Severstal · RUS:CHMF
Severstal — Severstal Resources — Investor Presentation (September 2008)
37 slides from Severstal's investor presentation, Sep 10, 2008
Slide 1: Severstal Resources
Severstal Severstal Resources 10 September 2008 1
Slide 2: Table of Contents
Table of Contents Overview Overview Market Market Dynamics Dynamics and and Strategy Strategy Operational Operational Review Review Conclusions Conclusions 2
Slide 3: Forward-looking statements disclaimer
These materials may contain projections and other forward-looking statements regarding future events or the future financial performance of OAO Severstal (Severstal). You can identify forward looking statements by terms such as “expect,” “believe,” “anticipate,” “estimate,” “intend,” “will,” “could,
Slide 4: 1. Overview
1. Overview – Roman Deniskin 4
Slide 5: Summary
Summary y We are a globally expanding mining business with EBITDA of over $500m for 1H 2008, meeting 120% of Severstal’s internal needs in iron ore (Russia), over 50% (globally) and over 90% needs in coking coal (Russia), over 40% (globally) y Our strategy is predicated on the growing global steel d
Slide 6: Key Facts
Key Facts y A leading producer in each of its business categories – coking coal, iron ore pellets and gold y Growth focus on superior product quality; safe and cost competitive operations y 2007 production: 7.6m tonnes of coking coal, 1.8m tonnes of steam coal, 10m tonnes of iron ore pellets, and 4.
Slide 7: Strong Performance in Safety and Profitability
Strong Performance in Safety and Profitability 2008, Growth since Metrics 2003 2004 2005 2006 2007 (1) Forecast (1) 2003 Incident Frequency Rate 20.0 16.7 15.5 10.6 6.2 – (69)% (Per 1m Working Hours) Run of mine (ROM) 125.2 138.7 171.0 174.9 180.0 187.8 50% (m tonnes) EBITDA ($bn) 0.1 0.3 0.6 0.4 0.
Slide 8: Our Philosophy
Our Philosophy y Safety – Zero accidents target – 78% decrease in accidents from 2003–2007 y People – Dynamic management team with strong track record – Open corporate culture with focus on people engagement – Aspiration to be a preferred employer in Russia y Growth – Primary raw materials for steel
Slide 9: Health, Safety and Environmental Performance are Steadily Improving
Health, Safety and Environmental Performance are Steadily Improving y Health and Safety: Visible improvement in working conditions and safety indicators, including Total Recordable Incident Frequency rate Incident Frequency Rate Investments in Labour safety (Per 1m Working Hours) ($m) 25 40 37.8 20.
Slide 10: People Driven Company
People Driven Company y Rigorous performance management process, especially for top 500 managers y Training and development programs for all employees y Grading system based on Watson Wyatt Co. methodology y Code of Corporate Values and Ethics committee to control Code compliance y Corporate Standar
Slide 11: 2. Market Dynamics & Strategy
2. Market Dynamics & Strategy 11
Slide 12: Iron Ore and Coking Coal Fundamentals
Iron Ore and Coking Coal Fundamentals y Demand for steel is expected to be robust, driven by continued urbanisation and industrialisation in BRIC countries and beyond y Strong demand for steel primary raw materials: iron ore and coking coal 1,600 Global Crude Steel Production Global Production Volum
Slide 13: Global Iron Ore Demand-Supply Balance
Global Iron Ore Demand-Supply Balance Forecasted Iron Ore Supply Surplus Supply Breakdown by Country, 2007 (m tonnes) 200 China 200 181 Others 167 163 17% 22% 150 132 116 India 105 100 10% 77 64 51 50 34 CIS Brazil 25 11% 22% 0 0 0 Australia 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 201
Slide 14: Russia: Iron Ore Market
Russia: Iron Ore Market Iron Ore Prices Iron Ore Market Share in Russia ($/tonne) Others +37% Mechel 6% 120 106 6% 92 Kovdor 100 6% Metalloinvest 73 77 40% 80 89 Evraz 57 58 11% 76 60 65 40 26 50 NLMK 47 15 42 14% 20 12 18 Severstal 0 Resources 2002 2003 2004 2005 2006 2007 Jan.08 Jun.08 17% Iron Or
Slide 15: Severstal Resources Iron Ore Strategy
Severstal Resources Iron Ore Strategy y Capacity growth and operational efficiency improvement at Karelsky Okatysh and Olkon y Geographical expansion by acquiring world class deposits in Africa and the Americas matching the following criteria: – Safe and low-cost operations – High quality products –
Slide 16: Global Coking Coal Demand-Supply Balance
Global Coking Coal Demand-Supply Balance Demand-Supply(1) Supply Breakdown by Country (m tonnes) 100 Australia 14% 80 62 55 51 50 49 48 60 42 40 32 23 11 20 0 0 China 58% CIS 13% (2) (2) (20) (12) (12) (17) (19) (19) (24) (24) (23) (40) (26) (28) (31) (33) (35) (38) (40) (60) (80) North America 10%
Slide 17: Russia: Coking Coal Market
Russia: Coking Coal Market Supply/Demand Balance Coking Coal Coking Coal Producers in Russia, 2007 Concentrate, 2007 (m tonnes) Others 20% 1.5 Evraz 53.9 9.8 31% Sibuglemet 44.1 12% Severstal Resources Mechel 15% 22% Production + Import – Export = Consumption Source: McCloskey, CDU TEK Source: McClo
Slide 18: Coking Coal Strategy
Coking Coal Strategy y Cost reduction in Vorkutaugol y Identify and develop greenfield opportunities in Russia y Pursue coking coal opportunities in the Americas and Africa, meeting the following criteria: – Safe operations – Premium coal quality – Low-cost production – Access to infrastructure – Ac
Slide 19: PBS Coals Overview
PBS Coals Overview Company Description y PBS coals is a producer of coking coal in Pennsylvania, USA – Six surface and six underground mines, two preparation ia plants ylvan 1 P enns – 133.5m tonnes of high quality coal reserves and 228.3m 4 2 3 tonnes of coal resources – Good access to infrastructu
Slide 20: Gold: Market Update
Gold: Market Update Three Key Factors Determine Upward Pressure on Gold Gold Production in 2007 (m oz) Investment y Lower expected GDP growth, higher inflation, depreciating dollar resulting in higher investment demand globally Demand China 9.7 y Central Banks decreasing Net Sell Positions South Afr
Slide 21: Severstal Resources Gold Strategy
Severstal Resources Gold Strategy Strategy y To build within five year horizon a balanced portfolio of gold assets including – Producing mines – Explored reserves – High potential exploration blocks Medium-term y Greenfield Growth Targets – Exploration at Transbaikal blocks acquired in 2007–2008 wil
Slide 22: Severstal Resources 2008–2012 Growth Roadmap
Severstal Resources 2008–2012 Growth Roadmap 2008 2009 2010 2011 2012 Strategic Goals Iron ore Africa Americas, other territories y Reliable supplier to steel division y Significant player in seaborne market with world class mining North Coking Coal Russia, Africa Other territories assets America Ru
Slide 23: 4. Operational Review
4. Operational Review – Alexey Kulichenko 23
Slide 24: Summary of Operational Overview
Summary of Operational Overview y Severstal Resources’ Russian operations consist primarily of – Two iron ore complexes: Karelsky Okatysh and Olkon in northwest Russia – One coal mining complex: Vorkutaugol in northwest Russia – Gold mining assets in east Russia and in Kazakhstan y With a focus on h
Slide 25: Overview of Operations
Overview of Operations Karelsky Okatysh Cherepovets (Iron ore Pellets) Severstal Resources gold mines y Produces iron ore pellets Olkon Iron ore y Annual output: 10.0m tonnes (Iron ore Concentrate) y JORC reserves and resources: 1,269m y Produces iron ore concentrate Coal tonnes y Annual output: 4.7
Slide 26: Increasing Labour Productivity
Increasing Labour Productivity Restructuring and headcount reduction programme’s provided annual labour cost savings up to $100m by 2007 Growth since 2003 Coal and Iron ore Production (Tonnes / Employee) 2,000 518 563 1,765 555 1,884 600 80% 1,124 1,499 448 1,500 1,845 380 1,548 400 1,000 1,326 64%
Slide 27: Karelsky Okatysh: KPI
Karelsky Okatysh: KPI 2007 1H08 2012 Reserves and Resources 1,284 1,269 1,452 (m tonnes) Production Volumes 10.0 5.2 11.4 (m tonnes) EBITDA Margin 40 47.2 (%) Production Cash Cost 35 43 ($/Tonnes) Capex 98 46 ($m) Headcount 5,332 4,878 (FTE) Source: Severstal Resources 23 27
Slide 28: Karelsky Okatysh Secured Growth
Karelsky Okatysh Secured Growth Selected CAPEX projects amounting to $743.0m in 2008–2012 will secure y Volume growth from 10.0 to 11.4m tonnes per year via expansion of ore extraction (development of the Korpangsky field), increasing the production capacity of beneficiating plant y Cost savings by
Slide 29: Product Quality: Karelsky Okatysh vs. Peers
Product Quality: Karelsky Okatysh vs. Peers Quality improvement due to dry magnetic separation and flotation will lead to upward pricing by 9% FE SiO2 (%) (%) 68 10.0 66.6 65.8 66 8.2 65.9 66 8.0 64.12 64 6.0 4.9 5.0 62 62 4.0 2.9 2.1 2.3 60 2.0 58 0.0 (1) (2) LKAB Vale CVRD Koa LGOK MGOK Koe LKAB V
Slide 30: Olkon: KPI
Olkon: KPI 2007 1H08 2012 Reserves and Resources 388 381 998 (m tonnes) Production Volumes 4.7 2.4 5.0 (m tonnes) EBITDA Margin 41 45 (%) Production Cash Cost 27 32 ($/tonne) Capex 70 24.5 ($m) Headcount 2,521 2,514 (FTE) Source: Severstal Resources 26 30
Slide 31: Olkon Secured Growth
Olkon Secured Growth Selected CAPEX projects amounting to $375m in 2008–2012 will secure y Volume growth of up to 5.0m tonnes per year via – Use of new mining technologies: Construction of two additional underground mines to support Olkon resource base and guarantee stable annual production volumes
Slide 32: Vorkutaugol: KPI
Vorkutaugol: KPI 2007 1H08 2012 Reserves and Resources 302.4 297.2 501.6 (m tonnes) Production Volumes 7.4 3.5 8.6 (m tonnes) EBITDA Margin 8 27.1 (%) Production Cash Cost 42 57 ($/tonne) Capex 135 80.4 ($m) Headcount 13,335 13,419 (FTE) Source: Severstal Resources 28 32
Slide 33: Vorkutaugol Secured Growth
Vorkutaugol Secured Growth Selected CAPEX projects amounting to $1,005.0m in 2008–2012 will secure proper safety of coal mining and volume growth up to 8.6m tonnes by 2012 via y Overcoming difficult mining-geological conditions and the rational use of the existing coal resource base, including solvi
Slide 34: Gold Assets
Gold Assets Key Performance Indicator Estimates for 2008 y Production 180,000 oz y CAPEX $125m, primarily to production expansion and geological prospecting y Total Cash Costs 490 $/Oz y Personnel 2,025 y Reserves and Resources >15m oz y Mine lives >10 years Moscow SeverStal’s Gold assets Neryungri
Slide 35: 5. Conclusion
5. Conclusion SeverStal 35
Slide 36: Conclusions
Conclusions y Safety – Zero accidents target – 78% decrease in accidents from 2003–2007 y People – Dynamic management team with strong track record – Open corporate culture with focus on people engagement – Aspiration to be a preferred employer in Russia y Operational efficiency – Cost improvement i
Slide 37: Concluding Remarks - Alexey Mordashov
Concluding Remarks - Alexey Mordashov 32 37
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