This meeting is being recorded. Good morning, everyone, thank you very much for attending today's OM Holdings investor webinar. My name is Nicola Gosatti, and I'm co-founder of investor relations consultancy, Corporate Storytime. OM Holdings is a vertically integrated and low-cost ferroalloys producer and has this week released a market and operations update for the December 2022 quarter. I am delighted to have OM Holdings Managing Director, Mr. Adrian Low, with me again today, who is going to be running through an up-to-date investor presentation, which we will then follow with a Q&A session. We have received a large number of questions in advance of the webinar today, so it may not be possible for Adrian to address all live questions. We ask that you address any further questions to info@corporatestorytime.com, and we will respond to your query offline. Without any further ado, I am pleased to hand over to Adrian, who will present his comprehensive update from the OM Holdings headquarters in Singapore. Adrian, over to you. Thank you. Thanks for the introduction, Nicola. I'm just gonna share my screen quickly and, you know, thank you everyone for dialing in this morning and, you know, thank you for the overwhelming list of questions. We will try to work through as many as we can. Without further ado, I am just gonna skip to the meat of the presentation. Look, I think, you know, I did a sort of full year 2022 look back and a couple of weeks ago. Here I think, we just like to again highlight sort of the key milestones that we achieved in year 2022, as well as some of the updates that have happened since. Once again, you know, I think that Well, the single most important achievement that we did in 2022 was completing the acquisition of 25% stake of OM Sarawak. We are very proud that today OM Sarawak is once again 100% owned subsidiary of OM Holdings Group. Besides the OM Sarawak acquisition, you know, I think a lot of shareholders have been asking about our tax status with respect to the Pioneer incentive scheme that we received from MIDA. You know, I think we're ready to provide an update at this point in time. The first five years has already elapsed. What we have achieved now is negotiating a new set of conditions which are to be fulfilled by 2026. If we fulfill these conditions, then the second five years period, commencing December, 2021, 70% of income will be tax-exempt.. This is the second five-year tax incentive. Our management believes that we will be able to fulfill all the criteria set out. Besides, you know, developments on the corporate front, I think, in terms of what we're physically doing with the furnaces, maintenance has been on schedule, on track last year. We did major maintenance for, you know, six manganese alloy furnaces. The last two are being completed as we speak. If you look at the sort of smelting paragraph, B furnaces to undergo major maintenance works. Two of them are silicomanganese and almost completed. We have six more to go on the ferrosilicon front. When you think of, you know, major maintenance for manganese alloys, it's quite a complex process because you actually have to remove the entire furnace lining. For ferrosilicon that is not the case. You know, we expect that impact to be not as severe as it was last year. Now, having said that, I think if you look at full year production numbers, we achieved about 360,000 tons from Sarawak last year, FY 2022. This year for FY 2023, we are expecting to be producing more or less the same amount. That's about 75%-80% capacity utilization. This will be the base case. Okay? We do expect that there may be potential upside to this number as Chinese borders reopen. You know, I think we're all monitoring that situation very closely and, I guess, you know, cautiously optimistic about these production figures. Besides the sort of regular production furnaces for ferroalloys, we also managed to successfully modify and convert two ferrosilicon furnaces to the production of metallic silicon. You know, again, for shareholders, who, you know, who've just joined us or who are not familiar, metallic silicon is a, you know, 99% pure, silicon metal product. It's no longer an alloy. You know, we are very, very, Well, optimistic about the prospects of a metallic silicon product because of, you know, its end user markets and all the talk around renewable energy and as well as especially in the solar field. These two furnaces have been converted. The first furnace actually is undergoing hot commissioning and performance testing. What that means is that it is actually already producing metallic silicon. The completion of commissioning is defined, you know, by a set of conditions that the EPC contractor must meet before we accept these furnaces as successfully passing the commissioning phase. I think at this point in time, we are targeting output as well as specifications. Until those are met, you know, I think the furnace will remain in commissioning stage. You know, I hope this addresses some of the queries that some shareholders might have. The second furnace we expect to commission once we optimize production first because, you know, in management's view, there's no point sort of running two furnaces in parallel and optimizing them at the same time. You know, we'd much prefer doing one and then once that is fully optimized, starting the second furnace. Okay. This is a sort of brief schematic or plan for 2023. We expect to be running between five to six furnaces each on the ferrosilicon and manganese alloys front. This is a slight bump from last year. We also expect to be running one to two furnaces. The plan is to have all 16 furnaces at full production by the end of this year. You know, the base case scenario does reflect this, but the upside that I mentioned earlier, you know, with Chinese borders reopening, that will bring that date, you know, sort of earlier. The more workers we can get in, the faster this can happen. I think when you look at the total production numbers, you know, I mentioned earlier that we are expecting around the same 360,000 tons this year. That's what we did last year. You know, you do have to look at it from the perspective of the fact that metallic silicon furnaces are less productive than ferrosilicon furnaces. Actually, in converting these furnaces, you know, the sort of total possible capacity has gone down slightly in sort of metric ton terms. You know, that doesn't change sort of the economics of what we're doing here. Okay. Okay, I just, you know, two more slides, and, you know, I thought I'd sort of talk through what's been going on in the markets. Shareholders might be aware that, you know, there's now a weekly price page on our website. I think, you know, we've had a lot of feedback over the last two years about, you know, the ability being able to sort of see and track ferrosilicon, silicomanganese prices on a weekly basis. You know, we do understand that this is a very niche product and, you know, not everyone has sort of paid subscription access to prices. We have put out weekly prices on our site. You know, please do check that out. Coming back to ferrosilicon, I think, you know, the last four months, well, four to five months, has been the longest period, I think, in recent history where, you know, ferrosilicon prices have stayed constant. We have been range-bound between $1,600-$1,700. There's a lot of text on screen. I'm not gonna read through that. The long and short of it is that I think we are in a phase where China is becoming less and less competitive. The costs remain elevated. It has not really come down in China. I think, you know, where the exchange rate is right now, you know, USD to CNY of around 7 is, you know, at, at a point that is historically high, right? I think there is further upside to be had from that point. If you look at the actual movement of ferrosilicon, you will notice that in 2022, when we compare the first half and the second half, you know, removing sort of seasonality and stuff like that, there's actually been a significant decrease of ferrosilicon exports out of China. I think, you know, we believe that this is at cost. And this is sort of, you know, a few years ago, well, not a few years ago, maybe a year ago, I was talking about, you know, where the new flow for ferrosilicon prices would be. You know, just looking at price action, this appears to be a flow at this point. Moving on to manganese alloys. I think, you know, the situation for manganese alloys is slightly different from ferrosilicon. The narrative I think around what's been happening in manganese alloys markets has been the knee-jerk reaction after the invasion of Ukraine that led to massive stockpiling of manganese units in anticipation of replacing, you know, the units that Ukraine would not produce. They ended up in production for most of 2022 and have only really curtailed production, I think, towards the end of 2022. You know, here the story is very much about when will this destocking of manganese units end? If you look at the price action, so that's the blue line, silicomanganese, just looking at recent price movements, suggests that that may be near the end. We are cautiously optimistic, but I think, you know, we may not be out of the woods yet. You know, we've had a lot of false starts in the past. That's something we are actively monitoring. If you look at it from a sort of ore versus alloy, kind of spread, you will notice that, you know, the blue line and the red line, although they're sort of both increasing again, there's a healthy spread between our input costs and, you know, what we're selling our products for. The lines sort of did briefly cross towards the end of 2022. You know, as we always say, these sort of price action for ore and alloy is sort of contemporaneous. They move at the same time. When, when you have this kind of lag effect, when we're consuming the ores, you know, two, three, or four months after we purchased it, after you see the price on a chart, this creates variations in sort of our earnings. You know, I think that will. This has, sorry, both on the ferrosilicon slide and on the manganese side meant that, you know, earnings have decreased in the second half of 2022 as compared to the first half. You know, I think this is only to be expected with prices normalizing and sort of the markets normalizing. I think going forward, you know, we look forward to prices reflecting healthier demand from steel making, you know, after sort of well, close to 5% fall in steel making for, you know, as reported by World Steel in 2022. Okay. That's the end of the market segment. Again, you know, I think I always like to do this sort of key takeaway and, you know, we really are a much simpler story now. OM Holdings is just about, you know, being the lowest cost producer for ferroalloys in the region, if not the world. You know, so that's sort of supported by green hydropower. Think it doesn't get greener than that. It's, you know, I think we are a big part of the sort of decarbonization global decarbonization agenda when you look at how do you procure all your basic materials in an environmentally friendly way. Just given where we are in Malaysia being a very, very neutral production base, we're also a big part of, you know, this de-globalization story where the supply chains become, you know, where your supply chains are become very, very sensitive. Yeah, I think I'll stop my presentation on that note and perhaps move on to the questions. Thanks so much for that comprehensive update there, Adrian. I'll just get you to stop sharing your screen. Okay, there we are. Thanks so much, Adrian. We'll now move on to our Q&A session for today. Our first question is in two parts. Silicon metal seems to be a commodity that is tied to industries that are flourishing. Would management feel that it would be best to consider further expansions into silicon metal? Will you be considering higher purity products for the semiconductor value chain? Right. Okay. I'll take the first question first. Will we consider expanding further into silicon metal? Yes. Then the question becomes: Do you wanna give up manganese alloys, or do you wanna give up more ferrosilicon? I think, you know, the jury is still out. We don't know which to give up at this point. You know, if you look back at, sort of what I said, you know, we always have this plan of building two more, much larger manganese alloy furnaces. That is still in the cards. I think once we complete that exercise, you know, we will be able to increase efficiency of producing manganese alloys. Then we can then look back and say, "Do we really need, you know, 10 furnaces at 25.5 MVA producing a single product?" Perhaps then the answer would be, let's sort of tweak what those small furnaces are doing and then produce more silicon metal from that. I think, you know, that really depends on. That's a few years out, right? That really depends on what the demand mix looks like then. Will we consider, sort of, Sorry, Nicola, expansion into sort of downstream industries? Was that the question? The question was, will you be considering higher purity products for the semiconductor value chain? Right. Okay. I think the objective for silicon metal production is to go as pure as we can. That, that is a function of sort of efficiencies and know-hows at production end, as well as, you know, Well, looking for more raw materials that, you know, have very, very low impurities. We will try to go as low as we can. That, you know, naturally sort of falls into sort of the semiconductor solar basket. That is the objective. Thank you, Adrian. Our next question is, the two new proposed furnaces are proposed to be powered using recycled heat from the existing 16 furnaces. How is that project going, and how near is it to being a reality? Right. Okay. In the sort of terminal state, the two new furnaces will be powered by recycled heat. Because of the power inventory, you know, that, I guess, we've mentioned this on and off, because of the power that we have in inventory, because of not running at full capacity in the last two years, that power can be consumed and offset once these new furnaces come online. For the first couple of years, we actually do not need extra power. That is the entire sort of premise behind, you know, timing these things in this way. You know, 16 furnaces, build two more, consume all the power inventory. You know, a big chunk of that has actually already been paid for. one to two years out, build heat recovery, and then have that sort of feed the two new furnaces or plant C as we call it. I think, that's, you know, that's the plan. If you think about it from a sort of timeline perspective, plant C, the two new furnaces would be one to two years out, and then, you know, one to two years after that, we'll probably commission the sort of heat recovery system. Okay, our next question. Adrian, you spoke some time ago about a feasibility study into OM Holdings producing battery-grade manganese. I see Jupiter, another shareholder of Tshipi, is also looking at this. Is there any progress to report on this? Yes. Okay. That's a great question. We don't have. You know, we haven't had sufficient material to actually make a sort of formal update. What we've done, you know, and you have to look at it from the context of where we were, I think, a year ago. We were talking about what we do with OMQ in Qinzhou. We were saying, I think at that point, I said, there are a few options open to us. One is, perhaps consider HPMSM, so manganese sulfate, and/or sort of, look at it, look at transforming the land into logistics facility. We have actually had preliminary information on sort of, you know, costing and that sort of thing, in terms of producing it in China. In the process of doing that, I think we realized that there are a lot of plants coming online in China, you know, when we're talking about high-purity manganese sulphate. What's driving the market now, with respect to, you know, manganese being used for batteries, so although the growth trajectory is probably gonna be quite impressive, the base number is very, very low. I think, you know, the jury is still out as to what the cost economics would be producing it in China versus producing it in Sarawak. That's what we're trying to understand. You know, a lot of the demand and a lot of the, well, not, not demand because there actually isn't physical demand, but a lot of the interest has been driven by the, well, the Inflation Reduction Act, signed by President Biden that sort of restricts your supply chain, when you're looking at EVs going to the US. I think, you know, we have to be cognizant of the fact that this can change any time. I think we're looking at it from a, you know, much longer time frames. We're looking at it from sort of 10-year horizon and really thinking about what the real cost competitiveness of producing to get in Sarawak would be. You know, power is not a super high cost component when it comes to the production of manganese sulfate. That's a long way of saying we don't have a concrete update, but we are still working on it at this point in time. Thanks, Adrian. Our next question. Can you describe the company's dividend policy and ongoing strategy around capital management? I think the company's strategy is to minimize the cost of capital and while delivering all the projects that we want to deliver. I think when it comes to I'll address the dividend bit first. That's something that we have been engaging shareholders and potential investors, especially institutional investors around. We are in the process of looking at what we've done for the full year 2022, how we're gonna articulate our dividend policy going forward. I know at the end of 2022, I did say that we will be sharing that very shortly. Do bear with us. I think, once we have the full year results, you know, earnings for 2022, we will be able to, you know, give shareholders, investors, guidance on, you know, what that might look like. You know, earnings are coming out at the end of the month, so I'm not gonna jump the gun and sort of, you know, go into that. Capital management more broadly, I think, you know, we are in a sort of, you know, iffy environment where it's, you know, it's obviously a high interest rate environment and, you know, it's, depending on which bank report you're reading, could give you different indications as to what you should do about debt. I think what we're doing right now is looking at it from the perspective of, look, we have a $200 millio+ project finance facility. Are we able to lower the cost of capital? You know, if so, when should we do it? I think, you know, we're keeping our options open, speaking to a lot of sort of financial institutions and banks and really just watching what's happening on the, you know, what the Fed's doing and on the interest rate front, and see if we can't lower that cost. I think, you know, at this point in time, we have mentioned this before, you know, we do not wish to dilute shareholders, and, you know, that's an expensive, cost of capital right there as well. Yeah, I hope that answers the question. Our next question. How is management addressing the issue of labor shortage, and will the reopening of China help with this issue and demand for steel products more broadly? Right. Okay. You know, we didn't have this issue last year, but we had this issue two years ago. I think right now at this point in time, the issue isn't really serious because, you know, there's still a couple of furnaces that are being maintained. As we progress in the year, you know, Q2 down, there will be one to two furnaces that can potentially be brought online faster if we had more workers from China. We've actually, you know, done a fair bit of work to sort of mitigate this by reducing the number of headcount that we need From China. You know, it's really sort of superintendents, foremen that you need that have, you know, sort of decade-long experience. All the other positions we have localized. I think we've reached the point where, you know, it's really a few key men that you need to have that, you know, working experience in front of furnaces for 10, 20 years. Everyone else is gonna come out of the UNIMAS training program that, you know, we announced and talked about last year. I think we will see this, you know, one to two furnace gap sort of open up after Q2. The sooner we get workers in from China, you know, the faster we can close that gap. And in so doing, sort of raise production beyond the base case scenario I talked about earlier. I think, you know, it is... It's too early to say that, you know, you're, you know, super optimistic about workers coming in from China, but I think all the signs that we see in China, you know, with borders opening, with, you know, people being able to travel, a lot of colleagues coming in from China that we haven't seen in two years. We're actually seeing them next week. You know, I think all of these are positive signs that there will be a, you know, massive reopening, and workers will be sort of freely traveling again from Q2. Okay. Adrian, another question for you. As interest rates rise and the risk of a downturn is on the horizon, does management feel that it is prudent to postpone the CapEx for the two additional furnaces planned in 2023 in order to build up a cash buffer and return some of the profits as dividend to the shareholders? Right. I think the two new furnaces, you know, that will always be conditional on finding funding at an appropriate cost. I think we have talked about this for the last one to two years. If the opportunity to buy the 25% stake wasn't there last year, you know, those funds would probably have gone towards building the two new furnaces. I think shareholders will notice that we have postponed these plans and sort of been flexible around how we've staged our growth plans. I won't comment on sort of the dividend. I think that's, you know, sort of partly answered by what I said just now. We will not sort of push ahead to complete that project, you know, just for the sake of doing it as soon as possible, without considering funding options and the cost of funding. Okay. Another question for you, Adrian. This is regarding the completion of the hydro dam in 2027. Has OM Holdings negotiated for additional electricity for future potential expansions? Yeah, that's a good question. You know, look, we're constantly in talks with Sarawak Energy obviously, you know, around how we are staging production. You know, we do give them regular notice on what our sort of power consumption requirements are and what our future plans are. I think everyone is aware, both on our side and their side, that with the expansion of the two new furnaces, you know, there will be no net impact on the power we're consuming. Contractually, you know, there's also a bit of a flex space where we can draw more power than, you know, than the 350 MW, the sticker number of the contract. I think, for now, there actually isn't a need for more power. Even with the two new furnaces, and especially post heat recovery plant, we will be able to sort of expand production without actually subscribing to new power. I think, you know, shareholders should also be aware that the power prices of new entrants or sort of new contracts will obviously not be at the prices when we signed up. I think, you know, we are weighing those sort of options. For now, there's no need and no discussion for taking, you know, significant amounts of extra power. Thanks so much, Adrian. That appears to cover the majority of questions that we have from our audience today. We are going to make a recording of this webinar available via OM Holdings and Corporate Storytime social media accounts in the coming days. Thanks to everyone for participating today, and this concludes our webinar. Once again, thanks to the OM Holdings team and Adrian for the update. We appreciate your time. Thank you. Thanks, Nicola. Thanks, everyone, for dialing in. The recording has stopped.