American Metal Market – M&A ALLEY: Now that Ormet is up on its feet, let’s see how far—and fast—it can run
Matthew Lerner, July 1, 2007

With four of six potlines operating and a fifth set to heat up in June, the restart of Ormet Corp.’s 260,000-tonne-per-year Hannibal, Ohio, aluminum smelter is giving the company new life under a new chief executive officer and new ownership.

“The in-between stage is over,” Ken Campbell, outgoing chief executive, said on his last day running the company. “Now that we’ve got the plant up and running, we’ve got a guy in here who knows how to run it.”

The guy he was referring to Michael Tanchuk, who previously ran Century Aluminum Co.’s 220,000-tonne-per-year Nordural smelter in Iceland, where he served as vice president and managing director. Tanchuk quickly laid out his agenda. “My focus for the next 60 days is to really concentrate on raw materials sourcing,” he said.

He also will be putting in place his own management team and looking to become more involved with the company’s financial aspects and new shareholders. First on his agenda is finding a core group of people to help run Ormet. “I will try to do that very quickly to get some stability in here,” Tanchuk said, adding that he intends to run fairly lean. “We will keep the staff pretty small; I don’t want to create a lot of overhead.”

Key leadership positions yet to be filled include a commercial person to handle the marketing and sales of material and a chief financial officer.

In late May, Ormet named Mike Griffin it new vice president of operations. Griffin comes to Ormet from Alcoa, where he was manufacturing manager at the company’s 123,000 tonne per year Massena, N.Y. smelting and casting facility. He had also been plant manager at the Alcoa Carbon Products plant in lake Charles, La. Prior to joining Alcoa, Griffin held various managerial roles at Reynolds Metals.

During the restart of the smelter, Campbell coaxed out of retirement Hannibal’s former plant manager to handle operations. The interim commercial manager also was a returning retiree. “These people were a transitional team and knew they would ultimately be leaving,” said Campbell, now chairman of Ormet’s board.

Tanchuk said he expects his chief financial officer to have a high profile at Ormet. “We need a strategic chief financial officer who will not only manage company financials but will also help with the new ownership and other aspects of the company,” he said.

Ormet now has about 150 institutional shareholders, while MatlinPatterson Global Opportunities Partners LP, which previously held 44 percent of the company and brought in Campbell last year to turn it around, is in the process of divesting its position. “MatlinPatterson specializes in buying distressed assets. That period is over for Ormet; we are finished with our distressed stage.”

Campbell said MatlinPatterson has announced its intention to sell and expects to be fully divested by the end of the year. In its place is a group of approximately 150 private and institutional shareholders comprised of high-net-worth individuals as well as institutions like hedge funds and others.

“We’re not really private equity anymore,” Campbell said, explaining that Ormet shares are traded, albeit privately, and the company now files financials and conducts analyst calls. “We’re pretty close to a public company now.” He did not rule out a future exchange listing, but said such a move likely would have to wait until sometime in 2008 when Ormet has completed its first full year of audited financial results.

As Ormet’s new chairman, Campbell will play a more strategic role in plotting the trajectory forward rather than a tactical role in day-to-day operations. “Mike can run the plant,” Campbell said of Tanchuk. “What I can do is help on the financial end and with the new investors.”

For Tanchuk, running the smelter means feeding the smelter, which translates into alumina, anodes and cathodes. Hannibal has sufficient alumina for 2007, so Tanchuk is looking ahead. “I expect we’ll meet with several of the major suppliers in the world and put supply in place on a long-term contract,” he said. Three years is not unusual for such an agreement, but it could be longer, he said.

Ormet has a good system in place for sourcing cathode blocks, Tanchuk said, which leaves anodes as the larger question mark. According to Campbell, the sourcing of anodes was the chief—if not only—reason the Hannibal restart was one to two months behind its original schedule.

Delivery of materials from a Venezuelan source was tenuous at times, and while having multiple sources in a diversified supply base provides some insurance, it also leaves room for small differences in the precise properties of the anodes, which must be compensated for in the smelter.

Hannibal has enough anodes for 2007, leaving the future open. “What I think we’re going to have to do is look at what’s available, then look at the geographic location of the suppliers and come up with a supply strategy,” Tanchuk said. “We’re putting that together now for 2008 and 2009.”

Another item on the new chief’s agenda is a possible review of the company’s billet business. Ormet currently puts about 5 million to 6 million pounds of material per month into its casthouse adjacent to the smelter. This may or may not continue. “It’s a difficult business for us,” Tanchuk said about the billet book. “We’ll have to look at it to see if it makes sense going forward. We will have to decide to continue or not continue.”

The primary metal business is in far better health. In fact, Ormet has just concluded a deal to sell the majority of its 2007 production to a single large international trading house. Neither Campbell nor Tanchuk would be drawn to name the company.

In terms of people, Campbell joked that when he took the job at Ormet his goal was to fill the parking lot with employees’ cars. “Now, we’re fully employed with over 900 workers and we will reach 950 soon,” he said. “Ken took a smelter that was essentially dead and brought it back to life,” Tanchuk said. “I think they accomplished a lot in a short amount of time. That was the tough job.”

“I think Mike’s job is the tough job,” Campbell countered.