steelmaking raw materials workshop · iron ore 70% algeria iron ore 70% brazil iron ore 100% new...

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Joe Mathews, Mining OECD, December 5, 2011

Steelmaking Raw Materials

Workshop

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Today‟s agenda

• Overview of ArcelorMittal Mining

• Strategy for iron ore growth

• Challenges for both steel and mining

• Liberia Iron Ore Mines – Pictorial casestudy

• Building World-Class Mining & Steel businesses

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Who we are

• World‟s leading integrated

steel and mining company

• … with a global operating

base

• … and substantial strategic

upstream integration into iron

ore, manganese and coal

• A mining business that is an

integral and cohesive part of

ArcelorMittal‟s overall

business.

• A company focussed on stable

delivery of value to all

stakeholders

Geographically diversified mining assets

South Africa

Iron Ore**

* Includes share of production

** Includes purchases made under July 2010 interim agreement with Kumba (South Africa)

Mining business portfolio

Key assets and projects

USA Iron Ore

Minorca 100%

Hibbing 62%*

Mexico Iron Ore

Las Truchas &

Volcan 100%;

Pena 50%*

Liberia

Iron Ore 70%

Algeria

Iron Ore

70%

Brazil

Iron Ore

100%

New projects /

exploration

Existing mines

Mauritania

Iron Ore

exploration

license

Canada

AMMC 100%

Bosnia

Iron Ore

51%

USA Coal

100%

South Africa

Manganese

50%

Indian Iron

Ore & Coal

exploration

license

Ukraine

Iron Ore

95%

Kazakhstan

Coal

8 mines 100%

Kazakhstan

Iron Ore

4 mines 100%

Russian Coal

98.3%

Iron ore mine

Non ferrous mine

Coal mine

McArthur coal

16.02%

interest

Coal of Africa

15.98%

Canada

Baffinland 70%

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Segmental EBITDA (US$mn)

0100200300400500600700800900

1000

FCA FCE Long AACIS AMDS Mining

Q2'10 Q3'10 Q4'10 Q1'11 Q2'11

Mining now reported separately

• All raw materials consumed from ArcelorMittal mines that could practically be sold outside the Group are now transferred internally at market prices

• Production from “captive” mines (limited by logistics or quality) continues to be transferred at cost-plus to the steel facilities

• Mining segment reported 1H11 EBITDA of $1.4bn based on 12.9Mt iron ore and 2.4Mt of coal shipped at market prices (internally and externally)

• Mining segment represents ~25% of Group EBITDA in 1H11

• Steel segments are now more comparable on a like-for-like basis driving performance improvement

* Notes: ArcelorMittal EBITDA margin based on market-priced tonnes (i.e. excludes cost-plus tonnes from Revenue and EBITDA); “Producers” include BHP,

Fortescue, Kumba, Rio Tinto and Vale. Competitor data sourced from public information and has been prepared on a comparable periodic basis.

New Mining segmentation promotes improved operating decisions and optimal capital allocation

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Iron ore EBITDA margin 1H 2011*

0%

20%

40%

60%

80%

Producer

1

Producer

2

Producer

3

Producer

4

Producer

5

Arcelo

rMitt

al*

Mining EBITDA (US$mn)

2008 2009 2010 2011F

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Mining volumes are growing

ArcelorMittal Mining business

• Create world class mining operations

• Ensure appropriate capital allocation for mining business

for long term sustainability and growth

• Focus on mine safety, mine planning, quality, expansion,

capex and logistic

• Ensuring world class project control and management

systems

Mining benefited from higher shipments and higher market prices

Definitions: “Market priced” tonnes represent amounts of iron ore or other raw materials from ArcelorMittal mines that could be sold to third parties on the open market. Market priced tonnes that are not sold to third parties

are transferred from the Mining segment to the Company‟s steel producing segments at the prevailing market price. Shipments of raw materials that do not constitute market price tonnes are transferred internally on a cost-

plus basis.

* Excludes strategic contracts; ** Excludes thermal coal

Coal** (million tonnes)

0

2

4

6

8

10

2008 2009 2010 2011F

Shipped at "Market price" Shipped at "Cost-plus"Iron Ore* (million tonnes)

0

10

20

30

40

50

60

2008 2009 2010 2011F

Shipped at "Market price" Shipped at "Cost-plus"

+15% growth

+55% growth

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Type of product

Region

Proven & probable

reserves

Measured & indicated

resources

Inferred

resources

Mtonnes %Fe Mtonnes %Fe Mtonnes %Fe

Canada (AMMC) 2,350 29 3,442 30 1,025 28

Canada

(Baffinland) 375 65 41 66 444 65

USA 581 20 41 23 90 23

Central America 308 29 117 29 88 28

South America 134 58 321 38 130 37

West Africa 22 61 1,539 44 1,522 41

Eastern Europe 366 37 866 38 - -

Central Asia 120 41 1,629 40 30 51

TOTAL 4,255 33 7,997 36 3,329 39

Iron ore reserves and resources

2010 year-end estimates

The life of mine plans of operations and planned expansion projects

are 90% based on ore reserve estimates

Lumps

Fines

Pellet feed

Conc

• Tonnage and grade estimates are reported as „Run of Mine‟. Tonnage is reported on a wet metric basis. Where we own less than 100% of the operation, the estimates have not been adjusted to reflect our ownership interest.

• Mineral resource estimates are reported in addition to ore reserve estimates.

• The ore reserve and mineral resource estimates have been prepared under the supervision of ArcelorMittal qualified personnel . Detailed independent audits are conducted on a regular basis.

The terms "mineral resource", "measured mineral resource", "indicated mineral resource" and "inferred mineral resource" are defined in, and have been calculated in accordance with the guidelines set forth in,

Canadian National Instrument 43-101 (“NI 43-101”). NI 43-101 is a codified set of rules and guidelines for reporting and displaying information related to mineral properties owned by, or explored by, companies which

report results on stock exchanges within Canada, and is recognized by several other international stock exchanges and regulatory bodies. However, these terms are not defined terms under SEC Industry Guide 7 and

(absent an applicable exception) are not permitted to be used in reports and registration statements filed with the SEC. Investors are cautioned not to assume that any part or all of mineral deposits in these categories

will ever be converted into reserves. "Inferred mineral resources" have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all

or any part of an inferred mineral resource will ever be upgraded to a higher category.

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Metallurgical coal reserves and resources

2010 year-end estimates

The coal life of mine plans of operations and planned expansion projects

are 100% based on coal reserve estimates

Inferred

Resources

Proven+

Probable

Reserves

Measured

+Indicated

Resources

• Tonnage and grade estimates are reported as „Run of Mine‟. Tonnage is reported on a wet metric basis. Where we own less than 100% of the operation, the estimates have not been adjusted to reflect our ownership interest.

• Mineral resource estimates are reported in addition to coal reserve estimates.

• The ore reserve and mineral resource estimates have been prepared under the supervision of ArcelorMittal qualified personnel. Detailed independent audits are

conducted on a regular basis.

Group coal resources and reserves 2010 plant wise resource and reserve

Coal

Proven & probable

reserves

Measured & indicated

resources

Inferred

resources

Mtonnes %Yield Mtonnes %Yield Mtonnes %Yield

Kazakhstan 193 46 588 47 8 62

Kuzbass 32 65 226 63 32 62

Princeton 123 59 86 54 4 53

TOTAL 347 52 901 52 43 61

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The terms "mineral resource", "measured mineral resource", "indicated mineral resource" and "inferred mineral resource" are defined in, and have been calculated in accordance with the guidelines set forth in,

Canadian National Instrument 43-101 (“NI 43-101”). NI 43-101 is a codified set of rules and guidelines for reporting and displaying information related to mineral properties owned by, or explored by, companies which

report results on stock exchanges within Canada, and is recognized by several other international stock exchanges and regulatory bodies. However, these terms are not defined terms under SEC Industry Guide 7 and

(absent an applicable exception) are not permitted to be used in reports and registration statements filed with the SEC. Investors are cautioned not to assume that any part or all of mineral deposits in these categories

will ever be converted into reserves. "Inferred mineral resources" have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all

or any part of an inferred mineral resource will ever be upgraded to a higher category.

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0

10000

20000

30000

40000

50000

60000

70000

80000

90000

2010 2011F 2012 2013 2014 2015

Cost plus tonnage Marketable tonnage

97%

Growth

41%

Growth

Iron ore growth 2010-2015

Iron ore growth target of marketable tonnes by 2015 (Kt)

The life of mine plans of operations and planned expansion projects

are 100% based on coal reserve estimates Under flat iron ore pricing assumption

EBITDA could double by 2015, driven by growth in marketable tonnes

• Non-Marketable tonnage growth expected to have positive impact on steel business, primarily at Kazakhstan, Brazil and Bosnia

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Based on certain assumptions, including allocation of additional capex for Brownfield and Greenfield projects. See following slides.

Mining and Steel are different

Mining • Very long lead times

• Limited by “what is in the ground”

• High up front fixed capital cost

• Limited upgrading, no

transformational capability

• Heavily dependent on

infrastructure rail and ports

• Industry well consolidated

Steel • Shorter lead times

• Full conversion and processing ability

• High variable costs – raw materials

• Able to use wide range of inputs

• Complex pyrometallurgical processing

• Major recyclable industry, steel fully recyclable

• Industry more fragmented

Fundamentally different skill sets

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Challenges: Mining

• Rise of China caught Mining industry unprepared

• The 1990‟s saw Steel companies divest raw materials business such

as iron ore and coal

• China arrived after a sustained period of poor returns, low demand and

underinvestment.

• Rapid demand growth drove shortages and upward price movements

• Today mining is playing catch up; tightening the supply of heavy

equipment, skilled labour and input costs

Extreme China (iron ore) demand caused long period of supply shortage

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Challenges: Steel

• Rising raw material input costs

• Profitability and margins under pressure

• Current uncertain global economic conditions

• Aligning demand and supply

• Emerging-market demand and lower growth developed world

• Competing materials eg aluminium

Margin pressure in a changing global industry

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Liberia Iron Ore Mines

– Pictorial Case study

Upgraded railway line linking mine with port at Liberia AMMC: Mont-Wright Mining Complex

Liberia Iron Ore Mining

• Ore deposits at Tokadeh, Gangra & Yuelliton

• Phase 1 DSO mining from Tokadeh & Gangra

• Concentrator planned in Phase 2 at Tokadeh

• Railway link from

Yekepa to Buchanan (250 Km)

• Railway workshop and Port at Buchanan

13 ArcelorMittal Liberia

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2007

9

Picture rail out

ArcelorMittal Liberia 16

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Mining - facilities

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Crusher & Screening Plant Workshop & Mine Office Construction

Generator Set Installation Liberia Steering Committee

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Environment

Much of our infrastructure is in forest, which is diverse in nature

and needs protection. The mines are right in a key international

rainforest “hotspot”.

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Township and Infrastructure

22 ArcelorMittal Liberia

Schools in Yekepa

__ __ __ __ __ __ __ __ 05-Dec-2011 __ 05-Dec-2011 __ 05-Dec-2011 __ 05-Dec-2011 __ 05-Dec-2011 __ 05-Dec-2011 __ 05-Dec-2011 __ 05-Dec-2011 __ 05-Dec-2011 __ 05-Dec-2011 __ 05-Dec-2011 __ 05-Dec-2011 __ 05-Dec-2011 __ 05-Dec-2011 __ 05-Dec-2011 __ 05-Dec-2011 __ 05-Dec-2011 __ 05-Dec-2011 __ 05-Dec-2011 __ 05-Dec-2011 __ 05-Dec-2011 __ 05-Dec-2011 __ 05-Dec-2011 __ 05-Dec-2011 __ 05-Dec-2011 __ 05-Dec-2011 __ 05-Dec-2011 __ 05-Dec-2011 __ 05-Dec-2011 __ 05-Dec-2011 __ 05-Dec-2011 __ 05-Dec-2011 __ 05-Dec-2011 __ 05-Dec-2011 __ 05-Dec-2011 __ 05-Dec-2011 __ 05-Dec-2011 __ 05-Dec-2011 __ 05-Dec-2011 __ 05-Dec-2011 __ 05-Dec-2011 __ 05-Dec-2011 __ 05-Dec-2011 __ 05-Dec-2011 __ 05-Dec-2011 __ 05-Dec-2011 __ 05-Dec-2011 __ 05-Dec-2011 __ 05-Dec-2011 __ 05-Dec-2011 __ 05-Dec-2011 __ 23

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1000 students


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Iron ore production started – May 2011


Ore transport from Tokadeh by rail


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Ore railed to Buchanan port


First Shipment was in September 2011


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Outlook: The supply challenge

• Heavy greenfield reliance

• Logistics constraints

• Resources and Reserve Quality

• Cost curve structure

• Rising Environmental and Political Pressures

Supply response challenge

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Global iron ore supply/demand balance

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……………………………………………………………. ……………………………………………………………. Iron ore is not just ore… grade and quality are key

– Top 3 likely to retain seaborne market share

– China domestic ore will continue to dominate high cost quartile

– Iron ore: average capital intensity of projects has more than doubled in past 5 years

– Delays in industry greenfield projects likely

– Harder to find Tier 1 assets. Forced to new basins

– Lump quality decreasing

– Finer fines likely trend but average chemistry improving

– Higher blast furnace pellet rates to complement sinter quality

Global iron ore supply / balance projections Global supply/demand and structure implications

Source : Metaliytics Iron Ore Review Q2 2011 .

800

1300

1800

2300

2800

3300

2010 2011 2012 2013 2014 2015 2016

Iro

n O

re D

em

and

/Pro

du

ctio

n

World Iron Ore Demand

World Iron Ore Production

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Summary

• Mining and steel are different industries but mutually linked

• Current tight markets with us for some years…..but will not last forever

• There is major new iron ore capacity planned, with associated impact

on price

• Asset prices may be close to top of the cycle – acquisitions expensive

and competitive

• Operating & skill sets are different for steel and mining;

A timed portfolio approach should be considered

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The ArcelorMittal Way

• Mining and Steel businesses in one company, but competing for

capital

• Managed by experts in each field

• Not vertically integrated model…...Mining is a profit driver not a cost

support

• Mining customer base set by mining: risked portfolio of markets,

• customers, prices, products.

• Mining customers includes AM Steel. Arms length

commercial supply contracts

• Optimise shared supply chain management

• Applying unrivalled industry knowledge to both Steel & Mining for best

market responses

• Our growth is targeted toward global markets

• Long term commitment to build a portfolio in Mining taking into account:

cost curve, acquisition timing, quality and products

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2015 and beyond

Upgraded railway line linking mine with port at Liberia Liberia Crushing/Screening Plant Upgraded railway line linking mine with port at Liberia Baffinland Baffinland

steelmaking raw materials workshop · iron ore 70% algeria iron ore 70% brazil iron ore 100% new...

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