For personal use only www.arrium.com Annual Report 2014 Arrium Limited is an international diversified mining and materials company with three business segments: Arrium Mining, Arrium Mining Consumables and Arrium Steel Geoff Eri Principal Mining Engineer, Arrium Mining South Middleback Ranges (SMR), South Australia, Australia As the Principal Mining Engineer for SMR, Geoff is responsible for ensuring high standards are set in the engineering functions of contract management, mine survey and mine planning. Geoff is also a mentor for up and coming mining engineers and surveyors. He has visibility across Arrium mine sites to ensure that mine planning functions are consistent across all operations and use state of the art functionality and best practices. Arrium Limited Contents Arrium Mining includes the company’s Arrium Steel includes both the Steel 2 About Arrium Annual General Meeting At Arrium it’s our people who export iron ore business which and Recycling businesses. The Steel 6 Chairman’s Review Arrium’s 2014 Annual General Meeting will make the difference. Across our achieved sales of 12.5 million tonnes business is Australia’s only manufacturer 8 Managing Director’s Review be held on Monday, 17 November 2014, at of hematite ore for the 2014 financial of steel long products with steel-making Sheraton on the Park, 161 Elizabeth Street, 224 sites around the world, they 10 Operating and Financial Review year. Arrium has mining operations at capacity of approximately 2.5 million Sydney NSW 2000, commencing at drive our strategy, deliver on our the Middleback Ranges and Southern tonnes per annum. It is also Australia’s 10 Financial Overview 2.30pm AEDT. Iron region in South Australia, as well leading steel distributor and reinforcing 12 Segment Overview promises and embody our core as a wholly-owned port at Whyalla, steel supplier. The Recycling business 14 Key Business Drivers Arrium Limited values. As individuals and teams South Australia with a current capacity has operations focused on the southern 16 Strategic Framework and Scorecard ABN 63 004 410 833 they seek out challenges and are of approximately 13 million tonnes per and east coasts of Australia, as well 18 Arrium Mining Arrium listed on the Australian Securities proud of the roles they play in annum. In addition to the export iron ore as non-ferrous operations in Asia. 22 Arrium Mining Consumables Exchange (ASX) on 23 October 2000 business, Arrium Mining also supplies (ASX:ARI). building stronger communities. 26 Arrium Steel (Steel and Recycling) iron ore to the company’s integrated steelworks at Whyalla. 32 Risk Management 34 Reconciliations Arrium Mining Consumables supplies resource companies with a 35 Sustainability range of key mining consumables, 42 Executive Management including grinding media, wire ropes 44 Board of Directors and rail wheels. Through its Moly-Cop 46 Corporate Governance Statement For personal use only brand, it is the largest supplier of 48 Financial Report grinding media in the world with leading 128 Shareholder Information market positions in North America, 130 Statistical Summary South America and Australasia. 131 Ore Reserves & Resources Statement 134 Glossary 135 Abbreviations 137 Corporate Directory ARRIUM LIMITED ANNUAL REPORT 2014 1 Middleback Ranges Moly-Cop Steel Southern Iron AltaSteel Recycling Whyalla Port About Arrium Milestones 2014 Financial Year July August September • Commencement • 2013 Safety • FY13 results • Announced sale of Andrew Roberts Excellence Awards announcement of Aluminium as new MD and • Non-integrated • Completed Lima, business to CAA CEO Merchandising Peru grinding • Official opening of businesses and US media expansion 2013 expanded Whyalla Recycling business Middleback Ranges Moly-Cop Steel port and Southern held for sale Iron operations Southern Iron AltaSteel Recycling Whyalla Port October November December FY14 performance summary • Announced sale • 2013 Annual • First blast in the • Opening of Moly-Cop 1 of sheet and coil General Meeting Iron Knob Mining Ropes Raptek Performance highlights distribution assets • Indigenous Land Area in 15 years manufacturing – Sales revenue $7,007 million, – Underlying EPS 21.8 cents, – Strong cash generation to BSL Use Agreements facility, Newcastle up 2% pcp up 79% pcp - Statutory operating cash flow (ILUA) signed – Record underlying EBITDA – $407 million reduction in net debt $679 million • Completion $864 million, up 38% pcp and leverage ratio substantially of Magnetite - Proceeds from divestments Expansion Project – Underlying NPAT $296 million, improved to 2 times $240 million up 83% pcp Progress on strategic initiatives Arrium Mining2 – expanded Arrium Mining Consumables – Arrium Steel – cost and January/February March/April May June business and Whyalla Port continued strong earnings operational improvements performing well and cash achieved • 1H14 results • Largest iron • Record cape • Successfully announcement ore cape loading rate at refinanced – Record and above target hematite – Continued strong demand for grinding – Steel and Recycling business vessel loaded for Whyalla Port for US$994 million export sales 12.5 Mt, up 51% pcp media in North and South America EBITDA and cash positive Arrium Mining Arrium Mining debt facilities – Record EBITDA $686 million, – Maintained stable grinding – Continued to lower cost base 201,000 wmt • Commenced up 86% pcp media margins - includes ~$30 million cost 2014 commissioning of – Completed $86 million magnetite – Strong customer support for next synergies from single steel business Cilegon, Indonesia project on time and on budget generation SAG ball – Further cost and operational grinding media expansion – Expansions in Lima, Peru and improvements in Recycling Cilegon, Indonesia completed on – Divestments time and on budget – Expansion in Kamloops, Canada tracking to plan Investment merits Arrium Mining Arrium Mining Consumables Arrium Steel – ~13 Mtpa iron ore producer with – Grinding media – Leading market positions in own infrastructure - Global leader (Moly-Cop) Australia - Expect to be at ~13 Mtpa - Strong earnings and cash - #1 in general Australian steel hematite sales rate in Q1 FY15 generation distribution - Port owned and operated by - Stable margins - #1 in Australian reinforcing Arrium – Port capacity ~13 Mtpa - Strong demand growth profile - #1 in Australian wire – Good basis for sales longevity - Positioned in key growth and - #2 in Australian recycling – Operational flexibility to maximise low cost regions – Difficult external environment earnings and cash through varying - Sustainable competitive but substantial cost grade, volume and cost advantage reductions and operational – Ferrous and non-ferrous exploration improvements achieved – Mine ropes – global leader in For personal use only dragline ropes – Well positioned to benefit from – Rail wheels – #1 in Australia increased construction activity, particularly infrastructure 1. Results for the Financial Year 2014, ended 30 June 2014. These should be read in light of ASX announcements made by the company since that date. Unless otherwise stated, certain financial measures referred to in this Annual Report, including underlying results and ratios based on underlying results, are non-statutory financial measures, which have not been audited or reviewed as part of KPMG’s report on the 2014 Financial Report. However, KPMG has undertaken a set of procedures to agree the financial information in this Annual Report to underlying information supplied by the company. The Directors believe that using these non-financial measures appropriately represent the financial performance of the Group’s total operations including continuing and discontinued operations. Details of the reconciliation of non-statutory to statutory results can be found on page 34 of this Annual Report. 2. Segment results referred to throughout this Annual Report are those reported in the 2014 Financial Report. They are equivalent to segment underlying results. For a reconciliation of consolidated results, refer to page 34 of this Annual Report. 2 ARRIUM LIMITED ANNUAL REPORT 2014 ARRIUM LIMITED ANNUAL REPORT 2014 3 Where we do business In addition to our Australian operations, Arrium operates 15 key facilities overseas, with Australia the majority of these Mining Consumables and Recycling sites in North America, South America and Asia. x Darwin Asia North and South America x Broome x Cairns Townsville x Port Hedland x x Karratha Mount Isa x x Mackay Emerald x x Rockhampton Edmonton x Gladstone x Bundaberg Kamloops Sunshine Coast x China Ipswich Hong Kong Kansas City Brisbane Toowoomba x x x Geraldton Meycauayan x Kalgoorlie Carmona x Moora x Gold Coast Philippines x Merredin Peculiar Knob Lismore x Thailand Perth x x Northham x Coffs Harbour Tamworth x x Port Macquarie Dubbo x x Taree Guadalajara Whyalla xx Port Hexham Adelaide Parkes x Mandurah x x Wagin x Mildura x Newcastle Malaysia Albany x Port Lincoln x Orange x x Gosford Bunbury x Adelaide Wetherill Park x Sydney x Wagga x Wollongong x Shepparton x Canberra Bendigo x Albury x Mt Gambier x Melbourne Indonesia x Cilegon x x Morewell x Geelong Lima Devonport x x Arequipa Launceston Mejillones Hobart Santiago Talcahuano For personal use only Key Iron Ore Mine Sites x Key Steel Sites Key Mining Consumables Sites Key Recycling Sites 4 ARRIUM LIMITED ANNUAL REPORT 2014 ARRIUM LIMITED ANNUAL REPORT 2014 5 Chairman’s Review Peter Smedley Chairman I am pleased to report that Arrium saw us established as the global leader the strengths of