Arrium Mining UBS Iron Ore Seminar Greg Waters Chief Executive Mining 27 November 2012 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, proposed 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.
This presentation contains certain non-statutory financial measures including underlying EBIT, underlying EBITDA, underlying NPAT, underlying earnings per share and underlying effective tax rate. These measures are used to assist the reader understand the financial performance of the company’s operations. Non-statutory financial information has not been audited or reviewed as part of KPMG’s audit report on the full year financial statements. However, KPMG have undertaken a set of procedures to agree the financial information in this presentation to underlying information supplied by the company. Details of the reconciliation between non-statutory and statutory financial measures can be found on page 127 of the 2012 Annual Report.
The information in this presentation that relates to Exploration Results, Mineral Resources or Ore Reserves is based on information compiled by Paul Leevers, who is a Member of The Australasian Institute of Mining and Metallurgy. Mr Leevers is a full-time employee of Arrium Manufacturing Pty Ltd. Mr Leevers has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2004 Edition of the 'Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves'. Mr Leevers consents to the inclusion in this presentation of the matters based on his information in the form and context in which it appears.
2 Contents
Arrium business structure Overview – A year of transformation Middleback Ranges Southern Iron Whyalla Port expansion project Exploration & development Customers Summary Appendix
3 Arrium business structure
Middleback Ranges Moly-Cop International Manufacturing
Southern Iron Moly-Cop Australasia Distribution
Port Operations AltaSteel Recycling
4 Arrium Mining
Middleback Ranges (MBR) Initially 4Mtpa export iron ore sales - now >6Mtpa
Southern Iron (SI) Acquired in October 2011 and now coming into production – enables total iron ore sales of ~12Mtpa (including MBR) Port Operations Expansion to ~13Mtpa - Outer Harbour export capability of ~6Mtpa and Inner Harbour development of ~7Mtpa capability
5 Overview - a year of transformation
TITLE TEXT
6 Delivering a step change, with further opportunities
Delivering a step change in Mining business through: Increasing export iron ore sales from ~6Mtpa to ~12Mtpa • Building on established track record in mining at Middleback Ranges (MBR) More than doubling port capacity from 6Mtpa to 13Mtpa
SouthernTITLE TEXT Iron (SI) Now being commissioned • First sales announced in October via rail to Darwin • On track to deliver first shipments through expanded Port in December 2012 quarter • Expected total sales of 8-9Mt for FY13, including MBR • Confident of placing all additional ore from expansion Whyalla Port expansion Well advanced • First ores scheduled December 2012 quarter • Infrastructure to be completed by mid 2013 Generates blending and marketing opportunities ~12Mtpa sales – Port capacity capable of ~13Mtpa due to upgraded ship loader
7 Delivering a step change, with further opportunities
Middleback Ranges (MBR) Improvements implemented to address bottlenecks paying dividends Recent run rate indicates upside to 6Mtpa sales target from existing mines Beneficiated ore expected to provide ~2Mtpa >61%Fe • Iron Baron ore beneficiation plant (OBP) commissioned in Q3 FY12 and running at rate •TITLEIron Duke TEXT OBP further improvements planned
Summary Expect to be at ~11Mtpa run rate by mid 2013, but lift to ~12Mtpa July/August 2013 with commissioning of new ship loader No change to development cost of $86m for SI and $200m for Port Investigating options to utilise full capacity of Port for at least 10 years through exploration, development and blending
8 Delivering a step change, with further opportunities
Peculiar Knob
October 2011
TITLE TEXT
October 2012
9 Middleback Ranges
TITLE TEXT
10 Middleback Ranges (MBR) location plan
Iron Knob Port Augusta Iron Baron Iron Duke WHYALLA QUARTZ QUARRY Ardrossan Katunga Coffin Bay Hills ADELAIDE Cooyerdoo Kangaroo Island TITLE TEXT South Australia Camel Hills IRON BARON North Middleback Range WHYALLA
IRON KNIGHT IRON DUCHESS South Middleback Range IRON DUKE Spencer Gulf
11 Arrium Mining – Q1 Report
Middleback Ranges Sales volumes 1.61Mt (dmt) Average realised price US$83/t FOB • Sharp fall in prices to post GFC lows - Aggressive destocking TITLE TEXT - Demand weaker than most expected - Uncertainty related to leadership change • Prices trended up through October/November Average Fe grade 59.8% Average loaded cost on ship A$41/t (wmt, excluding royalties and depreciation)
12 Southern Iron
TITLE TEXT
13 Southern Iron progress
Mining at Peculiar Knob progressing well • 580kt in Q1 Supply chain infrastructure progressing to plan • Haul road completed • Commissioning of crusher commenced TITLE TEXT • First ores sold via rail to Darwin in October • Sales of commissioning volumes continuing into December
14 Southern Iron - export program
Testing of infrastructure at Port to commence this quarter • Transhipping to capes (CSL Whyalla) Volumes ramp-up from Q4 FY13 - key program milestones • 2nd shed complete February/March 2013 • Additional standard gauge & narrow gauge rail locos and wagons added •TITLEHigher TEXT capacity ship loader expected July/August 2013
15 Southern Iron - export program
Blending benefits Blending of Peculiar Knob ore with MBR ores • Lower grade ores from MBR (~53% Fe) with PK (~63% Fe) • LGO from stockpiles and future mining at MBR • Target blending grade ~59-60% Fe TITLE TEXT • Blending ratio ~2:1 • Increased volume and cost of lower grade material more than offsets lost premium for >62% Peculiar Knob ores • Lower loaded cost due to low cost of lower grade ores – Indicative post ramp up loaded costs of SI blended ore ~$52-$57/wmt (excluding royalties and depreciation)
16 Whyalla Port expansion project
TITLE TEXT
17 Whyalla Port
Current facilities – two harbours
Outer Harbour with iron ore jetty and dredged channels
TITLE TEXT Inner Harbour with blast furnace wharf Existing ore storage shed
Middleback NG rail line to Outer Harbour
18 Whyalla Port
Current facilities An Outer Harbour capable of ~6Mtpa • Iron ore loading jetty of 2,000+tph capacity, and a 10.7m berth depth • Iron ore storage shed connected to Middleback NG rail line
•TITLEDredged TEXT channels linking to open water and the Inner Harbour • Capesize transhipment point at ~7.5nm distance
A handi-max capable Inner Harbour servicing the Steelworks • 700m wharf, of 10.7m draft, with berths for bulk and steel long products • Vessel turning basin • Fleeting facilities
19 Whyalla Port expansion
Step change in iron ore exports from ~6Mtpa to ~13Mtpa required expansion of the current Inner Harbour facilities The new Whyalla Port facilities will result in an ‘Iron Ore Capable’ Inner Harbour of ~7Mtpa. This includes: • Connection to the standard gauge Port Augusta mainline, and train holding and TITLEprovisioning TEXT lines • Connection to the narrow gauge Middleback line • Two ore storage sheds (nominal capacity of 200kt each) – complete with a ‘direct shipping’ by-pass conveyor • An initial temporary bulk products berth utilising a radial ship loader • A new bulk products berth as an extension of the existing wharf – complete with 4,200tph travelling ship loader • Additional capesize vessel transhipment point at 8.5nm from Outer Harbour
20 Whyalla Port expansion
Site locations
TITLE TEXT SG & NG rail turning loop site
Temporary berth Ore storage sheds site
4,200tph bulk berth
The Port development - on reclaimed land east of the blast furnace, on the northern side of the harbour
21 Whyalla Port expansion Possible future expansion Port capable of further capacity expansion (subject to regulatory approvals) Layout recognises two sites for future development • North: area of 25 hectares, access to standard & narrow gauge rail links – seafront of ~1,400m for future berths •TITLESouth: TEXT area of 20 hectares, access to standard & narrow gauge rail links – 200m wharf front
22 Exploration & development
TITLE TEXT
23 Exploration & development
Aims Lift iron ore sales to match capacity of the port through: • Maintaining sales from existing MBR operations at ~6Mtpa • Converting Southern Iron to 10 years of supply (from both Southern Iron and blending with MBR low grade ores) TITLE TEXT Investigate further ferrous opportunities Investigate non ferrous opportunities at both MBR and Southern Iron
24 Arrium Mining
Southern Iron • 16.4Mt Reserve @ 63.1%Fe (Peculiar Knob) • 32.5Mt Resource @ 63.2% Fe
TITLE TEXT Middleback Range • 44.4Mt Reserve @ 59.5%Fe Peculiar Knob • 153.2Mt total Resource @ 58%Fe • 70.5Mt magnetite Reserve @ 42.8% mass recovery • 228.2Mt magnetite Resource @ 38.8% Mass Recovery Middleback Ranges Resources declared by WPG YEJ11, not declared in current Arrium Statement • 569Mt magnetite resource @ 35%Fe
25 Exploration & development
Work required to prove resource up to JORC standard, but reasonable aspirations for lifting iron ore sales to match capacity of the port
10yrs x 12-13Mtpa iron ore volume to be sourced from exploration & development :
ReserveTITLE TEXT 60.9Mt (44.4Mt MBR, 16.4Mt SI) Total Resource 185.7Mt (153.2Mt MBR, 32.5Mt SI)
In essence we have 185.7-60.9 = 124.8Mt of opportunity
Of that opportunity, current targets: Insitu (Resource within pit shells) 15Mt – 20Mt (Resource >50%Fe + inferred) Excluded Resource 30Mt – 40Mt (key targets Hawks Nest & Cavalier) LGO beneficiated (stocks + mining) 10Mt – 20Mt (20Mt feed in stock)
Combining Reserve and target opportunity 116Mt – 141Mt
Note: excludes any greenfield exploration
26 Customers
TITLE TEXT
27 Customers
Arrium focused on a relationship based marketing with repeat customers MBR customer base includes both contract and spot sales (all CFR) • Mix ~2/3 contract, ~1/3 spot • Most contract terms closely reflect within month pricing • Important we maintain maximum volume through port TITLE TEXT Many spot customers have multiple cape sales (some in excess of 10) Transition of agency arrangement from BHPB to Arrium has gone smoothly • New sales team with over 60 years combined experience • Includes offices located in China Export sales of beyond 10Mtpa • Diversification • Blended products are an opportunity • Strong management and control of supply chain Will continue offering contract & spot Confident of placing all additional volumes from expansion
28 Summary
Iron ore export business about to double in size • Post the expansion, Arrium expects to be the 4th largest producer of iron ore in Australia On track to deliver iron ore and Whyalla Port expansions on time and budget First shipment through Port expansion expected Dec 2012 quarter ~11Mtpa run rate expected by mid 2013 TITLE TEXT ~12Mtpa sales run rate expected by July/Aug 2013 Port capacity expected to double to ~13Mtpa by mid 2013 Upside to 6Mtpa target from MBR mines as improvements address bottlenecks Expected sales for FY13 increased from ~8Mt to 8-9Mt Expanded Port presents blending and marketing opportunities Objective to utilise full capacity of Port for at least 10 years, options being investigated include exploration, development and blending
29 Appendix
TITLE TEXT
30 Export ore supply chain – logistics capability
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31 Track record of extending life beyond Magnet
Arrium Reserves Original expectation under Project Magnet of (4Mtpa x 10yrs) Depletion has been replaced • Reserves 2007 28Mt increased to 61Mt 2012 (including Peculiar Knob) Mt TITLE TEXT • Hematite tonnes shipped / consumed over 6 year period expected to reach 39Mt • Added 57.8Mt of reserve since 2007 to FY2012 (including Peculiar Knob) Reduction in Reserves Fe% due to: • Addition of tonnages at lower Fe% • Depletion of original reserve tonnes of higher Fe% Increase supported by use of Resource (low grade ores either Fe% direct shipped/blended or beneficiated) Beneficiation will support current grades going forward
32 Peculiar Knob: East of the Stuart Highway
TITLE TEXT
33 Peculiar Knob: West of the Stuart Highway
TITLE TEXT
34 Whyalla Port update
Storage Shed 1 Structurally complete and undergoing electrical testing
TITLE TEXT
Radial ship loader for temporary berth Structurally assembled and undergoing electrical fit out
35 Transhipping
An additional vessel, the CSL Whyalla, will join the existing fleet: Self powered, with combined transport and transfer capability Arrived in Whyalla November 2012 TITLE TEXT CSL Whyalla will be placed in Outer Harbour once safety checks are completed
36 Whyalla Port expansion
Bulk products berth Typical Cargotec 4,200tph ship loader due for delivery mid 2013 To be located on the new bulk productsTITLE TEXT berth
37 Peculiar Knob region
Wirrida 50km from Highway Haulroad (96km) capex PK to Wirrida ~$27m TITLE TEXT Hawks Nest adjacent Highway Dept of Defence exploration access agreement in place for Hawks Nest
38