Suncoke Energy, Inc. · NYSE:SXC
Suncoke Energy — Investor Day (2012)
72 slides from Suncoke Energy's investor day presentation, 2012
Slide 1: SunCoke Energy's Investor Day 2012
. _ “= SUNCOKE ENERGY’S LZE- GA INVESTOR DAY 2012
Slide 2: Welcome
Welcome Ryan Osterholm Director, Finance & Investor Relations
Slide 3: Agenda
Agenda TM 2:00 pm Strategic Vision Fritz Henderson, Chairman & Chief Executive Officer 2:30 pm Executing 2013 Priorities Mike Thomson, President & Chief Operating Officer 2:50 pm Optimizing the Coal Business Mike Hardesty, Senior Vice President, Commercial Operations 3:10 pm Q&A 3:30 pm Break 3:45 p
Slide 4: Safe Harbor Statement
Safe Harbor Statement TM Some of the information included in this presentation contains “forward-looking statements” (as defined in Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended). Such forward-looking statements are based on
Slide 5: Fritz Henderson
Fritz Henderson Chairman & Chief Executive Officer
Slide 6: Establishing the Foundation
Establishing the Foundation TM Since our July 2011 IPO, we delivered solid progress in many areas, laying a foundation for future growth Proved our • Executed successful Middletown startup cokemaking • Improved Indiana Harbor performance expertise • Achieved solid operations across entire coke fleet
Slide 7: Status of Planned MLP IPO
Status of Planned MLP IPO TM • Made significant progress with the SEC registration process • Equity markets – particularly MLP IPO equity markets – have been choppy in recent weeks • Continue to believe the planned MLP will enhance SXC shareholder value • Plan to initiate MLP IPO as soon as market c
Slide 8: Seizing our Growth Opportunities
Seizing our Growth Opportunities TM Uniquely positioned to capture a greater share of the global cokemaking market and achieve profitable, sustainable growth Execution Capability Financial Strength Industry Fundamentals & Focus & Flexibility • Domestic: • Clear Priorities • Financial Liquidity: • Ag
Slide 9: Coke Industry Fundamentals
Coke Industry Fundamentals TM Opportunities exist to potentially replace aging coke batteries and acquire existing facilities U.S. & Canada Coke Asset Age Profile in 2011 U.S. & Canada Coke Supply Total 2011 Coke Demand: 19.5 million tons Average Age % of U.S. & Canada coke production SunCoke 37 18%
Slide 10: Coke Industry Fundamentals
Coke Industry Fundamentals TM We estimate nearly 4 million tons of capacity will be retired/replaced in coming years & another 4 million tons is potentially acquisition worthy SXC Market Analysis • Evaluation of all existing batteries in US & Canada • Customer quality • Blast furnace competitiveness
Slide 11: Coke Industry Fundamentals
Coke Industry Fundamentals TM Our coke is a preferred solution compared to imported coke which is disadvantaged on quality, reliability and shipping/handling costs Chinese Coke Prices vs. U.S. & Canada Coke Imports Representative SunCoke Price (Tons in millions) $750 (US$/ton) 5.1 4.9 4.5 $500 3.3 2
Slide 12: Coke Industry Fundamentals
Coke Industry Fundamentals TM SunCoke’s coke is competitively priced relative to imported coke Representative Delivered Coke Prices - $/ton Based on September 2012 prices $476 $396 $115 $353 $76 $361 $353 $320 Other Domestic Coke Ukrainian Chinese Coke (1) Coke (2) Chinese 40% Export Tax Premium (Ta
Slide 13: India Entry: VISA SunCoke
India Entry: VISA SunCoke TM VISA SunCoke provides a meaningful entry to India and serves as a platform for future growth • VISA Steel is a mid-sized, Chinese Heat Recovery publicly-traded special steel, ferro Coke: 400K tpy chrome and coke company Steam: 20 Mwhe Built: 2007 – Well-run organization
Slide 14: The India Growth Opportunity
The India Growth Opportunity TM India offers attractive coke market fundamentals driven by growing steel demand Per Capital Steel Demand (kg/yr) Growing Steel Market India Brazil China 2011 57 123 460 India Metallurgical Coke Demand Coke Supply Deficit 70 India 60 Millions of Metric Tons Steel/Coke
Slide 15: The India Growth Opportunity
The India Growth Opportunity TM India is a merchant coke market that is power short Estimated EBITDA per ton is typically the same or better in the U.S. Construction capital cost per ton estimated to be one-half less than in U.S. Expect VISA SunCoke will achieve strong returns and serve as platform
Slide 16: Our India Strategy
Our India Strategy TM Initial Entry Near-Term Long-Term Growth Vision • Form VISA • Grow VISA • Continue to SunCoke joint SunCoke via leverage JV venture follow-on and in-country opportunities presence • Evaluate & improve • Reinvest free • Pursue “Build- existing asset cash flow Own-Operate” operat
Slide 17: Coal Mining Strategy
Coal Mining Strategy TM Taking action intended to reduce costs and enhance our long-term strategic flexibility Current Actions in Progress Strategic Focus to Position for 2013 Beyond 2013 • Rationalizing underground mining plan • Enhancing strategic value and flexibility of business • Implementing i
Slide 18: 2013 Priorities
2013 Priorities TM Operational Grow The Coke Strategically Excellence Business Optimize Assets • Sustain momentum at • Domestic • Coke MLP coke facilities • Obtain permit for next • Smooth launch, potential U.S. facility governance and • Execute Indiana Harbor • Identify and pursue operation of plan
Slide 19: Mike Thomson
Mike Thomson President & Chief Operating Officer
Slide 20: SunCoke's Organization Capability
SunCoke’s Organization Capability TM SunCoke has the organizational expertise and capability to execute on its 2013 cokemaking strategic priorities Operations Excellence (SunCoke Way) Solid Coal Science Customer & Coke Relationships Technology Organization Competencies Contract Lean Structuring & En
Slide 21: 2013 Coke Strategic Priorities
2013 Coke Strategic Priorities TM Execute Indiana Harbor Launch gas sharing project Permit potential new U.S. facility Identify and pursue acquisition opportunities Close VISA SunCoke and optimize plant SunCoke Energy 2012 Investor Day 21
Slide 22: 2013 Coal Strategic Priorities
2013 Coal Strategic Priorities TM 2013 focus is on optimizing our coal business to enhance long-term strategic flexibility and value Rationalize Enhance Mining Productivity Plans Increase Revelation & Improve Purchased Prep Plant Coal SunCoke Energy 2012 Investor Day 22
Slide 23: Execute Indiana Harbor
Execute Indiana Harbor TM With capacity of 1.22 million tons, Indiana Harbor is our largest North American facility and has significant impact on domestic coke performance • World’s first heat-recovery cokemaking facility, started up in 1998 • Supplies ArcelorMittal’s #7 Blast Furnace - largest in W
Slide 24: Execute Indiana Harbor
Execute Indiana Harbor TM Contract renewal in progress • Currently negotiating long-term contract extension • Lowest cost source of coke for critical customer asset • Estimate $50 million of refurbishment capital with potential for additional spend depending on negotiations • Expect to earn return o
Slide 25: Execute Indiana Harbor
Execute Indiana Harbor TM Refurbishment underway • Project scoped to enhance reliability, address environmental issues and facilitate long-term contract renewal • Pioneered new plant designs and Before replacement/repair techniques – Repair of tunnels and sole flues – Installing new oven door & lint
Slide 26: Launch Gas Sharing Project
Launch Gas Sharing Project TM We have identified, engineered and are ready to implement a Gas Sharing project at Haverhill and Granite City • Expect to finalize Consent Decree with U.S. EPA for Haverhill/Granite City NOVs soon • Core of solution is implementation of Gas Sharing at both facilities –
Slide 27: Launch Gas Sharing Project
Launch Gas Sharing Project TM Gas Sharing technology will establish a new environmental benchmark for cokemaking, keeping SunCoke at the forefront • Gas Sharing encompasses enhanced equipment and design, plus more advanced control systems and operating practices – Leveraged internal expertise and pr
Slide 28: Permit Potential New U.S. Facility
Permit Potential New U.S. Facility TM • Design, engineering and Potential Kentucky Site permitting underway – Permit submitted December 2012 12-18 months process from submission – Will seek customer commitments once permit in hand • Lean engineering focus for new plant design – Must meet tougher n
Slide 29: Permit Potential New U.S. Facility
Permit Potential New U.S. Facility TM Lean engineering efforts expected to reduce cost of potential new U.S. facility despite increasing environmental controls • Major value improvements Normalized* Construction Cost per Ton of Capacity – 30% smaller footprint 725 – Fewer but larger HRSGs 500E – – S
Slide 30: Identify and Pursue Acquisitions
Identify and Pursue Acquisitions TM While heat recovery technology offers many advantages, by-product technology can also provide certain benefits in cokemaking Advantages of HR Advantages of BP Negative Pressure Ovens Positive Pressure Ovens • Minimal fugitive emissions • No air leaks into oven • L
Slide 31: Identify and Pursue Acquisitions
Identify and Pursue Acquisitions TM We can provide a compelling value proposition to customers in pursuing acquisition opportunities in the U.S. and Canada • Potential for planned MLP to provide lower cost capital Low Cost for acquisitions of Capital • Frees up capital on customer balance sheets for
Slide 32: Close VISA SunCoke and Optimize Plant
Close VISA SunCoke and Optimize Plant TM Photo courtesy of VISA Steel Quality Assets Plan to Support & Optimize • Built in 2007; SPCDI-China design • Will appoint JV’s CFO and deputy • 8 Batteries; 88 Ovens; operations manager Charge per oven – 54mt; • Will actively support with U.S.- Coking time –
Slide 33: Summary
Summary TM Organizational Capability Clear 2013 Priorities Execute Indiana Operations Harbor Excellence (SunCoke Way) Launch gas sharing Solid Coal Science project Customer & Coke Relationships Technology Permit potential new Organization Competencies U.S. facility Identify and pursue Contract Struc
Slide 34: Mike Hardesty
Mike Hardesty Senior Vice President, Sales & Commercial Operations
Slide 35: State of the U.S. Coal Market
State of the U.S. Coal Market TM • Slowing China growth impacting marginal demand, while European and South American demand remains tepid • Domestic steel output slightly above 70% of capacity, further depressing coking coal prices Demand • Weak natural gas prices keeping lid on domestic thermal coa
Slide 36: Coal Mining Financial Summary
Coal Mining Financial Summary TM • Since 2010 cash costs and Coal Mining Adjusted EBITDA(1) and Avg. Sales Price/Ton(2) reject rates have increased ($ in millions, except per ton amounts) • Deterioration in $168 $180 105% $157 performance reflects: $130 – Geological challenges $130 95% $143 $132 – I
Slide 37: Coal Mining Action Plan
Coal Mining Action Plan TM 2013 Coal Mining objectives focus on cost reduction and mitigating impact of lower pricing • Targeting underground cash cost reduction of at least 10% – Realize value of recent equipment investments Rationalize Enhance – Improved maintenance programs Mining Productivity –
Slide 38: Coal Mining Action Plan
Coal Mining Action Plan TM • Face equipment upgrade • Idling 2-3 company and program completion 3 contract mines expected in Q1 13 • Consolidating people • Improved operating and equipment practices • Implement new asset • Implementing deep management software cut plans as approved Rationalize Enhan
Slide 39: 2013 Coal Business Metrics
2013 Coal Business Metrics TM Weak demand and excess global inventory are driving lower expected prices in 2013 SunCoke Mid-Vol Coal Contract Prices 2013 Estimates MV Thermal Total Sales Tons 1,600 100 1,700 ~$170 Tons in thousands $165 % Committed ~94% 0% ~88% $120 - Estimated Price of $130 $127 N/
Slide 40: Coal Business Wrap-Up
Coal Business Wrap-Up TM 2013 focus is on optimizing our coal business to enhance long-term strategic flexibility and value • Expect difficult environment to Met Coal Pricing (Mid-Vol) continue through most of 2013 $350 – Potential for price turnaround in $300 late 2013 into 2014 $250 • Experienced
Slide 41: Dr. John Quanci
Dr. John Quanci Vice President, Technology
Slide 42: Industry Pioneer
Industry Pioneer TM History at the industry forefront • Half a century of innovation & industry-leading design • Founder of Heat Recovery (HR) oven technology • Developed the first HR Plant (1998) – Lower environmental footprint – Higher quality coke (size, strength, reactivity) – Generates energy (
Slide 43: SunCoke's Technology Group
SunCoke’s Technology Group TM Team composition speeds problem solving & innovation • Multi-disciplinary team with deep expertise • 13 engineers & scientists on staff (6 PhDs) • 4 Computational Modeling Experts, 3 Process Engineers and 5 Technology Specialists • Expansive test bed – 1,000+ SunCoke ov
Slide 44: SunCoke's Technology Group
SunCoke’s Technology Group TM Unique Approach to R&D • Process engineering driven vs. traditional R&D • Parallel approach: long-term & here-and-now – Get to solutions faster (product & processes) – Run plants better through troubleshooting existing assets – Explore new frontiers and next generation
Slide 45: Recent Advancements
Recent Advancements TM Indiana Harbor – Oven Rehabilitation • Problem: – Leaks & maintenance issues limit productivity • Solution: – Tighter seal via door improvements, lintel design changes and new maintenance methods • Results: – Ease of pushing and minimization of leaks – Repairs show on average
Slide 46: Recent Advancements
Recent Advancements TM Gas Sharing Heat Recovery Steam Generator (HRSG) Model • Problem: – If a HRSG goes off-line, untreated hot flue gas must be vented. • Proposed Solution: – Leveraged our CFD, FEA and process expertise combined with plant tests to identify and verify various solutions. • Results
Slide 47: Coal Blend Optimization
Recent Advancements TM Coal Blend Optimization • Problem: – Selecting least expensive blends from available coals that meet operational and quality constraints • Solution: – Coal blend/coke prediction model for worldwide applications • Results: – Minimize coal blend cost – Quantitatively evaluate in
Slide 48: Coal Blend Modeling
Coal Blend Modeling TM Exploring the Coal Blend Space Coal 1 Coal 2 log(fluidity) Planned test Space optimal coking range Coal 3 reflectance SunCoke Energy 2012 Investor Day 48
Slide 49: Recent Advancements
Recent Advancements TM • Box Testing – New coal testing and plant optimization – Allows safe, low cost testing of sophisticated models – Ability to test blue-sky concepts not feasible full-scale – Extends model range -- not limited to normal coke plant operations – SunCoke’s boxes are recyclable and
Slide 50: Potential Improvements at Existing Plants
Potential Improvements at Existing Plants TM Believe our technology and know-how can be applied to existing heat recovery and by-product plants Process Asset Environmental Improvement Support Performance • Lower burn loss • Lower cost coal/coke • Improved FGD • Yield improvement by blend optimizatio
Slide 51: Wrap-Up
Wrap-Up TM Fueling Innovation • Unique Approach to R&D – Direct link to existing facilities – Get to solutions faster – Use capital more efficiently • Technology Group’s charter extends beyond solely cokemaking – Seek to understand customers, suppliers, community and competing technologies • 14 pate
Slide 52: Mark Newman
Mark Newman Senior Vice President & Chief Financial Officer
Slide 53: YTD Earnings Overview
YTD Earnings Overview TM • Results driven by strong coke Earnings Per Share (diluted) business performance $0.45 – Middletown startup has been $0.32 $0.32 a success $0.26 $0.24 – Entire U.S. cokemaking fleet delivering $0.17 strong results • Coal remains a challenge 2011 2012 – Higher than expected
Slide 54: Expected 2012 Adjusted EBITDA
Expected 2012 Adjusted EBITDA(1) TM Expect to achieve 2012 Adjusted EBITDA(1) of $255 - $270 million and end year with cash balance of approximately $240 million ($ in millions) $61- ($5.6) $10.9 $76 $37.0 $42.3 $255- $270 $193.7 $140.5 $109.1 FY 2011 YTD Q3 Middletown Coke Coal Corporate YTD Q3 Q4
Slide 55: Expected 2012 Earning Per Share
Expected 2012 Earning Per Share TM EPS has benefited from strong coke business performance offset by financing costs for standalone capital structure ($0.21) $0.24- ($0.59) $0.34 $1.20 ($0.14) $1.25- $1.01 $1.35 $0.87 $0.75 FY 2011 EPS YTD Q3 2011 YTD Q3 2012 YTD Q3 2012 YTD Q3 2012 YTD Q3 2012 YTD
Slide 56: 2013 Domestic Coke Business Outlook
2013 Domestic Coke Business Outlook TM Intend to sustain solid cokemaking performance with expected domestic coke production in excess of 4.3 million tons in 2013 • Ongoing focus on operations Domestic Coke Production excellence expected to Tons in thousands continue to drive performance 4.3m+ 4.3m+
Slide 57: 2013 Domestic Coke Business Outlook
2013 Domestic Coke Business Outlook TM Expect Domestic Coke Business to continue to generate Adjusted EBITDA per ton of between $55 and $60 in 2013 Domestic Coke Adjusted Outlook reflects EBITDA(1) Per Ton • Higher operating cost $400 ($ in millions, except per ton amounts) $ 80 $350 $ 56 /ton $55 -
Slide 58: 2013 Coal Mining Adjusted EBITDA Outlook
2013 Coal Mining Adjusted EBITDA(1) Outlook TM Expected production increase at Revelation and improved operating efficiencies will help mitigate very difficult price environment in 2013 ($ in millions) $30 - $35 ($65 - $75) ($15) - $0 $5 - $15 $15 - $25 FY 2012E Coal Estimated impact of Estimated im
Slide 59: Expected 2013 Adjusted EBITDA
Expected 2013 Adjusted EBITDA(1) TM Expect 2013 results to be impacted by weak coal business, partly offset by continued solid coke operations and VISA SunCoke ($ in millions) $0-$10 $0-$15 ($35-$50) ($5-$10) Primarily reflects expected benefit of VISA SunCoke $255-$270 $205-$230 FY2012E Domestic Co
Slide 60: Expected 2013 Earnings Per Share
Expected 2013 Earnings Per Share TM Coal business weakness plus accelerated depreciation at Indiana Harbor due to refurbishment expected to negatively impact 2013 EPS ($0.40- $0.65 ) ~($0.06- $0.14- $0.13) $0.26 $1.25- $1.35 ~$0.01 ~($0.14) $0.60- $0.85 2012E EPS FY 2013E FY 2013E FY 2013E FY 2013E
Slide 61: Capital Expenditures & Investments
Capital Expenditures & Investments TM Majority of 2013 capital expenditures and investments targeted toward international coke growth and Indiana Harbor refurbishment $ in millions $280 41 VISA SunCoke: ~$67 million 33 HKCC Acquisition: $200 $41 million 67 24 206 Middletown: $70 $171 million 24 Indi
Slide 62: Capital Allocation Priorities
Capital Allocation Priorities TM Domestic • Indiana Harbor refurbishment for contract renewal Coke Growth • Potential acquisitions of existing cokemaking capacity • Potential new U.S. plant • Fund future India growth via VISA SunCoke International • Debt-free at closing • Expect to generate free cas
Slide 63: Summary 2013 Guidance
Summary 2013 Guidance TM Metric Expected 2012 Outlook Expected 2013 Outlook Adjusted EBITDA (1) $255 – $270 million $205 – $230 million EPS (assuming a 22% tax rate) $1.25 – $1.35 $0.60 – $0.85 Capital Expenditures ~ $70 million ~ $200 million & Investments Free Cash Flow(2) $100+ million ~ ($65) mi
Slide 64: Appendix
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Slide 65: Definitions
Definitions TM • Adjusted EBITDA represents earnings before interest, taxes, depreciation, depletion and amortization (“EBITDA”) adjusted for sales discounts, the deduction of income attributable to noncontrolling interests in our Indiana Harbor cokemaking operations, and the interest, taxes, deprec
Slide 66: Reconciliations
Reconciliations TM Reconciliations from Adjusted Operating Income and Adjusted EBITDA to Net Income YTD Sept $ in millions 2012 Q3 2012 Q2 2012 Q1 2012 FY 2011 Q4 2011 Q3 2011 Q2 2011 Q1 2011 Adjusted Operating Income 138.5 54.8 46.6 37.1 80.4 14.9 33.5 24.6 7.4 Net Income (Loss) attributable to Non
Slide 67: Reconciliations
Reconciliations TM Reconciliations from Adjusted EBITDA to Adjusted Pre-Tax Operating Income Other Jewell Domestic International Jewell Domestic $ in millions, except per ton data Coke Coke Coke Coal Corporate Combined Coke YTD Sept 2012 Adjusted EBITDA 41.1 143.6 1.7 27.4 (20.1) 193.7 184.7 Subtrac
Slide 68: Expected 2012E EBITDA Reconciliation
Expected 2012E EBITDA Reconciliation TM 2012E Net Income to Adjusted EBITDA Reconciliation For nine months 2012E 2012E ended (in millions) Low High 9/30/2012 Net Income $94 $104 $74 Depreciation, Depletion and Amortization 80 78 58 Total financing costs, net 48 47 36 Income tax expense 25 34 20 EBIT
Slide 69: Expected 2012E Free Cash Flow Reconciliation
Expected 2012E Free Cash Flow Reconciliation TM 2012E Estimated Free Cash Flow Reconciliation For nine months ended Estimated 9/30/2012 (in millions) 2012 (Actual) Cash from operations In excess of $ 173 $ 78 Less cash used for investing activities Approx. (70) (41) Less payments to minority interes
Slide 70: Expected 2013E EBITDA Reconciliation
Expected 2013E EBITDA Reconciliation TM 2013E Net Income to Adjusted EBITDA Reconciliation 2013E 2013E (in millions) Low High Net Income $46 $63 Depreciation, Depletion and Amortization 99 94 Total financing costs, net 48 47 Income tax expense 10 18 EBITDA $202 $222 Sales discounts 6 7 Noncontrollin
Slide 71: Expected 2013E Free Cash Flow Reconciliation
Expected 2013E Free Cash Flow Reconciliation TM 2013E Estimated Free Cash Flow Reconciliation Estimated (in millions) 2013 Cash from operations Approx. 140 Less cash used for investing activities Approx. (200) Less payments to minority interest Approx. (5) Free Cash Flow Approx. $ (65) SunCoke Energ
Slide 72: Investor Relations
Investor Relations: 630-824-1907 Media releases and SEC filings are available on www.suncoke.com