Longhai Steel — Investor Presentation (June 2012)
30 slides from Longhai Steel's investor presentation, Jun 25, 2012
Slide 1: Investor Presentation
‘s INVESTOR’ PRESENTATION
Slide 2: Safe Harbor Statement
SAFE HARBOR STATEMENT Matters discussed in this presentation contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. When used in this document, the words "anticipate," “believe,” "estimate," "may," “intend,” “expect” and similar expressions ide
Slide 3: Company Overview, Capital Structure, Investment Highlights
COMPANY OVERVIEW CAPITAL STRUCTURE INVESTMENT HIGHLIGHTS
Slide 4: Company Overview
COMPANY OVERVIEW LONGHAT STEEL * Produces high quality steel wire ranging from 5.5mm to 18mm on highly advanced production INC. IS A equipment LEADING PRODUCER OF * Products further processed downstream into materials primarily used in domestic construction and HIGH QUALITY _ infrastructure projects
Slide 5: Capital Structure
CAPITAL STRUCTURE As of 5-1-12 Ticker : Market Cap : Shares Outstanding : Share Price : Price / Earnings : Revenue (TTM) : Earnings per Share (TTM) : Cash on Hand at 3/31/12 : 52 Week Price Range : LGHS $10.1M 10.4M $1.00 09x $608 M $1.19 $4.7M $0.15 -$11 INVESTOR PRESENTATION
Slide 6: Investment Highlights
INVESTMENT HIGHLIGHTS Positioned to achieve meaningful, near-term growth * Significant capacity expansion from 900,000 MT to 1.5 million MT - increase of capacity by 67% + Organic growth via continued improvements in efficiency / margins and expansion of product offering + Opportunity to consolidate
Slide 7: Steel Industry in China
STEEL INDUSTRY IN CHINA MARKET OPPORTUNITY IN CHINA COMPETITIVE LANDSCAPE
Slide 8: The Steel Industry in China
THE STEEL INDUSTRY IN world. Dominant global leader in crude steel consumption and production + 2009 Global Crude Stee! — consumed 48%; produced 46% * Consumption to continue as per-capita consumption (420 kg) low, given continued development / growth Favorable headwinds continue to drive production
Slide 9: The Steel Industry in China
THE STEEL INDUSTRY IN CHINA a 2011 Steel Wire Output by Province China’s Steel Wire Production ( MT) Guangdong 1,100.00 siangxi Shandong 5% Liaoning ssa00 Shanxi sence ssa00 Shanxi sonce Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov zou Longe ne, pons INVESTOR PRESENTATION
Slide 10: Market Opportunity in China
MARKET OPPORTUNITY IN CHINA Massive government stimulus package, intended to Strong catalysts for industry consolidation stimulate infrastructure development and construction present growth / acquisition opportunities for growth, a powerful near-term growth catalyst large-scale, efficient producers
Slide 11: Competitive Landscape
COMPETITIVE LANDSCAPE PRC Market Composition 1 Rapid build-out of industry led to intense fragmentation / competition + State Owned Enterprises (SOE) + “Backyard Operations” * Private Operators (like Longhai) Fragmented nature of industry an additional catalyst for consolidation + Many lack scale /
Slide 12: Competitive Landscape
COMPETITIVE LANDSCAPE Est. Capacity Line Speed Comper fred: Lines (Millions of MT) (Meters / Sec) Gate Xingtai Steel Company 5 2.95 90 SOE Longhai 90 Private Hebei Xinjin Company 2 0.80 70,90 Private Wuan Mingfang Steel Company 2 0.90 90 Private Yongnian Jianfa Company 1 0.30 60 Private pons INVESTO
Slide 13: Facilities, Products and Applications, Sales Channels
FACILITIES PRODUCTS AND APPLICATIONS SALES CHANNELS
Slide 14: Current Facilities
CURRENT FACILITIES LONGHAI*S HIGH QUALITY STEEL WIRE IS MANUFACTURED AT THE COMPANY7S EXPANSIVE ON-SITE PRODUCTION FACILITIES- State-of-the-art production facilities in Xingtai, Hebei. + 200,000 square-meter space covering production facilities, warehouses & offices. Competitive Advantages via steel
Slide 15: Current Facilities
CURRENT FACILITIES LONGHAI*S HIGH QUALITY STEEL WIRE IS MANUFACTURED AT THE COMPANY7S EXPANSIVE ON-SITE PRODUCTION FACILITIES- Newly opened, second production facility incorporates sixth generation technology. + Facility utilizes a longer and faster production line with specialized heating and cooli
Slide 16: Products and Applications
PRODUCTS AND APPLICATIONS High quality steel wire for use primarily in construction applications; 6.5mm to 10mm diameter. + Further processed by 3rd-party wire refiners into nails, screws, and wire mesh for use in reinforced concrete and fencing. Wire manufactured with strict adherence to 1S09001-20
Slide 17: Sales Channels
SALES CHANNELS The Company's high quality steel wire is sold ting prone cs ar adap cgi | sone eos atone to third-party processors throughout Hebel and nelehboring provirices. Beixin Building Materials (Group) Co., Ltd. + 100% of distribution in China; 80% in Hebei. Hebei Huaneng Development Co., Ltd
Slide 18: Major Milestones, Growth Strategy, Governance Upgrades, Management
MAJOR MILESTONES GROWTH STRATEGY OPERATIONAL & CORPORATE GOVERNANCE UPGRADES MANAGEMENT TEAM & DIRECTORS
Slide 19: Major Milestones
MAJOR MILESTONES January 2007 ‘August 2008 July 2010 32011 Longhai’s steel wire production _—-Xingtal Longhai Wire Rod Company —_Formal FCPA compliance Complete substantial capacity facility fully operational spun off from Longhai Group. policy adopted by Longhal. expansion: 67% increase to 1.5M MT.
Slide 20: Growth Strategy
GROWTH STRATEGY AS THE CHINESE MARKET FOR HIGH-QUALITY STEEL WIRE CONTINUES TO GROW. LONGHAT HAS DEVELOPED A FOCUSED, EXECUTABLE GROWTH STRATEGY DESIGNED TO CAPITALIZE ON ITS SUPERIOR FACILITIES, FAVORABLE INDUSTRY DYNAMICS AND RELATED OPPORTUNITIES- Significant near-term expansion of production fac
Slide 21: Operational & Corporate Governance Upgrades
OPERATIONAL & CORPORATE GOVERNANCE UPGRADES Improved Corporate Governance * Reconstituted Board of Directors with majority of US Independent Directors — January 2012. Added Steven J. Ross, Dr. Michael W. Grieves, Josh Howell and Jeff Cooke. + Retained Marcum Bernstein & Pinchuk LLP, an international
Slide 22: Management Team
MANAGEMENT TEAM FOUNDER, CHAIRMAN AND CEO + Over 10 years active management experience in the steel industry, playing integral role in the Company/s development, growth & success + Active participant in PRC industry projects with highly-regarded reputation among industry participants + Bachelor's De
Slide 23: Independent Directors
INDEPENDENT DIRECTORS ‘CHAIRMAN, AUDIT COMMITTEE World-recognized expert in Product Lifecycle Management, engineering, manufacturing and information systems, and lectures worldwide on those topics Over 40 years of financial and operational executive experience, with over 30 years of board level expe
Slide 24: Income Statement, Margin Control, Comparables
INCOME STATEMENT MARGIN CONTROL COMPARABLES
Slide 25: Income Statement
INCOME STATEMENT AS THE COMPANY HAS BEEN AT MAXIMUM CAPACITY FOR TWO YEARS» VARIATIONS ARE DUE TO STEEL PRICE VARIABILITY PAGE) - REVENUE AND MARGIN CAS MORE FULLY EXPLAINED ON THE NEXT THE NEW FACILITY WILL SIGNIFICANTLY BOOST REVENUES AND EARNINGS. Selected income statement data ($n millions excep
Slide 26: Margin Control
MARGIN CONTROL The Company has significantly improved its ability to manage the fluctuation of raw material and final product prices in a sometimes volatile steel market environment. New technology and systems added to enhance control systems and modernize 000 facilities. —Steel Wire ——Steel Billets
Slide 27: Comparables
COMPARABLES Longhai Steel is trading at a discount to comparable Chinese public companies. The Company is well-positioned for continued growth: + Production capacity has recently been expanded by 67% + Higher quality wire from the new production facility will diversify customer base and generate hig
Slide 28: Thank You
is THANK ‘You’ oa
Slide 29: Longhai Steel Inc.
@) Longhai Steel Inc. RMR Industry: Steel Sector: Basic Materials Longhai Stee! inc. 4 Jingguang Road, Neigiu County Xingtai City, Hebei Province, China 054000 www.longhaisteelinc.com Contact Dongni (Cindy) Han, Board Secretary Office: +86-319-688-0502 Mobile: +86-139-3099-8773 Email: dhan@longhaist
Slide 30: Management Team & Directors
Management Team & Directors ‘Multinational, Experienced Professionals in All Positions Expansion Strategies Poised to Meet Market Opportunity: * Chaojun Wang - Founder Chaiman China is the world's largest steel consumer and producer, accounting for 48% of 2009 z Hey Wig CE8 global demand, driven by