30 April 2012
Cahya Mata Sarawak's JV to invest RM 1.53 bil in a manganese and ferro silicon alloy smelting plant in Bintulu, plant to complete in 2013
(CMSB closing stock price today (27.4.2012) was RM 2.54)
OM Materials (Sarawak) Sdn Bhd (OM Sarawak) has sealed an agreement with Japan's Hanwa Co Ltd for the sales and marketing of products from its manganese and ferro silicon alloy smelting plant in Samalaju Industrial Park, Bintulu.
OM Sarawak is a 80:20 joint venture between OM Holdings Ltd of Australia (OMH) and Cahya Mata Sarawak Bhd (CMSB). The joint-venture company will be investing US$500mil (RM1.53bil) in the manganese and ferro silicon alloy smelting plant.
Construction of the plant will start in the next few months for completion in 2013.
In its latest March quarterly market update to the Australian Stock Exchange, OMH said the deal with Hanwa covered the sales and marketing of 80,000 tonnes of ferro silicon and 80,000 tonnes of silico manganese product a year.
Part of these volumes are expected to be incorporated into a formal off-take agreement to be inked in the second quarter of 2012 (Q2-2012).
The combined 160,000 tonnes represent more than 25% of the plant's anticipated total production capacity of 600,000 tonnes a year.
Last month, OMH raised about A$29.8mil from the issuance of convertible notes and ordinary shares to Hanwa.
Hanwa's core businesses include domestic and import-export of steel products, steel-making raw materials, construction and housing materials, non-ferrous metals and industrial machinery.
OMH also raised A$26.25mil through share placement to a strategic investor Boustead Singapore Ltd and a small number of institutional investors.
The total proceeds of some A$56mil will be used to finance the development of OM Sarawak's smelter plant project.
In the market update, OMH added that under a binding term sheet it signed with Japan's JFE Shoji Trade Corporation earlier this year, JFE would potentially take up a direct equity invest in OM Sarawak ferro silicon production combined with a product off-take agreement for up to 100,000 tonnes per annum.
OM Sarawak executive chairman Low Ngee Tong had said earlier that the Bintulu smelting plant was expected to undergo production testing from the second half of 2013, and the plant was expected to reach full operational stage by mid-2015.
OM Sarawak recently signed a 20-year power purchase agreement with Sarawak Energy Bhd for the supply of 500MW to its smelter.
On the latest progress of the smelter project, OMH said on-site earthworks on 202ha was 79% completed, with full completion expected by June.
It said a detailed environmental impact assessment (DEIA) report was submitted to the Department of Environment in February, and it expected approval to be obtained by Q2-2012.
“The majority of the civil and structural drawings of the proposed plant have been completed while the mechanical and electrical drawings are expected to be completed by Q2-2012,” it added.
On the project's financing, OMH said OM Sarawak had been working closely with its financial advisor Standard Chartered Bank to secure funding up to 70% of the project's capital requirements.
“A preliminary information package has been released to prospective lenders, and active engagement between these banks, OM Sarawak and its financial advisor continues.
“As is typical for a financing of this nature to support the due diligence process of these prospective lenders, an independent technical engineer has been appointed to review all technical, commercial and operating aspects of the project.
“A full information package is targeted to be released to these banks in Q2-2012,” it added.
OMH said the group, via wholly-owned subsidiary OM Materials (S) Pte Ltd, consolidated and restructured its existing loans facilities with Standard Chartered Bank last month.
After the restructuring, the outstanding amount of term loans as of March 31 this year was nearly A$90.3mil.
The key aspects of the restructuring involved a reduction of about US$18mil (A$17.5mil) in principal repayable by the group in the next 12 months and a revised repayment schedule between April 2012 and April 2015.
“The revised repayment schedule will improve the group's debt maturity profile and provide increased financial flexibility to enable the group to executive its operating strategy and the early stage development of the Sarawak ferro alloy project.
“Debt servicing will continue to occur via operating cash flows and the divestment of non-core investments and other alternatives are currently under assessment,” said OMH.