Grange Resources Limited · ASX:GRR
Grange Resources — Investor Presentation (August 2009)
50 slides from Grange Resources's investor presentation, Aug 18, 2009
Slide 1: Equity Capital Raising
For personal use only Equity Capital Raising Capital Raising and Restructure Presentation August 2009 NOT FOR DISTRIBUTION IN THE US Level 11, 200 St Georges Terrace NOT FOR DISTRIBUTION IN THE US Perth Western Australia 6000 1
Slide 2: Important Information and Disclaimer
Important Information and Disclaimer For personal use only This document has been prepared by Grange Resources Limited (ABN 80 009 132 405) (Grange or the Company). No party other than Grange has authorised or caused the issue of this document, or takes responsibility for, or makes any statements, r
Slide 3: Executive Summary
Executive Summary For personal use only Capital Raising Grange is undertaking a capital raising (Capital Raising) of approximately $167 million The Capital Raising will comprise : • A 1 for 1 pro rata non-renounceable entitlement offer at $0.25/sh (Offer), anticipated to raise $123.9 million • Offer
Slide 4: Executive Summary
Executive Summary For personal use only The Capital Raising and Restructure will position Grange to continue with production expansion plans and enhance its working capital position: • Prepayment of a large portion of Grange’s liabilities will significantly reduce the level of debt Purpose and debt
Slide 5: Contents
Contents For personal use only 1 Company Overview & Trading Update 2 Capital Raising & Restructure 3 Risks 4 Appendices NOT FOR DISTRIBUTION IN THE US 5
Slide 6: Iron Ore Value
Iron Ore Value For personal use only Vale/Nippon Steel FOB Tubarao Direct Reduction Pellet US125.23c per dmtu1 Blast Furnace Pellet US110.43c per dmtu Value & price Quality Direct Shipping Lump US100.94c per dmtu Magnetite Concentrate Direct Shipping Fines US89.87c per dmtu Note: NOT FOR DISTRIBUTIO
Slide 7: Pellet Price
Pellet Price Rising rapidly with economic recovery For personal use only This year’s iron ore price settlement saw …. but the spot market has since Increasing steel prices also signal the a large drop in benchmark pricing… reverted to pre-settlement levels… start of economic recovery in China 160 12
Slide 8: Investment Highlights
Investment Highlights For personal use only Grange is Australia’s largest magnetite producer, formed by a merger between Grange and Australian Bulk Minerals (ABM) in 2009. Australia’s leading exporter of iron ore pellets, producing 2.5Mtpa from the Savage River operations in Tasmania Cost competitiv
Slide 9: Company Snapshot
Company Snapshot For personal use only Current key statistics (A$) Current ownership Structure Ordinary shares on issue 12 Aug 09 495m 23.08% Shagang – China’s largest private Last share price 12 Aug 09 $0.59 steel producer Stemcor – London-based trading Market capitalization 12 Aug 09 $292m 7.67% m
Slide 10: Jiangsu Shagang
Jiangsu Shagang A strong partnership For personal use only Shagang Overview Grange’s largest shareholder Demonstrated continuing support for Grange with an attractive LOM offtake agreement at Savage River at benchmark prices and agreement to negotiate at fair market price for Grange’s share of offta
Slide 11: Leading Magnetite Producer
Leading Magnetite Producer For personal use only Grange’s position as Australia’s leading magnetite producer is supported by quality assets in Tasmania and Western Australia. Southdown Project (70%) Savage River (100%) 90km northeast of the Port Northwest Tasmania of Albany Producing 2.5Mtpa blast f
Slide 12: Key Information
Key Information Profitable even during economically hard times For personal use only FY09 Quarterly Breakdown Q1 Q2 Q3 Q4 FY09 Actual Actual Actual Actual. Actual. Total volume mined (‘000 bcm) 4,030 4,342 4,883 4,490 17,745 Total ore mined (‘000 bcm) 165 130 237 465 997 Concentrate produced (‘000 t
Slide 13: Savage River Overview
Savage River Overview For personal use only Ownership • Grange 100% • Mineral Resource of 316Mt magnetite at Resources and 50.7% DTR Reserves • Ore Reserve of 124Mt magnetite at 49.2% DTR • 2.5Mtpa blast furnace pellets and concentrate Production (annualised basis) • Potential to expand to 2.9Mtpa L
Slide 14: Savage River Historical Performance
Savage River Historical Performance For personal use only Historical Mining and Production Ore Mined (000 BCM) 2.5 2,500 Pellet Production (Mt) 2.0 2,000 1.5 1,500 1.0 1,000 0.5 500 0.0 0 2004 2005 2006 2007 2008 Production (Mt) Ore Mined (000 BCM) EBITDA (A$m) EBITDA (A$m) 100.0 80.0 60.0 40.0 20.0
Slide 15: Large Scale Operations
Large Scale Operations For personal use only NOT FOR DISTRIBUTION IN THE US 15
Slide 16: Own Downstream Infrastructure
Own Downstream Infrastructure For personal use only NOT FOR DISTRIBUTION IN THE US 16
Slide 17: Own Port and Shiploading Infrastructure
Own Port and Shiploading Infrastructure For personal use only NOT FOR DISTRIBUTION IN THE US 17
Slide 18: Savage River Outlook
Savage River Outlook For personal use only 5 year production outlook Increasing production in the long run Production will be increased with Pellet Production (Mt) 2.8 Mill shell replacements replacement of mill shells for both 2.4 autogenous mills, scheduled to occur in 2.0 2014 Replacement allows:
Slide 19: Southdown Project
Southdown Project High grade magnetite project with advanced infrastructure For personal use only Ownership • Grange 70%, Sojitz Corporation 30% Resources and • Mineral Resource of 654Mt magnetite at 36.5% DTR1,2 Reserves1 • Ore Reserve of 388Mt magnetite at 35.5% DTR1,3 • 6.6Mtpa magnetite concentr
Slide 20: Solid Customer Base
Solid Customer Base Long term offtake agreements – providing revenue stability For personal use only Agreements are in place for both Savage River and Southdown production at benchmark prices or better. • China’s largest private steel mill, producing 22 Mtpa of pig iron • Grange’s largest shareholde
Slide 21: Resources and Reserves
Resources and Reserves Supporting Long Mine Lives For personal use only Grange has 774Mt of attributable Mineral Resources and 396Mt of attributable Ore Reserves. Mineral Resources (inclusive of reserves) Ore Reserves Tonnes Grade Tonnes Grade (Mt) (%DTR) (Mt) (%DTR) Savage River 4 Savage River Meas
Slide 22: Market Capitalisation comparison of iron ore peers
For personal use only Market Capitalisation ((A$m) 0 200 400 600 800 1000 1200 Gindalbie Metals Grange Resoures Australasian Resources Brockman Resources NOT FOR DISTRIBUTION IN THE US Aurox Resources Ironclad Mining only one in production. Ferrowest Fortescue Metals Group Aquila Resources $13.7b $1
Slide 23: Relative Performance
Relative Performance For personal use only One Year Performance (re-based to $1.00) One Year Percentage Change $1.20 Share Price (A$) Grange is relatively undervalued -1% Gindalbie compared to its peers -5% Brockman $1.00 -12% Atlas -20% Murchison $0.80 -44% Fortescue $0.60 -44% Aquila -49% Aurox $0
Slide 24: Comparison with other mid-tiers
Comparison with other mid-tiers For personal use only Grange is attractively priced compared to its (mostly non-producing) peers. Enterprise Value – Comparison with peer companies EV/FY09 Production – Inexpensive compared to peers 1,400 700 A$/t A$m $16b 600 1,200 1,000 500 800 400 600 300 400 200 2
Slide 25: Grange Resources – Summary
Grange Resources – Summary For personal use only Australia's leading magnetite producer Australia’s largest iron ore pellet producer High grade quality products Solid customer and revenue base Long life assets Low sovereign risk Extensive magnetite technical and operational expertise New investment
Slide 26: Contents
Contents For personal use only 1 Company Overview & Trading Update 2 Capital Raising & Restructure 3 Risks 4 Appendices NOT FOR DISTRIBUTION IN THE US 26
Slide 27: Restructure Detail
Restructure Detail For personal use only Grange has been working to restructure certain liabilities that will position it well for future growth. Liability Restructure Objectives A restructure of the payments due to Stemcor, Dacroft and Forlife that were assumed as part of the merger with ABM in Jan
Slide 28: Impact on Fixed Liabilities
Impact on Fixed Liabilities Restructured to improve future cash flows For personal use only Fixed liabilities will be almost halved via early prepayment, greatly enhancing Grange’s short term cashflows. On Completion of the On Completion of Pre Capital Raising Offer & Stemcor Cornerstone Placement P
Slide 29: Impact on Variable Liabilities
Impact on Variable Liabilities Restructured to improve future cash flows For personal use only The restructure and deferral of variable payments to Stemcor will also significant enhance longer term cashflows. Under the existing arrangement these Variable Payments (or “deferred consideration”) are ca
Slide 30: Impact on Ownership Structure
Impact on Ownership Structure On a 100% take-up scenario For personal use only Anticipated Capital Structure 2. Post Stemcor 3. Post Cornerstone Percentage Shareholding Pre Capital Raising 1. Post Offer Placement Placement Shagang1 47.1% 47.1% 44.7% 47.1% Stemcor 7.7% 3.8% 7.9% 7.2% PI 8.3% 8.3% 7.8
Slide 31: Impact on Ownership Structure
Impact on Ownership Structure On various take-up scenarios For personal use only Capital Structure Post Offer and Stemcor Placement based on various Offer take-up scenarios Minimum Subscription for 50% of Remaining Shares over 100% of Remaining Shares over Percentage Shareholding $85.8m (c. 343 mill
Slide 32: Sources and Uses of Proceeds
Sources and Uses of Proceeds For personal use only If fully subscribed, the Capital Raising will raise $167 million which will be applied to prepay obligations and provide funds for working capital. Sources (A$m) Application of Proceeds (A$m) Proceeds from Offer BOC Reduction $29.9m1 From Cornerston
Slide 33: Participation by Cornerstones
Participation by Cornerstones For personal use only Grange’s Cornerstone Investors have shown strong support by committing to participate fully in the Offer and Cornerstone Placement. The Cornerstones’ continuing support provides a strong endorsement of the outlook for Grange and the wider iron ore
Slide 34: Key Conditions
Key Conditions For personal use only Certain key events of the Capital Raising are conditional upon other agreements and events being executed and/or completed. Key Event Key Conditions Grange receiving a minimum subscription level of $85.8 million (representing The Offer approximately 343 million s
Slide 35: Eligibility for Entitlement Offer
Eligibility for Entitlement Offer For personal use only Eligible shareholders are those holders of Grange shares who: Are registered as a holder of Grange shares as at 7.00pm (AEST) on the Record Date Have a registered address in Australia, New Zealand or the British Virgin Islands Are not in the Un
Slide 36: Key Dates
Key Dates For personal use only Event Date Offer Announcement Offer Document and Appendix 3B lodged with ASX Tuesday, 18th August (T=0) Notification sent to option holders Notice of Offer sent to security holders Wednesday, 19th August (T=1) Existing shares quoted on an ‘ex’ basis Thursday, 20th Aug
Slide 37: Key Contacts
Key Contacts For personal use only Primary contacts: Russell Clark Managing Director & Chief Executive Officer +61 8 9321 1118 managingdirector@grangeresources.com.au Corporate Advisor to Grange: Simon Price Director Azure Capital +61 8 6263 0888 scp@azurecapital.com.au NOT FOR DISTRIBUTION IN THE U
Slide 38: Contents
Contents For personal use only 1 Company Overview & Trading Update 2 Capital Raising & Restructure 3 Risks 4 Appendices NOT FOR DISTRIBUTION IN THE US 38
Slide 39: Key Risks
Key Risks For personal use only • Substantially all of Grange’s cash flows and revenues are derived from the sale of iron ore, and as such, Grange is exposed to iron Commodity price ore price fluctuations. These fluctuations may be influenced by numerous factors and events which are beyond the contr
Slide 40: Key Risks
Key Risks For personal use only • Grange has significant commodity (diesel) and energy (gas and electricity) requirements and it relies on being able to fulfil those Rising Energy and requirements at a cost which does not negatively impact on its cash flows. A number of factors (particularly the str
Slide 41: Key Risks
Key Risks For personal use only Reliance on • The majority of production from Savage River is sold to Shagang, Grange’s major shareholder and a Chinese steel maker, on long Chinese term offtake contracts. Although there is no history of non-performance by Shagang, the recent non-performance of Chine
Slide 42: Contents
Contents For personal use only 1 Company Overview & Trading Update 2 Capital Raising & Restructure 3 Risks 4 Appendices NOT FOR DISTRIBUTION IN THE US 42
Slide 43: Grange Board
Grange Board For personal use only Grange has a strong board with a diverse range of experience. Xi Zhiqiang: Chairman Neil Chatfield: Deputy Chairman • Extensive experience in the Chinese steel industry • Recently Executive Director and CFO of Toll Holdings, a position • Baosteel employee for 30 ye
Slide 44: Management Team
Management Team For personal use only Grange has one of Australia’s most experienced magnetite operations teams. Ross Carpenter: General Manager Projects Wayne Bould: Chief Operating Officer • Joined the Savage River Project in 2004 • Joined Grange in 2008 • 31 years of professional experience as a
Slide 45: Pellet Market
Pellet Market Attractive long term fundamentals For personal use only Demand – Driven by China: • Dominant buyer of iron ore: Currently taking advantage of low prices to build up strategic inventories • Successful steel-intensive fiscal stimulus package: • Blast furnace output growth up by 3.2% YTD
Slide 46: Pellet Prices
Pellet Prices Future price upside driven by niche market For personal use only Iron Ore and Pellet Price Settlements – Brazilian brands (USc/mtu FOB) Pellets are the highest quality iron ore product and sell Increases in pellet prices will predominantly be at a premium to fines (and even lumps) driv
Slide 47: Competent Person Statement
Competent Person Statement For personal use only • Southdown Project • The information in this presentation which relates to the Mineral Resources of the Southdown Project is based on information compiled by James Farrell who is a full-time employee of Golder Associates Pty Ltd and a Member of the A
Slide 48: Southdown Project Reserves and Resources
Southdown Project Reserves and Resources For personal use only In situ Mineral Resource Estimate Classification Measured Resources Indicated Resources Inferred Resources Total Resources Tonnes (Mt) 219.7 210.3 224.4 654.4 DTC wt% 37.4 38.9 33.4 36.5 DTC Fe% 69.2 69.3 69.1 69.2 DTC SiO2% 1.72 1.94 2.
Slide 49: Savage River Reserves and Resources
Savage River Reserves and Resources For personal use only Mineral Resource and Ore Reserve Estimates Mineral Resource Tonnes (Mt) Grade (%DTR) Ore Reserve Tonnes (Mt) Grade (%DTR) Measured 88.01 52.7 Proved 52.39 49.6 Indicated 135.96 51.7 Probable 72.00 48.9 Inferred 92.22 47.2 Total 124.40 49.2 To
Slide 50: International Selling Restrictions
International Selling Restrictions For personal use only Hong Kong WARNING: This document has not been, and will not be, registered as a prospectus under the Companies Ordinance (Cap. 32) of Hong Kong (the "Companies Ordinance"), nor has it been authorised by the Securities and Futures Commission in
Grange Resources — Investor Presentation (August 2009) on 6ix