Eramet Sa · EURONEXT:ERA
Eramet Sa — H1 2019 Earnings Presentation
77 slides from Eramet Sa's earnings presentation, Jul 25, 2019
Slide 1: 2019 half-year results
2019 half-year results Christel BORIES Chairman and CEO 25 July 2019
Slide 2: Disclaimer
Disclaimer Certain information contained in this presentation including any information on Eramet’s plans or future financial or operating performance and any other statements that express management’s expectations or estimates of future performance, constitute forward-looking statements. Such state
Slide 3: Contents
Contents Introduction 1– Safety 2– Financial results 3– Operational performance 4– Strategic development projects Conclusion and outlook 3 Eramet – 2019 half-year results
Slide 4: H1 2019 results negatively impacted by price environment and A&D delays
H1 2019 results negatively impacted by price environment and Aubert & Duval (A&D) delays in invoicing High Performance Mining and Metals Alloys Division Erasteel Division Sales €1,809m 23% 6% 77% vs H1 2018 Aubert & Duval 17% €1,809m Mineral Sands BU Manganese BU 8% 50% Nickel BU EBITDA €307m 19%
Slide 5: H1 2019 unfavourable price environment despite higher $
H1 2019 unfavourable price environment despite higher $ -13% decline in average manganese ore1 prices, still high at above USD 6/dmtu in H1 -€45m Impact on 2019 H1 2019 COI -11% decline in average nickel LME prices -€59m Impact on H1 2019 COI Squeeze impact on manganese alloys’ margins -€40m Impact
Slide 6: Operational records for the Mining and Metals division in H1 2019
Operational records for the Mining and Metals division in H1 2019 H1 record production in H1 record2 nickel ore H1 record production both manganese ore and production from SLN from TiZir: alloys: in New Caledonia, despite 3 operational mining 2.1 Mt of ore produced at centers only (vs 4 in 2018): 37
Slide 7: A strategy that is beginning to show success and should deliver results in H2 2019
A strategy that is beginning to show success and should deliver results in H2 2019 Production targets confirmed for 2019 4.5 Mt in manganese ore 1.5 Mt in nickel ore exports 720 kt in mineral sands concentrate, despite lower grade mined from 2019 onwards (vs previous years) SLN recovery plan decisiv
Slide 8: Safety
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Slide 9: Decline in accident frequency rate in H1 2019, but still too many severe accidents
Decline in accident frequency rate in H1 2019, but still too many severe accidents Eramet accident frequency rate (TF21,2) Fatal accidents in May 2019 at Setrag: 21 3 fatalities following collision of 2 trains 20 20.0 19 18 17 17.3 16.8 Increasing safety awareness of all 16 employees and managers, p
Slide 10: Financial results
Financial results 2
Slide 11: Key financial figures
Key financial figures €m H1 2019 H1 2018* Sales 1,809 1,813 EBITDA 307 432 % Sales 17% 24% Current operating income 169 294 % Sales 9% 16% Earnings before tax 90 242 Net income – Group share (37) 94 Net debt (Net cash), excl. IFRS 16 non cash impact 930 449 Gearing (Net debt-to-equity ratio), excl.
Slide 12: Profit & loss statement
Profit & loss statement €m H1 2019 H1 2018* Sales 1,809 1,813 Current operating income 169 294 Other operating income and expenses (25) (1) o/w: Project development - Lithium (11) (9) Project development - Other (5) (5) Accrual of asset impairment tests – A&D 0 (200) Reversal of asset impairment tes
Slide 13: Activities' performances impacted by lower metal prices, except for Mineral Sands
Activities’ performances impacted by lower metal prices, except for Mineral Sands Continued strong contribution from Manganese BU In €m H1 2019 H1 2018 Mining and Metals division Manganese BU 271 321 Nickel BU (70) (22) Mineral Sands BU1 30 10 High Performance Alloys division (27) 10 Group 169 294 I
Slide 14: Decrease in H1 2019 COI linked to external factors and one-off items
Decrease in H1 2019 COI linked to external factors and one-off items Unfavorable price environment for metals and raw materials Decrease in manganese ore and nickel LME prices (-€104m) Negative squeeze impact on manganese alloys’ margin (-€40m) Negative squeeze impact on high-speed steels margin (-€
Slide 15: Net debt impacted by one-off items linked to A&D in H1 2019
Net debt impacted by one-off items linked to A&D in H1 2019 Higher WCR resulting mainly higher manganese ore and alloys’ inventories (€70m) CAPEX: €157m, o/w renewal (€98m) and growth investments (€40m) Taxes paid in H1 2019 related to 2018 profits mainly in Gabon (€96m) and Norway (€18m) A&D qualit
Slide 16: Liquidity remains high at €2.2bn to support the Group's strategic projects
Liquidity remains high at €2.2bn to support the Group’s strategic projects Group financial liquidity (€m) Revolving credit facility ("RCF"): €981m RCF with a 5-year maturity (term in 2,482 2,468 2,500 2024) 2,244 Undrawn line to date 2,000 1,501 1,367 European Investment Bank ("EIB") 1,143 financing
Slide 17: No major debt maturity in 2019
No major debt maturity in 2019 Group gross debt at €2,165m at 30 June, 2019 Average maturity of Group's 2.5-year debt More than 90% at a fixed rate Debt maturity at 30 June, 2019 (€m) 689 10 620 118 500 304 262 492 53 169 284 30 201 170 76 131 19 14 2 5 5 73 16 10 6 -2 -17 2019 2020 2021 2022 2023 2
Slide 18: Operational performance
3 Operational performance
Slide 19: Mining and Metals division
ZZN Mining and Metals division
Slide 20: Manganese BU
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Slide 21: New historical H1 record for global steel carbon production
New historical H1 record for global steel carbon production Global carbon steel production up 5.2%, almost exclusively driven by China (+9.9%); rest of world increase (+0.3%) mainly driven by North America (+4.2%), whereas EU production down (-2.6%) Production still at full capacity of all global ma
Slide 22: Manganese ore prices still high, although down vs H1 2018
Manganese ore prices still high, although down vs H1 2018 Average manganese ore prices still at a high level, USD 6.40/dmtu in H1 2019 (-13% vs H1 2018), but trending down to USD 5.95/dmtu in June Decline in manganese alloys’ prices in Europe (-5% for refined ferromanganese), resulting in a continue
Slide 23: H1 manganese ore production at Comilog >2 Mt for the first time
H1 manganese ore production at Comilog >2 Mt for the first time, target of 4.5 Mt in 2019 confirmed Ore volumes transported at 2 Mt (+9% vs H1 2018), despite logistical incidents; external sales at 1.6 Mt (+9% vs H1 2018) Half-year record in manganese alloys’ production at 376 kt; refined ferromanga
Slide 24: Nickel BU
Nickel BU
Slide 25: Global stainless steel production stable, at a high level
Global stainless steel production stable, at a high level Global stainless steel production stable (+0.2%) in H1 2019, driven by growth in China (+3.3%) Global primary nickel demand up 2.9%, notably supported by battery development (+25%) Increase in global primary nickel production (+10.8%), driven
Slide 26: Nickel prices remained at a lower level vs H1 2018
Nickel prices remained at a lower level vs H1 2018, despite a further decrease in stocks Supply/demand balance still in deficit (estimated at -40 kt in H1 2019) Continued and significant decline in nickel metal stocks at LME and SHFE (-40 kt to 182 kt at 30 June, 2019, i.e. -18% ), representing c. 9
Slide 27: H1 still negatively impacted by disrupted mining operations at East coast centers
H1 still negatively impacted by disrupted mining operations at East coast centers affecting SLN FeNi production… New working hours agreement led to higher Ferronickel production down 12% in H1 nickel ore production of 1.9 Mth (+7%) 2019, due to lower-grade ore loaded into Volumes of exported ore up
Slide 28: …resulting in a higher average cash-cost than in H1 2018
…resulting in a higher average cash-cost than in H1 2018 Cash-cost at real economic conditions: USD 6.05/lb on average in H1 2019 Favourable euro/dollar exchange rate Cash-cost improved to USD 5.82/lb in June SLN’s cash-cost (USD/lb) Intrinsic factors External factors USD +0.4/lb USD -0.3/lb 6.81 5.
Slide 29: SLN rescue plan: decisive breakthroughs for two levers since mid-May
SLN rescue plan: decisive breakthroughs for two levers since mid-May, leading the way to cash cost reduction in H2 ENABLERS New business model for SLN (mining and metallurgy) • 4 Mt / year export license granted by NC government ✔ 4 Mt of ore Ore to supply Export exported by 2021 Doniambo production
Slide 30: Sandouville plant: significant progress towards break-even in EBITDA
Sandouville plant: significant progress towards break-even in EBITDA Improved operating rate thanks to support of experts’ task force since the start of the year… High purity nickel production more than tripled to 4kt in H1 2019, above FY 2018 production; high purity nickel sales volume up to 4kt (v
Slide 31: Mineral sands BU
Mineral sands BU
Slide 32: Favourable markets for titanium products with continued price increase
Favourable markets for titanium products with continued price increase Growth of Pigment market (90% of titanium-based end-products1) Robust global demand in TiO2 feedstocks from Pigments producers in H1 2019 for high-end TiO2 intermediates Hence global demand for CP grade titanium dioxide slag (“CP
Slide 33: Zircon product markets: stable prices at a high level despite a slowdown in demand
Zircon product markets: stable prices at a high level despite a slowdown in demand in H1 2019 Ceramics and Chemicals markets (~50% and 20% respectively of zircon's end-uses) Slowdown in global demand for zircon in all segments in H1 2019, particularly in China for Ceramics Supply/demand balance for
Slide 34: TiZir: high level of production in Senegal and Norway
TiZir: high level of production in Senegal and Norway HMC1 production (titanium ore and zircon): +1% Titanium dioxide slag H1 record to 378 kt, thanks to record-high operational production: +19% to 101 kt with Norwegian performance, despite lower grade mined from plant functioning close to nominal c
Slide 35: High Performance Alloys division
High Performance Alloys division
Slide 36: A stable aerospace market for the High Performance Alloys division
A stable aerospace market for the High Performance Alloys division Stable global aerospace market Airbus delivered 389 aircraft in H1 2019 (+28% vs H1 2018) offsetting Boeing’s decline (239 delivered only, -37%) Civil aircraft market adversely impacted by Boeing’s 737 Max crisis: production of 737 M
Slide 37: Ongoing delays in invoicing, due to implementation of upgraded quality processes at A&D
Ongoing delays in invoicing, due to implementation of upgraded quality processes at A & D -24% A&D sales vs H1 2018 Sales by segment decrease in aerospace sales due to delays impacting -18.7% sales in a stable market environment -6.2% 1,087 several major agreements signed with aerospace 1,020 top-ti
Slide 38: High Performance Alloys' results impacted by sales decline at A&D and margin squeeze at Erasteel
High Performance Alloys’ results impacted by sales decline at A & D and margin squeeze at Erasteel €23m loss incurred at Aubert & Duval in H1 2019 Significant slowdown in shipments as expected, linked to delivery delays resulting from quality processes’ conformity review (-€27m COI impact) 40 kt pre
Slide 39: Strategic development projects
4 Strategic development projects
Slide 40: Group strategic transformation: increasing cash generation & portfolio diversification
Group strategic transformation: increasing cash generation & portfolio diversification Increase cash-flow generation… thanks to higher profitability of existing assets 1 by growing the most profitable businesses 2 …and diversify activities 3 by strengthening our portfolio thanks to new recurring cas
Slide 41: Moanda: A highly cash generative brownfield expansion in manganese ore in Gabon
Moanda A highly cash generative brownfield expansion in manganese ore in Gabon
Slide 42: Moanda: a world-class and highly competitive manganese mine located in Gabon
Moanda: a world-class and highly competitive manganese mine located in Gabon A manganese mine in Gabon (Moanda), operated by Comilog for 50 years > High-grade oxide commercial ore 46% > 269 Mt resources, representing several decades Enhanced operation at Bangombé plateau with dry processing of part
Slide 43: Brownfield project: development of the Okouma plateau in parallel with enhanced production at Bangombé
Brownfield project: development of the Okouma plateau in parallel with enhanced production at Bangombé 7 Mt manganese ore production capacity in 2023: + 50% vs 2018 Development of Okouma plateau: Double ore railway dry processing, transportation followed by capacity by 2023 beneficiation process Mar
Slide 44: Sharp increase in high grade manganese ore production capacity with improved capex profile
Sharp increase in high grade manganese ore production capacity with improved capex profile Manganese ore capacity (in Mt) CAPEX estimated cash-out (in €m) 7 200 > 6.5 180 >6 +2.5 150 >5 4.5 70 40 10 2019e 2020e 2021e 2022e 2023e 2018 2019e 2020e 2021e 2022e 2023e 44 Eramet – 2019 half-year results
Slide 45: Attractive return profile, sustainable and robust cash-flow generation
Attractive return profile, sustainable and robust cash-flow generation Project IRR1 Payback > 35% < 5 years2 Best in class cash cost CAPEX - €640m3 over 5 years 20% decrease in (o/w c. €70m for 2019 early Cash-cost in 2023 works) 1 Internal Rate of Return 2 From 1st year of production (2020) 45 Eram
Slide 46: Social and environmental performance: building our social licence to operate
Social and environmental performance: building our social licence to operate Strong contribution through local employment > Eramet 2nd private employer of Gabon Mine expansion project managed in compliance with IFC standards > High value biodiversity areas preserved > Robust run-off water and dust m
Slide 47: Manganese expansion development schedule
Manganese expansion development schedule Manganese ore production capacity 4.5 Mt > 5 Mt > 6 Mt > 6.5 Mt 7.0 Mt Spring 2019 July 2019 End of 2019 2020 2021 2022 2023 End of DFS1 First earth at the July: start of Start of new End of work on July: start of IPV (Internal works earliest extraction benef
Slide 48: Centenario: A world class lithium project in Argentina
Centenario A world class lithium project in Argentina
Slide 49: Diversification in metals for energy transition through development of a lithium deposit in Argentina
Diversification in metals for energy transition through development of a lithium deposit in Argentina: DFS completed Eramet project area Battery grade lithium carbonate production (24 kt LCE1), greenfield project including all necessary infrastructure Vast long life brine deposit: > c.10 Mt LCE1 dra
Slide 50: Low cost direct proprietary extraction process, hence a competitive cash-cost position
Low cost direct proprietary extraction process, hence a competitive cash-cost position Centenario salar: c. 400mg/l lithium with low impurity content, in line with Argentinean deposits Direct extraction process Much better lithium recovery rate (c.90% vs c.50% on conventional process) Much quicker l
Slide 51: Key differentiating factors: a 50-year mine life and a high lithium yield project
Key differentiating factors: a 50-year mine life and a high lithium yield project Lithium demand forecast +14% CAGR Production capacity: 24 kt LCE / year Li Yield c. 90% (Battery grade) thanks to direct - extraction process Production to start: end-2021 Post ramp-up Cash Cost Easy access to $3.5k/t
Slide 52: A robust ramp-up, supported by an experienced project and operations team
A robust ramp-up, supported by an experienced project and operations team Lithium production (in kt LCE) CAPEX estimated cash-out (in $m) 24 310 > 22 >15 205 80 3.0 2021e 2022e 2023e 2024e 2019e 2020e 2021e Scalability opportunities, supported by deposit’s size 52 Eramet – 2019 half-year results
Slide 53: A highly value-accretive project with potential for further profitable development
A highly value-accretive project with potential for further profitable development IRR1 Payback2 17% to 25% 3 to 5 years depending on lithium prices assumption Post ramp-up Cash Cost CAPEX $3.5k/t c. €525m3 over 2019-2021 st 1 quartile (o/w c. €70m for 2019 early works) 1 Internal Rate of Return 2 F
Slide 54: Social and environmental performance: building our social licence to operate
Social and environmental performance: building our social licence to operate Open and constructive relationships with local stakeholders > Overall positive feedback (2018 survey) Increasing local sourcing and employment > Multi-stakeholder committee set up to maximize local content Robust environmen
Slide 55: FID end of 2019 at the earliest, subject to satisfactory financing conditions and regulatory frame
FID end of 2019 at the earliest, subject to satisfactory financing conditions and regulatory frame 2012 Spring 2019 End-2021 Discovery of 2017 End of DFS4 / IPV Commissioning Centenario- PFS3 (Internal Project and start of Ratones salar2 launch Validation) lithium production 2010 2014 2018 End of 20
Slide 56: Weda Bay Nickel: A highly competitive NPI project in Indonesia
Weda Bay Nickel A highly competitive NPI project in Indonesia
Slide 57: Bringing value to the Weda Bay Nickel deposit
Bringing value to the Weda Bay Nickel deposit One of the largest nickel oxidized deposits in the world on Halmahera island, Indonesia 9 Mt nickel ressources In May 2018, implementation of a partnership with Tsingshan, No. 1 global stainless steel producer Shareholder structure: Eramet 43% / Tsingsha
Slide 58: Highly competitive NPI production in Indonesia
Highly competitive NPI production in Indonesia Production target of 30 kt / year in nickel content, of which a 13 kt / a year off-take for Eramet First production expected in H2 2020 with a swift ramp-up to reach nominal capacity in 2021 Highly competitive NPI production in Indonesia No CAPEX suppor
Slide 59: Conclusion and outlook
clusion and outlook SS eramMer
Slide 60: Continued deployment of the strategic roadmap towards improved intrinsic performance forecast in H2 2019
Continued deployment of the strategic roadmap towards improved intrinsic performance forecast in H2 2019 H1 2019 strongly penalised by external factors Despite several operational records, H1 2019 intrinsic performance impacted by one–off items: > A&D quality review > disruptions in the East Coast m
Slide 61: Q&A
Q&A Committed to women and men Committed to our planet A socially responsible, committed and contributory corporate citizen A responsible economic player
Slide 62: Appendices
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Slide 63: Manganese BU – Key figures
Manganese BU – Key figures In €m H1 2019 H1 2018 Sales 904 869 EBITDA 316 372 COI 271 321 Capex 78 40 63 Eramet – 2019 half-year results
Slide 64: Nickel BU – Key figures
Nickel BU – Key figures In €m H1 2019 H1 2018 Sales 346 365 EBITDA (25) 22 COI (70) (22) Capex 10 32 64 Eramet – 2019 half-year results
Slide 65: Mineral sands BU – Key figures
Mineral sands BU – Key figures H1 2019 H1 2018 In €m1 (100%) (50%) Sales 139 71 EBITDA 52 18 COI 30 10 Capex 3 3 1 Full consolidation of Mineral Sands activity as of 1st July 2018, following the acquisition of shares in Mineral Deposits Limited, an Australian company that held a 65 Eramet – 2019 hal
Slide 66: High Performance Alloys Division - Key figures
High Performance Alloys Division - Key figures A&D and Erasteel In €m H1 2019 H1 2018 Sales 423 520 EBITDA (5) 43 COI (27) 10 Capex 26 31 66 Eramet – 2019 half-year results
Slide 67: CRU price trends in manganese alloys (refined and standard) in Europe
CRU price trends in manganese alloys (refined and standard) in Europe CRU price for manganese alloys in Europe between January 2014 and January 2019 €/t 2,000 1,500 1,000 500 0 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jul-19 Medium-carbon ferromanganese High-carbon ferromanganese Sillicomanganese 6
Slide 68: Reconciliation Group reporting and published accounts
Reconciliation Group reporting and published accounts Half Year Half year Half Year Half year Joint-venture Joint-venture €m 2019 contribution 2019 2018 contribution 2018 Published1 Reporting Published1 Reporting2 Sales 1,809 - 1,809 1,735 78 1,813 EBITDA 307 - 307 415 17 432 Current operating incom
Slide 69: Group income statement
Group income statement €m H1 2019 H1 2018 Sales 1,809 1,813 EBITDA 307 432 % Sales 17% 24% Current operating income 169 294 % Sales 9% 15% Other operating income and expense (25) (1) Operating income 144 293 Financial result (54) (51) Pre-tax income 90 242 Share of income of equity affiliates (4) (0
Slide 70: Cash-flow table
Cash-flow table €m H1 2019 H1 2018 FY 2018 Operating activities EBITDA 307 432 843 Cash impact on items under EBITDA (142) (160) (345) Cash from operating activities 165 272 498 Change in WCR (172) (99) (49) Net cash generated by operating activities (1) (7) 173 449 Investment activities CAPEX (131)
Slide 71: Group Balance Sheet at 30 June, 2019
Group Balance Sheet at 30 June, 2019 3,956 3,956 3,646 3,646 1,547 1,605 3,106 289 3,030 303 1,081 995 17 26 850 1,022 616 717 31/12/2018 30/06/2019 31/12/2018 30/06/2019 Fixed assets Equity-Group share Provisions and net deferred tax Net debt WCR Minority interests Financial instruments 71 Eramet –
Slide 72: Bond maturities
Bond maturities Balance at Maturity Currency Initial amount 30/06/2019 Interest rate date (in m) November 2013 bond issuance € 525 460 4.5% 2020 2016 ODIRNAN bond issuance € 100 100 perpetual 4% July 2017 TiZir bond renewal USD 300 300 July 2022 9.50% February September 2017 bond issuance € 500 500
Slide 73: Shareholding on 30 June 2019
Shareholding on 30 June 2019 Other float SORAME + CEIR 32.1% (Duval Family) 36.9% Number of shares issued 26,635,884 1.3% BRGM** 4.0% STCPI* 25.6% APE * STCPI (Société Territoriale Calédonienne de Participation Industrielle): entity owned by the New Caledonian provinces ** BRGM (Bureau de Recherches
Slide 74: Lithium Extraction process
Lithium Extraction process 74 Eramet – 2019 half-year results
Slide 75: Lithium main growth drivers: energy storage, including Li-on EV battery; +14% pa growth
Lithium main growth drivers: energy storage, including Li-on EV battery; +14% pa growth 1 Extraction from Energy storage market: mainly salar brines or from driven by environmental regulations, lithiniferous minerals EV sales and mobility development (spodumene) in order to… Lithium carbonate and li
Slide 76: A booming lithium market over the next years
A booming lithium market over the next years Forecast lithium demand1 (in kt LCE) 603 22% 30% Others 230 Others Batteries 49% EV Batteries 102 48% 57% 34% 43% 17% 2010 2018 2025e 20181 20251 Consumer Glass Consumer & electronics & electronics 11% 11% Glass Greases Mass energy 22% 25% 3% storage 8% O
Slide 77: Contacts Innovation – Investor Relations
CONTACTS Executive VP Strategy & Innovation – Investor Relations Philippe GUNDERMANN philippe.gundermann@eramet.com Investor Relations Manager Sandrine NOURRY-DABI sandrine.nourrydabi@eramet.com