Project cost and funding mix
IBP, Inc (2017) states that the project cost is estimated at $ 500 million. It was financed by equity capital received from shareholders and external borrowings. OM Sarawak comprises a joint venture between OM Holdings Limited (OMH) – 75% and Cahya Mata Sarawak Berhad (CMSB) – 25%. The project was financed by about 70% from external borrowings and the rest – from equity capital.
Demand, supply, and risks
OM Holdings Limited (2021) affirms that OM Sarawak owns and operates a ferrosilicon and manganese alloy smelter in Sarawak, East Malaysia, with an annual production capacity of approximately 200,000 to 210,000 tonnes of ferrosilicon and about 250,000 to 300,000 tonnes of manganese alloy. The plant also includes a sinter plant with a design capacity to produce 250,000 tonnes of sinter ore per annum.
According to OM Holdings Limited (2020), the main risks for this project are stable sources of raw materials, energy at competitive prices, and robust procurement arrangements. The following three main factors have significantly mitigated these risks:
- Security of the primary raw materials from the business of OM Holdings Ltd;
- Long-term stable and competitive electricity prices;
- Successful negotiations with buyers.
In turn, according to IBP, Inc. (2017), critical risks at the current point in time include, but are not limited, to two major categories, namely:
- The timely approval of the Project’s Detailed Environmental Impact Assessment by the relevant authorities, potentially impacting the scheduled commencement of the project’s construction;
- The timely completion of the Samalaju port facility allows the importation and discharge of bulk production raw materials for the testing, commissioning, and operation of the project.
Initial problems with the project and final restructuring
According to Sarawak smelter commissioned (2017), construction began in 2013, and on January 14, 2017, the first production of high-carbon ferromanganese was made. Manufacturing developments at the plant demonstrated its engineering capabilities. The smelting plant “OM Sarawak” consists of eight main workshops and 16 units of furnaces, of which ten are intended for the production of FeSi, and six – for the production of manganese alloy. As for loan repayments, during the quarter that ended March 31, 2020, principal loan repayments of $ 12.9 million were made to the project finance lenders.
According to Wong (2021), despite the suspension of mining operations at the Greek Bootu mine, the smelter could sustainably maintain its production capacity during Q4 2019. During this period, OM Sarawak sold 53,078 tonnes of FeSi and 59,740 tonnes of manganese alloy, which is lower than 57,249 tonnes and 67,583 tonnes, respectively, in the third quarter of 2019. Manganese alloy production declined slightly by about 5% compared to Q3 2019, mainly due to the shutdown of one manganese alloy furnace for repairs and maintenance in November 2019.
Moreover, labor shortages affect the ability of the smelter to operate at total capacity. As the country’s border remains closed due to strict travel restrictions imposed by the pandemic, the factory’s production plan for the second half of 2021 may be adjusted. Wong (2021) notes that in the second quarter of 2021, OM Sarawak recorded a sharp decline in ferrosilicon production to 23,057 tons against 38,415 tons in the previous quarter, while manganese alloys production fell to 37,691 tons from 57,136 tons. Sinter manganese ore production also fell to 14,223 tonnes from 22,826 tonnes in the same period.
However, Wong (2021) asserts that OM Sarawak FeSi’s sales volumes rose 21% to 30,331 tonnes in the second quarter from 25,029 tonnes in the first quarter of 2021. At the same time, in the third quarter, sales remain from the previous quarter due to logistics delays. FeSi and silicon-manganese (SiMn) prices continued to grow, rising sharply by 31% and 21%, respectively, compared to the first quarter of 2021. Therefore, despite the presence of such problems as dependence on external resources, equipment maintenance, logistics reservations, and a shortage of human resources, OM Sarawak operates quite successfully.
References
IBP, Inc. (2017). Malaysia mineral, mining sector investment and business guide: Volume 1: Strategic information and regulations. IBP USA.
OM Holdings Limited. (2017). OM Materials (Sarawak) SDN. BHD: Driving industry transformation [PDF document].
OM Holdings Limited. (2020). Annual report 2019 [PDF document]. Web.
OM Holdings Limited. (2021). Annual report 2020 [PDF document].
Sarawak smelter commissioned. (2017). Pngreport.
Wong, J. (2021). OM Sarawak ramps up production of its ferroalloy smelting plant. TheStar. Web.