Arcelormittal South Africa Limited · JSE:ACL

Arcelormittal South Africa — Iscor — Merger or Acquisition (November 2001)

32 slides from Arcelormittal South Africa's merger presentation, November 2001

  1. Slide 1: Disclaimer

    DISCLAIMER NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART IN OR INTO CANADA OR JAPAN OR AUSTRALIA This document is intended solely to provide certain information on Iscor Limited (“Iscor”) and Kumba Resources Limited (“Kumba”) and does not constitute a recommendation regarding the

  2. Slide 2: Unbundling Presentation November 2001

    UNBUNDLING PRESENTATION NOVEMBER 2001

  3. Slide 3: Hans Smith, Chairman, Iscor Limited

    HANS SMITH CHAIRMAN ISCOR LIMITED 3

  4. Slide 4: Strategic Rationale

    STRATEGIC RATIONALE  Seven-year restructuring programme in three phases now complete  Iscor’s own initiatives  Full scale re-engineering  Business restructuring  Now the unbundling  Platform for further value release 4

  5. Slide 5: Unbundling of Iscor

    UNBUNDLING OF ISCOR  Creation of two focused independent entities (Iscor and Kumba)  Proven track records of international competitiveness  Excellent executive and management teams in place  Strong government and IDC support  Free to pursue growth strategies locally and internationally 5

  6. Slide 6: Unbundling Timetable

    UNBUNDLING TIMETABLE  Proxies from Iscor shareholders 19 November 2001  Iscor general meeting 21 November 2001  Kumba listing 26 November 2001 6

  7. Slide 7: Africa's Dominant Steel Producer

    AFRICA’S DOMINANT STEEL PRODUCER NOVEMBER 2001

  8. Slide 8: Louis van Niekerk, Chief Executive Officer

    LOUIS VAN NIEKERK CHIEF EXECUTIVE OFFICER ISCOR LIMITED 8

  9. Slide 9: Structure Post Unbundling

    STRUCTURE POST UNBUNDLING ISCOR Flat Products Long Products Other • Vanderbijlpark • Newcastle • Suprachem • Saldanha • Vereeniging • Other * 66% 28% 6% Revenue * Iscor has undivided share in Sishen’s iron ore rights entitling it to 6.25 Mtpa for life of mine 9

  10. Slide 10: Overview of Operations

    OVERVIEW OF OPERATIONS Flat Products  Vanderbijlpark Thabazimbi  2.7 Mtpa final product  Saldanha  0.9 Mtpa final product Johannesburg Vanderbijlpark Vereeniging Long Product  Newcastle Sishen Newcastle  1.4 Mtpa final product  Vereeniging Durban  0.3 Mtpa final product South Africa ISCOR TO

  11. Slide 11: Strategy

    STRATEGY Industry consolidation Global partner Restructuring of RSA steel industry Market optimisation Market optimisation Operational Saldanha Steel value release excellence Continuous improvement 11

  12. Slide 12: Operational Excellence

    OPERATIONAL EXCELLENCE Improvements since re-engineering commenced in 1994 Vanderbijlpark Newcastle 2001 Improvement 2001 Improvement Cash cost - HRC $/t 185* 24% - Billet $/t 141* 44% Position on cost CRU rank 8th* 4th* curve Headcount Employees 8 700 48% 3 400 46% Through-yield % 82 4% 87 1% On ti

  13. Slide 13: Operational Excellence (Low Cost Producer)

    OPERATIONAL EXCELLENCE (L O W C O S T P R O D U C E R)  Low input costs Cost curve  Power 1st quartile  Coal 2nd quartile  Iron ore 1st quartile  Labour 1st quartile  Modernised plant and processes  High efficiency levels  70% Rand based cost 13

  14. Slide 14: Operational Excellence (Cost Reduction Potential)

    OPERATIONAL EXCELLENCE (C O S T R E D U C T I O N P O T E N T I A L)  Iron ore procurement benefit  Further re-engineering savings  Impact of depreciating currency Improvement on cost curve expected 14

  15. Slide 15: Operational Excellence (Saldanha Turnaround)

    OPERATIONAL EXCELLENCE (S A L D A N H A T U R N A R O U N D) Continuous improvement Break-through Cash in on Corex refractory repair 1.3 Mtpa $180/t Stabilise/plant 1.1Mtpa $18/t availability $190/t 0.95 Mtpa $13/t Ramp-up $204/t Cash cost $9/t Price premium Jun ‘02 Jun ‘03 Dec ‘03 Real terms at exc

  16. Slide 16: Operational Excellence (Saldanha Turnaround Challenge)

    OPERATIONAL EXCELLENCE (S A L D A N H A T U R N A R O U N D C H A L L E N G E)  Iscor management responsibility from January 2001  Re-engineering credentials  Fast track programme in place  Project ahead of schedule  Synergies flow from integration 16

  17. Slide 17: Operational Excellence (Saldanha Integration)

    OPERATIONAL EXCELLENCE (S A L D A N H A I N T E G R A T I O N)  Cost for IDC’s 50%  20 million post-unbundling Iscor shares  10 million Kumba shares  Less: IDC R250 million cash contribution  Value  Synergy benefits  State-of-the-art plant  Low cost producer  Premium price product  High po

  18. Slide 18: Market Optimisation (Domestic/Export Sales Mix)

    MARKET OPTIMISATION (D O M E S T I C / E X P O R T S A L E S M I X)  51% of sales volume exported  Domestic pricing at import parity  Significant historic domestic/export margin differential  Historic average domestic volume growth multiplier: > 2x GDP growth above 2%  Economic policy “medicine

  19. Slide 19: Market Optimisation (Capturing Rand Weakness)

    MARKET OPTIMISATION (C A P T U R I N G R A N D W E A K N E S S)  Domestic sales priced at import parity  Effectively total sales at $ related prices  Only 30% of total input costs $ denominated Significant leverage from Rand weakness 19

  20. Slide 20: Market Optimisation (Steel Price Cycle)

    MARKET OPTIMISATION (S T E E L P R I C E C Y C L E) 450 CRU MBR 400 Mid cycle (CRU, MBR, WSD 10 yr. av.) $/t HRC net FOB Durban 350 300 250 215 200 150 Q1 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 1994 1995 1996 1997 1998 1999 2000 2001 2002 P

  21. Slide 21: Market Optimisation (Export Markets)

    MARKET OPTIMISATION (E X P O R T M A R K E T S) HRC > 1.6mm 35%  51% of sales volume exported HRC < 1.6mm 13% Products CRC 6%  Good spread of Galv 3% Colour coated 1%  Products Tin 2% Billets 6%  Destinations Profiles 2% Bar 6%  Current duties Rod 12%  USA hot rolled - 15.6% Slab & Plate 7% Se

  22. Slide 22: Industry Consolidation (Rationalising SA Steel Industry)

    INDUSTRY CONSOLIDATION (R A T I O N A L I S I N G S A S T E E L I N D U S T R Y) Potential synergies Flat Products production Vanderbijlpark 67%  Replacement capital > R1 billion Saldanha 25% 92%  Costs/revenue > R300 mpa Highveld 8% Long Products production Newcastle 41% Vereeniging 11% 52% Highv

  23. Slide 23: Industry Consolidation (Introducing Global Partner)

    INDUSTRY CONSOLIDATION (I N T R O D U C I N G G L O B A L P A R T N E R)  Access to  Technology  Markets  Skills and training  Assistance in driving costs down further  Discussions with potential partners continuing 23

  24. Slide 24: Malcolm Macdonald, Chief Financial Officer

    MALCOLM MACDONALD CHIEF FINANCIAL OFFICER ISCOR LIMITED 24

  25. Slide 25: Profit Record

    PROFIT RECORD Operating profit excluding Saldanha (LHS) Operating profit including 100% Saldanha (LHS) Rm Iscor HRC FOB price (RHS) $/t HRC 1 000 965 350 900 827 763 300 700 574 250 500 200 275 288 300 239 150 100 100 -100 50 (157) -300 (268) 0 1994/95 1995/96 1996/97 1997/98 1998/99 1999/00 2000/01

  26. Slide 26: Profit Leverage Potential

    PROFIT LEVERAGE POTENTIAL  Iron ore procurement  Vanderbijlpark further re-engineering  Saldanha turnaround  Sales mix shift from export to domestic  Price cycle recovery  Exchange rate 26

  27. Slide 27: Rights Issue Rationale

    RIGHTS ISSUE RATIONALE  Retention of iron ore ownership in Iscor a condition to unbundle  Optimise shareholder value - Kumba market rating higher than Iscor  Kumba value maintained by transferring debt from Kumba to Iscor  Higher debt in Iscor not bankable, hence R1.67 billion rights issue  Ful

  28. Slide 28: Financial Structure

    FINANCIAL STRUCTURE Including rights Pro-forma as at 30 June 2001 issue Shareholders’ equity (Rm) 9 972 Net debt (Rm) 1 811 Debt/equity ratio (%) 18 EBITDA interest cover (times) 3.3 28

  29. Slide 29: Louis van Niekerk, Chief Executive Officer

    LOUIS VAN NIEKERK CHIEF EXECUTIVE OFFICER ISCOR LIMITED 29

  30. Slide 30: Investment Case

    INVESTMENT CASE  Low cost producer  Iron ore ownership  Naturally protected domestic market  Significant potential earnings leverage from  Recovery in steel prices  R/$ weakness  Switch from export to domestic sales  Saldanha turnaround and synergies  Further efficiencies at other plants 

  31. Slide 31: Hans Smith, Chairman, Iscor Limited

    HANS SMITH CHAIRMAN ISCOR LIMITED 31

  32. Slide 32: Conclusion

    CONCLUSION  Declared 1994 strategy successfully implemented  Creation of two independent focused internationally competitive entities  Value release through unbundling  Competent and motivated management teams in place  Immediate opportunities for future earnings growth 32

Iscor — Merger or Acquisition (November 2001) on 6ix