IPO - Jupiter Mines Limited, page-152

I've gone through all the materials pretty methodically. JMS and OMH are actually quite different businesses.

Like all smelters/refineries, OMH is more an industrial business than a mining business. I've sifted through all the historical financials and also looked at some broker reports, and all the back calculations suggest OMH's smelting business basically skims a margin on a tonne of alloy produced. The margin is around 15%. Basically what this means is, OMH's smelting profits are capped at around 15% of a tonne of alloy sold. The pros with this business model is basically even if the alloy prices fall, the smelters should broadly be profitable. The con is, even if the alloy prices rise, the smelters' profits are limited to a 15% margin or so . It's not "scalable" like a mining business.

Therefore the REAL exposure to manganese price upside and downside, from what I can see, is its mining businesses (100% of Bootu and 13% of Tshipi). The issue with Bootu is it is a low grade operation (and this is reflected in higher C1 cash costs of US$3.20/dmtu, hence probably a higher C2 all in cost of US$3.80/dmtu or so, compared with Tshipi's US$2.20/dmtu). What I also don't like about Bootu, part from its low grade of 22% or so, is its low resource/reserve base. It has around 6.5mt of ore left (reserves), meaning it'll last less than 10 years. Once Bootu runs out, you either have to spend more money converting the limited resources to reserves or, alternatively, buy from third party miners, which means you lose the scalability to manganese price movements.

One more issue I have is the capital expenditure, in other words, the real cashflows. JMS books around A$10-12m capex, because it is contract mining. OMH booked A$40m+ of capex in FY17. I'm not sure if this is a once-off and what it's driven by, but I wouldn't be surprised if capex is generally higher across OMH given it, as you correctly pointed out, owns smelting operations.

Overall, I think they are quite different businesses... not sure if they should be compared directly. GMC would be a better comparison to OMH's smelting business.