OM Materials (Sarawak) Sdn Bhd has sealed an agreement with Japan's Hanwa Co Limited for the sales and marketing of products from its manganese and ferrosilicon alloy smelting plant in Samalaju Industrial Park in Bintulu.

OM Sarawak is an 80:20 JV between OM Holdings Limited of Australia and Cahya Mata Sarawak Bhd. The JV company will be investing USD 500 million in the manganese and ferrosilicon alloy smelting plant.

Construction of the plant will start in the next few months for completion in 2013.

In its latest March 2012 quarterly market update to the Australian Stock Exchange, OMH said that the deal with Hanwa covered the sales and marketing of 80,000 tonnes of ferro silicon and 80,000 tonnes of silicomanganese product a year.

Parts 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.

In March 2012, OMH raised about AUD 29.8 million 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 AUD 26.25mil through share placement to a strategic investor Boustead Singapore Ltd and a small number of institutional investors. The total proceeds of some AUD 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 ferrosilicon production combined with a product off take agreement for up to 100,000 tonnes per annum.

Mr Low Ngee Tong executive chairman of OM Sarawak 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 500 MW 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 2012.

It said a detailed environmental impact assessment report was submitted to the Department of Environment in February 2012, and it expected approval to be obtained by Q2 2012. It added that "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."

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. It added that "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."

OMH said the group, via wholly owned subsidiary OM Materials (S) Pte Limited, consolidated and restructured its existing loans facilities with Standard Chartered Bank in April 2012.

After the restructuring, the outstanding amount of term loans as of March 31st 2012 was nearly AUD 90.3 million. The key aspects of the restructuring involved a reduction of about USD 18 million in principal repayable by the group in the next 12 months and a revised repayment schedule between April 2012 and April 2015.

OMH said that "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."

Source - The Star

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