F E R R E X P O H A S A S T R O N G B U S I N E S S P R O F I L E

Transcription

1 PELLET MARKET

2 D I S C L A I M E R This document is being supplied to you solely for your information and does not constitute or form part of any offer or invitation or inducement to sell or issue, or any solicitation of any offer to purchase or subscribe for, any shares in the Company or any other securities, nor shall any part of it nor the fact of its distribution form part of or be relied on in connection with any contract or investment decision relating thereto, nor does it constitute a recommendation regarding the securities of the Company. No information made available to you in connection with this document may be passed on, copied, reproduced, in whole or in part, or otherwise disseminated, directly or indirectly, to any other person. Some of the information in this document is still in draft form and is subject to verification, finalisation and change. Neither the Company nor its affiliates nor advisers are under an obligation to correct, update or keep current the information contained in this document or to publicly announce the result of any revision to the statements made herein except where they would be required to do so under applicable law. No reliance may be placed for any purpose whatsoever on the information contained in this document. No representation or warranty, expressed or implied, is given by or on behalf of the Company or any of the Company s directors, officers or employees or any other person as to the accuracy or completeness of the information or opinions contained in this document and no liability whatsoever is accepted by the Company or any of the Company s members, directors, officers or employees nor any other person for any loss howsoever arising, directly or indirectly, from any use of such information or opinions otherwise arising in connection therewith. This presentation and its contents are confidential. By reviewing and / or attending this presentation you are deemed to accept that you are under a duty of confidentiality in relation to the contents of this presentation. You agree that you will not at any time have any discussion, correspondence or contact concerning the information in this document with any of the directors or employees of the Company or its subsidiaries nor with any of their customers or suppliers, or any governmental or regulatory body without the prior written consent of the Company. Certain statements, beliefs and opinions in this document and any materials distributed in connection with this document are forward-looking. The statements typically contain words such as anticipate, assume, believe, estimate, expect, plan, intend and words of similar substance. By their nature, forward-looking statements involve a number of risks, uncertainties and assumptions that could mean actual results or events differ materially from those expressed or implied by the forward-looking statements. These risk, uncertainties and assumptions could adversely affect the outcome and financial effects of the plans and events described herein. Statements contained in the document regarding past trends or activities should not be taken as a representation or warranty (express or implied) that such trends or activities will continue in the future. No statement in this document is intended to be a profit forecast. You should not place reliance on forward-looking statements, which speak only as of the date of this document. The information in this document may constitute non-public price sensitive information ('inside information'). You should not base any behaviour in relation to the Company's securities, financial instruments related to the Company s securities or any other securities and investments on information until after it is made publicly available by the Company. Any dealing or encouraging others to deal on the basis of such information may amount to insider dealing under the Criminal Justice Act 1993 and/or to market abuse under the Financial Services and Markets Act

3 Kt pellets % of 65% Fe output FXPO F E R R E X P O H A S A S T R O N G B U S I N E S S P R O F I L E NICHE PRODUCER LONG LIFE RESOURCE BASE YE 4.0BT BROVARIKOVSKO 3.4BT MANUILOVSKOYE YE 2.8BT KHARCHENKOVSKO 1.4BT VASILIEVSKOYE 1.5BT ZARUDENSKOYE 0.2BT 1.7BT GALESCHINSKOYE PRODUCTION DEVELOPMENT LICENCE MAINTENANCE BELANOVSKOYE 1.2BT YERISTOVSKOYE FSU SOVIET JORC CLASSIFIED RESOURCES CLASSIFIED RESOURCES GPL 3.5BT LOW POSITION ON COST CURVE (incl fines & lump) Breakeven price of seaborne exporters, CFR China, 62% Fe sinter fines, $/ dry t Source: CRU Jan 2017, CFR China, 62% Fe sinter fines equivalent WORLD CLASS ASSET +$2BN INVESTED SINCE IPO Logistics: $312M FYM: $595M FPM: $1.1BN INCREASING QUALITY & RELIABLE PRODUCTION Total pellet production 12,000 % of 65% Fe pellet production 10,000 8,000 6,000 4,000 2, % 80% 60% 40% 20% ACCESS TO MARKETS VIA ESTABLISHED LOGISTICS ROUTES % 3

4 C A P I TA L I N V E S T M E N T H A S D E L I V E R E R D T O P Q U A L I T Y C U S T O M E R S 2017 REVENUE UNDERPINNED BY PELLET PREMIUM Platts Atlantic pellet premium trading above $40 per tonne GROWING MARKET SHARE IN PREMIUM MARKETS Significant growth in shipments to premium markets since 2009 DIVERSIFIED SALES PORTFOLIO WESTERN EUROPE CENTRAL & EASTERN EUROPE 17% 48% CHINA & SOUTH EAST ASIA 13% TURKEY, MIDDLE EAST & INDIA 6% 16% NORTH EAST ASIA Central & Eastern Europe Western Europe North East Asia China & South East Asia Turkey, Middle East & India Ukraine/CIS 4

5 FY H H H H H H H H H H H H H H H H H H 2016 A N D I M P R O V E D M A R G I N S A S R E A L I S E D P E L L E T P R E M I U M I N C R E A S E D W H I L E C O S T S R E D U C E D NICHE PRODUCT, TOP CLASS CUSTOMERS, WELL INVESTED LONG LIFE ASSET BASE & LOW POSITION ON COST CURVE DELIVERS HIGH MARGINS EVEN AT THE LOW POINT IN THE CYCLE Average EBITDA margin since % (or $44/ tonne) EBITDA Margin 62% Fe iron ore fines price CFR China $ per tonne 50% 45% 40% 35% 30% 25% 20% 15% 35.2% 43.9% 46.2% 20.0% 22.4% 40.9% 48.1% 46.9% 42.9% 32.9% 23.8% 31.5% 32.5% 42.3% 27.9% 34.4% 30.5% 34.9% 41.1% % 40 5% 0% Iron ore price 9 year low 20 0 EBITDA % Iron ore fines price 5

6 % consumption P E L L E T S A R E M O S T E F F I C I E N T S O U R C E O F I R O N F O R A S T E E L F U R N A C E PELLETS (C.10MM SIZE) Agglomerated iron ore product forming a uniform high quality feedstock for the blast furnace Produced from magnetite ore of <40% Fe (found in N America, CIS, Europe, China) c. 26% of global iron ore production Highest value form of iron ore - pellets are the most efficient source of iron ore for a steel furnace Sold for a premium based on value in use Uniform in size quality and iron content (c.62-65%) RATIO OF PELLET CONSUMPTION VARIES AT STEEL MILL: Pellets are a direct charge input and require less processing Steel mills balance the benefit of pellets vs. cost. Pellets allow steel mills to: Improve productivity per cubic meter of blast furnace capacity (65% pellets vs 62% sinter) Limit harmful emissions as pellets emit less CO2, fine dust and air pollution compared to sinter Lower coking coal per tonne of pig iron (65% pellets vs 62% fines) Lower capital intensity at the steel mill: pellets are less capital intensive as no investment in agglomeration required USAGE VARIES BUT TREND IS TOWARDS PELLETS - EXAMPLES OF BURDEN COMPONENTS AT STEEL MILLS 47% 15% 36% 23% 16% 12% 5% 10% 18% 18% 23% 59% 61% 70% 85% EU 1 EU 2 NE Asia 1 China 1 China 2 Sinter Lump Pellet Scrap 6

7 N O T A L L P E L L E T S G O I N T O T H E B F M A R K E T. D R P E L L E T S A R E A B S O R B I N G C A PA C I T Y TOP PELLET EXPORTERS Million tonnes 2016 Total Blast furnace Direct reduction Vale (Brazil + Oman) LKAB (Sweden) Ferrexpo (Ukraine) Rio Tinto (IOC, Canada) Cliffs (Canada) ArcelorMittal (QCM Canada) Severstal (Russia) India (Various) Metalloinvest (Russia) Metinvest (Ukraine) Bahrain Steel (Bahrain) Grange (Australia) CMP (Chile) Cliffs (USA) Evraz (Russia) Other Total pellet export market Ferrexpo s market share 10% Source: CRU, Government statistics, Bloomberg, Ferrexpo internal analysis Samarco expected to re-enter market in 2018 at c.20mt (previous capacity 30MT) Vale intends to restart 7Mtpa Sao Luis pellet plant in 1H 2018 (following license approval, and investment into plant), which last produced in

8 T H E P E L L E T M A R K E T H A S H I G H B A R R I E R S T O E N T R Y LIMITED HISTORIC GROWTH IN TOTAL PELLET SUPPLY Exports of iron ore MT increase % of total increase Pellet feed % Pellets % Lump % Sinter fines 266 1, % Total 468 1,534 1,066 Source: CRU, Market Outlook January 2017 WHILE DEMAND FORECAST TO GROW THE STRONGEST Consumption of iron ore MT increase CAGR Pellets % Lump % Sinter Fines 1,347 1, % Total 2,074 2, % Source: CRU, Market Outlook January 2017 COST OF MOST RECENT CAPACITY ADDITIONS AROUND $100/T FOR PELLET PLANT ALONE New pellet capacity Duration Tonnes Cost Cost/tonne Description Samarco Metalloinvest NMLK MT 5MT 6MT Source: Company announcements R$6.459BN ($3.251BN at the time) RUB16BN ($460M at the time) RUB41BN ($1.4BN at the time) $391/t $92/t $233/t Construction of 9.5MT concentrator Construction of slurry pipeline with 20MT capacity Construction of 8.3MT pelletising plant Increase of capacity at port facilities by 9MT (new stacker, reclaimer, shiploader) Construction of pellet plant Construction of pellet plant $680M or $113/t Expanded mining & beneficiation capacity 8

9 W H AT D R I V E S T H E P E L L E T P R E M I U M : C H I N A V S R E S T OF T H E W O R L D IMPORTS OF PELLETS BY REGION 2016 (MT) Europe: 44 Middle East: 12 Africa: 5 C&S America: 4 North America: 10 NE Asia: 20 China: 15 SE Asia: 1 PELLET MARKET IS DIVIDED BETWEEN CHINA & ROW: China is largely self sufficient in pellets Chinese apparent pellet production was 120MT in 2016 Chinese pellet capacity utilisation 49% Chinese pellet production constrained by supply of local concentrate (at pricing below $80/t - depending on coking coal prices) Overcapacity in Chinese steel reduces demand for pellets at higher premiums Premiums will rise as environmental pressures increase & capacity decreases Ferrexpo does not target the Chinese market CIS: 2 Source: CRU, Market Outlook April 2017 ATLANTIC VS. CHINESE PELLET PREMIUM (US$/T) China pellet premium Atlantic pellet premium Source: Platts 9

10 AT L A N T I C P E L L E T P R E M I U M I S S E T B Y VA L E & L E A D I N G S T E E L M I L L S I N E U R O P E & N O R T H E A S T A S I A VALE S MARGINAL COST OF PRODUCTION IS AROUND US$30 PER TONNE Pellet conversion costs, $/t (nominal) 2016 Vale is the market leader & the swing producer Cost curve is also supported by high cost large suppliers: IOC, LKAB, Cliffs Note: Costs include mining, processing, pelletising and inland logistics costs only. Royalties are excluded Source: CRU March 2017, Ferrexpo internal analysis 10

11 P E L L E T P R E M I U M S R E M A I N S TA B L E : F E R R E X P O P E L L E T I S I N G C O S T S C. $ 1 0 P E R T O N N E V S AV E R A G E P R E M I U M S O F C. $ 3 0 / T ( T O ) PELLET PREMIUMS ARE RELATIVELY STABLE COMPARED TO THE IRON ORE FINES PRICE $ per tonne F 2018F 2019F 2020F 2021F Iron ore fines 62% CFR China Blast furnace pellet premium to non-chinese markets Source: CRU, Market Outlook January 2017 Ferrexpo s pelletising cost is $8/t to $11/t through the cycle depending on cost inflation 11

12 T H A N K Y O U 12