Stainless Steel Materials - South African Fund Manager Presentation : June 2003 Dr Chris Pointon - President, Stainless Steel Materials Customer ...
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Stainless Steel Materials South African Fund Manager Presentation : June 2003 Dr Chris Pointon – President, Stainless Steel Materials Customer Sector Group
SSM already has a established production and marketing
presence
The Hague - Marketing
QNI
Yabulu
Refinery
Philippines
New
Indonesia Caledonia
Western
Cerro Matoso Australia
Colombia Operations
South Africa
Exploration Samancor Chrome
SSM SA Fund Manager Presentation Ni/Cr marketing office
Page 2 June 2003Stainless Steel Value Chain
Raw Materials Melting by Grade Product Form End Use
4.5 Mt 75% Austenitic 70%
Stainless 30% Process
US$ 2.5 Bn Steel Scrap Plant
12 Mt
Flat products 10% Building &
AISI 300 series US$ 24 Bn construction
Sheet/Strip/Plate
18% Cr
650 kt 8% Ni 25% Transport
Primary Nickel
US$ 4Bn 70% Fe
20% Food &
30% Beverages
handling
4 Mt Long Products
US$ 3 Bn Ferrochrome Bar/rod/wire 15% Consumers
24% Ferritic/Martensitic
3 Mt
AISI 400 series 80% Automotive
12 - 17% Cr US$ 4Bn
US$ 0.5 Bn? Other Ferroalloys 80 - 90% Fe Consumer
& Slag Formers Flat Products
Durables
1% Mn Grades
7 Mt 1 Mt 20% Building &
US$ 0.7 Bn AISI 200 Series US$ 1Bn Long Products Construction
Steel Scrap
SSM SA Fund Manager Presentation
Page 3 June 2003Stainless Steel is the fastest growing major use of metals, and
will continue to grow strongly
Stainless Slab Production – million tonnes
25
25
20 China
20
15 Russia Other
15
10 Japan
10
W. Europe
55
00 USA
1970
1970 1975
1975 1980
1980 1985
1985 1990
1990 1995
1995 2000
2000
SSM SA Fund Manager Presentation
Page 4 June 2003Chrome Value Chain – >80% of ore converted to FeCr, and
75% of FeCr used in stainless steels
Independent Low-carbon
5%
Alloyers ferrochrome Other uses 25%
15%
Medium-carbon
Ore 3%
ferrochrome
Production
82% Integrated High-carbon
Alloyers ferrochrome & Stainless Steel
Production 75%
85% Charge chrome 92%
Chemical
10% Producers
* Percentages based on
contained chrome units
8% Refractories Ferrochrome
production 2000
& Foundries LCFeCr = 240 kt
Total = 13 Mtpa MCFeCr = 140 kt
SSM SA Fund Manager Presentation HCFeCr = 4900 kt
Page 5 June 2003 Source: SamancorAustenitic Stainless has maintained a strong growth trend.
Primary Ni and FeCr inputs will grow proportionately faster as
scrap supply is constrained
Primary Growth - Rising to 5%pa
Secondary Growth - Exceeding Primary CAGR Projections
1989-2002 2003-2010
6,000 16000 5.4% >5%
14000 6.7% >4.5%
5,000
Austenitic Steel Production
(Right Hand Scale)
12000 3.1% >5.0%
4,000 Stainless Steel Scrap (*) 10000
High Carbon Ferrochrome
kt
3,000 Production 8000
6000
2,000
Primary Nickel
4000
production 4.4% >5%
1,000
2000
0 0
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
SSM SA Fund Manager Presentation
Page 6 June 2003
Note: * Excludes internal scrapThe primary nickel supply business has high financial and
technical barriers to entry
High Capital
Intensity, Technical
Barriers to entry Complexity
HIGH
Capital Efficient
Growth
Industry
Supplier power rivalry Buyer power
HIGH MODERATE TO HIGH MODERATE TO HIGH
Market demand
growing @ 4-5%pa
Threat of
substitution Growth
Sustainability
LOW
SSM SA Fund Manager Presentation
Page 7 June 2003A primary nickel supply gap is set to emerge over the present decade. Only three
major projects at Feasibility. Lead times for new projects are 7-10 years.
The majority of current production is from sulphide mines, but most new nickel
projects will be from laterite ores.
Mt
Nickel reserves Nickel production
1.7
sulphide 25%
1.6 oxide sulphide 60%
40%
oxide 75% Use
1.5
“Supply Gap”
1.4
BHPBilliton
1.3
VBN
Market surplus Goro
1.2
Brownfield expansions
1.1
Capacity in 2002 less sulphide depletion
1.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
SSM SA Fund Manager Presentation
Page 8 June 2003Cerro Matoso Project – Colombia – 99.8% Ownership
Production History
50,000 2.50
US$/lb Ni (Real 2003)
45,000
40,000
35,000 2.00
30,000
25,000
20,000
1.50
15,000
10,000
5,000
0
1.00
83 88 93 98 2000 2001 2002 2003
1998 1999 2000 2001 2002 2003
Reserves : 46.9Mt @ 1.93% Ni Year Ending June
Resources : 65.4Mt @ 1.75% Ni
NB based on 1.1% Ni cut-off C1 Cost C3 Cost
Lost Time Injury Frequency Rate
5
4
3
LTIFR
2
1
0
1998 1999 2000 2001 2002 2003
SSM SA Fund Manager Presentation Year Ending June
Page 9 June 2003The QNI strategy
Ore processing plants
Optimise Yabulu margins at world class
orebodies with
• Incremental value-added expansion of refinery
Stabilise Yabulu operation part of Yabulu
product development.
• Incremental Ni and Co
• Zero harm • Phase I:
production increases:
• Catch-up maintenance. Concurrently develop
•YOI quick payback
• Commence installation of Ravensthorpe and
project suite
modern management Yabulu Extension
•LGSO strategy
practices. Projects.
• Cost reduction initiatives:
•Small group projects • Phase II:
Utilities due for Develop 2nd Ore
•Capitalise on gas at
completion in FY04 Processing project at
Yabulu site
•Best management suitable orebody with no
practices, particularly further expansion of
Maintenance Yabulu
• Establish own mine for up to
one third of ore supply. Feasibility Study
SSM SA Fund Manager Presentation
Page 10 June 2003
In ProgressQNI Yabulu – Australia - 100% Ownership
32,000 9
LTIFR
31,000 8
7
30,000
Tonnes Ni
6
LTIFR
29,000 5
28,000 4
3
27,000
Nickel - Tonnes 2
26,000 1
25,000 0
1998 1999 2000 2001 2002 2003
Year Ending June
Yabulu Site Cash Cost of Production after Cobalt Credits
3.25
US$ / lb
3.00
2.75
Normalised on FY03 Assumptions:
LME $3.44 US$/A$ 0.584 Oil A$301/t Coal A$60/t
LMB $7.34 Insurance A$5.7m Naphtha A$734/t
2.50
FY00 FY01 FY02 FY03
SSM SA Fund Manager Presentation Site Cash Cost of Production after Cobalt Credits
Page 11 June 2003
Linear (Site Cash Cost of Production after Cobalt Credits)YER nickel project benchmarks well and enhances the
competitiveness of Yabulu Central Refinery
3.50
3.00
Higher capex has eroded
US$/lb (C3 Costs 2005)
2.50 C3 position
2.00
Inco Sudbury
SLN Expaned
By-product Ni
Voisey's Bay
Mt Keith Expanded
Yabulu + YER
Murrin Murrin
1.50
Yabulu
Pamco
PT Inco
CMSA
Goro
YER
1.00
0.50
0.00
0 200 400 600 800 1000 1200
Nickel (ktpa)
US$/lb
Feasibility
18.00
study estimate
16.00
excluding power
Prefeasibility study plant.
14.00 estimate.
12.00
YER
10.00 Feasibility study capex
8.00
estimate to concentrate
only. RNO
6.00
4.00
2.00
0.00 Voisey's Bay Murrin
Koniambo Cawse Bulong Lomo de PT Inco Goro
CMSA YER
Mine & Conc Murrin Niquel
Greenfield & Brownfield Capacity per lb
SSM SA Fund Manager Presentation (excludes working capital & inflation)
Page 12 June 2003The FeCr industry has high internal rivalry, low barriers to
entry, but growth is strong and there is no substitute, except for
scrap
Low capital cost per tonne FeCr capacity
Barriers to Entry
LOW
Depends upon SS cycle
SA to remain ore-long and scrap availability
Industry
Supplier power Buyer power
rivalry
HIGH HIGH HIGH/CYCLICAL
Threat of
substitution
LOW
SSM SA Fund Manager Presentation No substitute for Cr, but scrap cyclical
Page 13 June 2003Ferrochrome demand growth outlook is robust – supply side is
thus the issue
14,000 50,000
Ferrochrome Demand (LHS)
Stainless Steel Production (RHS) 45,000
12,000 •Stainless growth 2005 – 2020: assumed 5% per annum
•Ferrochrome demand = Stainless + other uses consumption 40,000
•Growth rate of secondary chrome units decline from 2005 onwards
10,000 35,000
30,000
8,000
(kt) 25,000 (kt)
6,000
20,000
4,000 15,000
1990- 1995- 2000- 2005- 2010-
10,000
Grow th Rates 1995 2000 2005 2010 2020
2,000 Total Ferrochrome demand
growth (%) 4.7% 3.0% 4.0% 4.7% 5.2%
No. of standard 120 kt
5,000
furnaces required per
annum 1.3 1.0 1.6 2.4 3.8
0 0
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
SSM SA Fund Manager Presentation
Page 14 June 2003South Africa dominates the primary FeCr sector and will have
the major share of future expansions
Kazakhstan
World Chrome Ore Reserves
Zimbabwe
India
7% Finland
1% 1% Other
19% 2%
South Africa
70%
Asia Other
12% 8% Samancor
World Primary Chrome Zimbabwe
16%
Supply 7%
Xstrata
20%
ASA
1%
Scandinavia Hernic Feralloys
9% Kazchrome 5% 5%
SSM SA FundSource:
Manager Presentation
Samancor SA Chrome
15%
Page 15 June 2003 1%Ferrochrome falling price trend is a continuing challenge to the
industry
USc/lb (Real)
160
CAGR Price (80 - 00) = -3.24% Largest risk s to cost
140 •Reductants
•Electricity
120
100
80
60
40 CAGR Cost (80 - 00) = -4.3%
20
80
85
90
95
00
19
19
19
19
20
SSM SA Fund Manager Presentation
Page 16 June 2003 Source: CRU, Samancor AnalysisSouth Africa has failed to create industry discipline for FeCr
growth, and has exported most of the value of its dominant
supplier position
Index SA production and Revenue (1996-2002) SA Accounted for the 100%
of net increase in FeCr world
Revenue in real US$ based on CRU US Import list price – 50-55%
180%
capacity since 1995 (1.53Mt)
SA FeCr Production Xstrata 620 kt
160%
Hernic 260 kt - new entrant
SA FeCr Revenue
140% SA Chrome 230 kt – new entran
Assmang 200 kt
120% Samancor 160 kt
ASA 60 kt – new entrant
100%
CAGR
Production + 6.6%
Revenue -2.0%
80% SA has been the price setter in
the industry in the past 7 years
60%
1996 1997 1998 1999 2000 2001 2002
But the total revenue to SA
industry declined in real terms
since 1996
SSM SA Fund Manager Presentation
Page 17 June 2003BEE and the Ferrochrome business
6000 700
• The historic trend in SA capacity growth will 5500
600
Capacity
continue. Entry barriers will be lower, as 500
additions
producers will not be able to retain unutilised 5000
400 Demand
(kt)
resources. 4500
300
Supply
• However, costs will rise - Rand, reductant 200
4000
costs, increased electricity prices, social 100
obligations for South African producers. 3500
1999 2000 2001 2002 2003 2004 2005
0
Capacity additions 40 220 260 348 482 336
• Will HDSA participation in FeCr Smelters be Demand 4530 4599 4409 4717 5011 5076 5374
profitable? Supply 4622 4918 4040 4350 4976 5458 5794
Hence HSDA business focus will likely center SA Project IRR ~ 12.5% Real
Cr Realized price CIF US c/lb
on: 38
36
34
• Procurement 32
30
• Mining and ore preparation 28
26
• Community development
24
22
20
• New smelting where there is a genuine 0.08 0.1 0.12 0.14 0.16 0.18
Electricity Price R c/kWh
8 R:US$ 9 R :US$ 10 R:US$
0.2 0.22 0.24
low cost position
SSM SA Fund Manager Presentation
Page 18 June 2003Samancor Chrome (60% Ownership) : a Turnaround Asset
PRODUCTION FACILITIES
SOUTH AFRICA
!
!
! !
WCM !
!
! ! Tubatse (incl ECM)
!
MFC/MTC
! !
! !
!
!
!
Ferrometals/IC3
! !
! !
!
!
!
! !
! !
!
!
!
!
!
! !
Chrome Ore
!
!
!
!
!
!
!
Ferrochrome
!
!
! !
!
!
! !
!
!
! !
Reserves : 40Mt @ 42.4% Cr
Resources : 570Mt @ 43.3% Cr
NB based on 38% Cr cut-off
SSM SA Fund Manager Presentation
Page 19 June 2003Restructuring of Chrome Division by a 3 Horizon Strategy
Reposition in Future
Optimise value chain Industry Context
through prudent •Understand emerging industry
dynamics.
Manufacturing mindset to investment •Understand SA Government
•Understand future customer approach to FeCr industry.
reposition chrome at the bottom requirements. •Understand new product
of the cost curve •Implementing high IRR capacity requirements in advance of the
creep projects at the works. rest of the producers by working
• Zero harm •Rationalise the mines with the value with customers.
• People lynchpin everything. chain as the driver.
• Eliminate waste.
• ETG, furnace and mine stability,
Procurement & contractor management,
maintenance, GSAP&MES, Six Sigma.
• Site specific cost reductions.
•Increasing business maturity
•Improving market / production interface
SSM SA Fund Manager Presentation
Page 20 June 2003Variable cost drivers + results against benchmark
show positive trends.
Cost Driver FY00 FY01 FY02 FY03
SEC (k/Wh/ton) 3.98 4.08 3.79 3.90
Ore (t/t) 2.43 2.58 2.54 2.49
Reductant (t/t) 0.64 0.65 0.63 0.64
Cr Recovery (%) 79.24 72.23 74.1 76.51
Cr content (%) 51.3 51.1 50.9 50.9
Smelter Cost (R/t Real 2000)
1700
1600
1500
1400
1300
FY00 FY01 FY02 FY03
SSM SA Fund Manager Presentation Samancor Benchmark
Page 21 June 2003Supply and demand balance – Samancor production
1400 900
Cumulative Balance (Right-hand scale) Production Demand 800
1300 700
600
1200
500
(000’t)
400
(000’t)
1100
300
Forecast
200
1000
100
900 0
-100
800 -200
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2000 2000 2000 2000 2001 2001 2001 2001 2002 2002 2002 2002 2003 2003 2003 2003 2004 2004 2004 2004
270
Samancor Production
250
230
(000’t)
210
190
170
150
SSM SA Fund Manager Presentation
Page 22 June 2003Conclusion
• Stainless steel – the highest growth major use of metals – provides a
strong market for primary FeCr and Nickel
• A looming nickel supply gap is becoming apparent, a result of high
entry barriers and inadequate returns on capital in 1990s
• SA will provide new FeCr capacity to meet the strong, but volatile,
demand growth
• Uncontrolled FeCr capacity growth in SA has led, and may continue to
lead, to significant value transfer to overseas customers.
• For Samancor Chrome, cost-efficiency is key, as input costs in SA are
likely to increase
• BHP Billiton is a mature nickel producer, customer-focused with
options for further capital-efficient growth
SSM SA Fund Manager Presentation
Page 23 June 2003You can also read
