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Credit suisse global steel and mining conference Credit suisse global steel and mining conference Presentation Transcript

  • EVRAZ GROUPCredit Suisse2008 Global Steel andMining Conference September 25, 2008
  • Disclaimer 02This document does not constitute or form part of and should not be construed as, an offer to sell or issue or the solicitation of an offer to buy or acquire securities of Evraz Group S.A. (Evraz) or any of its subsidiaries in any jurisdiction or an inducement to enter into investment activity. No part of this document, nor the fact of its distribution, should form the basis of, or be relied on in connection with, any contract or commitment or investment decision whatsoever. No representation, warranty or undertaking, express or implied, is made as to, and no reliance should be placed on, the fairness, accuracy, completeness or correctness of the information or the opinions contained herein. None of Evraz or any of its affiliates, advisors or representatives shall have any liability whatsoever (in negligence or otherwise) for any loss howsoever arising from any use of this document or its contents or otherwise arising in connection with the document.This communication is only being distributed to and is only directed at (i) persons who are outside the United Kingdom or (ii) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”) or (iii) high net worth companies, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as “relevant persons”). Any person who is not a relevant person should not act or rely on this document or any of its contents.This document contains “forward-looking statements”, which include all statements other than statements of historical facts, including, without limitation, any statements preceded by, followed by or that include the words “targets”, “believes”, “expects”, “aims”, “intends”, “will”, “may”, “anticipates”, “would”, “could” or similar expressions or the negative thereof. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors beyond Evraz’s control that could cause the actual results, performance or achievements of Evraz to be materially different from future results, performance or achievements expressed or implied by such forward-looking, including, among others, the achievement of anticipated levels of profitability, growth, cost and synergy of recent acquisitions, the impact of competitive pricing, the ability to obtain necessary regulatory approvals and licenses, the impact of developments in the Russian economic, political and legal environment, volatility in stock markets or in the price of our shares or GDRs, financial risk management and the impact of general business and global economic conditions.Such forward-looking statements are based on numerous assumptions regarding Evraz’s present and future business strategies and the environment in which Evraz Group S.A. will operate in the future. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. These forward-looking statements speak only as at the date as of which they are made, and Evraz expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward- looking statements contained herein to reflect any change in Evraz’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statements are based.Neither Evraz, nor any of its agents, employees or advisors intends or has any duty or obligation to supplement, amend, update or revise any of the forward-looking statements contained in this document.The information contained in this document is provided as at the date of this document and is subject to change without notice.
  • Evraz Strategy 03Our Vision is to be a world class steel and mining company and one of the Top 5 most profitable steelmakers globally by ROCE and EBITDA margin Advance long product leadership in Russia and CIS 2007 EBITDA per Tonne of Steel Sales US$ 600 514 Enhance cost leadership position 500 387 400 Expand presence in international plate markets 325 300 260 216 214 197 190 200 180 178 167 144 139 Complete vertical integration and competitive 88 100 mining platform 63 0 Nucor POSCO NLMK MMK China Steel Baoshan Steel ArcelorMittal Mechel Steel US Steel Maanshan Steel Gerdau Usiminas CSN Evraz Nippon Steel Achieve world leadership in vanadium business Sources: IISI, Renaissance Capital estimates
  • 1H08 Financial Highlights 04 1H08 EBITDA 185 14◦ Revenue increased by 78% to US$10.7 million driven by US$ mln stronger pricing and successful acquisitions◦ EBITDA soared by 82% to US$3,700 million 796◦ Share of Russian revenues decreased to 40% and sales in European and American markets generated 31% of revenue 2,705◦ Mining segment EBITDA hedged US$84 per tone of crude steel Steel Mining Vanadium Other and unallocated Steel Sales Volumes* 1H08 vs 1H07 1H08 Revenue by Region ‘000 tonnes US$ mln 10,000 319 12,000 9,000 431 404 8,000 195 1,331 441 10,000 1,053 1,543 7,000 1,195 6,000 1,079 8,000 1,763 5,000 106 788 2,618 3,148 6,000 4,000 820 1,911 961 3,000 4,000 277 1,068 2,000 3,090 2,987 2,000 4,280 1,000 2,786 - - 1H2007 1H2008 1H07 1H08 Russia Asia CIS Americas Europe Africa & RoW Semi-finished products Construction products Railway products Flat-rolled products Tubular products Other steel products
  • Prudent Balance Sheet Management 05 ◦ Despite additional funding for new acquisitions LTM Net Debt /EBITDA remains in line with a long-term target ◦ US$2 billion of long-term bond financing for 5 and 10 years raised at average cost of 9.1% ◦ ROCE maintained flat at 35% and RoA decreased to 15% Net Debt-to-EBITDA Ratio Total Assets and Return on Capital US$ mln US$ mln12,000 1.8 30,000 60% 1.5 1.6 1.6 24,23410,000 25,000 10,165 1.4 8,000 9,246 1.2 38% 35% 35% 40% 20,000 1.0 6,000 6,756 15,000 18,634 0.7 6,404 0.8 19% 4,000 0.6 10,000 16% 15% 20% 0.4 8,510 2,000 2,596 5,000 1,729 0.2 0 0.0 0 0% 2006 2007 1H08LTM 2006 2007 1H08LTM (2) Total Debt Net Debt (1) Net Debt/EBITDA Total Assets ROCE RoA (3) (1) Net Debt equals total debt less cash & cash equivalents, short-term bank deposits and loans from related parties (2) ROCE represents profit from operations over total equity plus interest bearing loans and finance lease liabilities average for the period (3) RoA represents net income over total assets average for the periods
  • Steel 06 Steel Segment Revenue* Breakdown◦ Average steel price grew by 41% y-o-y to US$887 per tonne due US$ mln 277 770 1 963 to improved market conditions and increased share of higher 534 margin products◦ Construction products revenues soared by 58% y-o-y on the back of a 20% increase in sales volumes 1 608◦ Substantial growth of revenues from tubular (+110% y-o-y ) and flat-rolled (+81% y-o-y) products sales mainly due to North 2 808 American operations 1 133◦ Sales volumes of semis declined by 6% y-o-y with slab sales Semi-finished products Railway products Construction products Flat-rolled products decreasing by 19% Tubular products Other steel products Vanadium Other revenues Steel Sales Volumes* 1H08 vs 1H07 Steel Segment Costs ‘000 tonnes 10%10,000 319 6% 431 404 8,000 195 1,331 6% 1,053 1,195 6,000 1,079 4% 63% 2,618 3,148 4,000 7% 2,000 4% 3,090 2,987 - Raw materials Transportation 1H2007 1H2008 Staff costs Depreciation Semi-finished products Construction products Energy Other Railway products Flat-rolled products SG&A Tubular products Other steel products *Steel segment sales volumes to third parties
  • Russia 07◦ Russian steel revenue grew by 44% in 1H08 fuelled by domestic construction growth and strong pricing◦ Steel sales volumes of 3.8 million tonnes almost flat y-o-y with a shift in sales mix towards higher margin products◦ Substantially all volumes of long products produced by our Russian mills were sold into the local market◦ Construction products revenues increased by 54% y-o-y with a 19% increase in sales volumes◦ Railway products: revenues grew by 53% with sales volumes increasing by 10% Russian Market Sales Volumes Average Prices for Steel Products in Russia* ‘000 tonnes US$/t 1,000 9474,500 914 917 832 338 262 800 185 707 214 681 682 6693,000 733 810 567 600 541 400 1,792 2,1341,500 200 753 463 - 0 1H07 1H08 Semi-Finished Construction Railway Flat-rolled Other Semi-finished products Construction products 1H07 1H08 Railway products Flat-rolled products Other steel products * Evraz average realized prices for 1H08
  • Construction Steel Market in Russia 08◦ Russian & CIS steel demand remained strong US$/t Prices for Construction Products◦ Rebar market grew by 17% in 1H2008 y-o-y 1 600 with Evraz sales of rebars up by 20% 1 400◦ Section market increased by 3% y-o-y while 1 200 1 000 Evraz sections sales volumes increased by 19% 800◦ US$1,800 million to be invested in re-rolling 600 facilities during 2008-2012 to increase Russian 400 shipments by 3 million tonnes products (+40% to 200 0 2007 volumes) 01-07 04-07 07-07 10-07 01-08 04-08 07-08 H-beams Rebars (CPT, Moscow) Channel 10-16 (CPT, Moscow) Turkey Rebars, export (FOB)  Source: Metal-Courier Rebar Market Sections Market ‘000 tonnes ‘000 tonnes 9,000 5,000 8,000 4,500 4,000 3,800 7,000 5,886 6,000 3,500 4,860 2,886 3,000 2,516 2,715 5,000 3,276 3,730 2,500 4,000 2,000 3,000 1,500 2,000 1,000 1,000 500 0 0 2004 2005 2006 2007 2008F 2009F 2010F 2004 2005 2006 2007 2008 2009 2010 Source: Evraz market estimates Source: Evraz market estimates
  • North America 09 Price Environment US$/t◦ Average steel price grew by 22% to US$1,155 per tonne 2,000◦ Substantial growth of flat products sales volumes due to 1,500 Claymont Steel consolidation (+182 thousand tonnes)◦ Revenues from rail sales increased by 15% 1,000◦ IPSCO Canada operations consolidated since June 12, 2008, 500 contributed US$85.6 million to revenues and 59 thousand tonnes to the sales volumes 0◦ All operations integrated under single unified management 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 with HQ in Portland (Oregon) Construction products Railway products Flat-rolled products Tubular products North America Market Sales Volumes Average Prices for Steel Products*1,500 ‘000 tonnes US$/t 1,600 1364 1325 1,400 1322 401 1,200 11021,000 1,000 338 789 819 865 415 800 670 500 198 600 228 248 400 197 229 200 - 0 1H07 1H08 Construction Railway Flat-rolled Tubular Construction products Railway products 1H07 1H08 Flat-rolled products Tubular products *Evraz average realised prices for 1H08
  • Evraz Inc. Canada (IPSCO Canada) 010◦ IPSCO Canada, acquired in June 2008 for US$2.4 billion represents another successful strategic move in Evraz geographic diversification◦ 2H08 EBITDA is expected to amount to US$400 million with revenue of US$1,150 million◦ Crude steel production is expected to contribute 507 thousand tonnes to Evraz consolidated production in 2H08◦ In 2H08 Evraz Inc. Canada plans to sell 590 thousand tonnes of rolled products◦ Pipe-making capacity is fully booked until 2010◦ Average revenue per tonne in 2H08 is forecasted to be approximately US$1,900 2H08 Planned Product Mix Cost Breakdown ‘000 tonnes 2% 8% 180 5% 220 85% 190 Raw materials & services Energy Flat products Tubular products Casing and Tubing Staff costs Depreciation
  • Mining 011 1H08 Mining Segment Costs ◦ EBITDA increased by 134% to US$796 million 13% ◦ 11.3 million tonnes iron ore output, increasing self-coverage to 93% 28% ◦ Iron ore production cost of US$60/t in Russia and US$25/t in Ukraine ◦ Coking coal production almost fully covered* steel making 16% requirements for coal in Russia and Ukraine 5% ◦ Coking coal cash cost amounted to US$36 per tonne 8% ◦ Revenue from steam coal sales amounted to US$160 million with 2.2 17% million tonnes of shipments 13% Raw materials Transportation Staff costs Depreciation Energy Other SG&A 1H08 Coking Coal Balance 1H08 Iron Ore Balance ‘000 tonnes ‘000 tonnes8,000 13,5007,000 12,000 771 1,392 788 10,500 1,083 1,3356,000 1,012 9,000 1,5645,000 604 7,5004,000 3,397 6,0003,000 5,402 10,040 4,500 8,6242,000 4,390 3,0001,000 1,518 1,500 0 0 Gross Consumption Coke sales Steel Making Needs Evraz production 40% of Production Consumption Raspadskaya Russia Ukraine production Russia Ukraine S.Africa * Self-coverage is calculated as a sum of coking coal production by Mine 12, pro forma Yuzhkuzbassugol production and pro rata to Evraz’s ownership production of Raspadskaya , in coal concentrate equivalent, divided by group’s total coking coal consumption excluding coal, used in production of coke for sale to third parties
  • Yuzhkuzbassugol 012◦ The development programme to 2018 was approved with an objective of meeting internal needs of the Russian and Ukrainian production facilities◦ Construction of a new mine Erunakovskaya-8 to be completed in 2010; output of 2 million tonnes of hard coking coal p.a. to be achieved in 2011◦ Revamp of Alardinskaya mine will add 1.5 million tonnes of semi-hard coking coal in 2009◦ Safety and security measures are top priority with US$125 million to be spent on safety in 2008◦ The 2008 capex is budgeted at US$400 million and the 2009-2011 capex is planned at US$1.2 billion Coal Production Plan to 2018 Expected Coal Production Mix in 2012 ‘000 tonnes 25,000 18% 20,000 31% 15,000 14% 10,000 5% 5,000 32% 0 ZH GZH К,КО,ОS KS Steam 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Coking Steam
  • Mezhegey coal deposit 013 Map of Mezhegey deposit◦ In July 2008, Evraz won the tender to develop the Mezhegey coal deposit in the Republic of Tyva, Russian Federation, for US$725 million◦ World-class coking coal deposit with estimated coal resources of 213.5 million tonnes of hard coking coal (grade Zh under Russian classification)◦ Located 800 km east of Novokuznetsk and 45 km south to Kyzyl◦ Target production of approximately 8.4 million tonnes of coal concentrate will be reached by 2016◦ Estimated development cost is US$1.5 billion ~40 km◦ New production is aimed at replacing depleted hard coking coal production at existing mines of Yuzhkuzbassugol beyond 2015Resource coal quality properties:◦ Ash content fluctuates between 2.8%-23.2%, 10-16% on average◦ Low-sulfur – sulfur content - from 0.17% to 1.35%, with an average of 0.45%◦ Low-phosphorous – phosphorous content - from 0.001% to 0.077% with Mezhegey deposit an average of 0.008%◦ Volatile matter content - from 31% to 45% with an average of 39%
  • Steel industry outlook 014◦ Global steel demand is expected to continue to grow, despite softening in the world economic growth◦ World ex China supply-demand balance will continue to be tough, still largely relying on Chinese export◦ Demand in China will continue to grow, driven by infrastructure expansion, absorbing almost all long products output◦ New capacity additions worldwide affected by project cost inflations, time delays, labour and energy issues and credit availability◦ Steel prices will be driven by growing raw materials prices and capacity constraints Global Steel Operating Rates World Excluding China Demand Growth(kt) (%) 1600 30% 20.0% est 1400 25% 15.0% 1200 20% 10.0% 1000 800 15% 5.0% 600 10% 0.0% 400 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 5% -5.0% 200 0 0% -10.0% 1995 1997 1999 2001 2003 2005 2007E -15.0% Surplus effectiv e capacity Global apparent demand ov ercapacity Apparent demand growth ex China Trend growth Source : Credit Suisse estimates Source : Credit Suisse estimates
  • Evraz 2008 Outlook 015 Consolidated revenues are expected to amount to approximately US$23,200- 24,600 million EBITDA is expected to be in range of US$8,000-8,500 million FY08 capital investments are budgeted at US$1,500 million ◦ Investment capex: US$1,100 million ◦ Maintenance capex:US$400 million FY08 Expected Production FY08 Expected EBITDA Breakdown ‘000 tonnes25,000 9%20,000 23% 11% 5,20015,000 8% 22,85010,000 9,300 19,800 19,600 5,000 4,600 49% 0 Coal Iron ore Coal * Iron ore Crude steel Steel products Vanadium Russian steel Non-Russian steel * Coal production includes 9.3 mln tonnes of coking coal, 4.6 mln tonnes of steam coal and 40% of Raspadskaya 2008F output Crude steel and steel products includes output from existing assets, impact from consolidation of Claymont Steel, Dnepropetrovsk Metal Woks and IPSCO Canada. Steel products also includes pig iron sales from Russian mills.
  • Evraz’s Global Business 016
  • +7 495 232-1370IR@evraz.comwww.evraz.com