Manganese miner OM Holdings says it will incur a loss of over $13 million after it closes another hedging position as Consolidated Minerals beefs up its interest in the miner.
Manganese miner OM Holdings says it will incur a loss of over $13 million after it closes another hedging position as Consolidated Minerals beefs up its interest in the company.
OM said today it has closed out its foreign exchange contracts with a value of $US85.4 million ($A125 million), realising a mark-to-market loss of $A13.1 million.
The announcement follows an earlier move to close out a foreign exchange contract maturing at the end of this year that cost the company $4.7 million.
OM said today its remaining 2009 forward foreign exchange contracts total $US61 million ($A89 million) at an average exchange rate of US82.58 cents with a current mark-to-market loss of $13.3 million, assuming an exchange rate of US70c.
The miner added that it will consider closing out its remaining 2009 forward exchange contracts either through the original maturity schedule, progressively or in a lump sum, depending on prevailing market conditions.
Meantime, Consolidated Minerals has increased its stake in OM from 11 per cent to 12 per cent.
Earlier this month, OM revealed it had suspended manganese shipments from September through to December on the back of the global financial crisis and declining Chinese demand for steel.
It added that annual output at its Bootu Creek mine in the Northern Territory will be slashed by 30 per cent to 500,000 tonnes in 2009.
Shares in OM were down six cents to $1.01 at 11:07 AEDT.
The announcement is pasted below:
The Board of OM Holdings Limited ("OMH" or "the Company") advises that OM (Manganese) Ltd ("OMM") has reviewed its capital management program and agreed with its hedge facility provider regarding ongoing arrangements for its remaining December 2008 and 2009 forward foreign exchange contracts.
Close out of Foreign Exchange Contracts
As part of the Company's review of its hedging profile and strategy, OMM has closed out its longer dated foreign exchange contracts covering the period 30 June 2009 to 31 December 2009, with a value of US$85.4 million, realising a mark-to-market loss of A$13.1 million.
As previously announced OMM expects to close out further forward foreign exchange contracts maturing by 31 December 2008 with an expected mark-to-market loss of A$4.7 million, assuming an AUD/USD exchange rate of 0.70.
Remaining Foreign Exchange Contracts
OMM's remaining short dated 2009 forward foreign exchange contracts total US$61 million at an average AUD/USD exchange rate of 0.8258 with a current notional mark-to-market loss of A$13.3 million, assuming an AUD/USD exchange rate of 0.70.
Foreign Exchange Contracts - Set-off Account
OMM has agreed with its hedge facility provider to deposit short term cash cover equivalent to the December 2008 and remaining 2009 mark-to-market exposure, plus 10%.
Based on an AUD/USD rate of 0.70, approximately A$21 million will be placed on deposit.
The funds on deposit will earn commercial rates of interest and will be used exclusively for the purpose of closing out the remaining December 2008 and 2009 contracts (if required).
OMM will be required to top up (or will be entitled to a reduction in) the security set-off deposit depending on the mark-to-market exposure of the contracts as determined on a weekly basis. OMM will continue to assess its options whether to deliver against the 2009 forward exchange contracts as per the original maturity schedule, or to close them out progressively or in a lump sum depending on the prevailing market conditions and assessments made as part of the Company's ongoing capital management program.
OMM has no other debt financing obligations and is in compliance with its existing arrangements with the hedge facility provider.
Update on Investment by Consolidated Minerals Limited
As recently announced, Consolidated Minerals Limited ("ConsMin"), through a wholly owned subsidiary, acquired an 11% shareholding in the Company.
The Company has ascertained that ConsMin has recently acquired a further interest in the Company, taking its disclosed investment position to 57,231,393 shares or 12% of the Company's issued capital.
