Dr Danko Konchar, CEO Afarak Group WHAT LIES AHEAD FOR SOUTH AFRICA S CHROME INDUSTRY?

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1 Dr Danko Konchar, CEO Afarak Group WHAT LIES AHEAD FOR SOUTH AFRICA S CHROME INDUSTRY?

2 Stainless steel and ferrochrome production and consumption o World ferrochrome consumption reached a record level of 10.3M tonnes in 2013 with demand estimating to increase by a further 5.5% to 10.8M tonnes in However the ferro-chrome prices continued to remain on near four-year low. o Demand for ferrochrome closely reflects trends in the stainless steel sector. Over the past five years, world consumption has risen by 5% per year.

3 Main driver of stainless steel growth - Asia Asia is forecast to drive stainless steel demand through to 2035, in particular China and India Stainless steel consumption 000 tonnes Data CRU Strategies

4 China has taken over a major role in the ferrochrome market o Between 2005 and 2012 world stainless steel production grew five percent per year, rising from 24.5 Mt to 35.4 Mt. Ferrochrome production had almost identical growth from 6.7 to 9.4 Mt o Growth in ferrochrome production has been led by China o Between 2005 and 2012 South African production of ferrochrome increased by 1% per year, while Chinese production was growing by 20 % per year global ferrochrome production share rose in that period from 13 % to 33 %. In 2012 China overtook South African title of the largest ferrochrome producer worldwide. o From 2007 to 2012 South African costs increased by 64 %, while Chinese costs increased only 18 %.

5 Escalating costs in SA o Even though South Africa possess the largest chrome ore reserves, profitability of South African ferrochrome producers have been eroded since 2007 due to rising production costs: o Electricity prices rose by 200 % from 20 US / kwh in 2007 to 60 US / kwh in Further rise of 8 % was introduced in 2013 o o Labor costs rose by 8 to 10 % per year Metallurgical coke input costs increased by 8 % per year o Total production costs will rise by a third from 98 US / lb Cr in 2011 to 130 US / lb by Chinese costs will rise in the same period from 103 to 119 US / lb 0 South Africa 2011 China 2011 South Africa 2015 China 2015 Comparison of Chinese and South African ferro-chrome Production costs, 2011 and 2015f (US / lb Cr) Roskill estimates and forecast

6 Rise of UG2 o Production capacity for UG2 chromite rose from tpy in 2002 to 2Mtpy in 2007 and further to 5.8 Mtpy in Output in 2012 estimated at 4.5 Mt. o In 2011, half SA chromite exports to China came from UG2 concentrate, while 30 percent came from integrated ferrochrome producers and 20 % from independent mines. o Over-supply in the market, mainly because of the increased supply of UG2 concentrates, led to decline in chromite prices over the past five years. o Although export tax on chrome ore was big issue of debate last year, it doesn t seem likely that it will be introduced on SA chromite exports in medium term.

7 More challenges for SA ferrochrome industry o Ongoing power supply problems: although Eskom is constructing Medupi and Kusile coal-fired load stations, delays in new generation capacity construction are announced. It is estimated that delay in construction of Medupi station will result in a power shortfall of about 700 MW in o Widespread strikes which continued in 2013 undermined investor confidence. o Breakdown in talks between Government and industry indicates that SA doesn t have one voice o Ferrochrome and chromite sector don t work together: o There is no common purpose between miners and ferrochrome producers; o Non-integrated chrome ore miners and platinum producers strongly oppose to an export-tax;

8 New beneficiation policies o South African Parliament recently adopted the amendments to the 2002 Mineral and Petroleum Resources Development Act. o According to the amendments state will have a free 20 percent stake in all new energy ventures and enable it to buy an unspecified additional share at an agreed price. o The Act will also enable the Mineral Resources Minister to declare certain minerals strategic and to designate them for local beneficiation and decide what percentage must be made available for processors after taking into account national development imperatives.

9 Conclusion o I firmly believe that ferrochrome, particularly the specialty alloys segment, will be in high demand in the long term. o We should not wait for the market to change. We need to continuously evaluate different initiatives that could strengthen our position and prove new growth opportunities. o Solution for SA chrome and ferrochrome industry: A value chain that extends over the Indian Ocean - partnership between SA and Chinese companies. China as largest ferrochrome producer and SA as world s largest chromite producer need to work together and to create sustainable joint ventures. It is not sustainable for SA just to export ore. o Solution for the world ferrochrome industry: focusing on niche products with higher margins, like speciality alloys for more sophisticated composite materials.

10 Conclusion o I firmly believe that ferrochrome, particularly the specialty alloys segment, will be in high demand in the long term. o We should not wait for the market to change. We need to continuously evaluate different initiatives that could strengthen our position and prove new growth opportunities. o Solution for SA chrome and ferrochrome industry: A value chain that extends over the Indian Ocean - partnership between SA and Chinese companies. China as largest ferrochrome producer and SA as world s largest chromite producer need to work together and to create sustainable joint ventures. It is not sustainable for SA just to export ore. o Solution for the world ferrochrome industry: focusing on niche products with higher margins, like speciality alloys for more sophisticated composite materials.