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Analyst day timminco investor presentation october 12 fin

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  • 1. Investor Presentation October 2010
  • 2. Cautionary Note onForward-Looking Information This presentation contains “forward-looking information”, including “financial outlooks”, as such terms are defined in applicable Canadian securities legislation, concerning Timminco’s future financial or operating performance and other statements that express management’s expectations or estimates of future developments, circumstances or results. Generally, forward-looking information can be identified by the use of forward-looking terminology such as “expects”, “targets”, “believes”, “anticipates”, “budget”, “scheduled”, ”estimates”, “forecasts” “intends” “plans” and variations of such words and phrases, or by statements that certain actions, events or results “may”, “will”, “could”, “would” or “might”, “be taken”, “occur” or “be achieved”. Forward-looking information is based on a number of assumptions and estimates that, while considered reasonable by management based on the business and markets in which Timminco operates, are inherently subject to significant operational, economic and competitive uncertainties and contingencies. Timminco cautions that forward-looking information involves known and unknown risks, uncertainties and other factors that may cause Timminco’s actual results, performance or achievements to be materially different from those expressed or implied by such information, including, but not limited to: liquidity risks; foreign currency exchange rates; equipment failures; dependence upon power supply for silicon metal production; pricing and availability of raw materials; global economic conditions; credit risk exposure; selling price of silicon metal; customer concentration; transportation delays and disruptions; class action lawsuits; contract termination claims; interest rates; future growth plans and strategic objectives; environmental, health and safety laws and liabilities; conflicts of interest; limited history with the solar grade silicon business; selling price of solar silicon; customer commitments; production cost targets; achieving and maintaining quality of solar grade silicon; customer capabilities in producing ingots; protection of intellectual property rights; production capacity expansion at the Bécancour facilities; closure of the magnesium facilities; investment in Applied Magnesium; insurance costs; government and economic incentives; dependence upon key executives and employees; completion and integration of potential acquisitions, partnerships or joint ventures; intellectual property infringement claims; new regulatory requirements; and climate change. These factors are discussed in greater detail in Timminco’s Annual Information Form for the year ended December 31, 2009, as well as Timminco’s most recent Management’s Discussion and Analysis, and are each available on SEDAR via www.sedar.com. Although Timminco has attempted to identify important factors that could cause actual results, performance or achievements to differ materially from those contained in forward-looking information, there can be other factors that cause results, performance or achievements not to be as anticipated, estimated or intended. There can be no assurance that such information will prove to be accurate or that management’s expectations or estimates of future developments, circumstances or results will materialize. Accordingly, readers should not place undue reliance on forward-looking information. The forward-looking information in this presentation is made as of the date of this presentation and Timminco disclaims any intention or obligation to update or revise such information, except as required by applicable law. 2
  • 3. We Know Silicon Metal 5th largest producer in The Backbone Western of Timminco World 3
  • 4. Silicon Metal Industry Industry Breakdown by Market: Chemicals: Silicones 50% 10% 40% 2008 Global Market Chemicals: Aluminum Polysilicon (pre-global recession) $6.4B Chemicals: Silicones Chemicals: Polysilicon Aluminum 4
  • 5. Growing Demand for Silicon Metal 000’s MT World Consumption 3,000 2,500 2,000 1,500 1,000 500 0 2008 2009 2010 FC 2011 FC 2012 FC 2013 FC 2014 FC Source: CRU, 2010 • Silicon world demand forecasted to grow by 26.6% from 2008 to 2014 • Demand driven by macro-trends: • Increasing demand for new applications in silicones • Emergence of solar energy market • Increasing demand for aluminum • Growth in the Western World and China 5
  • 6. Chemical Industry Demand: Silicones Silicon Construction-related products, including sealants, adhesives, Metal lubricants, paints, coatings Consumer products including cosmetics and heat resistant cooking utensils 2-in-1 shampoo and conditioner Chemicals Industry: Increasingly being used as a Silicones substitute for petroleum-based plastics 6
  • 7. Chemical Industry Demand: Polysilicon Silicon Solar Market Development Potential Metal 35 30 33% Projected CAGR 25 2009-2014 MW Installed 20 15 10 Chemicals 5 Industry: 0 2004 2005 2006 2007 2008 2009 2010E 2011E 2012E 2013E 2014E Polysilicon Source: European Photovoltaic Industry Association May 2010 • Polysilicon demand expected to grow by 15% – 30% driven primarily by growth in solar PV market • Solar PV now accounts for half of polysilicon demand 7
  • 8. Aluminum Industry Demand Silicon Metal 326 lbs 77 lbs Aluminum Industry Source: Ducker Worldwide Note: As a percentage of curb weight (based on 3,600 lbs) 8
  • 9. Silicon Metal Pricing Source: CRU, Mar 2010 Factors driving increasing nominal dollar trend expected to continue • Pricing recovery continuing in 2010 •Increasingly tight Western supply; consolidation occurring Potential •Interruption of Chinese supply, or forecasted additional additional supply does not materialize upside •Weak U.S. dollar •Increases in input costs 9
  • 10. Western Market Focus ¢ Source: CRU Mar 2010 The Western World relies on Chinese export to meet almost half of its silicon demand 10
  • 11. Western supply is tightening • M&A transactions announced in past 12 months have captured 16% of Western silicon capacity for upstream integration Date Transaction Nameplate capacity (mt) Nov 2009 DC acquires 100% Globe metals Brazil 44,000 Nov 2009 DC acquires 49% Globe WV Alloys 37,000 June 2010 Wacker acquires 100% Fesil Holla 55,000 October 2010 DC acquires 49% Becancour Silicon 23,000 Total capacity captured 159,000 Percentage of total Western supply 16% Source: Company Press Releases, CRU March 2010 11
  • 12. Reliance on Chinese Silicon Supply Growth • Chinese silicon demand is forecast to increase • Chinese forecast demand growth is likely to materialize before supply growth Could Result in Silicon Shortage in the Western World Source: CRU Mar 2010 12
  • 13. We Know Silicon Metal • A leading producer for more than 30 years • Generated revenue of $128M in 2008 – the latest full year of production • Established Joint Venture with Dow Corning Corporation (October 2010) 13
  • 14. Our Advantages1. Access to Stable Source of Electricity2. Competitive CostsPower Other* Power• Competitively priced source of electricity 30% 25%Raw Materials• Own source of quartz 5%• Proprietary electrode technology Transport 40% Raw Materials * Other includes maintenance, labour and SG&A3. Political Stability4. High Capital Cost of Greenfield Construction• Capital cost of greenfield silicon plant $6,000 - $7,000 / mt• Long lead time for greenfield completion (3-5 years)• IRR on new construction sensitive to price and cost assumptions 14
  • 15. Joint Venture with Dow Corning • Becancour Silicon Inc. (BSI) to transition silicon metal assets to Joint Venture, known as Quebec Silicon • Dow Corning (DC) purchases a 49% interest in Quebec Silicon 51% 49% BSI of output sold to BSI of output • Silicon metal is sold to BSI and sold to DC DC in quantities proportional to ownership % 51% 49% equity equity • BSI retains existing customer relationships and ships its production allocation to third party customers • Byproducts are sold by BSI Quebec as agent Silicon 15
  • 16. Historical Financial Review (millions) Solar Grade Silicon Revenue Silicon Metal Revenue Magnesium Revenue Adjusted Income (Loss)* Intro of Solar $252.6 Divestiture of Grade Silicon Magnesium Operations (July) $61.7 $184.4 $181.8 $166.2 $3.9 $104.6$99.3 $5.1 $107.3 $127.7 $99.9 $69.4$85.1 $74.5 $62.4 $63.1 $10.4 $30.1 $(7.8) $(10.1) $(15.8) $(81.6) 2005 2006 2007 2008 2009 2005 - 2006 re-stated to conform with 2007 and 2008 financial statement classifications. 16 *See Appendix regarding Non-GAAP financial measures.
  • 17. Recent Performance Magnesium RevenueRevenue Solar Grade Silicon Revenue(millions) Silicon Metal Revenue $252.6 $63.1 $104.6 $30.1 $34.3 $22.3 2008 2009 Q2/09 Q2/10 17
  • 18. Recent PerformanceEBITDA* Net Loss Adjusted Income(millions) (millions) (Loss)* (millions)$21.3 $10.4 $(50.9) $(7.0) $(22.6) $(134.2) $(20.6) $(81.6) $(20.3)2008 H1/2010 2008 2008 H1/2010 H1/2010 2009 2009 2009*See Appendix for more details about these Non-GAAP financial measures. 18
  • 19. Recent PerformanceEBITDA* Net Loss Adjusted Income(millions) (millions) (Loss)* (millions) $(9.9) $(3.1) $(24.0) $(9.7) $(17.2) $(9.5) Q2/09 Q2/10 Q2/09 Q2/10 Q2/09 Q2/10Achieved positive EBITDA in Silicon Group in Q2/10*See Appendix for more details about these Non-GAAP financial measures. 19
  • 20. Consolidated Capitalization (millions)Bank Debt (1) (June 30, 2010) $ 31.2Long-term Debt (June 30, 2010) 27.9Due to Affiliated Companies – Convertible 5.4notes (June 30, 2010)Market Capitalization – 195.7 million common 86.1shares issued and outstanding (2)Total Capitalization $150.6(1) Repaid in full October 1, 2010(2) As of October 1, based on TSX closing price of $0.44 per share 20
  • 21. Liquidity and Capital Resources As at June 30th, 2010: • Working capital of $20.3M, excluding cash items and interest bearing debt • Cash of $1.5M • Credit facilities with Bank of America totaling US$45M: • US$39M revolving credit facility (subject to borrowing base and availability reserve) • US$6M term loan facility • Term loan with Investissement Quebec of $25M Subsequent Events: • US$40.3M gross proceeds generated by JV transaction, plus up to US$10.0M subject to performance metrics • Proceeds partly used to fully pay bank loan October 1, 2010 21
  • 22. Growth Strategy Restore demand and full production 1. • Full production achieved Nov. 2009 and maintained to present • 2010 production sold out 2. Lower production costs • Achieved lower cost per tonne in Q2/10 3. Explore expansion opportunities 22
  • 23. Future Opportunities: Solar Grade Silicon Silicon Metal Solar Grade Silicon ~$ 3/kg $36/kg Timminco’s average selling Current spot price price for Q4/09 23
  • 24. Solar Energy Industry Global energy consumption is expected Solar Market Development Potential to rise by 50% from 2005 to 2030 800 Projected 35 700 600 30 33% Projected CAGRQuadrillion Btu 25 500 2009-2014 MW Installed Growing 20 400 energy demand 15 300 200 10 100 5 0 0 80 85 90 95 0 5 10 15 20 25 30 2004 2005 2006 2007 2008 2009 2010E 2011E 2012E 2013E 2014E Source: European Photovoltaic Industry Association, May 2010 Industry will require quality, economic alternatives to polysilicon 24
  • 25. Solar Grade Silicon: Market Dynamic withPolysilicon Spot Price for Polysilicon • Solar grade silicon: 500 • Substitute for polysilicon in 400 solar cells Price ($/Kg) • Demand increases as price 300 of polysilicon increases 200 • Polysilicon demand forecasted to grow by 15% 100 to 30% p.a. to 2013 0 2005 2006 2007 2008 2009 8/2010 2008 polysilicon spot price = $450/kg 2010 (Aug) polysilicon spot price = $70/kg • Polysilicon prices trending upward with increasing demand and tightening supply. • Spot prices could move up to higher-cost manufacturers’ cash cost, which fills last kg of demand. • Return of demand for solar grade silicon as a lower cost substitute 25
  • 26. Our Solar Grade Silicon Process Proprietary, Patent Pending Process Conventional Semiconductor Grade Silicon Solar Energy Process Industry Reverse Conventional polysilicon process: refinement chemical ultra-refinement (doping) Solar Grade Silicon Ingot Brick Silicon Metal Wafer Solar Grade Silicon Cell Timminco propietary metallurgical process Customers turn our raw solar grade silicon into solar panels Timminco Process 26
  • 27. Economic Alternative to Conventional Process Anticipated Capital and Production Cost Advantages • Proprietary technology • Access to stable energy supply • Access to own supply of silicon metal • 7 purification lines installed and production-ready 27
  • 28. Solar Grade Silicon Strategy Goal: Enable customers to manufacture solar cells that are indistinguishable from those made 1. Refine production process with polysilicon 2. Fine-tune ingoting process 3. Market development underway 28
  • 29. Turnaround Strategy 1. Stabilize balance sheet 2. Restore demand and full production of silicon metal 3. Reposition solar grade silicon operations 29
  • 30. Balance sheet activities since January 1, 2009: • Closed JV with Dow Corning Corporation for gross proceeds of US$40.3 million and up to potentially an additional US$10.0 million • Repaid US$27.7M in bank debt Raised $56.6M through issuance of common Stabilize • equityBalance Sheet • Converted $10.6M in convertible notes to equity • Converted $44.7M of customer deposit/other liabilities to equity • Completed $25M term loan with Province of Quebec – conditional extension to 2019 • Raised $5.3M in convertible debt • Liquidated $13M of net working capital related to magnesium 30
  • 31. • Improved demand as customer markets recover • Restarted all three silicon metal furnaces Restore demand Reached full production inand full production • November 2009 in silicon metal operation • 2010 capacity sold out • Signed long-term contracts for 90,000 mt over next 5 years • Returned to EBITDA positive operations 31
  • 32. Q2/10 Silicon Metal Sales 293% 389% 34.3 22.8 7.0 5.8Q2/09 Q2/10 Q2/09 Q2/10 Volume (MT) Value ($) 32
  • 33. Reposition Solar Grade Silicon Operations 33
  • 34. Investment Summary • Significantly strengthened balance sheet (post closing of Dow Corning JV transaction) • Leading provider of silicon metal • Silicon metal operations at full capacity • Established, core operation in silicon metal • Market demand recovering and price growth driven by macro- trends • JV partner is a global leader in silicon metals business • Solar grade silicon product line provides additional longer- term opportunity • Progressing towards goal of indistinguishability of cells manufactured with solar grade silicon compared to those made with polysilicon. 34
  • 35. Appendix
  • 36. Non-GAAP Financial Measures “EBITDA” and “Adjusted Income (Loss)” are not recognized measures under Canadian generally accepted accounting principles and are unlikely to be comparable to similar measures provided by other issuers. Timminco believes that “EBITDA” and “Adjusted Income (Loss)” are useful performance measures as they approximate cash generated from operations, before capital expenditures and debt service obligations, as well as representing measures of profitability from ongoing operations. 36
  • 37. Reconciliations for Non-GAAP Financial MeasuresEBITDA BY QUARTER($000’s) 2010 2010 2009 2009 2009 2009 2008 2008 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3Net loss (9,704) (10,905) (69,403) (18,522) (23,980) (22,317) (1,278) (13,727)Add back (subtract):Income taxes - - (14) 17 6,653 (4,876) 1,611 2,035Impairment of Fundo - - - - - 698 (1,415) 13,845Equity in the loss of Fundo - - - - - - 1,415 1,822Loss on disposal of Magnesium - - 3,006 2,180 - - - -GroupImpairment of property, plant and - - 39,039 - - - 1,025 -equipmentLoss (gain) on the sale of 14 - (19) 40 (11) - 5 (375)property, plant and equipmentInterest 1,678 2,113 2,298 2,372 1,830 934 796 549Amortization of intangible assets 707 707 707 707 435 235 170 138Amortization of property, plant 1,935 2,026 3,203 3,386 3,090 3,534 2,355 1,509and equipmentReorganization costs - - 542 - (1) 3,752 970 824Environmental remediation costs 161 161 1,230 132 133 132 (136) -Pension curtailment costs - - - - - - (326) -Stock-based compensation 2,094 2,042 1,979 1,996 1,991 1,961 1,215 269EBITDA (3,115) (3,856) (17,432) (7,692) (9,860) (15,947) 6,407 6,889 37
  • 38. Reconciliations for Non-GAAP Financial MeasuresADJUSTED INCOME (LOSS) BY QUARTER($000’s) 2010 2010 2009 2009 2009 2009 2008 2008 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3Net loss (9,704) (10,905) (69,403) (18,522) (23,980) (22,317) (1,278) (13,727)Add back (subtract):Income taxes - - (14) 17 6,653 (4,876) 1,611 2,035Impairment of Fundo - - - - - 698 (1,415) 13,845Equity in the loss of Fundo - - - - - - 1,415 1,822Impairment of property, plant - - 39,039 - - - 1,025 -and equipmentLoss on disposal of Magnesium - - 3,006 2,180 - - - -GroupLoss (gain) on the sale of 14 - (19) 40 (11) - 5 (375)property, plant and equipmentReorganization costs - - 542 - (1) 3,752 970 824Environmental remediation costs 161 161 1,230 132 133 132 (136) -Pension curtailment costs - - - - - - (326) -Adjusted Income (Loss) (9,529) (10,744) (25,619) (16,153) (17,206) (22,611) 1,871 4,424 38
  • 39. Investor Presentation October 2010