Brazilian Copper & Scrap Industry overview. June 2 nd, 2014

Transcription

1 Brazilian Copper & Scrap Industry overview June 2 nd,

2 Disclaimer and Forward-looking Statements This presentation may contain certain forward-looking statements and information relating to Paranapanema S.A. that reflect the current views and/or expectations of the Company and its management with respect to its performance, business and future events. Forward looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and may contain words and/or any other phrases of similar meaning. Such statements are subject to a number of risks, uncertainties and assumptions. We caution you that a number of important factors could cause actual results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in this presentation. In no event, neither the Company nor any of its subsidiaries, affiliates, directors, officers, agents or employees shall be liable before any third party (including investors) for any investment or business decision made or action taken in reliance on the information and statements contained in this presentation or for any consequential, special or similar damages. This presentation and all its contents are proprietary information and may not be reproduced or otherwise disseminated in whole or in part without the prior written consent of the Company. The information contained in this presentation is subject to change from time to time without notice and the Company is under no obligation to keep you advised of such changes. 2

3 Agenda 1 Introduction 2 Copper Industry Overview 3 Brazilian Market / Paranapanema 4 Business Model 3

4 1 Introduction 4

5 History of Continuous Corporate Development 60/70 s Established in 1961 Shares listed on the São Paulo Stock Exchange in 1971 Focus on heavy construction and tin mining A group of Pension Funds, lead by Previ invested in Paranapanema First issuance of local debentures 80/90 s Investments concentrated in non-ferrous activities Focus on deleveraging and improving capital structure Merge of Caraíba Metais, the largest producer of primary copper in Brazil, with Eluma, 2 nd largest producer of semimanufactured copper products Divestiture of non-core businesses New management to lead the Nova Paranapanema project New rules (regulation of import tax), removing benefits for imported products Expansion of the Dias D Avila (BA) plant for the production of copper cathode 2011 Large investments in expansion and modernization New organization structure New CEO Operating and financial turnaround Focus on increasing margins and strengthening cash generation Enhanced Risk Management Increased Corporate Governance New copper pipe mill at the Utinga plant employing Cast & Roll Technology 5

6 Paranapanema at a Glance Overview Paranapanema is the largest player in the Brazilian copper industry with leading market shares in all segments It is the biggest copper Recycler in South America. Owns 4 industrial plants, including the only smelter in Brazil responsible for 94% of domestically refined copper Long-term relationship with suppliers and customers Paranapanema s cathode is listed in the LME and SHEX and its brands are known in the market for their superior quality Consolidated turnaround with several consecutive quarters of improving financial results Positive industry fundamentals with copper consumption growing far above GDP Financial Highlights Solid Shareholder Base Sale of Refined Copper (kt) Sale of Semi-manufactured Copper (kt) % Market 24% Net Revenues (million) R$4,098 R$5,549 Adjusted EBITDA* (million) R$42 R$332 Adjusted EBITDA Margin 1.0% 6.0% 6% 17% True corporation with no controlling shareholder or shareholders agreement Net Debt (million) -R$103 R$724 Net Debt / Adjusted EBITDA -2.4x 2.2x 8% EWZ 12% Gross Debt / Adjusted EBITDA 16.6x 3.6x * Adjusted for Non-Recurring Results Source: Company Information 6

7 2 Copper Industry Overview 7

8 Drivers of Global Copper Demand International Copper Market World s Copper Market (in copper equiv.) China is the most important player accounting Copper Concentrate Production for 44% of the global consumption China also holds a disproportionate amount of global stocks Strong growth of copper mining supply in 2013/14 puts upward pressure leading to higher TC/RC (larger discounts to smelters) Copper Smelter Production Although expected growth in refined production will surpass growth in demand, tightness in the physical market results in higher premiums Refined copper prices to come under downward pressure over the next few years E Refined Copper Consumption Total Demand 2013(E): 20.7 million t Global output 2013(E): 20.9 million t E Source: Wood Mackenzie as of

9 Global Markets of Copper Concentrate Copper Concentrate (million t) Global Production of Copper Concentrate (million t) Others 24% Chile 33% Brazil 1% Congo 5% E 2015E Mine Production Smelter Production Zambia 4% Canada 3% Australia 5% USA 7% China 9% Poland 2% Peru 7% Source: Wood Mackenzie and Reuters Future Contracts (US$/t) Improvement in copper concentrate discounts may reduce interest in expensive copper scrap TC/RC ¹ 359,5 395,0 520,0 515, E 2014E 2015E 9

10 3 Brazilian Market 10

11 Trends for the Brazilian Copper Industry Copper Concentrate Production ( 000 t) Refined Copper Production ( 000 t) Refined Copper Consumption ( 000 t) E 2014E 2015E E 2014E 2015E E 2014E 2015E Consumption of refined copper in Brazil increased 5.5% in 2013 vs Expected growth of copper consumption in Brazil is supported by: Recovery on the domestic industrial production (end of the Port War ) Investments in Infrastructure: e.g. World Cup and The Olympic Games Growth in primary consumption and the Real Estate sector Paranapanema owns the only smelter in Brazil, responsible for 94% of the domestic production of refined copper Source: Wood Mackenzie 11

12 Global & Brazilian Copper Markets FORECAST REGIONS (kt) Africa North America LATAM Asia Europe Middle East Oceania Total Brazil MINE PRODUCTION REFINED PRODUCTION REFINED USAGE Chinese GDP is 3.4x the Brazilian GDP China consumes 20x more copper than Brazil Source: Wood Mackenzie and Paranapanema 12

13 Brazilian Copper recycling overview Copper Scrap consumption in Brazil 2013 (t) IMPORTED % Importers 2013 Others 14% Total: 139,600 Source: Paranapanema & market DOMESTIC % PMA 86% Copper Scrap utilization 2013 (t) Copper Scrap Trade Balance (t)* (Jan-Apr) % % Imports Exports DIRECT MELT SMELTER/REFINING Source: Aliceweb *Excluded residues IMPORTS BALANCE EXPORT 13

14 Production and Sales Volume Production Volume Primary Copper ( 000 t) Production Volume By-Products ( 000 t) Production Volume Copper and Alloy ( 000 t) Sales Volume By product (2013) Primary Copper 33% Copper Products 61% By Products 6% Source: Company Information 14

15 4 Business Model 15

16 Paranapanema Holds Key Position in the Brazilian Copper Industry 62% of Brazilian consumption Paranapanema recycles about 80.5 kton/year of scrap MINING Vale Caraiba/Glencore Yamana Gold 94% of domestic production COPPER CHAIN IN BRAZIL Bars Source: Wood Mackenzie and Paranapanema 16

17 Core Business in Copper Processing Suppliers Primary (Refined) Copper Semi-manufactured Copper Products Clients Largest Brazilian producer of refined copper with more than 50% of total sales Export 36% Domestic 64% Chile as main copper concentrate origin (~75%) 1 Primary Copper Unit (Only Smelter in Brazil) 3 Copper and Copper Alloys Product Units 1 Distribution Center Exports to over 30 countries ROD (Largest supplier of copper rods in Brazil) Copper Concentrate + Copper Scrap WIRE CATHODE CATHODE BY-PRODUCTS: Precious metals, sulfuric acid, iron silicate, anodic slimes and others Source: Company Information 17

18 Industrial Footprint Production Plants and Raw Materials Supply Efficient Distribution Channel Dias D Ávila (BA) Smelting and refining of primary copper, cathodes, rods, drawn wire and by-products Paranapanema currently owns four processing plants and one distribution center: I. Santo André (SP): 2 units II. Serra (ES): 1 unit III. Dias D Ávila (BA): 1 unit (smelter) IV. Distribution center (RJ) Peru Supplier of copper concentrate Chile Main supplier of copper concentrate Production plants Distribution center Serra (ES) Production of copper and bronze fittings for civil construction Capuava Santo André (SP) Production of copper tubes for industry and civil construction Utinga Santo André (SP) Production of copper and brass bars, wires, laminates and bronze Copper Concentrate Origin Paranapanema s processing plants are strategically located close to its main consumer markets Imported copper concentrate comes through the Aratu port (State of Bahia) Local copper concentrate origination is justified by lower logistic costs for the processing in Dias D Ávila Estimated Market Share of 62% in scrap origination all over Brazil Sales of sulfuric acid within a 50km radius of the smelter Anodic slime generated is refined in Europe or Asia yielding 1.6 t of gold, 50 t of silver and others precious metal per year Source: Company Information 18

19 Sales Across a Diversified Industry Base Energy / Electricity Traders /Retail Industry Civil Construction Cables, Wires and Connectors Cathods, Rods and Wires Rolling, Flats and Bars Tubes, fittings, gas, bus bars for electrical power, wires and power cables Refrigeration Clothing Automotive Others Tubes Copper alloys used in buttons, zippers, jewelry, surgical tools Electrical vehicles, brake pads, radiators and heat exchangers Wirehouse, solar panels, wind mills and ethanol production, others Source: Paranapanema 19

20 Total Revenue Metal Revenue Metal Cost Value Creation Rationale TC/RC + Dicount Cu recycled + premium + byproducts revenues Premium Management Net financial expenses + D&A + Operating expenses Cost control EBT EBITDA R$ 5.5bn R$ 5.2bn Risk Management Risk Management Premium Management Cost Controls Mitigate currency and commodity volatility impact on results I. Hedge of metal exposure II. Strict dollar-denominated cash flow hedging Well structured Governance, policies and controls Source: Company Information TC/RC Recycling quality process Otimization of premium matrix Price premiums denominated in US Dollar Premiums not linked to LME quotation Introduction of Zero Base Budgeting Leveraging on improved technologies Processes/plants consolidation More efficient funding structure Transformation costs mostly in Reais 20

21 Thanks 21