TiZir Creation of a vertically integrated player in the mineral sands sector
Joint venture between ERAMET and MDL
October 26, 2011
Jean-Didier Dujardin - CFO
Jean-Michel Fourcade - VP Research Innovation Engineering and Purchasing . Chairman of ETI
ALLOYS, ORES AND PEOPLE. TIZIR – JOINING TWO HIGHLY COMPLEMENTARY OPERATIONS
ERAMET contributes 100% of its shares in ETI and cash of US$30m to TiZir, and MDL contributes its 90% participation in the Grande Côte Project
50% 50%
Republic of Senegal 10% 90% 100% +US$30m of cash
Grande Cote (Senegal) ETI (Tyssedal, Norway) Mineral Sands Project Titanium Slag & Iron Plant
20+ year mine life Highly strategic asset – 1 of only 5 such facilities Top quartile on revenue/cost Produces an upgraded titanium Production commences late ‐2013 feedstock from ilmenite At full capacity, will produce: At current capacity 1, produces: - 85 ktpa of zircon - 200 ktpa of titanium ‘slag’ - 575 ktpa of ilmenite - 110 ktpa of high purity pig iron - 16 ktpa of rutile/leucoxene
TiZir integrates a Tier 1 mineral sands ore body with a highly strategic titanium feedstock upgrading facility which should produce 7% of global zircon & titanium feedstock
Note: 1 A feasibility27/10/2011 study is underway 19:28:24to build a second furnace – JV between ERAMET and MDL – October 2011 1 TRANSACTION AND FINANCING STRUCTURE
Eramet and MDL contribute respectively ETI together 50% 50% with US$30m in cash and 90% of Grande Côte to TiZir and get a 50/50 ownership Around US$150m Around US$150m of financing of financing contribution to contribution to TiZir Contribution Contribution TiZir The financing requirement of c. US$520m at Grande of ETI and of 90% of Côte level will be financed as follows: US$30m of cash Grande Côte
– US$150m minimum via senior project financing at Grande Côte level US$45m Shareholder loan (= c. 150 x 2 + 30 + 45) in US$m shareholder loan to TiZir – The remaining via a shareholder loan from TiZir financed through: Senegalese government (a) 100% 90% 10% – US$30m cash contribution from Eramet to TiZir
Banks – US$45m shareholder loan from Eramet to TiZir
– c. US$300m financing contribution from Eramet ETI Grande Côte US$150m minimum of and MDL (c. US$150m each) project finance
Ownership Financing flows Asset contribution
(a) « Free-carried »
(a) Free carried
27/10/2011 19:28:24 – JV between ERAMET and MDL – October 2011 2 CREATING AN INTEGRATED PLAYER IN THE MINERAL SANDS INDUSTRY
Joint-venture positioning across the value chain Grande Côte Heavy minerals mining
Ilmenite Leucoxene Rutile Zircon ore 54.0% – 58.8% TiO2 66% – 91% TiO2 92% – 96% TiO2
Eramet Titanium & Iron (ETI) Upgrading Upgrading - smelting treatment
High purity pig iron TiO 2 slag High grade heavy (co-product) 80% – 85% TiO2 mineral concentrate
Titanium (feedstock)
Ductile iron (1.6% of steel and iron castings production 2009)
Wind mill rotor hub
Engine parts and other
Mechanical engineering materials & parts … Source : TZMI
High purity pig iron applications Titanium applications (2010) Zircon applications (2010) 27/10/2011 19:28:24 – Source: TZMI JV between ERAMET and MDL – October 2011 3 ZIRCON DEMAND – CHINA’S URBANISATION IS THE GROWTH ENGINE
‐‐‐ Ceramics (tiles) is the driver Demand by end use (2010 = 1.4 Mt)
Ceramics (55% of consumption) is the major demand driver through urbanisation in developing nations (mainly China)
─ zircon enhances the surface finish – masking the body and imparting brilliant whites and colours to the glaze
Specialty chemicals and materials (18% of consumption) is the fastest growing end ‐use sector
─ due to versatility of fused zirconia and zirconia chemicals in many products
China is the largest consumer Demand by region (2010 = 1.4 Mt)
China accounted for 42% of 2010 consumption – up from 17% in 2000 – equating to 12% CAGR 2000 – 2010
TZMI forecasts demand to grow at 4% CAGR through to 2025
Source: TZMI
27/10/2011 19:28:24 – JV between ERAMET and MDL – October 2011 4 ZIRCON SUPPLY – NEW PROJECTS ARE NEEDED
Main suppliers : a concentrated market Historically, zircon supply was often constrained by demand – that was the past 2010 production was 1.3mt and 2011 is forecast at 1.4mt However, TZMI forecasts supply from existing mines to: ─ progressively decline to ~1.0mtpa by 2020 ─ then fall substantially to below 0.5mtpa by 2025 Even with Grande Côte and currently identified projects – new projects will be needed
Supply b y producer (2010 = 1.3 Mt)
More projects are needed Geographical concentration
R CAG and % Dem c. 4 -25: 2010
Existing production Grande Côte Currently identified projects Demand Source: TZMI Forecast supply/demand Supply by region (2010 = 1.3Mt) 27/10/2011 19:28:24 – JV between ERAMET and MDL – October 2011 5 TITANIUM FEEDSTOCKS DEMAND – PIGMENT IS THE DRIVER
Pigment is the main driver of titanium consumption 90% of titanium minerals are used to make titanium dioxide
(TiO 2) pigment
─ TiO 2 is the absolute white pigment of choice
Other 10% used for titanium metal and in welding sector
Pigment produces high ‐quality surface finishes in paint, plastics and paper – imparting opacity, brightness and whiteness
Europe and Americas currently the main users – China is catching up fast, representing only 21% of pigment demand in (a) First stage in the titanium metal sector (b) Includes the manufacture of welding electrode fluxes and other minor end ‐uses – which mainly consume 2010 rutile and leucoxene Titanium feedstock consumption (2010 = 6.3 M TiO2 units)
China has a strong growth potential Pigment is mainly used for paints and coatings
5
Germany
4 Italy Korea 3 US
2 Japan consumption(kg/capita) 2 2 1 Brazil
TiO China Vietnam Russia India Indonesia Egypt 0 Ethiopia 100 1 000 10 000 100 000 GDP/capita (US$/capita/year) Source: TZMI
JV between ERAMET and MDL – October 2011 6 THE TIO 2 PIGMENT PRODUCERS’ STRUCTURE
Pigment producer market share (2010 capacity = 6.0 Mt)
Pigment production is dominated by:
─ 7 individual producers with 64% of combined capacity; and
─ China with 22% of capacity across many plants
Two distinct processes produce TiO 2 pigment:
─ sulphate process (current market for ETI slag)
─ chloride process (ETI has the know-how to produce slag for this process)
Sulphate process Chloride process Major TIO 2 pigment producers ex-China (Mt)
48% of capacity 52% of capacity
Sulphuric acid used to dissolve titanium Chlorine gas used to liberate titanium
High ‐TiO feedstocks (titanium slag, Ilmenite (low ‐TiO ) main feedstock 2 2 rutile) used
Largely dominant in China Dominant in the Americas Dominant in Europe Near ‐zero in China Near ‐zero in Americas
Source: TZMI
27/10/2011 19:28:24 – JV between ERAMET and MDL – October 2011 7 TITANIUM FEEDSTOCK SUPPLY – ALSO VERY TIGHT
Half of ilmenite is upgraded into Ti slag and synthetic rutile Ilmenite (containing ~45% – 60% TiO 2) accounts for ~90% of titanium feedstock supply
─ however, 50% of TiO 2 is consumed in enriched form (slag or synthetic rutile)
Australia, South Africa and Canada account for ~60% of 2010 supply – India and Mozambique are growing sources
China needs to import increasing tonnage due to lack of domestic resources
(a) Increasing supply deficits are forecast Supply by product
New projects are needed The first 4 producers represent 55% of supply
GR d CA an .7% Dem c. 3 -25: 2010
Existing production Grande Côte Currently identified projects Demand
Source: TZMI Forecast supply/demand Market share of supply (2010 = 6.3 MTiO2 units)
(a) Net of ilmenite used to produce titanium slag and synthetic rutile (b) Includes27/10/2011 100% of Richards Bay 19:28:24Minerals – JV between ERAMET and MDL – October 2011 8 SUPPLY DEFICITS HAVE DRAMATICALLY ALTERED PRICING DYNAMICS
TZMI forecasts continuing strong price increases for titanium feedstock and zircon over the medium term
─ Supply tightness and increasing competition between consumers to secure feedstock
Demand appears inelastic to price
New projects generally take at least 7 years from exploration to commissioning – hence widening supply deficits are expected
Zircon prices evolution - Zircon Bulk from Australia Ilmenite prices evolution - Sulfate ilmenite from West Australia
2 500 300
250 2 000 200 1 500 150 1 000 US$/t FOB US$/t US$/t FOB US$/t 100 500 50
0 0 Aug-08 Jan-09 Jun-09 Nov-09 Apr-10 Sept-10 Feb-11 Jul-11 Aug-08 Jan-09 Jun-09 Nov-09 Apr-10 Sept-10 Feb-11 Jul-11
Zircon prices could reach US$3,500/t by 2013 according to TZMI Ilmenite prices exited 2010 at ~US$100/t (FOB) and some spot (FOB real 2010) prices have reached c. US$250 – 300/t in H2 2011
27/10/2011 19:28:24 – JV between ERAMET and MDL – October 2011 9 GRANDE CÔTE – A TIER ONE ASSET IN THE MAKING
MDL started studying Grande Côte in 2002 History Mining Concession granted in 2007 DFS started in 2009 and concluded in 2010
Concession 25 years extendable
20+ years – potential for significantly longer at lower Mine life cut-off grades
85 ktpa Zircon 575 ktpa Ilmenite Full capacity ─ 400 ktpa 54% TiO2 + 175 ktpa 59% TiO 2 16 ktpa Rutile & Leucoxene
5% royalty Fiscal 10% government production share arrangements 15 year tax free period
Capex estimate Estimated at circa US$520m
Development in ramp ‐up mode Timing Production commencement late ‐2013
27/10/2011 19:28:24 – JV between ERAMET and MDL – October 2011 10 SENEGAL, WEST AFRICA
Senegal French is the official language
Stable democracy, location of many foreign embassies and international banks for West African region
Small population (13m)
World standard mining laws
MDL in Senegal
MDL is a ASX and TSX listed resource company with a strong experience in project development in Senegal
10 years on the ground Ivory Coast Developed the Sabodala gold mine project commissioned in 2009 – first major resource project for 40 years
Strong engagement with local communities
Grande Côte Mineral Sands Project
27/10/2011 19:28:24 – JV between ERAMET and MDL – October 2011 11 GRANDE CÔTE – A LARGE, HOMOGENEOUS AND SIMPLE ORE BODY
Ore body simplicity … … provides for a conventional low ‐‐‐cost dredging operation
No overburden and minor vegetation 55 Mtpa of ore throughput
Free flowing sands – no hard lenses 1.8% Heavy Minerals
Minimal (< 1.0%) slimes
Shallow water table + deep aquifer
27/10/2011 19:28:24 – JV between ERAMET and MDL – October 2011 12 MINING, PROCESSING AND LOGISTICS
1 1 Dredge and concentrator
Dredge sucks sand from front of pond Sand pumped to floating concentrator Gravity separation (using spirals) extracts heavy mineral concentrate (HMC) from sand Un-mineralised sand pumped to back of pond, forming the dune’s original contour HMC transported to the Mineral Separation Plant (MSP)
2 3 2 Mineral separation plant Magnetic, electrostatic and gravity processes separate HMC into magnetic and non ‐magnetic fractions and then into various mineral products – zircon, ilmenite, rutile and leucoxene Product transported by rail to Dakar port
3 Dakar port
Products shipped to customers globally ─ zircon in containers ─ ilmenite bulk
27/10/2011 19:28:24 – JV between ERAMET and MDL – October 2011 13 TOP QUARTILE ON A REVENUE/COST BASIS
Industry revenue / cost curve forecast for 2015 (based on individual projects) Ratio of revenue to costs (R/C) is the primary measure of competitiveness in sector, due to multi ‐product multi nature of operations (with widely varying product values)
Grande Côte is a top quartile project on a revenue/cost basis due to:
- Valuable zircon stream
- Simple ore body
- Large-scale, low-cost dredging
Note: R/C curve for 2015 based on TZMI’s forecast: Production volumes for individual operations in 2015 Long term real view of product prices Operating costs of the individual operations using real 2010 cost rates
Source: TZMI
27/10/2011 19:28:24 – JV between ERAMET and MDL – October 2011 14 PRODUCTION – COMMENCES LATE ‐‐‐2013
2011 2012 2013 2014 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
Commission
Dredge Delivery and site assembly
Offsite construction and trial
Commission
Wet concentrator Construction
Engineering and procurement
Commission Mineral separation Construction Production plant Engineering and procurement ramp-up
Commission
Power station Construction
Engineering and procurement
Construction and refurbishment Rail and port Engineering and procurement
27/10/2011 19:28:24 – JV between ERAMET and MDL – October 2011 15 TYSSEDAL TITANIUM & IRON PLANT
« Creating value from water »
27/10/2011 19:28:24 – JV between ERAMET and MDL – October 2011 16 THE DRIVE FOR HIGHER TIO 2 FEEDSTOCKS
Q: Why upgrade the TiO 2 content of feedstocks? Simplified Tyssedal plant process A: Pigment producers need reduced waste and impurities
Ilmenite (containing ~55% TiO 2 on average) accounts for ~90% of titanium feedstock supply: Ilmenite (a) Input (~345 ktpa) ─ yet >40% is upgraded to titanium ‘slag’ (containing 80% – 90% TiO 2) and another 10% is upgraded to synthetic rutile
Pre-reduction / The reason for the upgrading is pigment producers want higher TiO2 contents Smelting Electric Arc Furnace in their feedstocks: ─ many have severe waste limitations due to regulatory & environmental issues
─ also, impurities adversely effect the pigment product
High purity Titanium slag (b) Outputs pig iron (~200 ktpa) (~110 ktpa) The smelting process to create titanium slag separates out iron (Fe) – unsuitable for pigment production – which is sold as a valuable co ‐product
Pigment TZMI forecasts that by 2020, titanium slag demand will account for Customers Foundries (d) Producers (c) nearly 50% of total titanium feedstocks – up from ~40% currently
(a) Mostly sourced from Tellnes mine in Norway – TiO2 content ~44% (b) TiO 2 content ~80% (c) European ‐based using sulphate process (d) Used for a variety of purposes, including wind turbine parts
27/10/2011 19:28:24 – JV between ERAMET and MDL – October 2011 17 TYSSEDAL : A STRATEGIC ASSET WITH GROWTH OPPORTUNITIES
Titanium slag production
(2010 ≈ 2.3m TiO 2 units)
Tyssedal is the only TiO 2 slag producer in Europe and one of the 3 producers outside China:
─ Rio Tinto owns 2 plants (Canada and South Africa)
─ Exxaro owns 2 plants (South Africa)
─ A number of basic facilities also exist in China
Access to competitive hydropower
High technical barriers to entry Feasibility study for 2 nd furnace is underway
Tyssedal currently sources the majority of its ilmenite feedstock from the Kronos ‐owned Tellnes mine in Norway – to produce titanium slag for pigment producers using the sulphate process
Security of the additional Grande Côte feed provides Tyssedal the:
─ Opportunity to put in place a 2 nd furnace and double the capacity of the plant
─ Flexibility to produce feedstock for both the sulphate and chloride pigment process routes
Tyssedal would then jump to #2 in volume terms
Feasibility study for 2 nd furnace is underway
27/10/2011 19:28:24 – JV between ERAMET and MDL – October 2011 18 INDICATIVE FINANCIALS – BASED ON ILLUSTRATIVE PRICING
Grande Côte (100%) Combined (a) At full capacity (production commencement late ‐‐‐2013) Tyssedal (100%) (c. US$260m)
EBITDA EBITDA margin: EBITDA margin: margin: c. c. 35% c. 55 - 60% 60% IImenite: 575Kt x US$200/t IImenite:575Kt US$m US$m (b) Slag: US$1,000/t Zircon: 85Kt x US$2,000/t Zircon: 85Kt
The IRR for Grande Côte project is expected to reach 25% to 30% For Eramet, the joint-venture will lead to an EPS accretion of + 7/ 8% in 2015
(a) For notice ERAMET 2010 - EBITDA : €971m (b) US$1,000/t27/10/2011 corresponds to the 19:28:24 illustrative spot – price and slag revenues are also calculated taking into account legacy contracts JV between ERAMET and MDL – October 2011 19 CONCLUSION
The transaction is in line with ERAMET’s development strategy
─ Leverage of ERAMET’s expertise to develop world class assets
─ Diversification into new, high potential markets (titanium ore, titanium slag, zircon, high purity pig iron), in which ERAMET can build a significant player
─ In line with ERAMET’s integration strategy along the value chain
─ Diversification of countries exposures and long term partnership with Senegal
A high value creating project both for shareholders and local stakeholders
─ Strong market fundamentals in the long term
─ World class resource
─ High synergy potential with strategic downstream operation
─ Further growth options
ERAMET and MDL are strong and complementary partners , for the development of a new, major player in the attractive mineral sands industry
JV between ERAMET and MDL – October 2011 20 Additional information
JV between ERAMET and MDL – October 2011 21 MINERAL SANDS OVERVIEW
No two ore bodies are the same & no two products are exactly the same
Resources Mining Methods Processing Products
Mainly alluvial resources close ‘Wet’ by dredging Gravity separation (using Zircon to coastlines spirals) extracts heavy mineral ─ Preferred method concentrate (HMC) from sand Titanium dioxide minerals ─ Suited to large operations Ilmenite also from hard rock (ilmenite, rutile and leucoxene) Magnetic, electrostatic and deposits – generally referred to as gravity processes separate ‘Dry’ titanium feedstocks HMC into various mineral Positive characteristics: ─ Earth moving equipment products excavate and moves sand ─ High heavy mineral (HM) No chemicals grade ─ High valuable mineral assemblage
Negative characteristics: ─ Overburden ─ Vegetation ─ Slimes (clay) ─ Inconsistent
27/10/2011 19:28:24 – JV between ERAMET and MDL – October 2011 22 GRANDE CÔTE FINANCIAL ESTIMATES
Capital cost (US$516m) Operating costs (US$84m pa)
US$m US$m
Dredge and services 53.6 Power and fuel 34.2
Wet concentrator plant 95.9 Employee costs 9.4
Mineral separation plant 63.0 Maintenance 14.4
Power station 49.4 Transportation/shipping (FOB) 13.6
Rail and rolling stock 43.6 Other 12.3
Port facilities 21.7
Temporary construction facilities 22.4
Indirects – EPCM/commissioning /project fee 56.7
Owner Costs 61.1
Estimation/design allowance/contingency 49.0
Total 516.4 Total 83.9
27/10/2011 19:28:24 – JV between ERAMET and MDL – October 2011 23 TITANIUM FEEDSTOCK FLOW
Major producers
Sulphate Chloride Leucoxene Rutile Mineral Ilmenite Ilmenite Rio Tinto/Iluka/Exxaro 66% – 91% TiO 2 92% – 96% TiO 2 products 45% – 57% TiO 2 58% – 65% TiO 2
Sulphate slag: Rio Tinto/ ETI Beneficiated/ Sulphate Chloride Synthetic upgraded slag slag rutile Chloride slag: Rio Tinto/Exxaro products ≈ 80% TiO 2 ≈ 85% TiO 2 90% – 95% TiO 2 Synthetic rutile: Iluka/TiWest
≈40% ≈51% ≈9% Chloride pigment: DuPont/Cristal/ Kronos/Tronox/Huntsman/Ishihara Titanium sponge/ Final Sulphate pigment Chloride pigment Sulphate pigment: Huntsman/ Kronos / products welding industry Sachtleben/Crenox/Ishihara/Cristal/ Chinese Plants
Paint: AkzoNobel/PPG / Major uses Paint and coatings 57% / plastics 23% / paper 9% / other 11% Sherwin ‐Williams/Dupont
27/10/2011 19:28:24 – JV between ERAMET and MDL – October 2011 24 A VERY LARGE ORE BODY
Resource estimate (Measured + Indicated) Covering ~50% of concession
Cut-off (% HM) Tonnes (Bt) HM (%)
0.50 4.14 1.1
0.75 2.90 1.2
1.00 1.72 1.5
1.25 1.03 1.7
From a depth 6m below the water table
Reserve (Proved + Probable) Covering ~40% of concession
Mining level Tonnes (mt) HM (%) Years
At water table 1,047 1.5 19
3m above 863 1.7 16
3-6m above 751 1.8 14
6m above 684 1.9 13
20+ year mine life
27/10/2011 19:28:24 – JV between ERAMET and MDL – October 2011 25