OM HOLDINGS LIMITED — Call Transcript 2011

Jul 4, 2011

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Attention ASX Company Announcements Platform
Lodgement of Open Briefing []
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ASX ANNOUNCEMENT: 5 July 2011

CEO on Strategic Outlook

Open Briefing with Chief Executive Officer Peter Toth

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OM Holdings Limited Level 1, 46 Parliament Place West Perth, WA 6872

In this Open Briefing OMH CEO Peter Toth discusses:

• Record Q2 and H1 2011 Bootu Creek production and growth prospects

• Discontinuation of Hong Kong dual listing process

• Strategic review of de-merging the smelting & marketing/trading businesses from mining operations

Open Briefing interview:

openbriefing.com

You’ve indicated that Bootu Creek has achieved record production in the June quarter. Is this production level sustainable? What is the outlook for manganese prices?

CEO Peter Toth

Bootu Creek is operating exceptionally well. I’ve previously indicated my strong conviction that the mine has the capacity to run at a 1 million tonnes per annum rate at a cash cost below A$4.00/dmtu (dry metric tonne unit) fob (free on board). Our second quarter and first half results have demonstrated that. In April and May we achieved record production of 100,243 tonnes and 98,818 tonnes respectively at cash costs of A$3.16/dmtu and A$3.48/dmtu respectively. Despite scheduled maintenance being brought forward into June, production exceeded 66,000 tonnes achieving a record second quarter production above 265,000 tonnes and cash costs below A$4.00/dmtu. Our half yearly production result was approximately 447,000 tonnes and the mine has shipped approximately 495,000 wet tonnes for the first half, both being record achievements. These results are the culmination of our work over the last couple of years restructuring and optimising the mine together with redesigning our marketing strategy around end users, distribution systems and China “retail” sales.

The Qinzhou smelter produced more than 20,000 tonnes of alloy for the June quarter. It’s running well in excess of its nameplate capacity and budget expectations for the year. The sinter plant produced close to 65,000 tonnes for the quarter, providing us with a very strong production performance.

Overall, we’re producing well, generating a positive cash flow and producing a profit, despite subdued manganese prices and the Australian dollar at record highs during the period. Our H1 2011 earnings are not going to match H1 2010 but on a strong operating platform we are well positioned to take advantage of an improving manganese market during H2 2011.

Open Briefing® | OM Holdings Limited | 5 July 2011

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Irrespective of the manganese price softness and supply side pressures there’s still very strong demand for our product in the Chinese end user market. The current pressure on the manganese spot ore price is due to supply side pressures manifesting itself in a stock overhang in China of approximately 3.5 million tonnes, representing about three months’ worth of import supply. Nevertheless current and future demand for high grade imported product is and will remain strong and once the existing stockpile is worked out of the system we expect prices to recover. We are very well positioned to benefit from that recovery both operationally and financially.

openbriefing.com

OM Holdings Limited (ASX: OMH) has announced the discontinuation of its Hong Kong Stock Exchange dual listing process even though the Federal Court of Australia has yet to deliver its decision relating to the proceedings brought by Stratford Sun Limited (a wholly-owned subsidiary of Consolidated Minerals) to certain resolutions passed at the AGM relating to the listing. You have also announced a review of a potential de-merger of your smelting and marketing business from your mining operations. What bearing will the Court outcome have on these plans?

CEO Peter Toth

While the Court process must obviously be allowed to run its full course, we have since considered various critical factors unrelated to the Court case and decided to not continue with the Hong Kong dual listing process irrespective of the outcome of the Court proceedings. When we look at the situation today the global economy has come under further stress, Hong Kong markets have softened, lower manganese prices have weakened market sentiment and our share price has come under considerable pressure. Putting all these factors together the discontinuation of the Hong Kong listing process is now clearly in the best interests of the Company.

The rationale behind a Hong Kong dual listing was primarily to provide OMH with access to capital to develop various strategic projects including our Malaysian smelting projects, capture strategically suitable exploration opportunities together with broadening our shareholder base. Our core strategy of becoming a leading manganese producer, identifying and developing key growth projects and pursuing suitable M&A opportunities hasn’t changed at all. We’re now evaluating alternative strategies to access the capital required for the projects and at the same time unlock significant shareholder value through a review of a proposal to potentially de-merge our mining and smelting assets. This will assist us to align the strategies and assets of these businesses with the preference and expectations of their respective shareholder base, while attracting new strategic investors and joint venture partners. This strategic review process will also continue regardless of the outcome of the Court case.

openbriefing.com

Given OMH has historically pursued a vertical integration strategy, how do you expect a demerger of your smelting and marketing businesses to add value for shareholders and what is the expected impact on the development of your key projects?

CEO Peter Toth

While we continue to see the logic for vertical integration, it has become apparent that not all stakeholders readily support a large, complex and geographically diverse downstream strategy.

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Our ‘core’ strategy to add shareholder value is focused on relentlessly ‘sweating’ our operating assets while developing the world class Tshipi Manganese Project (OMH 13%) in South Africa, establishing a large low cost world class smelting operation in Malaysia and continuing to look for suitable M&A opportunities. While the proposed Hong Kong listing, together with the cash flow from our underlying businesses, would have readily provided us with the capital required to develop these projects, it’s not the only available avenue to achieve our goals.

As an alternative strategy to execute our key projects and unlock significant shareholder value, a proposal to spin out the smelting and trading businesses is being considered in order to achieve the outcome we were seeking from the Hong Kong listing, and maybe more. It can realise the underlying value of the two separate businesses (so that 1+1>2) while positioning them for future growth. We believe the separated businesses can provide more attractive and focused investment vehicles, allowing us to align the businesses core activities with existing and new stakeholders investment criteria.

The strong performance of our underlying operating businesses provides us with a solid platform to successfully implement these initiatives.

openbriefing.com

The Hong Kong listing was expected to raise around A$400 million. How would the demerged companies be positioned to fund growth and reduce debt?

CEO Peter Toth

Looking at the capex requirements for developing the US$200 million Tshipi Manganese Project, our contribution is a relatively small US$26 million. This amount is being funded predominantly from our cash flow. The same applies to the smaller Johor based Malaysian logistics hub, smelter and sinter plant project.

The larger more complex Malaysian Sarawak smelter project has an estimated capex requirement of US$450 million. Access to project financing and the introduction of joint venture partners will seek to reduce our cash requirements to complete the project.

The Sarawak Malaysia project has the potential to become one of the largest and lowest cost smelting centers in the world, sitting in the middle of both the ore supply route and the Asian steel industry, on the back of some unique competitive advantages – power, land, location, logistics, tax incentives, lack of duties, and excellent infrastructure. But as with all unique opportunities such as this, we needed to be quick, decisive and focused. This is where a nimble and entrepreneurial approach works well and where we have quickly and successfully established for ourselves a great platform on which to execute the project, based upon our proven capability to develop and operate such projects.

Attracting new investors, strategic and off-take partners who understand and are supportive of this business will allow us to raise the capital required to execute the project.

We’re also examining the potential divestment of certain of our existing investment holdings which would further streamline our strategic focus, strengthen our balance sheet and potentially make us debt free.

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openbriefing.com

Why are you considering combining the trading and marketing part of the business with the smelting assets and what will this mean for existing shareholders?

CEO Peter Toth

The marketing and trading business is well aligned with our existing and future smelting operations in terms of expertise, geography, end-user relationships and logistics, so these businesses would combine nicely around these synergies to form an independently listed entity.

I also envisage a strong on-going arm’s length marketing agency relationship between the mining and marketing businesses after a de-merger. Such an approach works well for Glencore and Noble, for example, and it has the potential to work very nicely for us as well considering the marketing and trading group’s (OMS) unique industry experience, product knowledge, logistics capability and market access, particularly with respect to Asian markets.

By separating these businesses out, it becomes easier for both businesses to raise the required capital to execute their respective growth projects while creating more focussed, streamlined and attractive investment vehicles. We can unlock the inherent strategic value of these businesses for shareholders while fully retaining their independent and combined competitive advantages.

openbriefing.com

If OMH’s mining assets were to remain listed on the ASX as proposed, what would the investor proposition be?

CEO Peter Toth

Under this scenario, the new look listed Australian entity would be a smaller, manganese focused miner operating a 10 to 15 year mine life, high grade, low cost asset in Bootu Creek with significant exploration potential and an ability to raise further capital. It would provide a platform for substantial growth through the development of the world class Tshipi Manganese Project in South Africa and the identification and capture of further Australian, South African and global manganese exploration and mining opportunities. As a nimble and streamlined mining company focused on manganese with an ambitious growth strategy and an appetite for consolidation it should be attractive to Australian and global mining focused investors who have a good understanding of the industry and the Company.

openbriefing.com

What is your expected timetable for announcing the outcome of the strategic review and potentially completing a de-merger of your smelting and marketing assets?

CEO Peter Toth

The strategic review is underway and we expect to communicate further to the market on this during the September quarter. The completion of a Bankable Feasibility Study of the Sarawak Malaysian smelter will be a major milestone in this regard and it is expected to be completed during the fourth quarter of calendar 2011.

If we decide to proceed with a de-merger option, then we will target an aggressive timetable to proactively complete in 2012. Exciting times lie ahead.

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openbriefing.com

Thank you, Peter.

For more information on OM Holdings Limited, visit www.omholdingsltd.com or call Peter Toth on +65 6346 5515

To receive future Open Briefings by email, visit openbriefing.com

DISCLAIMER: Orient Capital Pty Ltd has taken all reasonable care in publishing the information contained in this Open Briefing®; furthermore, the entirety of this Open Briefing® has been approved for release to the market by the participating company. It is information given in a summary form and does not purport to be complete. The information contained is not intended to be used as the basis for making any investment decision and you are solely responsible for any use you choose to make of the information. We strongly advise that you seek independent professional advice before making any investment decisions. Orient Capital Pty Ltd is not responsible for any consequences of the use you make of the information, including any loss or damage you or a third party might suffer as a result of that use.

Open Briefing® | OM Holdings Limited | 5 July 2011

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