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SUCCESSFULLY HARNESSING SYNERGIES THROUGH NETWORKING, A CASE STUDY

Establishment of a local capability to producemonoclinic fused zirconia for export

ECCO Symposium #4 – June 14 and 15, 2012

Foskor Zirconia

Foskor Zirconia

ECCO Symposium #4© Pilatus Aircraft Ltd

June 15, 2012 2

CONTENTS

• Industrial Participation in South Africa

– Focus on NIP Program

• Pilatus Aircraft Overview

• Pilatus Aircraft in South Africa

• Foskor Zirconia Overview

• Fused Zirconia NIPP Project

– Project / Product Overview

– Project Current Status

– Benefits to Foskor Zirconia

– Benefits to Limpopo Province and SA Economy

• Closing Remarks

INDUSTRIAL PARTICIPATION IN SOUTH AFRICA

Foskor Zirconia

Foskor Zirconia


June 15, 2012 4

INDUSTRIAL PARTICIPATION IN SOUTH AFRICA

NIPP is the National Policy and applies to all procurements made by Government,

including Defence.

•Managed by the dti

•Imported Content > 10 M USD

•National objectives

•Mainly civilian (non-defence) Industry

•30% obligation

•7 years discharge

•5% penalty

DIP is linked to the National Policy and is an additional obligation that applies only to

Defence Procurements.

•Managed by Armscor

•Imported content > 2 M USD

•Defence strategic objectives

•Defence-related Industry

•50% obligation

•7 years discharge

•5% penalty

Foskor Zirconia

FOCUS ON NIP PROGRAM 1/2


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NIPP Role

The National Industrial Participation Programme(NIPP) was launched in 1997.

It is a programme of the Department of Trade and Industry (the dti) and uses government procurement to leverage investment, exports and technology development. The NIPP is administered by the dti through its Industrial Participation Secretariat (IPS).

NIPP Objectives

•Ensure sustainable economic growth;

•Facilitate access to new markets, and establish new trading partners;

•Encourage Foreign Direct Investment (FDI) into South Africa;

•Increase exports of South African ‘value-added’ goods and services;

•Encourage research and development (R&D) collaboration in South Africa;

•Contribute to job creation in South Africa;

•Develop human resources in the country;

•Ensure technology transfers to South Africa;

•Support the economic development of historically disadvantaged communities.

NIPP Mission

Leverage economic benefits and support the development of South African industry by effectively utilizing the instrument of government procurement.

This mission is guided by the National Industrial Participation (NIP) Policy.

Foskor Zirconia

FOCUS ON NIP PROGRAM 2/2


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THRESHOLD(IMPORTED CONTENT)

Imported content > 10 M USD (single contract, multiple contracts over a two-year period, renewable option clause or acquisition by State-Owned Enterprises)

NIP QUOTA 30% of Imported Content

FULFILMENT PERIOD Usually 7 years

PENALTIES 5% of NIP Obligation (Performance Guarantee)

MULTIPLIERSNormally, one dollar equals one credit.Exceptions: Investment and Technology Transfer; Black Economic Empowerment (B-BBEE)

BANKINGAllowed (credits valid for 4 years).Only 50% of any new NIP Obligation can be fulfilled using banked credits.

B-BBEE REQUIREMENTS B-BBEE involvement ≥ 20% of NIP Obligation

CRITERIA

• Additionality: All NIP projects must reflect new or incremental business.• Sustainability: All NIP projects should be economically and operationally sustainable, even after

the discharge period.• Causality: There must be a clearly identifiable link between the NIP Obligation, the obligor and

the NIP project.

NIP ELIGIBLE ACTIVITIES

• Investments (Joint Ventures, Licensed Production, Technology Transfer)• Sub-Contracting Works;• R&D Collaboration;• Export Promotion;• Supply Partnerships with South African industry;• Delivery of Specialized Technical Training.

ADDITIONAL REMARKS• NIPP is applied to procurements in both defence and civilian arenas• NIP is a precondition but not a factor in the adjudication

PILATUS AIRCRAFT OVERVIEW

Foskor Zirconia

Foskor Zirconia

ECCO Symposium #4© Pilatus Aircraft Limited

June 15, 2012 8

PILATUS AIRCRAFT LTD OVERVIEW 1/2

Established in 1939, Pilatus Aircraft Ltd is now the world’s leading manufacturer of single-engine turboprop aircraft and the only Swiss company to develop, build and sell aircraft and training systems on every continent.

Headquartered in Stans, in the heart of Switzerland, Pilatus is also licensed to perform maintenance and conversion work on various aircraft types.

KEY FIGURES 2010 2011

Sales (CHF million) 688 781

Aircraft sold 93 87

EBIT (CHF million) 88 108

Investments in R&D (CHF million) 49 67

EBIT before R&D (CHF million) 137 175

Employees 1.395 1.441


Foskor Zirconia


June 15, 2012 9

PILATUS AIRCRAFT LTD OVERVIEW 2/2

Business and Utility Aircraft

Training Aircraft incl. Ground Based Training System & Integrated Support Service

PC-12 NG PC-6

PC-21 PC-9 M PC-7 MkII

Foskor Zirconia


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PILATUS GROUP OVERVIEW

• Development

• Production

• Worldwide sales

• Maintenance

• Service for Pilatus aircraft

• Sales

• Completions

• Service for PC-12 aircraft in America

• Sales

• Marketing

• Service for PC-12 aircraft

• Maintenance

• Modernization

• Overhauls for Pilatus aircraft and others

PILATUS AIRCRAFT IN SOUTH AFRICA

Foskor Zirconia

Foskor Zirconia


June 15, 2012 12

PILATUS AIRCRAFT IN SOUTH AFRICA 1/2

• Pilatus supplied about 60 Pilatus PC-7MkII trainer aircraft to the South African Air Force between 1993 and 1996.

• In 2008, Pilatus Aircraft was awarded the contract (in excess of 10 M USD) to replace the avionic systems on 35 South African Air Force Pilatus PC-7MkII Aircraft. The contract also included incorporating two new flight training devices, ground based training systems and spares.

• Upgrades of the first aircraft were carried out at the Pilatus facility in Switzerland during 2009. Aerosud Aerospace Systems with assistance from Pilatus field service engineers is undertaking the modernization of the remaining PC-7MkII fleet at Langebaanweg Air Force Base in South Africa.

• The upgrades are expected to be completed by the mid 2013.

Foskor Zirconia


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• The associated NIP Agreement was concluded in 2008.

• As a direct result of the Pilatus NIP obligation, Pilatus identified the Foskor Fused Zirconia project as a NIPP Project.

• Pilatus is providing financial assistance to Foskor Zirconia for the project.

• In addition, Pilatus shall also provide assistance to Foskor Zirconiawith the promotion of exports of the Fused Zirconia product through its network in Europe and India into these regions.

PILATUS AIRCRAFT IN SOUTH AFRICA 2/2

FOSKOR ZIRCONIA OVERVIEW

Foskor Zirconia

Foskor Zirconia

FOSKOR ZIRCONIA (PTY) LTD OVERVIEW

• Foskor Zirconia (Pty) Ltd is a manufacturing Company and producing Fused Zirconia in its factory located in the town of Phalaborwa, Limpopo province, South Africa.

• The Company has three share holders:

– Perfect Positions Investment CC, a Broad Based Black EconomyEmpowerment (BBBEE) company, owns 19 %

– Foskor (Pty) Ltd, a Company ownedby Industrial Development Corporation (IDC) of South Africa, owns 30%

– Carborundum Universal Ltd (CUMI), an International Company, owns 51%


June 15, 2012 15

Existing Plant – South Africa

Foskor Zirconia

WHAT IS ZIRCONIA AND FUMED SILICA?

Zirconia Definition

Fused Zirconia (ZrO2) is produced by dissociating the FumedSilica (SiO2) from the Zircon sand (ZrSiO4) by means of an electro-fusion process, at temperature exceeding 2800°C.

(ZrSiO4 – SiO2 = ZrO2)

Fumed Silica (By product)

The Fumed Silica is the dissociated silica that is fumed off, through a bag house, during the Zirconia production process.


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FUSED ZIRCONIA NIPP PROJECT

Foskor Zirconia

Foskor Zirconia

PROJECT SCOPE

• Setting up of 5000 kVA Tilt type Electric Arc Furnace system. New Production Technology.

• Construction of Building & other infrastructure facilities forproducing fused Zirconia bubbles in the new facility.

• The total investment of the Project is Rand 80 miln (US $ 10.67 miln).

• The Project is planned to be implemented in 18 months time frame.


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Foskor Zirconia

PRODUCT OVERVIEW

The new project will manufacture 6,000 tons of fused Zirconiabubbles which is totally a new product .


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Zirconia Bubbles

Foskor Zirconia

PROJECT BRIEFING


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Electric Arc Furnace Composite View

Foskor Zirconia

PROJECT BRIEFING


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3D View of the Furnace

Foskor Zirconia

PRODUCTION FLOW CHART


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Foskor Zirconia

PROJECT CURRENT STATUS

• Environmental Clearance obtained.

• Civil work is nearing Completion.

• Basic structural work in progress and to coincide with equipment arrivals.

• Majority equipment already arrived or on the way (on water).

• Trial run end June 2012 and commercial production from July 2012 Second week.


June 15, 2012 23

Foskor Zirconia

PROJECT PROGRESS 1/2


June 15, 2012 24

Civil & Structural Work in progress

Foskor Zirconia

PROJECT PROGRESS 2/2


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Dust Collection System under installation

Foskor Zirconia

PROJECT ON COMPLETION


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Bird’s Eye View of the Proposed Plant

Foskor Zirconia

BENEFITS TO FOSKOR ZIRCONIA

• Currently Foskor Zirconia is producing 5,500 tons of Fused Zirconia in its existing plant, which is not a economically viable quantity in terms of cost.

• Further the present product has restricted uses and predominantly used only in Refractory industries.

The proposed new capacity of 6,000 tons makes the Company’s products internationally competitive and also the new product

opens up avenue in other industries.


June 15, 2012 27

Foskor Zirconia

MARKET DEMAND / INDUSTRY APPLICATION


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Market Demand / Targeted Market

The demand for monoclinic Zirconia

increasing due to diminishing reserves

of natural baddeleyite.

Industry Application

•Refractories (nozzles etc)

•Specialty Chemicals

•Pigmentation

•Ceramics in construction and industrial applications

•Glass Industry

•Nuclear Power – Manufacture of Zirconium Sponge

•Ceramic Brake Linings

•Catalytic converters – New Cars

•Fuel Cell technology – Renewable energy

Foskor Zirconia

BENEFITS TO LIMPOPO PROVINCE AND SA ECONOMY 1/2

• Phalaborwa is a small town in the province of Limpopo,

located in the northern part of South Africa.

The unemployment rate in Phalaborwa is 40%.

The new project is going to create permanent

employment for 50 people. In addition, the Civil and

Structural work at the project stage is going to

benefit the local community with additional employment.

• Further, after completion of the project, FZL will be sourcing additional material and service from the local small and tiny industries which is going to improve the economy of the local community.


June 15, 2012 29

Foskor Zirconia

BENEFITS TO LIMPOPO PROVINCE AND SA ECONOMY 2/2

• South Africa is rich in Mineral resources and

the main activity is mining.

• However majority of the minerals are exported

without further value addition or processing.

• This deprives the employment opportunity for the local people and also no economic value creation in the Country.

But Foskor uses the locally available mineral (zircon sand) and do the manufacturing activity, creating value addition and provide employment directly and indirectly to the local people.


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CLOSING REMARKS

Foskor Zirconia

Foskor Zirconia

CLOSING REMARKS

• The new project has also been approved by the Department of Trade and Industries (dti) of South Africa under its Manufacturing Investment Program (MIP).

• The financial support and the export marketing assistance by Pilatus will help Foskor to realize its objective of contributing to the local community by becoming a financially strong and economically viable Company in South Africa.


June 15, 2012 32

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