Mining Consumables Kansas City - site tour
13 September 2013
For personal use only use personal For This presentation contains certain forward-looking statements with respect to the financial condition, results of operations and business of Arrium and certain plans and objectives of the management of Arrium. Forward-looking statements can generally be identified by the use of words such as ‘project’, ‘foresee’, ‘plan’, ‘expect’, ‘aim’, ‘intend’, ‘anticipate’, ‘believe’, ‘estimate’, ‘may’, ‘should’, ‘will’ or similar expressions. All such forward looking statements involve known and unknown risks, significant uncertainties, assumptions, contingencies and other factors, many of which are outside the control of Arrium, which may cause the actual results or performance of Arrium to be materially different from any future results or performance expressed or implied by such forward looking statements. Such forward-looking statements speak only as of the date of this presentation. Factors that could cause actual results or performance to differ materially include without limitation the following: risks and uncertainties associated with the Australian and global economic environment and capital market conditions, the cyclical nature of the steel industry, the level of activity in the construction, manufacturing, mining, agricultural and automotive industries in Australia and North and South America and, to a lesser extent, the same industries in Asia and New Zealand, mining activity in the Americas, commodity price fluctuations, fluctuations in foreign currency exchange and interest rates, competition, Arrium's relationships with, and the financial condition of, its suppliers and customers, legislative changes, regulatory changes or other changes in the laws which affect Arrium's business, including environmental laws, a carbon tax, mining tax and operational risk. The foregoing list of important factors is not exhaustive. There can be no assurance that actual outcomes will not differ materially from these statements.
All balance sheet items are based on statutory financial information. Except as otherwise expressed, references in this document to net profit/loss after tax refer to net profit/loss attributable to equity holders of the parent. Segment results referred to throughout this presentation are those reported in the 2013 Full Financial Report. They are equivalent to segment underlying results.
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2 Contents Page Mining Consumables Overview 4 Key Market Drivers 21 Moly-Cop Overview 28 Moly-Cop South America 35 Moly-Cop North America 39 Moly-Cop Australasia 43
Strategic Focus & Outlook 45
Summary 49
Appendixonly use personal For 50
3 Mining Consumables
John Barbagallo, Chief Executive Mining Consumables For personal use only use personal For Arrium business segments
Middleback Ranges Moly-Cop Steel
Southern Iron AltaSteel Recycling
Port For personal use only use personal For
5 Mining Consumables overview
. A business of scale with a strong growth profile • Strong earnings growth since Moly-Cop acquisition • EBITDA ~$200m (FY13) . Global leader in grinding media . Leading market positions in South America, North America and Australasia: • Sales of ~1.0Mtpa • Capacity of ~1.3Mtpa (excluding current expansions) . Ideally positioned to capitalise on mining growth, 1 particularly copper, gold and iron ore 1 FY11 includes annualised EBITDA of the Moly-Cop Group • Good visibility of new projects and mine expansions • Estimated grinding media demand growth in North America and South America ~8% CAGR FY13-17 . Relatively stable margins
. Sustainable competitive advantage For personal use only use personal For
6 Mining Consumables overview
. A comprehensive footprint for further geographic growth in grinding media and mining consumables . Investing in new grinding media capacity ‘ahead of the market’ and close to customers . A strong cash generator after funding own growth . High quality customer base – established long- term relationships with major mining houses . Over 80 years of history with grinding media, rail wheels and ropes . Global leader in dragline ropes . #1 in rail wheels/axles in Australia and New Zealand
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7 Mining Consumables businesses
Grinding Media Rail Products Ropes For personal use only use personal For
8 Grinding Media A key mining consumable
. Grinding media is used in the process of extracting minerals from ore, particularly in the fast growing copper and gold industries . Ore particles must be ground down to sufficiently small sizes so the contained metal species become ‘liberated’; i.e. free from gangue materials, prior to subsequent concentration processes . Grinding is carried out in large horizontal tumbling mills, partially filled with steel balls or rods (grinding media) . Mills require continuous refilling with new grinding media as they get consumed . Consumption of grinding media is related primarily to the volume of ore processed
For personal use only use personal For and ore characteristics (abrasiveness, particle size and specific energy input)
9 Grinding media fundamentals
Crushers No balls SAG Mills – single stage 4”-6” balls “Moly-Cop provides SAG Mills – multi stage full range of sizes 4”-6” balls from 1” – 6” balls” HPGRs No balls Rod Mills 3”-4” grinding rods Ball Mills 1”-4” balls Tower Mills 0.5”-1.5” balls
IsaMills
<0.1” balls For personal use only use personal For Small balls Large balls
1 10 100 1,000 10,000 100,000 1,000,000 Particle size, μm10 Source: Moly-Cop Moly-Cop grinding media
. Largest producer of grinding media globally with facilities in Chile, Peru, Mexico, USA, Canada, Indonesia and Australia
Grinding media facilities Capacity* Products (~ktpa) size range Newcastle, Australia 250 1” – 6” Cilegon, Indonesia 30 1” – 2” Kansas City, USA 180 1.5” – 5.5” Talcahuano & Mejillones, Chile 430 1” – 6” Lima & Arequipa, Peru 155 1” – 6” El Salto, Mexico 170 1” – 5.5” Kamloops, Canada 115 1” – 5.5”
Total 1,330 For personal use only use personal For
*Excludes Board approved expansions in Cilegon, Indonesia and Kamloops, Canada totalling ~170ktpa
11 Rail products
. Focus on premium quality forged rail Australia wheels for heavy haul markets Facilities Steelmaking – Ingots Rail Products • High quality manufacturing Capacity ~105,000 wheels • ‘Value in use’ focus ~10,000 axles
. Maintenance market growing with larger Employees Rail – 220 coal and iron ore fleets in Australia Market Position Market leader (1st) . Strong export sales into South Africa Major Suppliers Waratah Steelmaking . Secured long term contracts with major External axle supply Major Customers Rio Tinto mining companies Aurizon Pacific National . Secured long term contracts with major Downer United Group Limited (Rail) freight companies Bradken Transnet (South Africa) . FY13 record sales of ~77k wheels BHP Iron Ore Pilbara Iron FMG
Competitors Imports China For personal use only use personal For Imports Europe
12 Moly-Cop Ropes
. Strong presence in mining segments Australia (Mining ropes ~70% sales) Facility Mayfield, Newcastle • Draglines and electric shovels Capacity ~20ktpa • Pendants for draglines, shovels 110 • Cable hauled conveyors Employees Market Position . Market leader (1st) • Underground mining applications . Market ropes segments (~30% sales) Major Supplier . OneSteel Wire
• Electrical industries Major Customers . BMA . Xstrata • Agriculture . Rio Tinto . Wesfarmers • Construction . Anglo American Competition . Haggie Rand • Highway infrastructure . Bridon . Wire Co • High quality manufacturing
. ‘Value in use’ focus – “cradle to grave” For personal use only use personal For . Sole rope manufacturing plant in Australia
13 FY13 Mining Consumables results
FY13 FY12 % change $m $m
Total revenue/income 1,567 1,541 2
EBITDA 197 172 15
EBIT 153 135 13 Sales margin 9.7% 8.8% 0.9 pp Assets 2,460 2,310 6 Funds employed 2,072 1,948 6
Return on funds employed 7.6% 6.9% 0.7 pp
Employees (number) 2,031 1,973 3
External tonnes despatched (Mt)1 1.14 1.06 8 For personal use only use personal For
1 Excludes scrap sales
14 FY13 Mining Consumables results . EBITDA $197 million vs $172 million pcp . Substantial contributor to group earnings and growth . Sales volumes up 8% pcp . Maintained stable margins . Moly-Cop businesses continued to perform well and in line with expectations . Strong grinding media volumes driven by copper and gold in North and South America . Australasian grinding media, rail wheels and ropes businesses performed well . EBITDA up pcp for all businesses . Strong cash generator
.only use personal For Capacity expansions tracking to plan
15 Historical performance
FY13 FY12 FY112 FY101 FY091 FY081 $m $m $m $m $m $m
Total revenue/income 1,566.7 1,540.6 1,079.3 680.1 659.8 509.2
EBITDA 197.2 171.6 97.7 83.2 41.7 82.0
EBIT 152.6 135.2 65.3 62.3 22.8 65.6
Sales Margin 9.7% 8.8% 6.1% 9.2% 3.5% 12.9%
Assets 2,460.5 2,310.3 2,286.4 1,158.5 1,125.0 1,104.3
Funds Employed 2,071.6 1,947.5 1,944.9 1,053.6 1,040.1 1,015.0
Return on funds employed 7.6% 6.9% 4.4% 6.0% 2.2% 6.5%
Employees (number) 2,031 1,973 1,864 924 910 820
External tonnes despatched (Mt)3 1.14 1.06 0.73 - - -
Internal tonnes despatched (Mt) 0.09 0.09 0.09 0.10 0.05 -
Steel tonnes produced (Mt) 0.51 0.50 0.40 0.24 0.24 0.26
1 The December 2010 results for the Manufacturing and Mining Consumables segments have been restated to reflect changes in organisation structure following the formation of the new Mining Consumables segment as a result of the acquisition of the Moly-Cop Group on 31 December 2010. Arrium's existing Waratah, Newcastle facilities,only use personal For which include the grinding media and rail wheel businesses, Arrium's grinding media businesses in the United States and Indonesia, and the Wire Ropes business at Newcastle previously reported as part of the Steel segment now form part of the Mining Consumables segment. 2 These statistics include the results of the Moly-Cop Group from 31 December 2010. Assets and liabilities have been restated to reflect the final fair value adjustments arising on acquisition of the Moly-Cop Group in December 2010. 3 Excludes scrap sales.
16 Operational highlights FY13 . Continued strong grinding media volume growth (up 7% pcp) . Grinding media capacity expansions • Completed commissioning of new 40ktpa SAG line in Lima, Peru • Cilegon, Indonesia expansion (50ktpa) tracking to plan and budget for commissioning Q3 FY14 • Commenced construction of new 120ktpa SAG New plasticated dump rope product line in Kamloops, Canada . Successful launch of Raptek dragline dump ropes . Increased plasticated rope sales into Australia and commenced trials in Chile . Commenced trialling of new plasticated dump rope in Australian coal mines . For personal use only use personal For Record wheel sales in Australasia Plasticated mining rope product
17 Lima, Peru New SAG Line
“40ktpa new capacity”
Commissioned August 2013 For personal use only use personal For
18 Cilegon, Indonesia – tracking to plan
“50ktpa new capacity” - To be commissioned Q3 FY14
Main Building under construction For personal use only use personal For
Reclamation workshop substantially complete Process line under construction
19 Moly-Cop Ropes
Patented Raptek dump rope Rope trials in Chile
New rope replacement approach New rope being fitted For personal use only use personal For
Previous work arrangement New rope on mining shovel bucket
20 Key market drivers
John Barbagallo, Chief Executive Mining Consumables For personal use only use personal For Key market drivers . Grinding media consumption driven by: • Copper, gold and iron ore processing rates − Demand for grinding media in North and South America expected to grow strongly at 8% CAGR (FY13-17) • Declining mineral head grades . Railway products consumption driven by iron ore and coal mining • Strong forecast growth in key mining segments in Australia . Mining rope products largely driven by Australian open-cut coal mines • Stable mining operations with forecast
long-term growth For personal use only use personal For
22 Key market drivers – Copper Ore milled
. Growing demand for copper and World Copper Ore Milled (Million Tonnes) By Region 2012 - 2017 declining ore head grades driving 3,500 expected increase in ore milled 3,000 • Global copper ore milled expected 2,500 2,000 to increase 56% from 2013 to 2017 1,500
(CAGR of 12%) Ore Milled 1,000 Million Tonnes Million • Most significant growth is in North 500 and South America from 2013 to 0 2012 2013 2014 2015 2016 2017 2017 (14% CAGR) where Moly-Cop Sth America Nth America Australasia has strong positions Africa Europe ROW . Ore milled has a direct relationship Source: Wood Mackenzie June 2013
to grinding media demand For personal use only use personal For
23 Key market drivers – Copper projects
. The expected increase in ore milled World Copper Ore Milled (Million Tonnes) is driven by a strong outlook for new By Status 2012 - 2017 mines, expected expansions and 3,500 restarts, on top of a base case 3,000 production levels 2,500
• Growth: A large number of projects 2,000 are expected to drive an increase in Ore Milled ore milled. High confidence level Tonnes Million 1,500 (with 51% of highly probable or 1,000 probable projects) 2012 2013 2014 2015 2016 2017 Base Case Project - Highly Probable • Mine installed base: Stable outlook Project - Probable Project - Possible for existing mines with low closures Project - Tentative expected Source: Wood Mackenzie June 2013
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24 Key market drivers – Gold ore milled
. Growing demand for gold and World Gold Ore Milled (Million Tonnes) declining ore head grades expected By Region 2012 - 2017 to drive increase in ore milled from 1,200 2013 to 2017 1,000 • Forecast global gold ore milled to 800 increase 38% from 2013 to 2017 600
(CAGR 8%) Ore Milled 400 • Most significant growth occurs in Tonnes Million 200 South America (12% CAGR) and 0 North America (14% CAGR) from 2012 2013 2014 2015 2016 2017 2013 to 2017 Sth America Nth America Australasia Africa Europe ROW • North America, South America and Source: Wood Mackenzie June 2013 Australasia amongst top gold producing regions in the world
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25 Key market drivers – Gold projects
. Increase in ore milled driven by World Gold Ore Milled (Million Tonnes) strong base and expected By Status 2012 - 2017 1,100 expansions and restarts 1,000 • Growth: A large number of projects 900 expected to drive increase in ore 800 milled. High confidence level (with
Ore Milled 700
55% of highly probable or probable Tonnes Million projects) 600 500 • Mine installed base: Gradual decline 2012 2013 2014 2015 2016 2017 in base more than offset by growth in projects Base / Operating Highly Probable Probable Possible Tentative Source: Wood Mackenzie June 2013
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26 Market growth
. 8%* CAGR for grinding media demand in North and South America • Top-down approach − Wood Mackenzie (June 2013) − Publicly available information on mine developments • Bottom-up approach − Direct customer contacts − Budgetary quotes (engineering firms & major equipment suppliers) − Industry intelligence • Project visibility − Line of sight on project developments and time frame − Customer discussions on grinding media requirements − First hand information from technical support to project owners − Provides greater certainty of future volumes
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*Moly-Cop management estimate
27 Moly-Cop grinding media overview Jaime Sepulveda, Global Leader Grinding Media &
President Moly-Cop South America For personal use only use personal For Moly-Cop grinding media operations
9 state of the art grinding media facilities across the Americas and Australasia close to local markets and customers with currently installed capacity of ~1.3Mtpa*
Moly-Cop Canada* Moly-Cop USA Kamloops Kansas City Grinding Media Grinding Media
Moly-Cop Mexico Moly-Cop Peru El-Salto Lima Grinding Media Grinding Media
Moly-Cop Indonesia* Moly-Cop Peru Moly-Cop Chile Cilegon, Indonesia Arequipa Mejillones Grinding Media Grinding Media Grinding Media Moly-Cop Australia Newcastle, Australia Grinding Media For personal use only use personal For Moly-Cop Chile Talcahuano Grinding Media *Excludes Board approved expansions in Cilegon, Indonesia and Kamloops, Canada totalling ~170ktpa
Source: Moly-Cop 29 Key strengths
. Leading global player in attractive industry with strong demand growth . Uniquely positioned to benefit from projected strong demand growth, leveraged by broad footprint of strategically located grinding media manufacturing facilities • Facilities close to key growth regions . Differentiated capabilities recognised relative to competitors: superior quality and product performance, supply assurance and highly valued technical support . Long term strategic alliances with key integrated and local steel bar suppliers . Installed capacity ~3.5 times greater than next largest international competitor . History of expanding capacity ahead of market demand to capture market growth . Proprietary metallurgical and engineering know-how delivers “value in use” outcomes for customers . Strong and highly experienced in-market management teams based close to
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30 Pricing structure – grinding media
. Scrap price, CRUspi and FX influence selling prices Freight . Customer pricing directly linked Margin with raw material price movements which provide margin stability Ball Conversion . Majority of bar is sourced from Costs local manufacturers to reduce price & working capital Freight Final Sale . Price premium driven by ‘value in Price Steel to Bar Price linkage use’ and service levels Conversion to Scrap or linked to Costs CRUspi Scrap or CRUspi raw Steel Making material Costs prices Purchased Bar Price
Linked to Raw Scrap or Material
For personal use only use personal For CRUspi Prices mechanism
Note: Image not to scale 31 Business model Buy side . Integrated internal and external bar suppliers . Long standing in-region supply relationships . Bar price managed to reduce cost volatility for ball manufacturers and customers . Security of bar supply is important . Bar quality is important
Sell side . Selling prices managed through linkage to raw material costs (bar price) . Customer contracts generally up to 5 years with large customers . Global customer relationships in place, with multi-locations/countries . Longevity of supply relationships, up to 30 years . Sell on basis of ‘value in use’ outcomes . Security of supply is critical and technical support important . Freight generally managed by Moly-Cop (so proximity to customer is key)
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32 High quality customer base
. Key global copper, gold and iron ore Top Copper Companies by Ore Milled (kt)
mining companies Rank Company Moly-Cop . Top 20 Grinding Media customers Customer 1 Yes account for ~80% of sales F-McM Copper & Gold 2 Codelco Yes . Large contracts (typically 10 – 3 Southern Copper (ex SPCC) Yes 50ktpa) 4 Rio Tinto Yes . Customer contracts and supply 5 BHP Billiton Yes agreements generally 2 to 5 years in Top Gold Companies by Ore Milled (kt) duration Rank Company Moly-Cop Customer 1 Kinross Gold Yes 2 Goldcorp Yes 3 Barrick Gold Corp Yes 4 Anglogold Ashanti Yes 5 Newmont Mining Yes
For personal use only use personal For Source: Wood Mackenzie June 2013 (Ore milled with equity)
33 Competitive advantage Moly-Cop delivers ‘value in use’ for its customers: Quality of product: . Moly-Cop is recognised for its superior product 2 performance . Improved wear performance reduces effective cost of application: Supply [$/ton ground] = [$/ton balls] x [ton balls/ton ground] Quality assurance Certainty of supply: 3 Key . Moly-Cop is located close to its customers, Purchasing assuring timely and flexible delivery of products Criteria . In grinding media, only supplier able to offer global 1 customers the benefit of its global network 3 . Minimises risk of interruption to operations Technical Technical support: support . To help customers maximise throughput and yield
.only use personal For Moly-Cop is recognised for its unparalleled technical expertise and capability to provide tailored customer support
34 Moly-Cop South America
Jaime Sepulveda, Global Leader Grinding Media &
President Moly-Cop South America For personal use only use personal For Moly-Cop South America demand
Drivers of Demand Sth America Ore Milled (000 Tonnes) . Grinding media demand is driven by ore milled predominantly in 2012 - 2017 the production of copper, gold and iron ore 2,000 . Mine expansions and greenfield mining projects have resulted 1,500 in significant growth in ore milled – forecast to double by 2017 (Source: Wood Mackenzie) 1,000 . Wood Mackenzie has forecast copper ore milled to grow 14% Ore Milled CAGR from 2013 – 2017 and gold ore milled to grow 11% 500 CAGR for the South American regions 0 Market Conditions 2012 2013 2014 2015 2016 2017 . Moly-Cop South America comprises the markets of Chile, Peru, Brazil and Argentina Copper Gold Source: Wood Mackenzie June 2013 . Market conditions remain buoyant despite recent fall in commodity prices and significant growth is forecasted Moly-Cop Sth America Market Position Grinding Media Sales volume . Moly-Cop has leading market positions and is well placed to service the forecast growth 15% 4% Argentina Chile Peru
26% 55% Brazil For personal use only use personal For Source: Moly-Cop
36 Moly-Cop South America growth
Projected major expansions / new mining projects
. Chile • CODELCO MMH • Caserones • Sierra Gorda • Pascua Lama • Brazil (Minas Rio/MMX) . Peru Indicative additional grinding • Cerro Verde expansion media demand growth by • Toromocho • Constancia FY2017 ~300ktpa • Las Bambas • Cuajone/Toquepala expansion
• Antapaccay For personal use only use personal For
Source: Moly-Cop
37 Moly-Cop South America capacity
Moly-Cop South America capacity expansions 700 ) 600
500
400
300
200
Moly-Cop South America 100
Installed grinding balls(ktpa capacity All others - South America
0 For personal use only use personal For Source: Moly-Cop
* FY14 based on forecast estimates and includes current planned expansions
38 Moly-Cop North America
Steve Ornduff, President Moly-Cop USA For personal use only use personal For Moly-Cop North America demand
Drivers of Demand Nth America Ore Milled (000 Tonnes) . Grinding media demand is driven by ore milled, 2012 - 2017 predominantly in the production of copper and gold 1,500 . Mine expansions and greenfield mining projects have resulted in significant growth in ore milled 1,000 . Wood Mackenzie has forecast copper and gold ore milled to grow 14% CAGR from 2013 – 2017 for the North American
Ore Milled 500 regions Market Conditions 0 . Moly-Cop North America comprises the markets of Canada, 2012 2013 2014 2015 2016 2017 USA and Mexico/Central America . Strong growth expected through brownfield and greenfield Copper Gold expansions Source: Wood Mackenzie June 2013 Market Position Moly-Cop Nth America . Moly-Cop has leading market positions in North America and Grinding Media Sales volume is well placed to service the growth in these markets with existing and new planned capacity 3% . Focus to maintain share in growing market 20% 33% Canada USA Mexico
For personal use only use personal For Other
44%
Source: Moly-Cop
40 Moly-Cop North America growth
Projected major expansion / new mining projects
. Canada/Alaska • Detour Lake • Thompson Creek - Mt Milligan • Taseko – Gibraltar Expansion • KGHM – Ajax • Yellowhead – Harper Creek . USA • BHPB – Pinto Valley (Re-start) Indicative additional grinding media • Allied Gold – Hycroft demand growth by FY2017 ~ • General Moly – Mt Hope 195ktpa • Augusta – Rosemont • Freeport – Morenci Expansion . Mexico/Central America • Grupo Mexico – New Cananea
• Minera Frisco Expansions For personal use only use personal For • First Quantum – Cobre Panama
Source: Moly-Cop
41 Moly-Cop North America capacity
Moly-Cop North America capacity expansions 500
) 450 400 350 300 250 200 150
100 Moly-Cop North America 50
Installed grinding balls(ktpa capacity All others - North America
0 For personal use only use personal For
Source: Moly-Cop * FY14 based on forecast estimates
42 Moly-Cop Australasia
John Barbagallo, Chief Executive Mining Consumables For personal use only use personal For Moly-Cop Australasia demand
Drivers of Demand Australasia Ore Milled (000 Tonnes) . Grinding media demand is primarily driven by copper and gold 2012 - 2017 production 600 . Wood Mackenzie has forecast copper ore milled to increase by 2% CAGR from 2013 – 2017 and gold ore milled to increase by 1% 400 CAGR .
Rail wheel demand driven by maintenance requirements within Ore Milled 200 coal, iron ore, general freight and passenger in Australia
. Ropes demand largely premised on open-cut coal demand with 0 dragline and shovel fleets 2012 2013 2014 2015 2016 2017 Market Conditions Copper Gold . Moly-Cop Australasia comprises the markets of Australia, Indonesia, New Zealand, Philippines and PNG Source: Wood Mackenzie June 2013 . Market conditions remain solid, though no new large copper or gold mines planned. Moly-Cop Australasia . Coal and iron ore volumes to drive wheel and ropes sales Grinding Media Sales volume Market Position . Moly-Cop has leading market positions in Australasia and is well 12% Australia positioned to service the growth in these markets 48% Indonesia
Other For personal use only use personal For 40%
Source: Moly-Cop
44 Strategic Focus & Outlook
John Barbagallo, Chief Executive Mining Consumables For personal use only use personal For
Strategic focus
Short to medium term . Deliver value by capturing the expected market growth for grinding media in the current regions of North & South America and maintain our strong position in Australasia . Deliver current capacity expansions in Indonesia and Canada, totalling ~170ktpa • Cilegon commissioning planned for Q3 FY14 with 50ktpa capacity • Kamloops commissioning planned for Q4 FY15 with 120ktpa capacity . Ongoing review of capacity expansions to ensure capacity is ahead of market growth . Increase long-term contracts with strategic customers . Continue to sell on ‘value in use’ basis . Maintain strong cash generation . Capturing expected market growth for mining rope and rail wheels in Australia
Medium to longer term . Expanding geographically with current products
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46 Outlook
. Demand for grinding media expected to remain strong • High levels of copper and gold production, particularly North and South America, despite commodity prices coming off recent highs • Expected CAGR 8% (FY13-FY17) North and South America
. Well placed to capture at least our high market share of the expected growth in demand • Ball quality, supply chain, technical support, expanding capacity ahead of the market
. Demand for mining ropes and rail wheels in 1H FY14 expected to be impacted by some miners in Australia (coal, iron ore) reducing inventory For personal use only use personal For
47
Summary
. A business of scale with relatively stable margins and a strong growth profile • Strong earnings growth since Moly-Cop acquisition • Grinding media sales ~1Mtpa, capacity ~1.3Mtpa . Strong growth forecasts for copper, gold and iron ore • Good visibility of new projects and mine expansions (copper, gold, iron ore) • Estimated 8% CAGR volume growth of grinding media markets in North and South America • Deteriorating mineral head grades . Moly-Cop is the largest global grinding media manufacturer with leading market positions in key growth regions, and is well positioned to capture at least its high market share of the expected growth . Sustainable competitive advantage
. Maximise value from wheels and ropes within Australasia region For personal use only use personal For
48
Questions For personal use only use personal For
Appendix For personal use only use personal For Moly-Cop history
. In the 1930s, Armco’s Sheffield Steel of Kansas City produced the first heat-treated grinding ball alloyed with molybdenum and copper. The new ball significantly improved wear performance versus the quality levels of that time, and was patented and appropriately trademarked as Moly-Cop® . In 1961, Armco built its first grinding ball forging operation outside the USA - now known as Moly-Cop Chile. This began several decades of growth to build the international Moly-Cop business with grinding ball plants located strategically around the world to include Chile, Peru, Mexico, and Canada . In 2001, then owner GS Industries went into bankruptcy and sold the international Moly-Cop businesses to Anglo’s Scaw Metals in 2002. The original Kansas City ball plant restarted as an independent company in 2003 and became part of Arrium in 2007 . With Arrium’s acquisition of Moly-Cop, Kansas City has been reunited with the businesses it helped build, further enhancing
the strength and depth of the new Moly-Cop organisation For personal use only use personal For
51 Copper – forecast head grades
Industry Head Grade Trends (Weighted by Paid Copper)
1.7 2.6
1.5 2.4
1.3 2.2
1.1 2.0
0.9 1.8
Copper Grade Cu %
0.7 1.6
0.5 1.4
0.3 1.2
1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 2020 2024 For personal use only use personal For Primary - Mill Primary - SxEw (All) All Primary Mines All Operations Co-By - Mill (RH axis) Source: Wood Mackenzie
52 CRUspi Longs index
. CRU is an independent, privately owned, business analysis and consultancy group focused on the mining, metals, power, cables, fertilizer and chemical sectors . Of particular interest to Moly-Cop’s business, CRU publishes a series of Steel Price Indices (CRUspi) intended to monitor the evolution of selected groups of steel product prices in various international markets . CRUspi Indices are constructed from actual information of numerous commercial transactions worldwide, following standardized surveying methodologies . CRUspi indices are published on a regular basis; the first Wednesday of every month . Since 2004, Moly-Cop has been using the CRUspi Longs Index as a reference for periodic price updating of both steel purchasing and grinding media sale contracts . The consistent application of the CRUspi Longs Index has allowed Moly-Cop to engage in long-term, variable pricing purchase/sale agreements . The CRUspi Longs Index will be representative for Moly-Cop as long as such reference is
accepted by its main bar suppliers. For personal use only use personal For
53 Competition and Capacity
Moly-Cop has ~3.5 times the installed capacity of the next largest competitor. All of this capacity is strategically located in key mining regions
Sigdo Koppers • Magotteaux provides predominantly high- chrome cast balls • There is limited overlap between Hi-Cr and forged media applications • Proacer and SABO (55%) and both local competitors to Moly-Cop Chile
Source: Moly-Cop June 2013 (estimates) ME Elecmetal • Part of the Chilean Elecmetal Group • A distributor of forged grinding media from China (Long Teng) to compliment their mill liners
product offering For personal use only use personal For
54 Top 20 Customers
Top 20 Grinding Media Customers represents ~80% of Moly-Cop sales
Anglo American Kinross Corporation
Antofagasto PLC Newmont Mining Corporation
Barrick Gold Corporation Pan Pacific Copper
BHP Billiton Rio Tinto
Codelco Southern Copper
Detour Gold Corporation Taseko Mines
Freeport McMoran Teck Resources
Glencore Xstrata PLC Thompson Creek Metals Company
Goldcorp VALE
For personal use only use personal For Grupo Mexico S.A.B. de C.V. Yamana Gold Inc
55 Wheel life performance
Tread Wear Flange Wear 2nd Life - Tread Area loss 2nd Life - Flange Area loss Comsteel 99,060 km wear (taken at 403,520 km) Comsteel 99,060 km wear (taken at 403,520 km) Comparative94,580 km wear (taken at 435,240 km) Comparative94,580km wear(taken at435,240km) 75.0 8.5
70.0 8.0
65.0 7.5 7.0 60.0 2 6.5 mm 2 mm 55.0 6.0 5.5 50.0 5.0 45.0 4.5
40.0 4.0 Comparative Comsteel Comparative Comsteel Manufacturer Manufacturer
Source: FMG Source: FMG . Lower wear results in lower operating costs (cents/km) For personal use only use personal For . Lower wear reduces change-out frequency (labour and maintenance) Value In Use . Lower wear rates increases equipment uptime and utilisation
56 Value In Use - Superior Performance
. P&H4100 XPB machine using a 73mm . BE2570 machine using a 43/8 ” TUFF 6® rope Redbak® Plasticated rope . A trial of ropes was conducted at mines in the . A trial of ropes was conducted at mines in Bowen Basin in Queensland and a coalmine in the Bowen basin in Queensland Texas . In a trial Moly-Cop Ropes Redbak® ropes . Moly-Cop Ropes TUFF 6® ropes outperformed outperformed these benchmarks by setting these benchmarks by setting an average rope
a new site record of 3.6 million BCM’s life of 3.8 million BCY’s For personal use only use personal For
57