credit suisse investor presentation...credit suisse investor presentation september 2013 disclaimer...
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established capabilitiesexpanding operations
Credit Suisse Investor PresentationSeptember 2013
Disclaimer
This document is being supplied to you solely for your information and does notconstitute or form part of any offer or invitation or inducement to sell or issue, orany solicitation of any offer to purchase or subscribe for, any shares in theCompany or any other securities, nor shall any part of it nor the fact of itsdistribution form part of or be relied on in connection with any contract orinvestment decision relating thereto, nor does it constitute a recommendationregarding the securities of the Company. No information made available to youin connection with this document may be passed on, copied, reproduced, inwhole or in part, or otherwise disseminated, directly or indirectly, to any otherperson.
Some of the information in this document is still in draft form and is subject toverification, finalisation and change. Neither the Company nor its affiliates noradvisers are under an obligation to correct, update or keep current theinformation contained in this document or to publicly announce the result of anyrevision to the statements made herein except where they would be required todo so under applicable law.
No reliance may be placed for any purpose whatsoever on the informationcontained in this document. No representation or warranty, expressed orimplied, is given by or on behalf of the Company or any of the Company’sdirectors, officers or employees or any other person as to the accuracy orcompleteness of the information or opinions contained in this document and noliability whatsoever is accepted by the Company or any of the Company’smembers, directors, officers or employees nor any other person for any losshowsoever arising, directly or indirectly, from any use of such information oropinions otherwise arising in connection therewith.
This presentation and its contents are confidential. By reviewing and / orattending this presentation you are deemed to accept that you are under a dutyof confidentiality in relation to the contents of this presentation. You agree thatyou will not at any time have any discussion, correspondence or contactconcerning the information in this document with any of the directors oremployees of the Company or its subsidiaries nor with any of their customers orsuppliers, or any governmental or regulatory body without the prior writtenconsent of the Company.
Certain statements, beliefs and opinions in this document and any materialsdistributed in connection with this document are forward-looking. Thestatements typically contain words such as “anticipate”, “assume”, “believe”,“estimate”, “expect”, “plan”, “intend” and words of similar substance. By theirnature, forward-looking statements involve a number of risks, uncertainties andassumptions that could actual results or events to differ materially from thoseexpressed or implied by the forward-looking statements. These risk,uncertainties and assumptions could adversely affect the outcome and financialeffects of the plans and events described herein. Statements contained in thedocument regarding past trends or activities should not be taken as arepresentation or warranty (express or implied) that such trends or activities willcontinue in the future. No statement in this document is intended to be a profitforecast. You should not place reliance on forward-looking statements, whichspeak only as of the date of this document.
You should not base any behaviour in relation to financial instruments related tothe Company’s securities or any other securities and investments on informationuntil after it is made publicly available by the Company or any of their respectiveadvisers. Any dealing or encouraging others to deal on the basis of suchinformation may amount to insider dealing under the Criminal Justice Act 1993and to market abuse under the Financial Services and Markets Act 2000.
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High quality and diversecustomer base
Integrated logistical solution
Strong governance andexperienced management team
Premium product producer
Strong cash flow and competitive cost position
Vast resource base with growth optionality
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2
3
– 100% of production is in the form of iron ore pellets…
– … of which c. half contain 65% Fe
– One of the lowest pelletizing costs in the industry on an FOB basis
– Globally competitive on iron ore concentrate cost curve
– 4.7 Bnt of JORC M&I resources along a single ore body
– Multiple opportunities for brownfield growth– Investment largely completed for 12mtpa of pellets– Potential to increase to 20mtpa of output
– Focus on customers producing high value added steel products who are “crisis resistant”
– Sales split between Europe & Asia
– Stake in Yuzhny port terminal – New top-off vessel in harbor– Own railcar & river barge fleet
– Governance in line with the requirements of LSE Premium Listing
– Management combining international expertise & detailed local knowledge
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5
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Unique Investment Proposition
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Ferrexpo at a Glance Significant resource base
Goris
hne-
Plav
ninsk
oye
and
Lavr
ikovs
koye
1
3.6B
t
Yeris
tovs
koye
2
1.2B
t
Belan
ovsk
oye3
1.7B
t
Gales
chins
koye
0.
3Bt
Zaru
dens
koye
1.5B
t
Vasil
ievsk
oye
1.4B
t
Khar
chen
kovs
koye
2.8B
t
Man
uilov
skoy
e3.
5Bt
Brov
arsk
oye
4.0B
t
6.8 Bnt JORCClassified
ProductionDevelopmentLicence Maintenance
Gdantsev Successionquartzite, schist, filliteschist units
Saksagan SuccessionBIF units
Basementamphilobitegranite, migmatite
13.2 Bnt FSUSoviet Classified
1Operated by Ferrexpo Poltava Mine subsidiary (FPM)2Operated by Ferrexpo Yeristovo Mine subsidiary (FYM)3 Operated by Ferrexpo Belanovo Mine subsidiary (FBM)
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Integrated Logistics Well Located to Supply Regional and Seaborne Markets1H 2013 Sales Volume
Ferrexpo
Marketing officeTarget markets
Traditional marketsNatural marketsGrowth markets
19%
33%
48%
Production Output and Quality‘000 tonnes %
8,76610,031 9,811 9,690
5,246
62
63
64
65
0
3000
6000
9000
12000
2009 2010 2011 2012 1H 2013
Production from FPM Production from FYM
Third party concentrate Average Fe content
Ferrexpo’s Key Objectives
― Enhance competitive position on global cash cost curve
― Increase pellet production to 12mtpa by 2014
― Improve product mix: increase average pellet content to 65% Fe
― Reduce freight costs to Asia to levels below Brazilian competitors
― Expand high quality customer base
― Continue expansion to increase pellet equivalent production output to 20 Mtpa
― Prudent financial management to efficiently fund growth strategy
― Maintain high quality corporate governance associated with a premium listed company
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Pellet Market
Pellet Dynamics within the Iron Ore Industry
Historic volume growth of largest pellet producers
Pellet exports by company (Mt)
2010 2011 2012 2013 CAGR
Metalloinvest 13.2 13.6 14.3 15.0 4%
Ferrexpo 10.0 9.8 9.7 10.7 2%
Samarco 21.4 21.7 21.1 21.9 1%
LKAB 20.4 20.5 21.0 19.6 (1)%
QCM / ArcelorMittal
6.8 5.5 6.3 6.5 (1)%
Vale 30.7 34.4 30.8 26.5 (5)%
Cliffs 12.3 11.5 11.1 10.4 (5)%
IOC 11.5 9.0 9.0 9.0 (8)%
Source: CRU 2Q 2013
CRU forecast the pellet market to remain in balance- Assumes pellet suppliers achieve production guidance
– No significant investment in pellet capacity expected
– Pellet demand remains strong supported by Middle East, Japan, South Korea & Europe
– Leading pellet company’s have a relatively high cost of pelletising, underpinning pellet premiums
6
0
14
28
42
56
70
USc/dmtu
Ferrexpo
0.2 Bnt
ENRCMetalloinvest
IOC
Metinvest MetinvestLKAB
LKABVale
ValeSamarco
Vale
CLIFFS
Pelletising Cost Curve
Source: CRU, January 2013
Pelletising – Competitive Cost Position
Note: Only reflects costs incurred at pelletising stage of the production process (i.e. does not include mining, concentration and beneficiation costs) and as such should not be considered as a cost curve for total cost of pellets production. Site costs are defined as cash operating costs plus share of local overhead and sustaining capital
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Overall Cost Position
Source Bank of America Merrill Lynch; Ferrexpo , August 2013
CIF China 62% Fe Equivalent Unit Concentrate Cash Cost1
US
$/to
nne
1 In order to determine a comparable CFR cost of concentrate for Ferrexpo, the cost of pelletising has been deducted. The calculation is as follows: C1 cash cost of production + freight to Port Yuzhny + sea freight to China – less pelletising cost - premium for higher Fe content.
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mtpa
0
20
40
60
80
100
120
140
0 200 400 600 800 1000 1200 1400
Rio TintoValeBHPMid cost producersChina - low costChina - mid costChina - high cost Ferrexpo
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Established Capabilities & Expanding Operations
Ferrexpo has a Solid Track Record
US$m (unless otherwise stated) 2007 2008 2009 2010 2011 2012 1H 2013
Total pellet production (‘000 tonnes) 9,072 9,035 8,767 10,031 9,811 9,690 5,246
UAH - USD exchange rate 5.1 5.3 7.8 7.9 8.0 8.0 8.0
China spot, 62% Fe fines 72 143 78 143 166 125 137
EBITDA per tonne (own ore) ($/t) 27 61 16 67 88 43 47
EBITDA (US$M) 246 503 138 585 801 402 244
EBITDA margin 35% 45% 21% 45% 45% 28% 31%
Cash flow from operations (US$M) 189 371 77 380 503 119 83
Sustaining CapEx (U$M) 50 71 21 49 128 114 52
Development CapEx (US$M) 55 206 65 118 250 316 95
Net debt to EBITDA (x) 0.5 0.4 1.9 0.2 0.1 1.1 1.4*
* last twelve months10
Cashflow positive through cycle Significant investment since 2008 to yield benefits in 2014 & beyond
C1 cash cost: 1H 2013 vs. October 2008 (like for like basis pre-devaluation), CAGR 4%
Effective Cost Management
C1 ca
sh co
st US
$ per
tonn
e
11
51.0
61.8
63.9
59.7
40
45
50
55
60
65
70
C1 Oct 08 C1 1H13 C1 1Q13 C1 2Q13
24%
13%
12%7%4%
12%
15%
11%2%
ElectricityGasFuelGrinding mediaExplosivesOther materialsSpare parts, maintenance & consumablesPersonnel costsRoyalties & levies
Benefit of past investments starting to come through
Breakdown of C1 cash cost
Significant & Growing Logistics Capability
“Building the Bridge to Asia”– 11 capesize vessels loaded in 1H 2013 (1H 2012: 8)
– Over 20 expected in 2013
– Panamaxes reduced and phased out
– Implementation of strategy to develop Yuzhny/Qingdao route
– Group loading facility reduced top-off costs by US$1.8 per tonne
– Avg freight cost in 1H 2013, 33% lower vs. (11%) in C3 index
– Developing seaborne logistics to Natural & Growth markets
– Own approximately 2,000 rail cars (lowers rail costs, guarantees wagon availability and reduces risk of contamination)
– Integrated barging operations on the Dnieper, Danube and Rhine Rivers (140 barges for dry cargo)
Ferrexpo seaborne freight costUS$/tonne
TraditionalNaturalGrowth
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21
26
31
36
41
1H 2010
2H 2010
1H 2011
2H 2011
1H 2012
2H 2012
1H2013
Ferrexpo Yuzhny - Qingdao
C3 Tubarao-Qindao
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Marketing Expansion with Focus on Premium Crisis Resistant Clients
– Since 08/09 have redirected sales volumes from price sensitive customers in Ukraine, Serbia and Hungary
– Opened sales offices in Singapore, Dubai, Tokyo, Shanghai
– Expanded long term contracts with customers in Turkey & Germany (Natural markets)
– Continued expansion in growth markets
– Captured significant market share with China’s leading steel mill
– Japan recovering, renewed long term contract & trial cargo
Sales Volume by Contract Type Strengthening & diversification of customer base
Sales Volume by Market
40%
14%
46%
Benchmark indexedSpotQuarterly negotiated
1H 2013
78%
60%48%
7%19%18%
27% 33%
2008 2010 1H 2013
TraditionalNaturalGrowth
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Prudent Investment in Low Risk Brownfield ProjectsCapital ExpenditureUS$ MM
66118
252317
9521
49
128
113
52
0
100
200
300
400
2009 2010 2011 2012 1H 2013
Sustaining Capex
Development Capex
(1)
63.5% Fe 63.5% Fe 65.0% Fe 65.9% Fe
10Mtpa2012
11Mtpa2013
12Mtpa2014
12Mtpa2015
20-22Mtpa2017
First ore at FYM to be processed using FPM’s spare capacity– US$485M invested in FYM since 2008– Incl’s pit development, mine infrastructure & utilities
FPM quality upgrade: capability to produce all pellet output with 65% Fe content– Average pellet Fe currently 63.4%– US$65M spent since 2011 (US$160M remaining) – Maintain existing production while complete required work
Beneficiating facilities at FYM– Initial investment of US$30M was approved in October 2012– Project subject to market conditions– To be funded principally out of operating cashflows– Can be a phased development to manage risk and funding– Estimated Group production, at full capacity, of 12mtpa 65% Fe and 10mtpa 67% Fe
concentrate
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– Modernization and debottlenecking of FPM processing facilities to increase output up to 12mtpa
– FPM quality upgrade programme to increase pellet Fe content
– FPM mine life extension– Development of FYM deposit, Group’s 2nd open pit
mine now operational– Logistics: railcars & shipping
A well invested asset base due to:
Past investment reducing operational risk, next stage to further develop a high quality asset base
Output to Grow to12mtpa; thereafter FYM can add Further Tonnage
Increase pellet output up to 12mtpa (2014) – Average cost of processing FYM ore cheaper than FPM ore – Reflects lower mining costs, higher Fe content on average & better processing characteristics– Other benefits of going to 12mtpa:
– Fixed cost dilution on c. 3mtpa (fixed costs represent approximately 30% of total costs)– Freight savings from higher volumes, aim to do 4 capes per month
– Total investment to 1st ore at FYM: $0.5bn from 2008 to 2013, low FYM maintenance capex going forward
Produce high grade concentrate up to 10mtpa (2017)– Incremental 2.5mt of concentrate up to 10mtpa – Total investment for 10mtpa concentrator expected to be approximately US$85/tonne, one of the lowest in the
industry– Phasing of investment possible to assist funding– Expected cost of FYM concentrate to be at least 10% less than FPM concentrate
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Strong Balance Sheet with Low Gearing
US$M 1H 2013 31 Dec 2012
Cash and Equivalents 446 597
Total Gross Debt 1,013 1,020
Net Debt (566) (423)
Total Equity 1,616 1,570
Undrawn Facilities 25 0
Total Liquidity (Facilities + Cash) 472 597
2007 2008 2009 2010 2011 2012 1H 20131
0.5 0.4 1.9 0.2 0.1 1.1 1.4
49%
41%
8%
2%
FXPO 16's
PXF loan
ECA funding
Equipmentleasing
Net Debt / EBITDA (x)
1 Last twelve months
― Gross facilities reflect additional ECA financing― Good levels of liquidity retained― Minimal debt repayments in 2013 & 2014― Balanced interest rate exposure, 55% fixed
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Ukraine
– Established steel & iron ore industry, major contributors to economy– Well located to export to major steel markets– Possible IMF deal– Possible EU trade agreement– Possible Russian customs union agreement– Potential reduction in high gas prices set by Russia– Current account deficit (funded by foreign borrowings) but large external debt refinancing requirement in 2013 &
2014– Devaluation likely as FX reserves reduce, current balance c. U$23 billion, under 3 months of imports– High level of VAT arrears a form of off balance sheet financing
A devaluation will reset cost base, with higher production largely offsetting future inflation– 70% of production cost (C1 cost + rail to border) in UAH
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Possible resolution of VAT arrears in pipeline– Draft law in process for issue of VAT promissory notes to industry (US$305M owed to Ferrexpo, as of 30 June 2013 US$38M
provision taken)
Ferrexpo a World Class Iron Ore Pellet Producer
Summary
– FXPO has solid track record of quietly delivering
– Prudent investment of past set to deliver benefits
– FYM is a significant opportunity to increase production
– Continued management of Ukrainian country risk, well understood
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Thank you, the end.
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Appendix
Ferrexpo PLC Introduction
Company Description
Ferrexpo is a Swiss headquartered iron ore company with assets in Ukraine. It has been mining, processing and selling highquality iron ore pellets to the global steel industry for over 35 years. Ferrexpo’s resource base is one of the largest iron oredeposits in the world. In 2012, the subsidiary, Ferrexpo Poltava Mining (FPM), produced 9.3 million tonnes of iron ore pellets, whilefirst ore was reached at the new Ferrexpo Yeristovo Mining (FYM) open pit. Ferrexpo is a top 5 seaborne supplier of pellets andthe largest exporter of pellets in the CIS. The Group has a diversified customer base supplying steel mills in Austria, Slovakia,Czech Republic, Germany and other European states, as well as in Turkey, China, India, Japan, Taiwan and South Korea.Ferrexpo is listed on the main market of the London Stock Exchange under the ticker FXPO.
Enterprise Value
As of 13 September 2013
Share price 183p
Shares out 585M
Market capitalisation US$1,743M
Cash (30 June 2013) US$446M
Total debt (30 June 2013) US$1,013M
Enterprise value US$2,310M
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Strong Corporate Governance and Experienced Management Team
Corporate Governance
Ferrexpo is fully compliant with the UK Combined Code of Corporate Governance
Independent Board of Directors is responsible for setting and reviewing the strategy of the Group and approving major financial items, including the annual budget and business plan
Michael Abrahams is an IndependentNon-executive Chairman
The Board consists of two Executive Directors and five Non-executive Directors, four of whom are independent
The Board meets at least five times a year
Board of Directors
Non-executive Directors Executive Directors
Mike Salamon
Oliver Baring* Ihor Mitiukov* Kostyantin Zhevago, CEO
Wolfram Kuoni* Raffaele (Lucio) Genovese*
Christopher Mawe, CFO
Non-Executive Chairman
Michael Abrahams*
* Indicates Independent Director
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Natural iron ore depositsHematite deposits 50-70% iron content Mined mainly in
Australia and Brazil Shipped without need for
additional processing due to higher iron content
Magnetite deposits Typically <40%
iron content Mined mainly in
North America, Russia, Ukraine, and China
Requires processing (beneficiation) to produce high grade product for sale (e.g., iron content of 62-65%)
The advantage of magnetite is that the oxidation of ferrous oxide to ferric in sintering or pelletisingreduces energy requirements in the steel making process
Fines (150μm - 6.8mm) From hematite ore,
c. 60% of global ironore production
Global benchmark for iron ore pricing
Agglomerated into ‘sinter’ at the sinter plant of a steel mill before use in a furnace. The resultant operating cost causes fines to have a lower relative value
Lump (6.8mm - 15mm) From hematite Can be charged
directly into furnace, enabling steel producer to avoid sintering, thus sold at premium to fines
Concentrate (60μm - 150μm) From magnetite Also known as pellet
feed Lowest value form of
iron ore, since the required pelletising is more costly than the sintering required for fines
Iron ore pelletsPellets (10mm)
From magnetite,c. 26% of global iron ore production
Uniform in size and composition (c.62-65% iron content)
Highest value form of iron ore since pellets are the most efficient source of iron for a steel furnace …
… thus commands a premium on the market relative to fines, lump and concentrate
Manufactured by agglomeration of concentrate (“pellet feed”) in a pelletising plant
Steel Iron ore (in the
form of fines, lumps orpellets), coke (from coal) and scrap steel are the primaryinput materials for theglobal steelmaking industry
Steel is produced either through blast furnace (chemically reducing iron ore by mixing it with coke) or electric arc steelmaking (primarily melting scrap steel)
Steel is widely used in construction, automotive, industrial, shipping and other applications
Iron Ore: Primary Input Material for SteelmakingIron ore pellets are the most efficient source of iron to a steel furnace
Iron ore fines / lump / concentrate
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Group Investor RelationsIngrid McMahon – i.mcmahon@ferrexpo.ch+44 207 389 8304www.ferrexpo.com
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