Suncoke Energy, Inc. · NYSE:SXC
Suncoke Energy — Investor Day (December 2012)
71 slides from Suncoke Energy's investor day presentation, Dec 11, 2012
Slide 1: SunCoke Energy Investor Day 2012
f » =|) SUNCOKE | ¢ ENERGY'S - INVESTOR DAY 2012, SSS
Slide 2: Welcome
Welcome Ryan Osterholm Director, Finance & Investor Relations
Slide 3: Safe Harbor Statement
TM Safe Harbor Statement 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 4: Fritz Henderson
Fritz Henderson Chairman & Chief Executive Officer
Slide 5: 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 cokemaking expertise Established our standalone structure Built financial strength and flexibility for growth Focused on optimizing our coal business Es
Slide 6: Status of Planned MLP IPO
TM Status of Planned MLP IPO Status of Planned MLP IPO • 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 M
Slide 7: Seizing our Growth Opportunities
Seizing our Growth Opportunities TM Industry Fundamentals Execution Capability & Focus Financial Strength & Flexibility Uniquely positioned to capture a greater share of the global cokemaking market and achieve profitable, sustainable growth Seizing our Growth Opportunities • Domestic: • Aging exist
Slide 8: Coke Industry Fundamentals
TM Coke Industry Fundamentals U.S. & Canada Coke Supply U.S. & Canada Coke Asset Age Profile in 2011 Opportunities exist to potentially replace aging coke batteries and acquire existing facilities Maintained Facilities with Potential for Acquisition Challenged Facilities with Potential for Replaceme
Slide 9: Coke Industry Fundamentals: SXC Market Analysis
TM Coke Industry Fundamentals SXC Market Analysis Facilities with Potential for Replacement Facilities with Potential for Acquisition We estimate nearly 4 million tons of capacity will be retired/replaced in coming years & another 4 million tons is potentially acquisition worthy Coke Industry Fundam
Slide 10: Coke Industry Fundamentals: U.S. & Canada Coke Imports
TM Coke Industry Fundamentals U.S. & Canada Coke Imports Our coke is a preferred solution compared to imported coke which is disadvantaged on quality, reliability and shipping/handling costs Chinese Coke Prices vs. Representative SunCoke Price Coke Industry Fundamentals U.S. & Canada Coke Imports So
Slide 11: Coke Industry Fundamentals: Competitive Pricing vs Imports
TM Coke Industry Fundamentals SunCoke’s coke is competitively priced relative to imported coke Representative Delivered Coke Prices - $/ton Coke Industry Fundamentals Based on September 2012 prices SunCoke Price - Contracted Coal Price Differential Chinese Coke Price Ukrainian Coke (1) Ukrainian Cok
Slide 12: India Entry: VISA SunCoke
TM India Entry: VISA SunCoke VISA SunCoke provides a meaningful entry to India and serves as a platform for future growth Chinese Heat Recovery Coke: 400K tpy Steam: 20 Mwhe Built: 2007 Odisha, India Photo courtesy of VISA Steel India Entry: VISA SunCoke • VISA Steel is a mid-sized, publicly-traded
Slide 13: The India Growth Opportunity
The India Growth Opportunity India Brazil China India Metallurgical Coke Demand Per Capital Steel Demand (kg/yr) India offers attractive coke market fundamentals driven by growing steel demand 28 62 Electric Power Deficit Growing Steel Market Active Merchant Market Coke Supply Deficit India Steel/Co
Slide 14: The India Growth Opportunity: Merchant Coke Market
TM The India Growth Opportunity 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 15: Our India Strategy
TM Our India Strategy Near-Term Growth Initial Entry Long-Term Vision Our India Strategy • Form VISA SunCoke joint venture • Evaluate & improve existing asset operations • Establish market presence • Grow VISA SunCoke via follow-on opportunities • Reinvest free cash flow • Utilize debt capacity of V
Slide 16: Coal Mining Strategy
TM Coal Mining Strategy Current Actions in Progress to Position for 2013 Strategic Focus Beyond 2013 Taking action intended to reduce costs and enhance our long-term strategic flexibility Coal Mining Strategy Rationalizing underground mining plan Implementing improved underground mining practices In
Slide 17: 2013 Priorities
TM 2013 Priorities Operational Excellence Grow The Coke Business Strategically Optimize Assets 2013 Priorities Sustain momentum at coke facilities Execute Indiana Harbor Execute refurbishment Resolve NOV Renew coke contract with return on refurbishment capital Implement Consent Decree project Execut
Slide 18: Mike Thomson
Mike Thomson President & Chief Operating Officer
Slide 19: SunCoke's Organization Capability
TM SunCoke’s Organization Capability SunCoke has the organizational expertise and capability to execute on its 2013 cokemaking strategic priorities Operations Excellence (SunCoke Way) Coal Science & Coke Technology Solid Customer Relationships Lean Engineering Organization Competencies By-Product Pr
Slide 20: 2013 Coke Strategic Priorities
TM 2013 Coke Strategic Priorities Execute Indiana Harbor Launch gas sharing project Permit potential new U.S. facility Identify and pursue acquisition opportunities Close VISA SunCoke and optimize plant 2013 Coke Strategic Priorities
Slide 21: 2013 Coal Strategic Priorities
TM 2013 Coal Strategic Priorities 2013 focus is on optimizing our coal business to enhance long-term strategic flexibility and value Rationalize Mining Plans Enhance Productivity Improve Prep Plant Increase Revelation & Purchased Coal 2013 Coal Strategic Priorities
Slide 22: Execute Indiana Harbor
TM Execute Indiana Harbor With capacity of 1.22 million tons, Indiana Harbor is our largest North American facility and has significant impact on domestic coke performance Execute Indiana Harbor • World’s first heat-recovery cokemaking facility, started up in 1998 • Supplies ArcelorMittal’s #7 Blast
Slide 23: Execute Indiana Harbor: Contract Renewal
TM Execute Indiana Harbor Execute Indiana Harbor 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 •
Slide 24: Execute Indiana Harbor: Refurbishment Underway
TM Execute Indiana Harbor Before Execute Indiana Harbor Refurbishment underway • Project scoped to enhance reliability, address environmental issues and facilitate long-term contract renewal • Pioneered new plant designs and replacement/repair techniques – Repair of tunnels and sole flues – Installi
Slide 25: Launch Gas Sharing Project
TM Launch Gas Sharing Project 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 26: Launch Gas Sharing Project: New Environmental Benchmark
TM Launch Gas Sharing Project 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 27: Permit Potential New U.S. Facility
TM Permit Potential New U.S. Facility • Design, engineering and 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 new U.S. EPA requirements –
Slide 28: Permit Potential New U.S. Facility: Construction Cost
TM Permit Potential New U.S. Facility Lean engineering efforts expected to reduce cost of potential new U.S. facility despite increasing environmental controls *Inflation adjusted to 2011 dollars and, for Haverhill II and Granite City, adjusted to include estimated cost for power generation facility
Slide 29: Identify and Pursue Acquisitions: HR vs By-Product
TM Advantages of HR Advantages of BP Identify and Pursue Acquisitions While heat recovery technology offers many advantages, by-product technology can also provide certain benefits in cokemaking Negative Pressure Ovens Positive Pressure Ovens Cogeneration potential • Potential high value for by-prod
Slide 30: Identify and Pursue Acquisitions
TM Identify and Pursue Acquisitions Low Cost of Capital Operating Know-How & Reliable Supply Solid Customer Relationships We can provide a compelling value proposition to customers in pursuing acquisition opportunities in the U.S. and Canada Identify and Pursue Acquisitions • Potential for planned M
Slide 31: Close VISA SunCoke and Optimize Plant
TM Close VISA SunCoke and Optimize Plant Quality Assets Plan to Support & Optimize Close VISA SunCoke and Optimize Plant • Built in 2007; SPCDI-China design • 8 Batteries; 88 Ovens; Charge per oven – 54mt; Coking time – 68 hours • Stamp charging technology • Well maintained plant • Staff are knowled
Slide 32: Summary
TM Summary Organizational Capability Clear 2013 Priorities Operations Excellence (SunCoke Way) Coal Science & Coke Technology Solid Customer Relationships Organization Competencies Lean Engineering By-Product Preparedness Contract Structuring & Execution Execute Indiana Harbor Launch gas sharing pro
Slide 33: Mike Hardesty
Mike Hardesty Senior Vice President, Sales & Commercial Operations
Slide 34: State of the U.S. Coal Market
TM State of the U.S. Coal Market Demand Supply Price State of the U.S. Coal Market • 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 • Weak natural gas
Slide 35: Coal Mining Financial Summary
TM Coal Mining Financial Summary Coal Mining Adjusted EBITDA (1) and Avg. Sales Price/Ton (2) 55% 65% 75% 85% 95% 105% Coal Mining Financial Summary • Since 2010 cash costs and reject rates have increased • Deterioration in performance reflects: – Geological challenges – Impact of aging mining equip
Slide 36: Coal Mining Action Plan
TM Coal Mining Action Plan 2013 Coal Mining objectives focus on cost reduction and mitigating impact of lower pricing Rationalize Mining Plans Enhance Productivity Increase Revelation & Purchased Coal Improve Prep Plant Coal Mining Action Plan • Targeting underground cash cost reduction of at least
Slide 37: Coal Mining Action Plan Details
TM Rationalize Mining Plans Enhance Productivity Improve Prep Plant Increase Revelation & Purchased Coal Coal Mining Action Plan • Anticipate at least a 2% yield improvement from new cyclone & fine circuit upgrade • Additional spending to maintain plant structure • Minor amount of capital for permit
Slide 38: 2013 Coal Business Metrics
TM 2013 Estimates MV Thermal Total Estimated Price Range of Uncommitted Tons Estimated Production Costs 2013 Coal Business Metrics 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 Tons in
Slide 39: Coal Business Wrap-Up
TM Coal Business Wrap-Up 2013 focus is on optimizing our coal business to enhance long-term strategic flexibility and value Coal Business Wrap-Up • Expect difficult environment to continue through most of 2013 – Potential for price turnaround in late 2013 into 2014 • Experienced coal team has naviga
Slide 40: Dr. John Quanci
Dr. John Quanci Vice President, Technology
Slide 41: Industry Pioneer
TM Industry Pioneer Industry Pioneer 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) – G
Slide 42: SunCoke's Technology Group
SunCoke’s Technology Group TM Computational Modeling Process Technology Technology Specialists Team composition speeds problem solving & innovation SunCoke’s Technology Group • Multi-disciplinary team with deep expertise • 13 engineers & scientists on staff (6 PhDs) • 4 Computational Modeling Expert
Slide 43: SunCoke's Technology Group: Unique Approach to R&D
TM SunCoke’s Technology Group SunCoke’s Technology Group 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 fro
Slide 44: Recent Advancements: Oven Rehabilitation
TM Recent Advancements Recent Advancements Indiana Harbor – Oven Rehabilitation • Problem: • Solution: • Results: – Ease of pushing and minimization of leaks – Repairs show on average a 10% increase in tons per day – 11 ovens rehabbed – upgrades ongoing – Transfer of methods across fleet, creating n
Slide 45: Recent Advancements: Gas Sharing
TM Recent Advancements Recent Advancements Gas Sharing • 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: – Control and manage
Slide 46: Recent Advancements: Coal Blend Optimization
TM Recent Advancements Recent Advancements 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 – Quanti
Slide 47: Coal Blend Modeling
TM Coal Blend Modeling Coal Blend Modeling Planned test Space Coal 3 Coal 2 Coal 1 reflectance optimal coking range Exploring the Coal Blend Space
Slide 48: Recent Advancements: Box Testing
TM Recent Advancements Outside-of-the-box thinking inside the box Box loaded with coal In position Recovered after coking Recent Advancements • Box Testing – New coal testing and plant optimization – Allows safe, low cost testing of sophisticated models – Ability to test blue-sky concepts not feasib
Slide 49: Potential Improvements at Existing Plants
TM Potential Improvements at Existing Plants Believe our technology and know-how can be applied to existing heat recovery and by-product plants Process Improvement Asset Support Environmental Performance Potential Improvements at Existing Plants • Lower burn loss • Yield improvement • Higher power p
Slide 50: Wrap-Up: Fueling Innovation
TM Wrap-Up Wrap-Up 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 •
Slide 51: Mark Newman
Mark Newman Senior Vice President & Chief Financial Officer
Slide 52: YTD Earnings Overview
TM YTD Earnings Overview Earnings Per Share (diluted) Adjusted EBITDA (1) (in millions) YTD Earnings Overview • Results driven by strong coke business performance – Middletown startup has been a success – Entire U.S. cokemaking fleet delivering strong results • Coal remains a challenge – Higher than
Slide 53: Expected 2012 Adjusted EBITDA
TM Expected 2012 Adjusted EBITDA (1) Expect to achieve 2012 Adjusted EBITDA (1) of $255 - $270 million and end year with cash balance of approximately $240 million $140.5 $109.1 $193.7 $42.3 $37.0 $61- $76 $255- $270 Expected 2012 Adjusted EBITDA (1) ($ in millions) $10.9 ($5.6) FY 2011 Adjusted EBI
Slide 54: Expected 2012 Earnings Per Share
TM Expected 2012 Earning Per Share EPS has benefited from strong coke business performance offset by financing costs for standalone capital structure $0.87 $0.75 $1.01 $1.25- $1.35 $1.20 ($0.21) ($0.59) ($0.14) Expected 2012 Earning Per Share (1) For a definition and reconciliation of Adjusted EBITD
Slide 55: 2013 Domestic Coke Business Outlook
TM 2013 Domestic Coke Business Outlook Intend to sustain solid cokemaking performance with expected domestic coke production in excess of 4.3 million tons in 2013 Domestic Coke Production 1,179 1,141 715 707 1,124 1,103 635 684 68 2013 Domestic Coke Business Outlook • Ongoing focus on operations exc
Slide 56: 2013 Domestic Coke Business Outlook: EBITDA per Ton
TM 2013 Domestic Coke Business Outlook Expect Domestic Coke Business to continue to generate Adjusted EBITDA per ton of between $55 and $60 in 2013 Domestic Coke Adjusted EBITDA (1) Per Ton $79 $124 $46 $89 2013 Domestic Coke Business Outlook Outlook reflects • • • (1) For a definition of Adjusted E
Slide 57: 2013 Coal Mining Adjusted EBITDA Outlook
2013 Coal Mining Adjusted EBITDA (1) Outlook Expected production increase at Revelation and improved operating efficiencies will help mitigate very difficult price environment in 2013 Coal Mining Adjusted EBITDA (1) Outlook ($ in millions) (1) For a definition and reconciliation of Adjusted EBITDA,
Slide 58: Expected 2013 Adjusted EBITDA
TM Expected 2013 Adjusted EBITDA (1) Expect 2013 results to be impacted by weak coal business, partly offset by continued solid coke operations and VISA SunCoke Expected 2013 Adjusted EBITDA (1) (1) For a definition and reconciliation of Adjusted EBITDA, please see the appendix. Primarily reflects e
Slide 59: Expected 2013 Earnings Per Share
Expected 2013 Earnings Per Share Coal business weakness plus accelerated depreciation at Indiana Harbor due to refurbishment expected to negatively impact 2013 EPS Expected 2013 Earnings Per Share (1) For a definition and reconciliation of Adjusted EBITDA, please see the appendix.
Slide 60: Capital Expenditures & Investments
TM Capital Expenditures & Investments 33 24 41 206 24 46 67 109 Majority of 2013 capital expenditures and investments targeted toward international coke growth and Indiana Harbor refurbishment Capital Expenditures & Investments Middletown: $171 million HKCC Acquisition: $41 million Indiana Harbor Re
Slide 61: Capital Allocation Priorities
TM Capital Allocation Priorities Domestic Coke Growth International Optimize Coal Cash Return to Shareholders Capital Allocation Priorities • Indiana Harbor refurbishment for contract renewal • Potential acquisitions of existing cokemaking capacity • Potential new U.S. plant • Fund future India grow
Slide 62: Summary 2013 Guidance
TM Summary 2013 Guidance Metric Expected 2012 Outlook Expected 2013 Outlook Summary 2013 Guidance 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 & Investments ~ $70 million ~ $200 million Free Cash Flow (2) $
Slide 63: Appendix
TM APPENDIX APPENDIX
Slide 64: Definitions
TM Definitions Definitions • 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, t
Slide 65: Reconciliations
TM Reconciliations $ in millions YTD Sept 2012 Q3 2012 Q2 2012 Q1 2012 FY 2011 Q4 2011 Q3 2011 Q2 2011 Q1 2011 Reconciliations from Adjusted Operating Income and Adjusted EBITDA to Net Income Reconciliations Adjusted Operating Income 138.5 54.8 46.6 37.1 80.4 14.9 33.5 24.6 7.4 Net Income (Loss) att
Slide 66: Reconciliations
TM Reconciliations $ in millions, except per ton data Jewell Coke Other Domestic Coke International Coke Jewell Coal Corporate Combined Domestic Coke YTD Sept 2012 FY 2011 FY 2010 Reconciliations from Adjusted EBITDA to Adjusted Pre-Tax Operating Income Reconciliations Adjusted EBITDA 41.1 143.6 1.7
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Slide 68: Expected 2012E Free Cash Flow Reconciliation
TM Expected 2012E Free Cash Flow Reconciliation (in millions) Estimated 2012 For nine months ended 9/30/2012 (Actual) Expected 2012E Free Cash Flow Reconciliation Cash from operations In excess of $ 173 $ 78 Less cash used for investing activities Approx. (70) (41) Less payments to minority interest
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Slide 70: Expected 2013E Free Cash Flow Reconciliation
TM Expected 2013E Free Cash Flow Reconciliation (in millions) Estimated 2013 Expected 2013E Free Cash Flow Reconciliation Cash from operations Approx. Less cash used for investing activities Approx. (200) Less payments to minority interest Approx. (5) Free Cash Flow Approx. $ (65) 2013E Estimated Fr
Slide 71: Media releases and SEC filings available
Media releases and SEC filings are available on www.suncoke.com Investor Relations: 630-824-1907