Arrium Mining
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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 N IRON KNOB 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