OM Holdings Limited is a vertically integrated and ESG-focused ferroalloy company, and this week has released financial results for the six-month period ending 30th June. The results demonstrate strong profitability and improvements in key financial metrics over the previous corresponding period. Without further ado, I'm pleased to hand over to Adrian, who'll present a comprehensive update from the OM Holdings headquarters in Singapore. Adrian, over to you.
Thanks, Nicola. Thanks for the great introduction. Thank you everyone for making time this morning. I hope you can see the slides clearly. Without further ado, I am just going to jump straight into the numbers. You know, I think one key thing to note is that we changed our presentation currency from Singapore dollars to US dollars with effect first of January this year. That's why all the numbers look a bit lower. Look, this change really is to reflect sort of functionally what's happening at OMH because a lot of our costs and, you know, literally all of our revenues are denominated in USD.
With that out of the way, look, I think we delivered a great set of numbers in the first half of 2022. You know, sort of massive bump up from, you know, first half of 2021. If you recall, you know, how markets were in 2021, that was sort of the nascent recovery post-pandemic. That, you know, really went up all the way until September, October last year when things really hit a peak before sort of trailing down.
You know, in terms of earnings, you know, EBITDA, profit to owners, effectively really double what we did in 2021 for EBITDA and net profit after tax to owners, you know, went up multiple times, closed at about $50 million. The sort of 100% consolidated number was $60 million, if I remember correctly. Not only did we do much better than what we did in the first half of 2021, we actually also improved on what we delivered for the second half of 2021, right?
If you recall, that was when prices peaked, and they have sort of, you know, come down slowly until say, middle of the first half and sort of, you know, accelerating now as we enter sort of the middle part of the year. I think we had a lot of questions. I think a lot of shareholders asked, you know, if we'll be able to sort of do better than what we did the second half of last year. You know, I think we've demonstrated that, yes, we have been able to sort of ride this wave and sort of, you know, take a lot of profit at the upside.
Which I think it's very, very critical in the scheme of things because it's you know, commodity cycles come and go. You never really know when the next boom is coming, but it's always very important to sort of be able to ride your wins and sort of control costs when things are tough. That's all on the earnings side. I think, notably, if you look at cash generation, you know, cash flow from operations, we actually generated $72 million in cash in the first half. This is US dollars.
If you look at what we did for the full year of 2021, we actually generated more cash in the six months compared to what we did in the full year of 2021. Just to provide a bit of context and background, both from the market and production volumes, that sort of underpins these results. I've already mentioned sort of the broad trends and pricing and, you know, how things have played out. I think, you know, in the first half of this year, we benefited greatly from this uncertainty in ferroalloy supply with the outbreak of conflict between Russia and Ukraine.
You know, obviously, if you've heard my presentations before, this is because Russia and Ukraine are respectively the world's second largest exporters of ferrosilicon and manganese alloys, respectively. That uncertainty really helped pricing. Things sort of reversed. As we all know, you know, we entering a period of great economic slowdown. Just you know global aggregated demand has decreased a lot. There's a lot of uncertainty in terms of both you know what the Fed's doing as well as real terminal demand. A lot of people have started talking about demand destruction. I think that's you know that's all sort of part and parcel of commodity markets.
You know, I think there will be a period of sort of unwinding, deleveraging and sort of reduction in inventory before things start picking up again. I think, you know, we're sort of well underway into the next cycle. One thing to note is that large ferroalloy production started falling from about the middle of this year, so around June. Both, you know, European producers, Chinese producers, Indian producers, everyone has been slashing production at sort of double-digit rates. I think, you know, some of the reports that we read, we've seen states cut production by, you know, close to 40%-50%. That gives you a flavor of where we are in the cycle.
That's on the market outlook and sort of pricing side. In terms of production, look, I think, you know, if you were with us for the sort of Q2 webinar, the numbers sort of speak for themselves. I think we're on track to achieve about 350,000 tons of ferroalloys for this year. A lot of the production, if you look at the chart, has been front-loaded. That's by design. You know, I think, we already shared that, you know, there's this complex map of, you know, furnace, conversion, maintenance, realigning. It's, you know, we've got 16 furnaces and we have six times to sort of chew through all the furnaces.
A lot of production is front-loaded, by design, and that's a great thing because, you know, we captured pricing sort of on the upside before things sort of come down in the second half of the year. Okay. I'm not gonna talk through all the numbers on the slide. I think suffice to say, you know, we did great on sort of the revenue front. First half of 2022, that's, you know, down to the prices and, you know, I think 27.7% GP margin is one of the highest ever we've recorded. In terms of group EBITDA, you know, again, I think I said this the last time, but, you know, increasingly, I think smelting's come to sort of dominate the group earnings.
Really, the other two sort of contributions would be trading, which is basically, you know, logistics and distribution that sort of contributes a very stable percentage spread of revenue, as well as, you know, sort of earnings from associates, which is the Tshipi Mine. One thing to note, mining remains under planned maintenance, and we're really still waiting for the UFP to commission. You know, some people have asked, you know, what's taking the plant so long. You know, today, the answer to that would be that today if we wanted to turn on the plant, we could, it just wouldn't be as efficient.
You know, we're sort of pending a few long lead time items, you know, screens, washes and that sort of thing. You know, I think once that comes in, we'll be able to sort of commission the plant and then start processing. Until then, it's gonna be in planned maintenance. Okay. When we look at the gearing ratios, you know, again, I think we've come a long way from sort of 3x in 2016. I think we're about, you know, 0.5 today. You know, our shareholders, investors will note that we actually repaid $36.9 million first half of this year, US dollars, as.
You know, sort of sizable chunk of this went towards the PF, the project finance facility, with sort of a smaller chunk that goes into sort of the revolving facility that we have for raw materials at Sarawak. Look, I think the idea is that we are in a position where, you know, the project has, you know, done well for itself. You know, numbers speak for themselves. It's time really to sort of exit this very, very restrictive project finance structure where management doesn't really have control over sort of what debt levels we ought to be targeting and a lot of the cash is locked in in sort of various mechanisms.
I think you know in the next one to two years we will look to sort of refinance this into a sort of more vanilla sort of debt arrangement. You know besides that I think you can see how cash flow movements sort of went in the first half of 2022. I think the only difference between what you're seeing now and the last chart is that there were. You know I think we are spending a bit more in terms of investing this year but that's really sort of around furnace conversion maintenance you know plus sort of base level of distinct CapEx.
Again, you know, we had this question the last time, but basically, the four furnace conversion projects, two manganese, two silicon metal. The manganese ones, as I mentioned, we've already delivered, and so those furnaces are in production. Four furnace conversion projects and sort of doing major maintenance for all the furnaces, that's, you know, going to cost us about SGD 50 million-SGD 60 million. You know, that's already provided for in the cash flow. You know, that's what we spent this year. That's it. This is a very short presentation. I think, you know, we'll leave more time for Q&A. I think would like to draw your attention to the key ratios, the bottom, sort of bottom left corner of the page.
You know, as we stand today, trailing twelve months earnings, you know, the key ratio is just under 3.5x. I think that you know speaks for itself. I think you know more importantly for you know our shareholder base and sort of you know always comes back to the dividends. I think we will be launching an official dividend policy very shortly. You know, stay tuned. This will come out in the near term.
The current thinking is that you know we will aim towards distributing a certain amount from earnings during the growth phase and then sort of post-growth phase and sort of steady state, that number will change. You know management is working very, very closely with the board as we speak, and so stay tuned. With that's the last slide. Happy to open the floor to questions now. I'm just gonna stop sharing.
Thanks, Adrian. Thanks for the update, Adrian. That was fantastic. We'll move on to the Q&A section of our webinar today. Our first question is, there seems to be a large deferred tax expense in the recent reported financials for the first half of 2022 of $22 million. In the cash flow overview, there appears to be an amount of approximately $4 million having been paid with a remainder of approximately $18 million seemingly to be deferred tax. It is noted that this relates to OM Sarawak. What event triggered this tax expense, and how should we think about both income tax and cash income tax going forward in relation to the Sarawak operations?
Right. That's a very specific question. Look, I think you know. I don't have all the information in front of me, but I'll just address you know that AUD 18 million because that's pretty sizable. That relates to sort of points out Pioneer Status tax incentive. I think we're in between years now, so you know I think the last time we mentioned it's a 10-year sort of tax incentive. It's five plus five . The first five years have just lapsed. We are assuming during the renewal process which sort of is on the way right now that the next five years will not start until they tell us it has. We have sort of provided for that for the year 2022.
Just to remind everyone, you know, the sort of second five years. You know, 30% of Sarawak's income will be taxable at the Malaysian tax rate of 24%. That $18 million just, you know, sort of being provided until we know with certainty when the next five years starts, whether it's 2022 or 2023.
Thanks, Adrian. Our next question is, can you guide towards an estimate for CapEx spend in the second half of 2022 and in the first half of 2023?
Yeah. Look, I think for the full year of 2022, it's gonna be AUD 50 million-AUD 60 million, like I shared. That's probably not gonna deviate too much. For 2023, I think a lot of the, you know, potential spending is very contingent on funding. The next major project would be, you know, the expansion of our manganese alloy smelting in Sarawak, two new furnaces. That's about AUD 90 million. That's contingent on funding. Besides that, I think if you look at sustaining CapEx is between AUD 10 million-AUD 15 million, as well as the other sort of smaller projects, you know, exploration in Western Australia, and the UFP rectification, you know, with the screen steps, you know, AUD 1 million-AUD 2 million.
It's not really sizable or material in the scheme of things.
Thanks, Adrian. Our next question: Would you consider the minority interest in the Tshipi Borwa Manganese Mine as core, or would you consider monetizing this to fund investments in the smelting JV and/or furnaces?
Right. Look, I think that is core to answer it in a very simple way. The thing about manganese ore mines is, you know, if you want something that's sizable and, you know, sort of sits at the bottom of the cost curve, there aren't many new ones. You know, you just gotta hold on to the ones that you already have, I think. The thing is, you know, obviously that there's always a price for everything, but, I think, you know, Tshipi, at this point in time, delivers great value, both from a financial investment perspective, as well as from a strategic perspective when it comes to the ore flow. We're also doing distribution of the Tshipi ore in China. That sort of complements our existing business.
I think I would say it's core at this point. That's not something we're gonna monetize.
Fantastic. Our next question for today is: How do you plan to fund the acquisition of the 25% of the Sarawak operations which you don't already own?
Yes. Right. Look, I mean, this question comes up a lot, and I think it's gonna be asked a lot more as we approach the end of the year. Look, you know, we generated AUD 70 million in cash in the first half of the year, so you know, I think we've demonstrated that cash generation is you know pretty significant. Obviously the sort of counterargument to that, you know, we actually repaid a lot of that to the lenders. You have to keep in mind that a lot of that, so the sort of non-trivial amount of that was actually paid down to the sort of working capital facility that can be sort of freed up again.
That's a very complicated answer to say. You know, there's still cash there. Besides that, you know, we're actually working on three different options at this point in time for sort of bridging debt facilities and you know various forms and flavors and costs. I think, sorry, we have all the proposals we need on the table and it's really a matter of just you know deciding which option to take. You know, this just number one create optionality. You know, we've got two-three years' time to decide whether to sort of pay that down you know roll that over or sort of raise equity.
Number two, most importantly, I think for shareholders, we should not be in a position at this point in time with the current share price to sort of dilute shareholders and you know, I think that's the last thing we want.
Fantastic. Next question: Can you provide ballpark estimates for the approximate cost for producing one ton of ferrosilicon, one ton of silicomanganese, and one ton of ferromanganese?
Right. Okay. For ferrosilicon, I think we have guided last year that you know historical costs start around say ±$1,000 you know with the increase in sort of freight with increased raw materials. I think probably closer to $1,300-$1,400 today. That number is actually trending down as a lot of these costs come down. I would say you know that that's probably where we are now. It's probably gonna go down.
Keep in mind that, you know, at this cost, you know, I think the Chinese producers are not, you know, will not be able to export, so, you know, this is we're in a very different position if you look at, sort of, where we were in 2016, right? I think we were in a much more sort of unfavorable cost position. I think, you know, the tables will turn today. That's for ferrosilicon. For silicomanganese, I think I shared the last time that we were around $1,000. Historically, I think the cost of silicomanganese has been between $800-$900.
I think that's where we're gonna return to very soon with manganese ore prices sort of coming down very, very sharply if you look at the benchmarks of the spot markets for the full freight index. That's for silicomanganese. High-quality ferromanganese is, you know, historically I think of them, you know, vast majority of the time it has been cheaper to produce than silicomanganese. I think you just refer to the cost of silicomanganese.
Okay, another question. What does OM Holdings plan to do with OM Qinzhou now that operations have been wound down? Will the property be sold, and will the furnaces and transformers be moved to Sarawak?
I don't think we're gonna do something as drastic as that. You know, I actually haven't seen anyone sort of successfully move furnaces and then sort of save money doing that. Let me answer the question this way. There are still furnaces in operation in the Guangxi province. The key thing is just, you know, high degree of uncertainty in terms of the cost of power. You know, I think there will be ways of sort of utilizing furnaces in sort of ad hoc basis.
You know, the broader picture is what are we gonna do with that asset, that land, that's sort of sitting, you know, prime real estate right in front of the port. I think the two things that I've said are, one, sort of looking at different industries. There has been a lot of sort of high purity manganese sulfur producers sort of cropping up in the south to take part in the sort of battery supply chain. I think you know understanding that sort of the cost efficiency and sort of you know how the levers for that business works would be instrumental in us deciding whether to sort of pursue that track.
You know, I mean, the sort of EV space, EV supply chain is you know, very talked about in the EV space. So that's one. Two, something more boring, but you know, stable, would be able to contribute to earnings, sort of repurposing that into some kind of logistics space. We actually have received approvals to use the land, to use our warehouses, the bonded warehouse. So, you know, just been sort of doing some activities around that. But look, I think it's not been decided or sort of set in stone now. I think we can afford the time to sort of wait and see what the best decision will be. Until then, you know, we have the option of sort of utilizing those furnaces.
Thanks, Adrian. With Bootu Creek in care and maintenance status, can shareholders assume that the mining division is unlikely to contribute greatly to revenue and earnings going forward? Would you consider divesting Bootu Creek?
Let me answer the first question first. I think you know, the mining division is unlikely to contribute to revenue in say, the next one to two years, so say 12-18 months. You know, that's keeping in mind that we have a few projects underway in Western Australia. You know, I was sharing that with someone earlier that where we are with Bryah now, I think we'll most likely actually be able to release some kind of you know, get to a resource statement some point in time. Then the decision would be should we sort of start mining at Bryah? Do we you know, sort of string all these resources together to build you know, a bigger mine in Western Australia?
I think we have demonstrated that, you know, we're able to sort of place elements in pipe ore and sort of, you know, and we have done trials to consume the ore ourselves. That's all part of the, you know, bigger mining strategy. I think that will only sort of materialize after the next, you know, 12-18 months. As for Bootu Creek itself, I think, you know, look, there's always a price for everything, but, you know, I think at this point in time, we think we'll be able to sort of deliver value from what remains in Bootu Creek by sort of treating the tailings and taking that material to Sarawak to smelter. Yeah, I mean, there's a price for everything.
I wouldn't say that's, you know, we wouldn't rule that out.
Okay. Our final question for today is: How are current shipping rates influencing operating costs for OM's core businesses?
Yeah. Look, I think on the alloy side, such as, yeah, alloy export, so freight to say, you know, East Asia, Southeast Asia, something between, something like AUD 30-AUD 50. That's not really significant, in the scheme of things, right? Because our alloy prices are, you know, AUD 1,600. What's really affecting the core business, I think, is the cost of shipping raw material. You know, these are sort of low-value items, and we ship in bulk, from China, from India. That's what's really affecting sort of raw material, you know, the costs that we're paying, at the smelter gate. I think that's come down quite a bit.
If you look at, you know, the sort of freight rates for shipping manganese, all that's come down quite significantly. You know, I think we are expecting both, sort of bulk rates and, sort of container freight rates, to come down in the next six months.
Well, Adrian, that appears to cover the majority of questions from our audience today. If you do have any further questions for Adrian, please feel free to forward them to info@corporatestorytime.com. We will make a recording of this webinar available via OM Holdings and Corporate Storytime social media accounts in the coming days. That concludes our webinar for today. I wish to say thank you to Adrian and the OM team for the update. Thanks everyone for attending. Thanks, Adrian.
Thank you. Thanks, Nicola. Thanks everyone for attending.