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Emerging Miners of Iron-Ore

in the Northern Cape, SA

4th June, 2013

Presented by

Mr. Somdeb Banerjee

Executive in Charge, Southern Africa Tata Steel Ltd.

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Agenda

Overview: The Tata Steel Group

Global Iron Ore market and Projection for the coming years

South African Iron Ore market- is it the right time for new entrants?

Potential Shift in the market

SA mining: How to make the ‘sun shine’ again?

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Overview:

The Tata Steel Group

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Tata Steel Group

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Tata Steel India

1000 KM

I N D I A

104 years old still young & flourishing

• Building & nurturing long term relationship with

customers : large percentage of them have greater than

10 years of business relationship (many distributors for

two generations)

• Only private company in India maintaining a township

• Large employee base (35,000 employees) and respect

for people (many, for many generations)

• Pioneer in Industrial harmony: 82 years without any

labor unrest

• Sustaining cost leadership by ensuring raw material

security; 100% Iron Ore, 50% Coal

• Equity partnership for key commodities in entire value

chain : Ferro Alloys, Rolls, Refractories, Shipping ,

Service Centres

• Reference site selected by United Nations (Global

Compact) for Corporate Social Responsibility

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Jamshedpur

Central Team

Jo’burg

South Africa

Maputo,

Mozambique

Abidjan, West

Africa

Montreal

Canada

Brisbane

London, UK

Tata Steel :Global Footprints

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Global Iron Ore Market and

Projections for the coming years

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Global Iron Ore Market

Data Source: Goldman Sachs Commodities Research, 2013

46%

30%

3% 3%

5%

3% 2%

Global Iron-Ore Seaborne Exports

Some Trends observed in the Iron Ore Industry:

• While Chinese demand is stabilizing, massive build-

out of India and rest of BRICs will continue the on-

going shift in demand and wealth from the developed

to the emerging economies. By 2020, developing

countries will account for almost 80% of the World’s

Urban population

• New supply will come with higher capital costs due

to:

China absorbs about 60% of the global supply.

Prices of Iron Ore declined sharply during 2012,

hitting a three year low of $86.70/t owing primarily to

destocking of plant inventories by the Chinese steel

mills and traders withdrawing from the Spot Markets.

Iron-ore market rebound in 2013 due to a re-stocking

cycle supporting prices as high as $154/t in Feb 2013.

World Iron Ore resources are estimated to exceed

230-billion tons of iron contained in over 800-bllion

tons of crude ore, with China, Australia, Brazil and

India being the largest producers

Complicated Logistics

Scarcity of skilled labour

Rise of ‘Resource

Nationalism’

Increasing regulatory burdens

Degrading quality of ore

reserves

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Projections for the coming years

Short Term Projections- 2013

Salient points for emerging miners in SA

• Continued high prices of Iron-Ore to the tune of $120-130/t by the need for high-cost Chinese mine

production to balance the demand for 2013

Long Term Projections- 2013-2017

• Iron ore production of expected to expand by 10% in

the next three years, while steel production is

expected to grow by 5%- causing a shift in pricing

• More subdued expectations for the coming years

with the long term price forecast at $88/t driven by:

­ More robust Chinese domestic production

­ Expected surge in international supply

­ Maturing of Chinese economy away from

infrastructure projects- Steel production growth

rate has slowed and will remain below GDP growth

rates in the future * Data Source: Goldman Sachs Commodities Research Report- 2013

-500

0

500

1000

1500

2000

2500

2012 2013 E 2014 E 2015 E 2016 E 2017 E

Seaborne Demand and Supply Forecast (in million tonnes)

Global Iron Ore Demand Seaborne Imports

Seaborne Exports Seaborne surplus

Seaborne demand growth rate is slowing down to 3%, while seaborne supply will continue to grow at 7%. In

this light, market prices will shoot downwards and remain below marginal production levels till equilibrium is

attained. Emerging miners need to be cautious of their costs of production to stay relevant in the long

run when the market slumps again.

Projections based on various studies including:

• Goldman Sachs research reports

• Creamer Media’s Iron ore reports

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South African Iron- Ore industry Is this the ‘Right Time’ for Emerging Miners?

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South African Iron-Ore Industry

Total reserves – 9.3-billion tons with principal deposits in

the Northern Cape province with other high grade hematite

deposits on the northern limb of the Bushveld Complex. *

Experts are bullish on the outlook for South African iron-ore miners, pointing to:

• The fact that SA has overtaken India as the third largest exporter of Iron Ore to China

• The opening of Kumba Iron-Ore’s R8.5-billion Kolomela Mine in 2012

• Further, capacity expansion plans for the country’s infrastructure focusing on the iron-ore rail link between the mining hubs in Northern Cape and Saldanha Bay. This infrastructure will eventually boost the region’s iron-ore transport capacity to 100-million tons a year.

However,

• The South African cabinet has proposed amendments to the MPRDA and the Competition Act to provide for higher control on Iron-Ore prices in the hands of the regulators.

• Further, SA’s mining sector experienced wildcat strikes during 2012 leading to significant challenges for large Iron-Ore miners too.

* Source: Chamber of Mines, South Arica

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Support for Emerging Iron-Ore Miners in SA

Benefits of supporting Emerging

Miners in South Africa

Employment generation

(especially with BEE partners)

Economical benefits for the

communities and the country

Technological improvements to

beneficiate previously

‘Stranded Ore’

Transformation and rural

development with improved infrastructure

Grant Thornton International Mining Report, 2013:

“The report shows that mining executives are beginning to see light at

the end of the tunnel following a period of strikes and uncertainty

surrounding the mineral regulatory regime.

The mining report revealed that SA junior miners will spend more on

capital equipment and, despite knowing that labour and energy costs

will increase significantly, they also expect to be profitable, with half

(49%) of the respondents in SA also anticipating increased revenues

this year. This is significantly higher than in Australia (36%), Canada

(31%) or the UK (21%).”

“Transnet is committed to

providing capacity to emerging

miners, in particular BEE

players”

Already seeing significant

steps in the areas of Coal and

Manganese.

TRANSNET DMR “Since the mid-1990s, government

has sought to promote black

economic empowerment in the

mining industry. The process will

take time, but black-owned

firms are now beginning to play an

important role in the mining

industry, and several new mining

giants have emerged.”

DMR

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Is this the ‘Right Time’ for new entrants

in the South African Iron Ore industry?

Adequate Rail and Port capacity

Sufficient energy and

water resources

Conducive regulatory

environment

Viable market for a secure off-take of Iron ore

production

Collaboration for beneficiation

and infrastructure

Conducive

environment for

generating an

attractive return on

investment for

Emerging Miners

• While most of these projects are economically viable under

current market conditions, by the time the projects mature, the

market prices would have dropped significantly.

• Emerging Miners can reap the benefits of a bullish market till

2014, subsequent to which they will need to be conscious of

their costs to be sustainable in the long term

• Established miners in SA, along with Junior Miners can

double the Iron-Ore production *

• This would create more than 14,000 new jobs *

(even more through BEE partners) and add significant

economical benefits to the regions and the country as

a whole

Opportunities for development of

Iron Ore Hubs in South Africa

Northern Cape

EXPORT Hub

Sishen

Assmang

Burke

Kolomela

Sedibeng

Limechem

Limpopo

INLAND Hub

Limpopo

EXPORT Hub

* Source: Kumba research report, 2012

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Opportunities in the Northern Cape-

Geology and Mineralization

Iron ore Mineralisation is hosted by BIF of Kuruman/Manganore

Iron formation

BIF are underlain by Dolomites of the Maremane Dome,

Overlain by Shale & Quartzite of Gamagara Formation

BIF slumped into the Sinkholes formed in the underlying

dolomites

Slumped BIF were preserved, Supergene enrichment took place

leading to high grade Haematitic Iron ore.

Due to differential erosion over time, the Iron ore and BIF were

preserved in relation to surrounding dolomites.

Presently the BIF and Iron ore are seen as topographic highs in

the landscape.

Sishen

Mine Khumani

Mine

Kolomela

Mine

Sedibeng

Mine

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Opportunities in the Northern Cape-

Mineralization and New Projects

• Lithology shown in “Black colour” are areas with Iron Ore/

BIS potential

Areas Where New Mining Projects

Are Likely To Come Up.

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Northern Cape

Infrastructure Development

Sishen- Saldanha Export Ore System *

• 888 km, heavy haul single railway line

• Volumes for iron ore are expected to

rise from 45mtpa up to 118mtpa in

2041 in line with capacity ramp plans

of Transnet

Load out facilities

• Load out facility are owned and

operated by the established miners

• Other players to rely on Assmang/

Kumba’s support for load out of their

product onto the Orex system

Saldanha Port Terminal *

• Port handled a capacity of 58 million-

tons of bulk cargo in FY11-12

• Expansion program underway to

increase Port capacity in line with

customer demands

Infrastructure requirements for Emerging Miners in

the Northern Cape:

• Common Load out facility for self-reliance and cost

minimization

• Rail capacity allocation to transport the product to port

• Stockpile capacity at port to maintain integrity of

product

* Source: Transnet Website

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50

100

150

2010 2015 2020 2025 2030 2035 2040 2041

Mil

lio

n T

on

s

Year

Expected Demand on the Orex Line (Sishen to Saldanha) *

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Banded Iron Stone Potential

• BIS is the mother rock for all Iron Ore in region.

• Alternate bands of Iron (hematite) and Silica (Chert) give it its distinct

name.

• Nature removes this silica over millions of years, by the process of

leaching(Supergene Enrichment), leaving behind only the Iron, giving

rise to the high grade Iron Ore Deposits seen today.

• In most of the smaller deposits in Northern Cape, huge resource of BIS

is available.

• If this silica removal process can be done economically, using a

suitable Beneficiation technique, the BIS will open up vast additional

mineral potential in Northern Cape.

Iron Band Silica Band

Laminated Iron Ore formed from BIS

BIS • Liberation and concentration of the Hematite from the Silica in the BIS is the

biggest challenge

• Liberation size plays a vital role in the economics of the project.

• Where bands are coarser, grinding of BIS to sub centimetre level could yield a

concentrate from simple spirals ?

• In case of bands being narrow, sub millimetre size grinding or even micron size

grinding may have to be taken up.

• Concentration of hematite in such cases would have to be explored, as this ore

is not magnetically susceptible.

• A possible option could be DMS or Heavy media separation?

• Once concentrate is achieved, the next challenge is to agglomerate the

concentrate, and transport to port.

• All this above is being explored and implementations are being done in some

parts of the world.

Potential for BIS Beneficiation

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Potential Shift in the Market Key Points for emerging Miners

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Potential Shift in the Market

Market conditions deteriorate

• Chinese domestic production to mature, creating an export surplus 2014 onwards

• Expected decline in seaborne Iron-Ore prices to $88/t CFR China

• Decline of seaborne Iron-Ore demand from Chine due to maturing of economy

Cost of production increases

• Complicated logistics solutions to move product from mine to customer

• Rise of ‘Resource Nationalism’

• Regulatory uncertainty

• Degrading quality of minerals available

• Labour scarcity leading to increased cost of labour

In such a scenario,

how can emerging

miners stay relevant?

Country Avg GDP Growth Country Avg GDP Growth

Angola 11.1 China 9.5

China 10.5 India 8.2

Myanmar 10.3 Ethiopia 8.1

Nigeria 8.9 Mozambique 7.7

Ethiopia 8.4 Tanzania 7.2

Kazakhstan 8.2 Vietnam 7.2

Chad 7.9 Congo 7.0

Mozambique 7.9 Ghana 7.0

Cambodia 7.7 Zambia 6.9

Rwanda 7.6 Nigeria 6.8

2001-2010 * Forecast 2011-2015 *

* Source: The Economist, 2011

6 out of the 10 fastest growing economies are

African with a focus on infrastructure building

in in the sub-Saharan continent Further, rapid

infrastructure development is expected for

India and other BRICs economies. Emerging

South African miners can look towards inland

African markets and other developing countries

for seaborne exports

Collaborate to benefit from common

infrastructure and facilities which

would otherwise have been

uneconomical and not viable for the

scale of individual operations

New market opportunities Capitalize on Economies of Scale

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Potential Shift in the Market

Market conditions deteriorate

• Chinese domestic production to mature, creating an export surplus 2014 onwards

• Expected decline in seaborne Iron-Ore prices to $88/t CFR China

• Decline of seaborne Iron-Ore demand from Chine due to maturing of economy

Cost of production increases

• Complicated logistics solutions to move product from mine to customer

• Rise of ‘Resource Nationalism’

• Regulatory uncertainty

• Degrading quality of minerals available

• Labour scarcity leading to increased cost of labour

In such a scenario,

how can emerging

miners stay relevant?

Investment in down-stream Iron and Steel Value Chain

It is evident from the experience of Australia, that having raw materials required for steel

making does not guarantee a successful down stream steel making industry.

Potential Opportunity Areas for Development in SA:

1. Investment in Export Slab (akin to the strategy of Vale in Brazil- wherein it secures a

demand for its Iron-Ore production even in the event of a bearish global export market)

2. Other competitive Niche industry products with a demand in the Sub-Saharan market

3. Investment in nascent steel making technology given the limited availability of

metallurgical coking coal (to be gradually replaced with thermal coal) and high grade

lumpy iron-ore

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South African Mining Industry:

How to make the ‘Sun Shine’ again?

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Government and para-statal agency

support to create an attractive and

conducive environment

Collaborative efforts between

Emerging and Established Miners

to reap economies of scale

SA Mining-

How to make the ‘sun shine’ again?

Successful and Sustainable

Iron-Ore Mining Industry in SA

SCALE

PROXIMITY TO MARKETS

CONTROLLED LABOUR COSTS

COMMUNITY SUPPORT

TECHNICAL EXPERTISE

LOGISTICS AND INFRASTRUCTURE

CAPACITY

GOVERNMENT AND REGULATORY

STABILITY

Investment in developing

downstream steel making industry

in South Africa

Uncontrolled Labour

Cost escalations

could have a

negative impact on

the long term job-

creation and skill

development of the

people

Long term benefits to percolate to the communities of the mining

areas. Improvement of livelihood and conditions of living.

Improvement in

mining and

beneficiation

technology with a

focus on the

abundantly available

and currently

stranded ore

Logistics and Infra capacity ramp

up to meet customer demands

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THANK YOU