while achieving budgeted production targets,” the annual report stated.
“The Bootu Creek mine’s operating strategy for 2012 centres around a low-cost, low strip ratio mining operation focussed on accessing previously pre-stripped high-grade ore utilising a single mining fleet.
“This operating strategy will be sustainable for a 24-month period, before a further large pre-stripping campaign will be required.”
With the new system in place, production is on course to meet the 2012 target, with OMM’s half-year report placing first-half production at 413,240t grading 36.7 per cent manganese.
However, even with production on target, revenue from Bootu Creek mining operations for the first half of 2012 was down by $26 million compared to the same period last year.
The amount of product shipped in the six-month period also decreased: from 471,135t in 2011 to 238,342 this year.
According to OMM, the decrease in revenue could be attributed to the derailment of a freight train that prohibited rail operations from the Bootu Creek site.
The Genesee and Wyoming Australia freight train was travelling toward Darwin when it derailed on the Edith River Bridge due to wet conditions caused by Cyclone Grant in December 2011.
While the train was not carrying any of OMM’s manganese at the time of the incident, regular services to Darwin did not resume until February 25, forcing OMM to stockpile its manganese at the mine’s Muckaty Rail Siding.
Following the resumption of rail services, OMM increased its haulage capacity by running two extra services per week to make up its total load capacity, but at least two export shipments were affected by the delay.
Setbacks
The disruption of rail services from Bootu Creek was just one of several recent setbacks for the manganese miner.
OMH came under fire last year from the Aboriginal Areas Protection Authority (AAPA) for the alleged desecration of a sacred Aboriginal heritage site at Bootu Creek’s Masai pit.
The site, named Two Women Sitting Down, has important cultural and spiritual significance to the area’s Warramungu people.
The rocky outcrop, just 10m from the pit wall, gave way in July 2011 after workers set off an explosive nearby.
The collapse caused the site to split in half and forced about 17,000 cubic metres of ore, earth and vegetation into the pit.
In November 2011, AAPA chief executive Ben Scambary made a statement claiming that OMM had prior knowledge of the importance of the site, that he believed the company had disregarded.
“This outcrop contained a sacred site associated with the Kunapa East group,” he said.“The mining company was aware of
the site’s location and significance.
“The terms of the site clearance, issued by the Authority in 2004, were that the site not be entered or damaged.”
The AAPA’s charges included seven relating to damage and one for desecration.
If the latter charge is proven, it will be the first time a mining company has been successfully prosecuted for desecration under Australian law.
The case continues in the Darwin Magistrate’s Court.
Meanwhile, OMH’s long-running battle with Consolidated Minerals (Consmin) – a manganese, chromite and nickel miner controlled by Ukrainian billionaire Gennadiy Bogolyubov – has also required the company to spend time in court in recent years.
Consmin, which holds an 11.35 per cent stake in OMH through its subsidiary Stratford Sun, claimed that the notice of OMH’s March 2011 annual general meeting had failed to provide shareholders with information relevant to their decision-making
process in regards to the company’s dual listing on the Stock Exchange of Hong Kong (SEHK).
Consmin claimed that the proposed listing would dilute the interests of existing shareholders of OMH.
Mr Bogolyubov argued that OMH’s board was fostering “systemic value destruction” and said the company had failed to promote growth, resulting in a decline in share value.
In late 2011, the Federal Court of Australia dismissed all of Consmin’s claims and forced the shareholder to pay costs.
According to the court, Consmin had failed to show that OMH had breached any ASX listing rules, decreeing that OMH’s notice of its annual general meeting and explanatory statement were not misleading or deceptive.
At the AGM in April 2011, a resolution for the issue of 345 million new shares for the SEHK was passed with 64.96 per cent of the vote.The OMH board later cancelled the dual listing due to uncertain market conditions.
Consmin also attempted to remove executive chairman and founder Low Ngee Tong and non-executive director Tan Peng Chin, and replace them with merchant banker Malcolm McComas and former NSW Liberal Party leader Peter Debnam as independent directors.
However, at a special general meeting, shareholders voted against the change: a result Mr Low said was an indication of their support for OMH.
“Clearly, the overwhelming support of our shareholders [proves they] do not share the specific views, media and litigation-focussed approach, and general underlying motives of Consmin,” he said.
“Consmin is a direct competitor of OMH and, after several years of repeated attempts to undermine, pressure and obstruct the company for their own special purposes, we expect that Consmin will now take note of the SGM voting results, respect the outcome and acknowledge the views of the overwhelming majority.”
OMH had another win on June 5 this year, when the Supreme Court of WA found that the company had the right to bring an action against Lonsdale Investments (previously known as Promet Engineers).
The Supreme Court found Promet process plant engineers had been negligent in respect of work undertaken at the Bootu Creek site that showed a number of design defects, and awarded mine operator OMM was awarded $5.7 million in damages.
Successes
Despite obstacles, OMH’s first-half 2012 revenue was $206.5 million, compared to $161.7 million the previous year: a 28 per cent increase.
According to the company’s 2012 half-year report, this was “attributable to an increase in tonnages sold for all product groups except for manganese ores, but was offset by lower realised prices across all products.”
While profits from the Bootu Creek mining operations decreased, revenue from the two other arms of OMH increased.
The company’s trading arm in Singapore, OM Materials S (OMS), experienced an increase in revenue in the first half of 2012.
“In [the first half of] 2012, revenue from the Group’s marketing, logistics and trading operations was $233.3 million as compared to $191.1 million during [the first half of] 2011, representing an increase of 22 per cent,” the report stated.
The volume of ores and alloys sold by OMS increased by 30 per cent compared to last year’s sales.
The beginning of 2012 was also a successful time for OMH’s production arm, OM Materials (Qinzhou), and its ferro alloy production facility and sinter plant at Qinzhou in south west China.
The ferro alloy facility was commissioned in 2005, and in 2009 OMH expanded the operations to include a smelter ore plant.
According to OMH, the smelter purchases manganese ores from OMS at market price, converts some into sinter for its own consumption, and sells the remaining sinter and alloy to external Chinese buyers.
Revenue from the ferro alloy manufacturing operations rose by 39 per cent, from $44.2 million in the first half of 2011 to $61.5 million in the same period this year.
According to the company’s 2012 half-year report, the increase in revenue was due to the higher volume of ferro alloy sales made in the first half of 2012 (38,901t) compared to the same period last year (22,757t).
