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By John Helmer

At a hearing on June 9, the Australian Federal Court issued filing deadlines, and ordered a hearing date in August for adjudication of the clash between manganese miners, OM Holdings (OMH) of Singapore and Stratford Sun Ltd, a unit of Consolidated Minerals. It is the first skirmish over the tactics OMH has been employing to preserve current shareholder control in what is increasingly viewed as a test of strength in the global manganese market that supplies China’s steelmills.

China rules the world of steel — biggest producer, biggest consumer, and until this year, biggest exporter. Manganese is vital to steel production, because it is an alloy that hardens the metal for most industrial applications. So China also rules the world of manganese, which is concentrated in Australia and two southern African countries; and also the price of manganese; and thus, the share price of the manganese mining companies.

But if a China-linked, publicly listed manganese company — one of the only pure manganese miners in the world — wants to block buyers of its shares in the marketplace from buying, and shareholders from holding the management to account, can anyone lift the bamboo curtain, and oblige the company to follow the market governance rules? For the first time, that’s a question for the Australian Federal Court to decide.

More importantly, the action, which commenced hearing this week in the Perth division of the court, is a curtain-raiser on an even larger play — this one is about how the world of manganese is being prepared for a redistribution of shareholding ownership and control, in which big actors, like BHP Billiton, Australia’s most powerful enterprise, are contemplating their exit, while challengers from all over the mining world calculate their opportunity to move in. Because the price of manganese is so volatile, the potential in a new carve-up of global manganese is high risk, but also high profit. But for the dominant Chinese steelmakers, volatility and unpredictability for inputs like manganese should be curbed, if possible. So, will the Chinese act directly to buy up manganese miners now, while they are relatively cheap? Or will they act indirectly, having regard for the way the direct approach to buying resource companies can trigger popular backlash and political resistance in countries like Australia, South Africa, the US, or Russia?

A year ago, the Australian manganese producer, Consolidated Minerals (Consmin), was producing almost 1 million tonnes; its Woodie Woodie mine has capacity for 1.1 million tonnes. It is owned by the Ukrainian entrepreneur, Gennady Bogolyubov, who delisted the company in January 2008, after defeating rival bidders in a year-long contest that ended up valuing the company at A$1.3 billion.

OMH owns the Bootu Creek mine in northern Australia, and reached peak capacity last year of 690,000 tonnes. It also runs its own manganese refinery in Quinzhou, the only non-Chinese manganese miner with such a position inside the China market. The Quinzhou plant produced 27,3000 tonnes of manganese alloys in the half-year to June 30, 2008. Half the production is sold to Chinese buyers; half is exported. At peak in June of 2008, OMH’s market capitalization was A$1.4 billion. Consmin and OMH are manganese specialists; production and sales of the ore constitute 74% of Consmin’s annual revenue; 100% of OMH’s.

Last autumn, as the manganese price plummeted, along with steel prices and steel asset values, Stratford Sun and OMH clashed over what the Bogolyubov group is calling a strategic portfolio investment, and OMH is calling a hostile takeover. Chinese shareholders in OMH, who benefitted from a September 23 shareholders’ meeting, which approved an issue of 47 million OMH share options (10% of the total issue), and the controlling shareholders, who benefitted from a special shareholders’ meeting on January 15, are the immediate target of this week’s court action.

For the first time, the Australian court has been asked to apply Australian regulatory and disclosure provisions to Bermuda, where OMH is incorporated; to the British Virgin Islands, where two wholly owned OMH investment vehicles are registered; and to Singapore, where OMH is managed. In its 5-page application, Stratford Sun is asking the court to order OMH to produce records of every aspect of the way the executive chairman and controlling shareholder, Low Ngee Tong, has been running the company. Explicitly identified in the court request are the company’s register of shares and options; remuneration reports; minutes and other documentation of board and shareholder meetings and votes; along with “documents…referring to or recording the relationship between the Respondent’s [OMH] director Mr Low Ngee Tong and his spouse Ms Heng Siow Kee with respect to their respective shareholdings and option holdings…” The court has also been asked to order production of “emails, file notes and notes of meetings prepared or received by officers of the Respondent.”

OMH’s share price has been suffering from sharp oscillations since details of the shareholder battle were disclosed. At A$1.26 this week, OMH is down 12% from its 9-month peak in early May. OMH has been given a deadline of July 3 to file its opposition to the application; and then until July 24 to respond to further filings by Stratford Sun.

Oleg Sheiko, a member of the group executive committee of Consmin, told Minesite the reaction of OMH’s controlling shareholders has been a boomerang for the minority shareholders, and has failed to deliver the protections that had been proposed – at least, not for the market value of OMH’s shares. “As a shareholder of OMH, we think we can add value and expertise. But to accomplish these ends, there has to be more transparency by the board and the controlling shareholders of OMH.”

Low, Heng, and their Chief Executive Officer Peter Toth were asked by Minesite if the conflict between OMH and Stratford Sun over transparency and accountability has introduced a risk discount into the market valuation of the OMH share price, holding it back from gains that might otherwise have been achieved as the manganese market revives. Toth declined to respond, adding that he reserves the right not to answer questions that “are considered strategically and/or commercially confidential, focus on issues which have occurred in the past and are considered closed or which we do not consider appropriate or pertinent for public discussion.” According to Toth, “OMH has and will continue to abide by its continuous disclosure obligations under the ASX Listing Rules and full and complete disclosure has already been made regarding some of the questions outlined.”

The Bogolyubov group is emphatic that as the principal minority shareholder, outside the management control group, it is concerned to establish the proper corporate governance and management accountability for OMH; for its compensation schemes; and for its share issue strategy. According to Sheiko, “we hope OMH will understand that these are not hostile demands. They are preconditions for the recovery of OMH’s share price. We think the manganese sector will enjoy the benefits of global recovery. We want to ensure that OMH doesn’t disqualify itself from the benefits.”

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