Gilbert Pooley, Bryanston

0 © Bryanston 2014 IMM Iron Ore Presentation vGP 20140316-Final

Who is South Africa’s biggest export country?

Who is South Africa’s biggest export continent?

How many African countries does it take to match China?


Our SADC neighbours already provide a larger export market than China, and they still have a long way to grow

Note: GDP values are as of 2012 Source: Bryanston Research, Department of Trade and Industry, EIU, World Bank

40

30

10

0

20 11

14 12 10 8

China

34

17 22 20

Africa

31

25

32 27

23 24 23

16

6

Europe

10

28

19 20

12 14 19

27

Export Value (B$)

SADC Asia

8

24

36

27

Botswana + Namibia +

Mozambique

2011 2010

2013 2012

2009

The SADC region and Africa should be the export focus of South Africa as development in the region increases

Region

Population

GDP

1.36 B 4.43 B 0.60 B 1.11 B 0.29 B 0.03 B

8,227 B$ 26,530 B$ 18,200 B$ 2,009 B$ 647 B$ 41 B$

Today, these 3 countries combined

present an export market matching

China

Soon, Africa will be as large an

export market as Asia

Soon, Africa could be as

large an export market as Asia

Bryanston Resources GmbH * Bahnhofsplatz * 6300 Zug * Switzerland

Competitive iron ore beneficiation: working together to create more value for South Africa Inc.

March 17th, 2014


Bryanston Resources is a specialised player in mining & metals active in CONSULTING and PRINCIPAL INVESTMENT

BRYANSTON HOLDING

Mining Assets

Investments

Mining Technology Investments

Mining & Metals Consulting

Ø  Early stage mining investment

Ø  Financial Advisory

Ø  Fund raising

Ø  Principal investment in mining technology and services

Ø  Management of

investments & portfolio companies

Ø  Product marketability studies

Ø  Value in Use and Price realization

Ø  Marketing Strategy and operations

MAIN FOCUS OF THE PRESENTATION


Globally, the steel market is in bad shape with Chinese growth uncertain; affecting iron ore prices too

How does this affect local beneficiation?

Iron ore prices continue to weaken Weakening Chinese steel production growth

0

20

40

60

80

100

120

140

160

180

2014e 2016e 2017e 2018e 2015e 2013 2011 2012

Iron Ore CIF China ($/t)

Source: Bryanston Research, CRU

1924

28

3531

57

31

43

051015202530354045505560

Change in production (Mt)

2018e 2013 2016e 2014e 2012 2015e 2017e 2011


Export value of unbeneficiated ore to Asia has increased at 39% pa, while metal exports to the region is flat

9

8

7

2

6

4

3

5

1

0

Asia export Value1 (B$)

2006 2005 2010 2008 2007 2009 2013

CAGR +39%

2012 2011

0.2

0.1

0.0

0.3

0.6

0.5

0.4

0.9

0.8

0.7 +16%

2013 2005 2009 2011 2010 2006 2012 2008 2007

SADC export Value (B$)

SA inc.’s marketing strategy to promote beneficiation should focus on enhancing our African exports with our distinct logistics, trade terms (SADC), and cultural advantage

Chinese and Asian infrastructure growth has driven growth of raw material exports…

…but infrastructure development in Southern Africa provides an alternate market

1. Based on trade data from the DTI, Iron and steel represented by HS Code 72 and Iron ores by HS Code 2601 Source: Bryanston Research, Department of Trade and Industry, EIU

Iron and Steel Iron Ores Iron and Steel


Agenda

Competitive Iron Ore Beneficiation

Beneficiation in practice: How can we work together?

About Bryanston Resources


Smelting competitively requires a number of key success factors

Highlights of the South African operating environment

Quality ore

Low conversion

cost

Technology and scale

Proximity to Market

Key Success Factor

§  Quality ore supply allows efficient smelting §  Security of supply from multiple local mines

§  Processes tailored towards using high quality inputs e.g. BF §  Extensive experience of steel making with multiple technologies

§  Proximity to rapidly growing SADC markets

1

2

3

4

§  Historically competitive electricity price §  Rapid tariff escalation §  Supply constraint and restrictive IPP playing field

Electricity

§  Local access to supply of coal and other reductants Reductants

Ore

Location

Capabilities

Source: Bryanston Analysis

§  Confrontational labour relations

§  Above inflation wage escalation §  Low productivity

Labour

Each of these factors rely on different SA Inc. stakeholders cooperating to preserve our competitive advantage


Each member of South Africa Inc. wants to achieve a different set of goals

Industry

Government

Infrastructure (Transnet, Eskom)

Labour

•  Return on Equity •  Stable environment

•  Job creation •  Local value capture •  Black economic

empowerment

•  Return on capital •  Meeting government

targets

•  Wages •  Job security


However success has proven elusive despite each members best efforts

Industry

Government


Labour

Mines cut 23 000 jobs in 12 months

- Statistics SA

The gold industry stoppage is seen costing South Africa around $35 million a day in lost production

- Reuters

There are a number of manganese mines under development in the country but none yet have installed smelting facilities.

- Trade publication

Rail operations underperformed, particularly relating to volume growth…

- Transnet CEO

It has become increasingly unaffordable to beneficiate in South Africa

- Risk Advisory Firm

Source: Bryanston


Each member of SA Inc. takes rational decisions that optimise their position but hurt SA Inc. overall

Government increases number of

mining licenses

Industry sees South Africa as unstable and uncompetitive.

Closed operations result in job losses

Infrastructure players slow expansion due to

uncertainty over industry future

Industry fragments compromising

competitiveness

Positive intent from member

Negative consequence

Industry

Infrastructure

(Transnet, Eskom)

Government

Labour

Infrastructure players slow expansion due to unattractive economics

Labour strikes demanding higher

wages

Industry negotiates aggressively against

tariff increases


How does this pan out in the South African steel making sector?

What can be done to make local beneficiation attractive and sustainable?

Impact per Fe Unit

Govt Beneficiation Steel Ore export

Miner Service providers

Labour SA beneficiation

Steel in SA

Government Labour Iron ore miner Service providers Other raw material Steel maker

Exporting ore directly benefits the miner,

labourers, government and service providers like Transnet, Eskom, engineering firms, etc.

Beneficiation increases the benefits to the country: Steel makers would also make money, local procurement of other raw materials

like reductants, more taxes collected by the government, more labour employed and other service providers benefit too.

In SA, steel makers run at a

loss, government loses potential

tax revenue, jobs are lost, despite miners offering steep discounts to export pricing

1

2

3

Source: Bryanston Analysis

This leads to an overall destruction in value per

Fe unit

4


Eskom’s planned tariff hikes present a big challenge to South African smelting competitiveness

0.000.010.020.030.040.050.060.070.080.090.100.110.120.130.14

2027 2025 2020 2007 2010 2015

Historically South Africa has had highly

competitive electricity tariffs that are now

being revised upwards

Given current projections South Africa will have one of the highest electricity tariffs amongst smelting

nations

Tariff's in other smelting

geographies will remain flat in real

terms

Industrial Electricity tariff $/kWh Real terms: 2010 basis

South Africa United States China Malaysia India France

South Africa will become increasingly uncompetitive in terms of electricity costs

Note: All prices in real 2010 $/kwh terms, Malaysia price of $4.5c/kwh secured by first-mover projects, new entrants will pay more Source: Bryanston analysis, EIU

3


Members of SA Inc. need to join forces to answer key questions that determine sustainable local beneficiation

Industry

Government


Labour

How can we achieve a fair price for our inputs?

How can we ensure local beneficiation creates

value?

2

1

How can we sustain an attractive macro environment with

competitive infrastructure access and costs?

3


Agenda





What can each of the stakeholders do?

Steel makers: Invest in independent infrastructure

(e.g. independent power plants) Reduce reliance on traders

Move towards value based pricing

Labour: Incentivise productivity

Skills development Equity participation

Government: Tax incentives

Employment incentives Energy price support

Eskom: Encourage cogeneration

Preferential feed-in and wheeling tariffs to encourage captive power

Differential electricity tariffs

Transnet: Preferential rail tariffs

Controlled rail allocation to responsible market participants

Competitive smelting

Miners: Development pricing

Technical know how (ViU)


Lower raw material costs, cheaper electricity and logistics are some of the ways to increase the impact of beneficiation

Collaboration within SA Inc. can help achieve these changes necessary to sustainable beneficiation

Beneficiation Ore export Lower cost raw materials

Steel Cheaper electricity

SA beneficiation

Impact per Fe Unit

SA Steel Future Cheaper Logistics

Service Providers Iron Ore Miner Labour Steel maker Other Raw Material Government

From 62% export grade

product to 58% Fe stockpiled

ore

Source: Bryanston analysis

1 Cheaper logistics for

beneficiators offset by tiny increases in

ore tariffs

3

Captive power from Eskom grade coal vs.

Coke & RB grade; Cogeneration

2


Value -in-Use ($/t)

Moisture P S SiO2 Total Al2O3 Fe Alkali Physical

Understand the properties to match locally available raw materials to smelting technology

Cost benefits can be derived from exploiting individual strengths of ores

1. Higher alkali content is a property specific to South African ores Sources: Bryanston Research, MVS

Iron content •  Freight savings •  Reductant use •  Productivity impact

Alumina and Silica •  Flux usage •  Slag handling •  Reductant use •  Relining cost (Alumina)

Sulphur and Phosphorus •  Desulphurisation •  Dephosphorisation •  Productivity impact

Moisture & LOI •  Energy costs •  Productivity impact (LOI) •  Reductant use

Collaborating as SA Inc. would open up new possibilities

Physical •  Sintering loss •  Coarseness •  Tumbler index

Alkali1

•  Slag volume •  Reductant use •  Desulphurisation

Total ViU •  Overall benefits are

reflected as a basis for negotiation

Lower cost raw materials


Eskom’s planned tariff hikes present the biggest challenge to South African smelter competitiveness

0.00

0.01

0.02

0.03

0.04

0.05

0.06

0.07

0.08

0.09

0.10

0.11

0.12

0.13

2007 2025 2015 2010 2027 2020

Given current projections South Africa will have one of the highest electricity tariffs

among smelting nations

Industrial Electricity tariff $/kWh Real terms: 2010 basis

Eskom Captive power and cogeneration

Collaborating as SA Inc. would open up new possibilities

Note: Electricity price projections based on announced tariff increases; estimate for captive power at 0.65 R/kWh based on discussions with industry experts Source: Bryanston analysis

Captive power and cogeneration could help stabilise electricity costs while

managing demand, creating additional demand for coal, creating jobs, etc.

CHEAPER ELECTRICITY


Local logistics discount for steel producers could improve their competitiveness

Smelter

Mine

Port

At a final price of ~R 7,500 local logistics make up ~10% of FOB cost

1.6 ton ton ore per ton of steel

~500 km N. Cape to

smelter

R 400 Per ton of steel

X X =

=

R 0.50 Rate per km

per ton

1 ton ton steel

~400 km Smelter to

port/border

R 200 - 400 Per ton of steel

X X = R 0.50 - 1.00

Rate per km per ton

R 600 - 800 Per ton of steel

Note: Approximate steel price of 720 $/t assumed. Source: Bryanston analysis

CHEAPER LOGISTICS


A 20% discount for steel producers can be absorbed by a 3% pricing increase due to the large ore volumes

Revenue = R 37.4 bn pa

This 20% discount for steel producers = 140 R/t, will count towards being more competitive

65 Mtpa2 X 0.50 R/t/km X 1000 km = R 32.50 bn pa

7 Mtpa1 X 700 R/t = R 4.90 bn pa

Mine à port

Mine à smelter à port

Current pricing model

Same pricing

Transnet

Revenue = R 37.4 bn pa

65 Mtpa X 0.515 R/t/km X 1000 km = R 33.48 bn pa

7 Mtpa X 560 R/t = R 3.92 bn pa

Mine à port

Mine à smelter à port

Beneficiation promotion

Pricing

20% smelter discount

Transnet

1. WorldSteel South Africa crude steel 2013 production 2. USGS SA mine production 2013 Source: Bryanston analysis, WorldSteel, USGS

CHEAPER LOGISTICS


Agenda





Bryanston Resources is a specialised player in mining & metals active in ADVISORY and PRINCIPAL INVESTMENT

BRYANSTON HOLDING

Mining Assets

Investments

Mining Technology Investments

Mining & Metals Consulting

Ø  Early stage mining investment

Ø  Financial Advisory

Ø  Fund raising

Ø  Principal investment in mining technology and services

Ø  Management of

investments & portfolio companies

Ø  Product marketability studies

Ø  Value in Use and Price realization

Ø  Marketing Strategy and operations

MAIN FOCUS OF THE DOCUMENT


We have a GLOBAL PRESENCE and can draw on INTERNATIONAL EXPERIENCE and benchmarks

Bryanston is the fastest growing firm in its space – ca. 100 employees are serving clients globally – office soon to cover all major mining regions

Opening 2014 Recent projects

Existing offices

Western Africa

North America

South America

Southern Africa

ANZ

South East Asia

Europe

Asia

London

Zug

Lagos

Johannesburg

Shanghai

Moscow

Rio de Janeiro

New Delhi

Perth

Munich

Singapore

Toronto Abu Dhabi


BRYANSTON’S LEADERSHIP TEAM brings broad expertise in the mining & metal space

Florian Brickenstein

Director MENA

Expertise •  Former member of BCG's Metals &

Mining Global Leadership team •  10y+ experience in consulting, raw

material trade, steel plant operations and plant engineering

•  Worked for major (stainless) steelmakers and miners in Europe, South Africa, India, China, Australia, and the US

•  Raw Materials Marketing topic expert and Founder of Bryanston

•  Advised major industry corporate on mining assets investments; oversaw Bryanston’s technology investments

Contact details •  [email protected] •  +49 151 1885 9822

Director Zug / Munich

Fabian Kroeher

Expertise •  Former member of BCG's Metals &

Mining Global Leadership team •  8y+ years consulting experience (4

years in developing markets, of which 2.5 in CIS)

•  Multiple projects for metals, mining and agriculture companies incl. strategy development

•  Design and launch of high-performance operating models for metals and mining industry in CIS

•  Extensive experience in Value-in-use approach across minerals and agricultural goods


Lorenzo Tencati

Expertise •  Former member of Bain’s Natural

Resources Practice and Private Equity Group

•  Management consultant and Private Equity professional with 7y+ experience

•  Heads Bryanston’s fund management activities

•  Expertise in major commodities (manganese, PGM, Coal, Ferro Alloys…), oil & gas and agriculture

•  Led projects in Sub-Saharan Africa, CIS, Indonesia, Europe, UK, Israel and Eastern Europe

•  MBA (Hons) London Business School , Industrial engineer (Hons)

Director London / Jo’burg

Contact details •  [email protected] •  +27 73 3122039

Gilbert Pooley

Expertise •  African expert for mining and

exploration, project development and marketing

•  +8y experience in consulting (The Boston Consulting Group) and industry

•  Extensive experience in mining (iron ore, coal, ferroalloys) , oil & gas, and chemicals

•  Head of Bryanston South African operations

Director Jo’burg

Contact details •  [email protected] •  +27 (0)71 900 9651


Associate Jo’burg

Associate Shanghai

BRYANSTON’S REGIONAL TEAMS offer clients access to specialist, local knowledge in Africa, India, and China

Bartlomiej Dutkowski

Expertise •  4y+ experience in consulting and

research for mining industry •  Expertise in Value in Use and

Marketing of major commodities (iron ore, manganese,…)

•  Advised Indian stainless steel major on continuous assessment and economic improvement of secondary steel making processes

•  Experienced across Southern Africa, India and China

•  BEng (Hons) Mechanical Engineering background

Contact details •  [email protected] •  ZA: +27 73 583 6471 •  INT: +27 74 068 4095

Associate Jo’burg

Eshwar Andhavarapu Crystal Jin

Expertise •  Top-tier strategy consulting

experience in Singapore and China •  Associate in Bryanston’s Shanghai

office and topic expert for Market Research and Intelligence

•  Worked extensively in Southeast Asia and China

•  Specialized in thermal coal, coking coal, iron ore and cobalt

Contact details •  [email protected] •  CN: +86 186 0098 7946

India Lead New Delhi

Vinod Jose

Expertise •  6y+ years of experience in

consulting and industry •  Topic expert on marketing raw

materials incl. Coking coal, Mn, Iron, FeCr, Cr

•  Advised Indian stainless steel major on divestment of chrome assets

•  Advised Indian EPC major on Africa market entry strategy

•  Developed global marketing strategy for Indian activated carbon producer

•  MBA European Business School, Mechanical Engineer


Expertise •  3y+ experience in consulting for

mining industry •  Experience in Private Equity, deal

origination, screening, structuring, and investment

•  Expertise in Value in Use and Marketing of major commodities (iron ore, manganese,…)

•  BEng (Hons) Electrical Engineering background



Gilbert Pooley Bryanston Resources 54a 7th Ave. Parktown North Johannesburg ZA: +27 (0)71 900 9651 [email protected]

Bryanston

Thank you!

Gilbert Pooley, Bryanston

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