business update - ferrexpo
TRANSCRIPT
0
Business UpdateAnalyst Site Visit
October 2013
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 established production facilities
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2
3
– 100% of production is in the form of iron ore pellets…
– 50% of which c. half contain 65% Fe– No production major outages
experienced
– One of the lowest pelletizing costs in the industry on an FOB basis
– Globally competitive on iron ore concentrate cost curve
– 2.1 Bnt of JORC M&I resources– ca.27 years of reserve life1
– Opportunities for further brownfield development of production facilities– Investment largely completed for 12mtpa of pellets & increase in quality
– 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 (2,200 units) & 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
6
Ferrexpo Poltava Mining (FPM) a World Class Pellet Producer
1
1 Estimate based on total reserves of 824 Mt and average ore mining rate of 30Mtpa
FPM Key Objectives
― Continue to increase production to 12mtpa
― Improve product mix: increase average pellet content to 65% Fe
― Maintain disciplined cost management, costs to benefit from past investments
― Continue to improve health & safety performance, fundamental to operational success
― Maintain strong focus on CSR & the community
― Minimise environmental impact
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OperationsProduction, Costs & Investments
Historic Volume Growth of Largest Pellet Producers
CAGR growth 2010 to 2013F
Source: CRU 2Q 2013
4
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)%
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– Forecast FY 2013 production of 10.7 to 11mt, double digit increase
– Volume of high grade pellets to continue to increase
‘000 t
onne
s
62
63
64
65
4,000
7,000
10,000
13,000
2009 2010 2011 2012 2013F
Production from FPM Production from FYM ore
Third party concentrate Average Fe content
% F
e pell
et co
ntent
+11%
FPM Consistent Production History, now Positioned for Growth
2012 2013F
TOTAL 9,690 10,700 – 11,000High-grade pellets 4,173 4,800 – 5,000Low-grade pellets 5,517 5,600 – 5,800
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Continuous Quality Improvement
5.3
5.4
5.5
5.6
5.7
5.8
5.9
6
6.1
January February March April May June
2012 2013
230
235
240
245
250
255
January February March April May June
2012 2013
Cold Compression Strength of 65% Fe pellet, 1H 2013 vs. 1H 2012
%
CC
S, k
g/pe
llet
Silica content of 65% Fe pellet, 1H 2013 vs. 1H 2012
Continuous quality improvement to enhance product offering
Effective Business Improvement Program
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Business Improvement Program reduced C1 cost by US$8.73/ton since 200570.5
61.8
-3.3-2.5 -0.8
-2.2
PF 2005 Electricity Gas Grinding Media
Personnel 1H 2013
6.4 5.5
2005 1H 2013
22.016.8
2005 1H 2013
205.5 169
2005 1H 2013
-18% -25% -14%
Electricity Gas Grinding MediakWh per tn of pellets m3 per tn of pellets Kg per tn of pellets
0.7
1.2
2005 1H 2013
73%
Personnel‘000 tones of pellets per employee
C1 cash cost: 1H 2013 vs. October 2008 (like for like basis pre-devaluation), CAGR 4%
Disciplined Cost Management
C1 ca
sh co
st US
$ per
tonn
e
8
51.0
61.8
63.9
59.7
40
45
50
55
60
65
70
C1 Oct 08 C1 1H13 C1 1Q13 C1 2Q13
25%
13%
11%7%4%
15%
13%
10% 2%
ElectricityGasFuelGrinding mediaExplosivesOther materialsSpare parts, maintenance & consumablesPersonnel costsRoyalties & levies
Benefit of past investments starting to come through
Breakdown of C1 cash cost
Output to Increase to12mtpa with Cost Benefits
Increase pellet output up to 12mtpa
– 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 up 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
– Excludes benefit from any currency devaluation
– Devaluation will reset cost base, with higher production levels largely offsetting future inflation
– 70% of production cost (C1 cost + rail to border) in UAH
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Significant Investment of Past to Yield Benefits
FPM Capital Expenditure has Peaked
US
$M
10
– Modernization and debottlenecking of FPM processing facilities to increase output by one third to 12mtpa – FPM quality upgrade programme to increase pellet Fe content to all 65% Fe– FPM mine life extension to support the sustainable availability of rich ore – Sustaining capex approximately US$90M in 2013, should reduce going forward– Remaining development capex approximately US$80 million in 2013
A well invested asset base due to:
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104
170191
170
0
50
100
150
200
250
2009 2010 2011 2012 2013F
Mine Life Extension Project: US$125M Spent, US$45M Remaining
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2012+ 13.3 Mt orecompleted
2013+ 18,5 Mt orecompleted
2012+ 48 Mt orecompleted
2027+ 29.9 Mt orein-process
2013+ 51.8 Mt orecompleted
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6
Mine Life Extension Northern Pushback
Revision
2018+ 54 Mt oreIn-process
Quality Upgrade Project: US$65M Spent & Committed, US$147M Remaining
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0%
20%
40%
60%
80%
100%
120%
2010 2011 2012 2013F 2014F Q12015F Q22015F Q32015F Q42015F
High
grad
e pell
ets fr
om ow
n raw
mate
rials
– Timely completion of floatation sections (new floatation sections # 2 & 3, and modernization of floatation # 1)– Filtration process (vacuum, press, etc)
Major milestones remaining to produce 100% 65% Fe pellets:
– Yield loss– Market environment– Timely supply of equipment and construction works performance
Also dependent on:
Foundations for vertical mills and auxiliary equipment. Flotation # 2,3. [09.2012].
Vertical mills VERTIMILL VTM-1500-WB have been installed Flotation # 2,3. [08.2013].
Quality Upgrade Project
Preparation of the construction site. Flotation #2,3. [09.2012]
7 flotation chambers have been installed. Flotation #2,3. [08.2013]
Quality Upgrade Project
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Capacity Upgrade Project: US$77M Spent & Committed, US$65M Remaining
– Completion of modernisation of concentration sections (3-4 sections pa in average)– Upgrade of existing pellet lines (one line pa for 60 days off for the upgrade)– Automation of the new technological process for the upgraded sections to increase productivity and concentrate output
Major milestones remaining to produce 12mtpa of pellets:
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
2012 2013E 2014E 2015E
Concentrate, mtpa
240
245
250
255
260
265
270
2012 2013E 2014E 2015E
Average productivity per section, ton/hour
Capacity Upgrade Project
Construction of 3rd section is completed.Project: Reconstruction of sections at Concentrator #1
Ball mill and classifier have been replaced at section #1Project: Reconstruction of sections at Concentrator #1
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Capacity Upgrade Project
Capacity Upgrade Project
Reconstruction of section #14 is completedReplacement of technological equipment and pipelinesProject: Reconstruction of sections at Concentrator #2
Reconstruction of section #14 is completed Replacement of electric service panels and assembly of automation system panelsProject: Reconstruction of sections at Concentrator #2
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Capacity Upgrade Project
Capacity Upgrade Project
Installed Lоedige mixers at Pellet plant. Project: Kobe Steel report Capacity > 13.2 Mtpa
New building of Isotopic laboratory. Project: Construction of new tracks of Medium-fine crushing #1,2
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Capacity Upgrade Project
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Corporate Social Responsibility
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77
60
52
66
5358
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47
37
29 26
1722 24
149
1510
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6M 2
013
Health & Safety Fundamental to Operational Success
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Num
ber o
f occ
upat
iona
l inj
urie
s
Note LTIFR – Number of work-related lost time injuries per million man hours.Lost days – number of days lost due to temporary disability as a result of occupational injuries
Safe
ty co
sts,
UAH
mio
Safe
ty co
sts p
er 1
empl
oyee
, UAH
/1
empl
oyee
1525 28
41
67
76
71
1,5
3,0 3,5
5,2
8,39,3
8,9
0
2
4
6
8
10
0
10
20
30
40
50
60
70
80
2007 2008 2009 2010 2011 2012 2013F
Safety costs, UAH mio Safety costs per 1 employee
2008 2009 2010 2011 2012 6M 2013
LTIFR 1,12 1,11 1,43 0,89 0,79 0,61
Fatal Accidents 3 No 1 No No No
Total Accidents 17 15 19 11 10 4
Lost days 591 530 889 469 338 186
Reduction in Injury Frequency Rates
Active Community Support Programme: US$44M spent since 2010
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Poltava region
Комсомольск
Community payments: (US$M)2010: 4.42011: 11.9 2012: 19.52013F: 8.1
43.9
5% Poltava Region
75% Komsomolsk
20% Ukraine
2010 2011 2012 2013FMedical care 169 417 286 284Financial support to vulnerable people 360 1,127 1,779 1,205Education 349 1,604 3,703 1,111Sport 1,104 1,507 3,190 1,622Infrastructure 2,426 7,253 10,498 3,865TOTAL 4,409 11,907 19,456 8,088
Charitable Programmes (US$’000)
Contaminants Maxpermissible 2009 2010 2011 2012 6M 2013 % decline
since 2009
NO2 167.46 149.55 147.75 105.57 129.13 115.73 (23)%
SO2 39.55 38.86 38.63 36.09 31.52 37.53 (3)%
CO 126.25 120.65 117.77 110.01 89.30 91.61 (24)%
Minimising Environmental Impact, while Production set to Increase
22
Emissions snapshot in time, gram/sec
69
86100 105
148
45 46
76 77 75
0
50
100
150
2009 2010 2011 2012 2013F
Current costs Nature-protection measures
Total environmental costs (UAHM)
FPM a World Class Iron Ore Pellet Producer
Summary
– FPM has a track record of delivering
– Double digit production growth
– Prudent investment of past set to deliver cost benefits
– Strong focus on labour safety, community & environmental protection
– Continued management of Ukrainian country risk, well understood
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Appendix
0
14
28
42
56
70
USc/dmtu
FPM
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 beconsidered 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
25
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.
26
mtpa
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.
27
Yeristovo MiningPresentation to Analysts
October 2013
Location of Current and Future Projects
2
Yeristovo Deposit
– JORC Classified Reserve / Resource (2007 SRK Report)– Total reserves of 632 mt– Total Measured and Indicated resource, incl. reserves of 828 mt– Inferred resource of 364 mt– Grand total resource, incl. reserves of 1,192 mt
– Based on Yeristovo pit optimisation model and additional geological data, further evaluation expected to increase reserves – According to design, Phase 1 of Mine development is now complete (50 mio m3 of overburden removed giving access to 153 mt of ore)– Phase 2 assumes plans for mine extension to the North, further Phases 3 and 4 shall see continued northerly and easterly extension– Upper layers of overburden contain sand and clay material, significantly water encroached which has complicated heavy machinery operation. As
per the geological model, clay material will last from surface (+ 68 m) till – 5 m level – Yeristovo ore starts at + 22 m level in the southern part of the pit, first upper layers containing mainly weathered ore– Ore quality (Fe content and yield) fully in line with DFS projections, blended weathered ore processed at FPM– Weathered ore and main clay layers will be removed during the ramp-up period to unlock the full potential of the Yeristovo Mine
3
Yeristovo Stage I – Mining
– Mine status:– Project to date material removed 65 mio bcm, current
pit depth approx.100 m (– 30 m sea level)– Ore achieved in 2HY 2012
– Expected 2013 ore volume mined – up to 9 mio tn, of which:– 6,5 mio tn expected to shipped to FPM for processing– About 2,5 mio tn of weathered ore stockpiled
– 1HY 2013 mining cash cost c.US$1.9/tn of mined (in line with the DFS)– Conveyor (vs. Trucks) option for waste transportation
under consideration to further reduce operational cost– Mining Infrastructure 75% complete:
– Wash centre and tire handling facility in operation– Service and repair centers to be in operation by end 2013– Remaining cost c.US$20M
– Total capital invested in FYM to date c.US$450M, c.7% below DFS due to design improvement and CapEx savings
4
Prime Production Fleet
Current fleet Fleet expansionOct 2013 2014 2015
Draglines 5 – –Excavators / Shovels>28 m3 Overburden 1 – –>34 m3 Ore 2 – +1Loaders>18 m3 1 – –Trucks>180t capacity 16 – –>220t capacity 15 – –Dozers>Tracked 11 – –>Wheel 2 +1 –Drills>160mm diameter 1 – –>250mm diameter 2 +1 –Graders 3 – +1
Current Fleet capacity is sufficient for ore mining of up to 21 mtpa.Further fleet expansion is subject to decision re Conveyor vs Truck option.
On site On order Required
5
Yeristovo Production Schedule
000’ t2013
expect. 2014 2015 2016 2017 2018
Total stripping 37 016 59 183 57 022 56 584 59 959 74 949
Incl. – Sand 32 500 48 916 49 966 50 103 46 969 46 969
– Fresh rock 4 516 10 267 7 056 6 481 12 990 27 980
Ore mining, total 9 000 10 000 10 000 13 500 28 700 28 700
– Ore to FPM (for benefication and pelletizing) 6 500 10 000 10 000 10 000 8 700 0
– Ore to FYM concentrator 3 500 20 000 28 700
Pellets volume (FPM) from FYM ore 2 100 3 501 3 501 3 501 3 046 0
Concentrate volume Fe 67,3% (FYM) 0 0 0 1 336 7 632 10 952
* Subject to Ferrexpo Board Concentrator project approval.
6
Yeristovo Stage II – Processing Complex / Concentrator
– Basic design developed by ProMet Engineering (Australia) in 2008– DFS restated by Bateman (Israel) in 2010– Regulatory approval (“expertise”) in place– Detailed design currently under development by Ukrainian Design institute
(MekhanObrChermet). Schematics for early construction stage available by Q4 2013
– Total Concentrator capacity 10 mtpa dry (4 sections x 2,5 mtpa of concentrate output each)
– As per Oct 2012 Ferrexpo Board approval, concentrator detailed design is in progress and site preparation has commenced
– Concentrator project scope and schedule are subject to Ferrexpo Board approval – Costs to be finalised during detailed design phase – Expectation remains in line with DFS c.US$850M, on track to present to Board
Q4 2013 / Q1 2014
7
Processing Complex General Plan
8
Concentrator Product Handling Options
Option 1 – Slurry Pipeline
Option 2 – Railway
Incremental Slurry Pipeline CapEx is up to US$305M higher than Railway Option CapEx whereas concentrate transportation cost via Slurry Pipeline is more than USD4/tonne lower than Railway Option.
Slurry Pipeline to South + Filtration Plant nearthe Black Sea Port
Slurry Pipeline 5 mtpa to FPM Filtration Plantfor pelletizing or shipment
Full capacity Concentrator
Half capacity Concentrator
Shipment to Black Sea port by railway whichrequires construction of the railway station and Filtration Plant at the Vorskla Steel area + investments into upgrade of the state railroads
Slurry Pipeline 5 mtpa to FPM Filtration Plantfor pelletizing or shipment
Full capacity Concentrator
Half capacity Concentrator
9
Yeristovo Stage III – Slurry Pipeline and Pelletizer
– Slurry Pipeline:– Scoping study being conducted re option to transport FYM concentrate via slurry pipeline to the
Black Sea Coast for pelletizing (approx. 420 km)– Basic Design developed by Ausenco PSI (USA)
– New Pelletizer:– New Pelletizer is assumed to be built at the Slurry Pipeline Destination Point (close to the Marine
Facilities at the Black Sea Coast)– PFS ongoing by Kobe Steel, Ltd (Japan)
10
Corporate Social Responsibility
People Safety Risk management controls within the mine and construction areas in place (installation of the fatigue management system on CAT haul trucks – to prevent truck collision – is under consideration)
OccupationalHealth
Sustaining ZERO health related issues arising from the mine (introduction of the state-of-the-art mining equipment and ergonomic / user-friendly infrastructure has allowed safer working practices)
NaturalEnvironment
Management system to minimize the impact to the environment (in compliance with ISO Environmental Standard 14001) – developed
SocialEnvironment
94 FYM employees have received subsidized loans covered by Social Loyalty Programme. Local communities support duly continues as an integral part of land acquisition activity
ResourceManagement
Mobile in-pit crusher is put into operation for gravel production, aimed to effectively utilize deposit resources
FacilitiesManagement
Mining infrastructure facilities are constructed under the best international practice
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The end
0
Jason Keys, Chief Marketing Officer
October 2013
Analyst Site Visit to Port Yuzhny
Ferrexpo Key Objectives
− Continue expansion to 12Mtpa & then to 20 Mtpa of pellet equivalent production
− Improve product mix – increase average quality of pellets to 65% Fe
− Retain & improve position on the global cash cost curve
− Reduce freight costs to Asia to below Brazilian competitors (C3 benchmark)
− Maintain and expand high quality customer base
− Prudent financial management to efficiently fund growth strategy
− Maintain high quality corporate governance associated with a premium listed company
1
3 Step Process to a World Class Marketing Organisation
2
Process, S
ystems, G
overnance, P
eople Improvem
ent
Stabilize and strengthen the sales portfolio
Optimize distribution channels
Maximize and protect value
– Modernize pricing structure to index– Increase sales on delivered/ CFR basis– Maintain diversified portfolio with growth towards crisis
resistant customers– Coordinate with operations to deliver agreed quality
– Reduce ocean freight costs– Increase control of supply chain– Have multiple distribution options
– Evaluate use of trading platforms & price risk management tools
– Steer operations to produce the “right” products– Long term contracts covering up to 90% of
production
Sales Volume by Market
78
4934
18
42 49
4 9 17
0
30
60
90
2008 2012 2018Traditional Growth Natural
+31 percentage points%
3
Ferrexpo sales volume Benefits of diversity to Ferrexpo2010 2011 2012 2013F
Volume (Mt) 9.7 9.9 9.7 10.5‐11.0
Diversified Customer Portfolio
– Ferrexpo is in a unique position to competitively supply Europe, Middle East and Asia
– Diversity reduces the risk of being unable to sell in a weak market environment
– Due to its location & product Ferrexpo can target the premium steel mills around the world
– Regional factors can present opportunities to shift product to better performing markets
– Global market intelligence
Sales Volume by Contract Type
40%
14%
46%
Benchmark indexed
Spot
Quarterly negotiated
1H 2013
Integrated & Growing Logistics Capability
– Achieving at or better than C3 in 2H 2013
– Phasing out of panamax continues
– First vessel over 200kt successfully loaded
Ferrexpo seaborne freight costUS$/tonne
4
16
21
26
31
36
41
1H 2010
2H 2010
1H 2011
2H 2011
1H 2012
2H 2012
Q1 13
Q2 13
Q3 13
Q4 13
Q1 14
Ferrexpo
C3 Tubarao‐Qingdao
Traditional MarketsNatural MarketsGrowth MarketsFerrexpo London officeMarketing offices
5
Growing Brand Awareness with Premium Steel Mills
Ferrexpo has been able to:– Differentiate itself from other CIS producers, emphasizing that it is a reliable, good quality supplier, with
capsize shipping capability & competitive freight rates
– Present itself as a viable alternative to Brazilian suppliers
– Debunk the myth that premium customers in Japan cannot use acid pellets
6
Ferrexpo Premium Pellets: Well RegardedBF Pellets (Higher Grade)
Chemistry % RemarksFe 65.1 Good
SiO2 5.6Aiming for <5% after completion of
Quality Upgrade ProjectAl2O3 0.32 ExcellentCaO 0.28 GoodMgO 0.60 Very GoodP 0.006 ExcellentS 0.005 GoodMn 0.03 GoodTiO2 0.04 GoodK2O+Na2O 0.12 Good
CaO+MgO/SiO2+Al2O3 0.15Good. Can produce higher by
increasing limestonePhysical Properties:CCS, kg/p 250 Good. Should not be lessSize, %
+16mm 2.83 Good5-16mm 93.5 Good
-5mm 3.65 Good
7
Ferrexpo Premium Pellets: Well Regarded
- Better control of compression strength (CCS), which results in:
Lower fines generation in handling and during reduction
- Uniform pellet firing, which leads to:
Steady operation of BF
Less oxide and product fines
- Superior Pellet Shape that yields:
Superior high temperature reduction behaviour
Higher stack permeability
Quality advantages of Grate-Kiln (GK) pelletizing system:
Ferrexpo’s Changing Product Suite
8
Ferrexpo Basic 62% Pellets
Ferrexpo Premium 65%
Pellets
65.5% Fe BF Pellets and < 5% silica BF
Pellets
Pellet Feed 67.5% Fe and
4.5% silica pellet feed
DRI pellets 68% Fe and 1.7%
silica DR pellet
Concentrate Purchases (3rd
party)
Existing products
Future planned products
Quality Upgrade Project will result in100% Ferrexpo Premium Pellets by end 2014.
9
Outlook for Pellet Premiums
5
10
15
20
25
30
4 Ja
n - 3
1 D
ec18
Jan
- 14
Jan
1 Fe
b - 2
8 Ja
n15
Feb
- 11
Feb
1 M
ar -
26 F
eb15
Mar
- 11
Mar
29 M
ar -
25 M
ar12
Apr
- 8
Apr
26 A
pr -
22 A
pr10
May
- 6
May
24 M
ay -
20 M
ay7
Jun
- 3 J
un21
Jun
- 17
Jun
5 Ju
l - 1
Jul
19 J
ul -
15 J
ul2
Aug
- 29
Jul
16 A
ug -
12 A
ug30
Aug
- 26
Aug
13 S
ep -
9 S
ep
US
$/to
nne
Metal Bulletin weekly derived China spot pellet premium (2013) – Pellet premiums have recovered in Chinese spot market in
2013
0
10
20
30
40
50
60
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
– Represents long term contract market, Ferrexpo’s primary focus
– Pellet premiums supported around the US$30/tonne level– Reflects cost of pelletising
US
$/to
nne
(nom
inal
)
CRU annual pellet premium forecast
Source: Iron Ore market outlook 3Q 2013
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
10
11
Appendix
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.
12
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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