Good morning, everyone, and thank you for attending OM Holdings' webinar this morning. My name is Jenny from the IR Department of OM Holdings. Together with me is Richie, and we will be hosting the webinar. OM Holdings is a manganese and silicon smelting company with vertical exposure in mining and trading, and has just released its September 2024 quarterly production and market update on Wednesday. I am delighted to have OM's Managing Director Adrian Low with me today. Please note that this is a prerecorded session, and he will run through the key points followed by a Q&A session with questions that were pre-submitted. If we are unable to answer your question, we'll attempt to address the query post-webinar. Without any further ado, I'm pleased to hand over to Adrian.
Thank you. Thanks, Jenny. So, as Jenny mentioned, I think we're pre-recording this due to, you know, sort of scheduling conflicts. You know, at the same time, I think we would want to produce and present, you know, our view of the last quarter as soon as possible to shareholders and investors, hence the sort of new format this time. So, I think without further ado, we could just jump into the quarterly summary. And, you know, I think right off the bat, investors and shareholders will note that for most of this year, I think two things have remained constant. One is our production guidance of ferroalloy production, both on the ferrosilicon side and the manganese alloy side. I think those have remained fairly on track.
Looking at the full year number, I think there might be some deviation or variation between how production skewed between ferrosilicon and manganese. But I think if you look at the total number, we are well on track to achieve what we set out at the beginning of the year. In terms of the second thing that has been constant for this year, again, in Q3, I think we repaid $12.3 million to PF lenders, and, you know, we will continue to do so even as we explore sort of potential refinancing opportunities and new ways to optimize capital structure. In terms of the last bit on mining, I think, you know, at the beginning of this year, we said that we would restart the UFP at the end of the year.
I think at the end of this month, we will be commencing a trial production just to see how the UFP performs after all the optimization and sort of engineering upgrades. Post that, I think we will then commence commercial production proper. In line with the slight change, slight tweak in the production schedule, we have updated our plans to say that commercial production of the UFP will commence proper in Q1 2025. But, you know, in the scheme of things, this is not really going to affect any of the economics of both the UFP and the downstream sintering operations at OM Sarawak. Recently, we also celebrated the 10th year anniversary of OM Sarawak. In fact, you know, I think we are 10 years and 2 months now from our first tap in September 2014. Obviously, the company began with ferrosilicon production.
I think at the event, we were very, very pleased also to be able to sign an MoU with South32, you know, partnership with them. They have been a key supplier to the project for the last, you know, five to seven years. I think being able to sign an MoU on sort of ESG angles to repurpose silicomanganese slag is very meaningful both for us and for them. I think at OM Sarawak, you know, obviously, between silicon and manganese, we produce a variety of byproducts, both in solid form and in sort of a dust form that has been scrubbed from our baghouse filters. You know, I think today, most of that is already being repurposed. We use within the plant, as well as being resold.
You know, here with silicomanganese slag, I think we're just trying to close the loop with the last major kind of byproduct that hasn't been repurposed in a massive way. In our sustainability report as well, you know, we commit to repurposing and reusing more than 80% of the waste we generate. We are now, you know, and for the last couple of years, we have remained on track. I think with this initiative, we're looking for new projects and new ways to sort of close that gap. Hopefully, we can take that to 100%, you know, in the next couple of years. With that, you know, that's a very short quarterly update. Now I'll just, you know, speak briefly about markets because a lot of shareholders and, you know, analysts sometimes write in to ask about what's happening in ferrosilicon markets.
For ferrosilicon, I think, you know, just right off the bat, if you look at the chart, it has remained very largely range-bound. And I think what we said three months ago, you know, still remains valid. I think the only thing is you'll notice, you know, a slight aberration in prices. It actually inched up slightly the last couple of months. And that was really because the Chinese government was trying to crack down on the illegal tax evasion of ferrosilicon exports. And so, that nudged prices up slightly. Besides that, you know, I think prices are range-bound for a very good reason. We are more or less seeing Chinese producers at cost, while obviously, you know, our cost structure has remained more or less unchanged since before COVID. So, with that, I think we can turn our attention to manganese alloys.
If you look at manganese alloys, I think, you know, the volatility is very apparent. To just give, you know, a sort of quick overview and recap for shareholders, prices really started rising after force majeure at Groote Eylandt Mine earlier this year. You see the initial price response on the ore side, and that's quickly followed by a price response in silico manganese prices. The red line moves first, followed by the blue line. Immediately after that, you know, alloy prices start falling because obviously the bottleneck's not actually on the alloy supply. It's on the ore side. While ore continues to overshoot, and I think, you know, we arrive at a point where the price of manganese ore has incentivized so much substitution and, you know, so much swing volumes moving in to sort of saturate the market, I would say.
If you look at the shaded area in the chart, that's actually ore inventory in China. You can see that actually growing quite dramatically. You know, I think we're looking at a delta of one to 1.5 million tons in terms of ore inventory looking at the chart. That then necessarily brought prices down to where they are today. I would say, you know, we see that correlation. Obviously, it's not as tightly correlated as it was before COVID due to many, many sort of different one-off events that sort of have happened to play out in the last 18 months or so. Generally speaking, I think we're seeing that pattern reestablish itself. You know, today, I think we close the quarter with a price of 875 CIF Japan.
You know, I think we will go out to say that this price, in the scheme of things, does represent an overcorrection. Looking at sort of the supply and demand, you know, we are optimistic that prices must eventually recover. I think during this period of time, you know, especially in the last six months, what the company has been very busy focusing on is not necessarily to say, you know, squeeze sort of extra margins from silico manganese, but rather to sort of control the cost on the ore side. I think, you know, we have been fairly conservative in how we've been procuring the ore. As a result, you know, have managed to control our costs more effectively than, you know, what that sort of very, very sharp price increase would suggest.
So, with that, you know, that brings me to the end of my presentation. I know that, you know, because this is prerecorded, we have had questions come in. So, you know, Jenny, if you could take us through those.
Great. Thank you, Adrian, for the presentation. We'll now move on to the Q&A session. So, the first question relates to shareholders' interest. What are the fundamental values of OMH, given there's no dividend in the first half and with share price being stagnant?
Yep, so I think, you know, we get variations of this question every now and then. And, you know, I think fundamentally, the OM Sarawak asset is a very, very strong one. And obviously, that's sort of synergized with the know-how that we have at the company. You know, we've done this for 30 years. Cash flow remains positive despite, you know, all the cyclical challenges and, you know, a lot of one-off sort of, I wouldn't say black swan, but essentially very disruptive events in the last, you know, 18-24 months. And we remain, you know, the lowest cost quartile smelter in the region, if not, you know, sort of the broader Asia Pacific. So, you know, I think those are sort of the key strengths of the company.
Obviously, cash generation, I think, is something that you have to sort of see against what is sort of sitting there on the debt side. You know, I mentioned earlier about sort of reoptimizing the capital structure. So, at some point in time, you know, there will be cash that's being generated once, you know, sort of debt has been pared down to a reasonable level. And that obviously will go to shareholders. You know, I think if you look at the first half, you know, we've had this question a couple of times on sort of not paying dividends as well and, you know, people are written in. Look, I think if we sort of follow the dividend policy, that wouldn't have been a first half dividend as well.
I think, you know, we will look at the full year results and make a decision at that point. So, yeah, I hope that answers the question.
Great. Thanks, Adrian. Now, moving on to the second question. Are the furnaces all profitable at present?
Yeah. So, you know, I saw this question. It's a good question. You know, one would think that sort of margins would be very compressed given what's happened, especially on the manganese front with ore prices, you know, sort of sharply increasing and sharply coming down. So, you know, if you just took an average, you would arrive at a certain picture. But actually, we are, you know, all the ferrosilicon furnaces are profitable. Ferrosilicon prices obviously have declined somewhat in the last couple of months. But, you know, in the scheme of things, that's not a lot. And, you know, for manganese alloys, like I shared earlier, you know, ore is really sort of the main volatile component here. And I think we've been, you know, reasonably successful in sort of avoiding sort of the peak of that ore price chart.
Absolutely, you know, I think all of the ferroalloy products are profitable at this point.
Great. Thanks, Adrian. Now, moving on to the third question. What were the key drivers behind changes in commodity prices and how did they impact our operations?
Yeah. Look, so I think, like I explained earlier, for ferrosilicon right now, it's very much the status quo. You know, I think if you look at the price chart, it's almost the same as, you know, three months ago with the exception of this sort of slight increase in the last two months. So, again, it's range-bound because it's more or less at the cost of, you know, our competitors, the marginal suppliers to the market, which are the Chinese. And they're sort of clustered around a couple of major provinces. And the catalyst that, you know, is out there is what will happen to ferrosilicon production, ferrosilicon production out of Russia. For now, it's nationalized, but obviously, there's inventory. You know, I've physically seen that inventory in different places around the world. And so, yeah, that remains, you know, to be played out, if you will.
For manganese alloys, you know, I think right now, the impact would really have to be what is going to happen to manganese ore prices in the next, you know, three to six months. You know, a lot of people expected that ore prices would come down once South32 restarts their exports. But lo and behold, here we are. They've already come down. So, in a sense, that entire sort of price cycle that we expected is now has been compressed, right? So, from here on out, really, you know, I think we have to look at what smelting competition does with that ore price. And, you know, our view is that the market is fundamentally oversupplied. But at the same time, we are seeing sort of high-cost producers sort of slowly starting to exit the market.
So, the extent to which they remain out of the market, I think, will bring kind of the recovery and the balance that we need to see in manganese alloy markets. Obviously, at the same time, you know, we're not just going to blindly sort of follow prices and chase the broad silicomanganese sort of bulk commodity price. You know, we will find our own niches, our own sort of specialty grades that we can build moats around. And I think that's what the company is busy with.
Great. Thanks, Adrian. And now, this is our last question. What strategic initiatives are being implemented to enhance sustainability and reduce costs?
Yeah. So, I think, you know, this question has to be answered with, you know, some kind of carbon price in mind. But, you know, if you put aside what the company sort of assumes its internal carbon price, what did that ought to be? I think, you know, the low-hanging fruit here really is the same project we've talked about for a while now. And that is the heat recovery system. And so, what that means is that we recycle heat that's sort of coming out from the furnace in the form of hot gases that then, you know, drives a turbine and produces power, which we then sort of recycle into the operations. So, you know, both from a sustainability perspective, you know, we are lowering the sort of Scope 2 emissions by lowering sort of the unit emissions per unit of power.
At the same time, you know, this has negligible OpEx, right? It's really front-loaded in the form of CapEx. So, this is definitely a project that, you know, the company would like to do. Sort of beyond that, I think, you know, how we enhance sustainability would, there are sort of projects out there, and we've talked about them in the past, but then they would be a function of, you know, what carbon prices would look like and, you know, how much the company would sort of risk spending CapEx before that price became clear. So, you know, I think if we look at that, there are various ways to lower sort of Scope 1 and Scope 2 emissions. And, you know, what I mentioned was a Scope 2 initiative.
In terms of Scope 1, you know, biochar, something we've spoken about in the past, you know, that's definitely one way we can lower our emissions and, you know, enhance sort of sustainability.
Great. Thanks, Adrian. That's quite insightful. Right. That appears to cover the majority of the questions from the audience today. If you do have any further questions, please forward them to investor.relations@ommaterials.com. We will make a recording of this webinar available via OM Holdings' LinkedIn in the coming days. This concludes our webinar for today. Thank you, everyone, for attending and thank you, Adrian, for the comprehensive update.
Thank you. Thanks, Jenny, and thanks, everyone, for dialing.