gilbert pooley, bryanston
TRANSCRIPT
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?
1 © Bryanston 2014 IMM Iron Ore Presentation vGP 20140316-Final
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
3 © Bryanston 2014 IMM Iron Ore Presentation vGP 20140316-Final
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
4 © Bryanston 2014 IMM Iron Ore Presentation vGP 20140316-Final
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 ($/t)
Source: Bryanston Research, CRU
1924
28
3531
57
31
43
051015202530354045505560
Change in production (Mt)
2018e 2013 2016e 2014e 2012 2015e 2017e 2011
5 © Bryanston 2014 IMM Iron Ore Presentation vGP 20140316-Final
Export value of unbeneficiated ore to Asia has increased at 39% pa, while metal exports to the region is flat
9
8
7
2
6
4
3
5
1
0
Asia export Value1 (B$)
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
6 © Bryanston 2014 IMM Iron Ore Presentation vGP 20140316-Final
Agenda
Competitive Iron Ore Beneficiation
Beneficiation in practice: How can we work together?
About Bryanston Resources
7 © Bryanston 2014 IMM Iron Ore Presentation vGP 20140316-Final
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
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2
3
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§ 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
8 © Bryanston 2014 IMM Iron Ore Presentation vGP 20140316-Final
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
9 © Bryanston 2014 IMM Iron Ore Presentation vGP 20140316-Final
However success has proven elusive despite each members best efforts
Industry
Government
Infrastructure (Transnet, Eskom)
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
10 © Bryanston 2014 IMM Iron Ore Presentation vGP 20140316-Final
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
11 © Bryanston 2014 IMM Iron Ore Presentation vGP 20140316-Final
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
12 © Bryanston 2014 IMM Iron Ore Presentation vGP 20140316-Final
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
13 © Bryanston 2014 IMM Iron Ore Presentation vGP 20140316-Final
Members of SA Inc. need to join forces to answer key questions that determine sustainable local beneficiation
Industry
Government
Infrastructure (Transnet, Eskom)
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
14 © Bryanston 2014 IMM Iron Ore Presentation vGP 20140316-Final
Agenda
Competitive Iron Ore Beneficiation
Beneficiation in practice: How can we work together?
About Bryanston Resources
15 © Bryanston 2014 IMM Iron Ore Presentation vGP 20140316-Final
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)
16 © Bryanston 2014 IMM Iron Ore Presentation vGP 20140316-Final
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
17 © Bryanston 2014 IMM Iron Ore Presentation vGP 20140316-Final
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
18 © Bryanston 2014 IMM Iron Ore Presentation vGP 20140316-Final
Eskom’s planned tariff hikes present the biggest challenge to South African smelter competitiveness
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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
19 © Bryanston 2014 IMM Iron Ore Presentation vGP 20140316-Final
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
20 © Bryanston 2014 IMM Iron Ore Presentation vGP 20140316-Final
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
21 © Bryanston 2014 IMM Iron Ore Presentation vGP 20140316-Final
Agenda
Competitive Iron Ore Beneficiation
Beneficiation in practice: How can we work together?
About Bryanston Resources
22 © Bryanston 2014 IMM Iron Ore Presentation vGP 20140316-Final
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
23 © Bryanston 2014 IMM Iron Ore Presentation vGP 20140316-Final
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
24 © Bryanston 2014 IMM Iron Ore Presentation vGP 20140316-Final
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
Contact details • [email protected] • +49 151 1885 9831
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
25 © Bryanston 2014 IMM Iron Ore Presentation vGP 20140316-Final
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
Contact details • [email protected] • +91 808 648 1523
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
Contact details • [email protected] • +27 81 753 8640
26 © Bryanston 2014 IMM Iron Ore Presentation vGP 20140316-Final
Gilbert Pooley Bryanston Resources 54a 7th Ave. Parktown North Johannesburg ZA: +27 (0)71 900 9651 [email protected]
Bryanston
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