An Introduction to Ferrochrome - ENRC

An Introduction to FerrochromeLondon, United Kingdom18 February 20087bld0903_screenshow

ENRC: a leading diversified mining companyENRCSales &marketingAlumina &Ferroalloys Iron oreEnergy LogisticsaluminiumTotalGroup (1)2006 1H 20072006 1H 2007 2006 1H 2007 2006 1H 2007 2006 1H 2007 2006 1H 2007Revenue (2) (US$m)EBITDA (3) (US$m)Margin (2) (%)1,473 917 829 457 602 324 154 93 198 65 3,256 1,856547 405 323 197 277 132 77 65 54 23 1,256 79737% 44% 39% 43% 45% 41% 29% 41% 19% 23% 39% 43%Products• Ferroalloys• Chromium ore• Manganese ore• Iron oreconcentrate• Iron ore pellets• DRI (from 2011)• Alumina• Aluminium (from2007)• Gallium• Electric Power• Coal• Forwarding• Railway trackconstruction andrepair• Wagons andlocomotives repairWorld’s largestand lowest costferrochromeproducer (4)Large scaleproduction withlong life reservesLow costproducer withlong life reservesLow cost, captiveenergy supplywith growthpotentialComprehensivereliable networkto supportdivisions(1) Total group EBITDA includes Group and unallocated items of US$(22)m and US$(25)m for 2006 and 1H 2007(2) Revenue net of inter-segment revenues; margins based on total revenue (includes inter-segment and external revenue)(3) Before exceptional items of US$(6)m in 2006 and US$(20)m in 1H 2007(4) Heinz H. Pariser, based on chrome content, 2006 data5

ENRC Ferroalloy divisionHighlights• World’s largest chrome producer by chrome content in 2006• World’s lowest cost ferrochrome producer (Heinz H. Pariser)• Large reserve base >40 years mine life• Integrated business from mining to sales and marketing• Positioned to realise premium pricing to a diversified customerbase• Location provides efficient, low cost access to growing Chinesemarket• Diverse product range including special ferroalloys gradesEnhance and grow• Brownfield projects to increase chrome pellet production by700ktpa and ferroalloy production by 200ktpa• Potential to acquire/consolidate operations within region(Serov)• Implementation of new technologies• Cost control(US cents/lb)1.00.80.60.40.219961997HC ferrochrome price199819992000European quarterlySource: Heinz H. Pariser, 2007Note: (a): To June 2007(kt)16,00012,0008,0004,00020012002200320042005US spot2006Stainless steel melting production2007(a)The combination of scale, location and quality provides the Ferroalloy divisionsustainable competitive advantage0China Europe Asia Japan America SouthAfrica1996 2006 2016ESource: Heinz H. Pariser, 20076

Seminar goals• A wider understanding of the ferrochrome industry• Analysts are able to model our business better• Generalists can put what they read into context7

7bld0903_screenshowOverview

Chrome market material flowCr Ore usage22.7 Mt1.0% 3.8%91.0 %4.2%RefractoriesFoundrysandsMetallurgical(Fe Cr)ChemicalFerro Chromecharge/HC/LC8.2 MtInternal & externalstainless scrap2 Mt Cr-units41%65.8% (= 59% of Stainless Chrome content) 26.7% 7.5%Stainless steel (Cr input)Aust. Ferr. Cr MnTool & hi speedsteelAlloy steelLow alloysteelOthersNickel alloyfoundriesWelding elec.End use marketsTransport14%Electrical7%Engineering20%Building &construction20%Metal goods33%Others7%9

HCFeCr production flowchart• Ferrochrome is produced mainly in AC electricfurnace• Consumption norms:• ENRC 2.5 tonnes of ore per tonne offerrochrome• Ore consumption depends on ore quality• Electricity 4,500KWhrs/tonne• Coke 0.6 tonnes/tonne of alloy produced• Charge chrome 50% Cr content• ENRC typically 69% Cr content• Typical ferrochrome spec; 70%Cr, 8%C,0.5% Si, 0.05%S, 0.03%Phos, balance Feand impurities• Typical ENRC chrome ore spec 50% Cr 2O 3• Cr atomic weight 52, O atomic weight 16• 2*52/(2*52+3*16)=104/152=68.4%• Cr is 68.4% of quoted quality % in Cr 2O 3Chrome ore Chrome oreCoke Coal Size 20-80 Size 0-10 Briquette QuartziteBuyerSource: KazChromePouringMetalStorehouse ofof finishedSlagCrushedstoneMFX low gradeRefiningSlag processing,crushing,fractioning,magnetic separationHCFeCr,MFXBuyer10

Characteristics of HCFeCr / charge CrApplicationHCFeCr• Wide range of usage in AlloySteels, the Foundry Industry aswell as for other materials – butalso in Stainless Steels.Charge Cr• Almost exclusively for StainlessSteel melting.Benefits• High Cr Content (typically58%–70%). Advantages whenlimited Cr input is required, wherespecific constraints exist for certainspecial steels – in particular withregard to trace elements such asTi, V, P, Si, etc.• Cr:C ratio 9:1• Cr:Si ratio >100:1• Low Cr Content (48%–58%), High(free) Iron Content. Typically highSi Content (2%– 6%). Competitivebulk product for mass production.• Cr:C ratio 6.5:1• Cr:Si ratio 12:1• HCFeCr has a more diverse range of application than charge chrome and is less prone tovolume risk in any stainless steel downturn11

Principal material flow sheetCrude stainless steel (Europe)• Majority of ferrochrome consumedin electric furnace• Charge chrome preferred in Electric ArcFurnace (EAF) for its free iron and siliconStainlessscrapCarbonsteelscrap(C-scrap)NickelOtheralloysFerro chromeCharge CrHCFe CrLCFe Cr• Argon Oxygen Decarburiser (AOD) is usedfor refining and removal of carbon• HCFeCr has a higher Cr/Carbonratio and is preferred in AOD• Scrap is preferred raw material inaustenitic production80kg4kgElectric arc furnacemelting165kgTrimming & refiningAOD / VOD (1)180kg70kg15kg10kg1kg• In a downturn the stainless scrapratio in EAF stainless steel productionincreases and EAF ferrochromeconsumption decreases. AOD consumptionnot impacted to same extent.Continuous casting180kgSlabs / billets180kgCr input in kgCr units(yield lossesignored)(1) Vacuum oxygen decarburiser12

Principal material flow sheetEngineering alloy steels (Europe)Carbon steelscrap(C-scrap)Pig ironOtheralloysFerro chromeHCFe CrLCFe CrElectric arc furnace meltingand refining35kg30kg5kgContinuous casting,ingot casting35kgCr input in kg Cr units(yield losses ignored)Slabs / billets / forgings35kg13

Pricing• HCFeCr / Charge Chrome – 90% contract.• Large portion of contract due to strategic nature of purchasing inStainless Steel.• Contract price based on delivered Europe of CIF Japan• Contracts almost entirely quarterly negotiated• US pricing related to published indices• Spot market is largely HCFeCr. Main consumers being Alloy Steel –smaller cost component• LC/MC mainly contracts with quarterly pricing• Cr Ore historically annual pricing – today, quarterly or six monthly pricing14

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7bld0903_screenshowDemand - key markets: stainless and alloy steels

Stainless steel consumption per capita2007 selectedEuropean markets40.035.034.330.0in kg25.020.021.519.9 19.2BRIC15.010.05.06.02.1 2.0 1.90.0ItalyBelgiumSwedenGermanyChinaBrazilRussiaIndia17

Stainless steel consumptionFlat & long products 2007Growth Rate 1998 - 2007 in % p.a.26242220181614121086420China / Hong KongIndiaSouth KoreaConsumption in thousand tonnesThailand28,00026,00024,00022,00020,00018,00016,00014,00012,000Others1998 1999 2000 2001 2002 2003 2004 2005 2006 2007JapanTaiwanAverageGrowth Rate: 7.8 %EUUSA(2)010 20 30 40 50 60 70 80 90 100Share of Total in %18

19Stainless steel melting production58,5571,3068,23624,6085,41765710,9577,376201762,4701,3758,44126,8125,61172911,4028,100201866,5621,4478,63629,1125,81480711,8628,88420197.05.93.410.83.111.23.610.02008-2020Growth rate in %70,8401,5208,82031,5086,02789012,8429,232202054,8191,2408,02022,5005,23159010,5296,709201651,5241,1787,82020,4885,07353110,3086,126201548,1011,1167,58318,5734,9034759,8955,557201445,0821,0587,35916,7534,7604269,6655,061201341,9641,0007,10115,0304,6073809,2674,579201239,2139466,85513,4034,4793419,0304,160201136,3909226,56311,8714,3163078,6363,776201033,7208076,11910,4374,2942768,4263,361200931,1767335,7569,0984,2082618,1582,961200828,5846715,4587,5204,0502427,8662,778200728,3746905,7035,3644,0872309,3022,998200624,7065655,5043,3503,9832048,3362,764200525,1287185,4412,8054,1872138,7812,983200423,0116434,8522,0004,1132208,4522,731200320,6555664,1531,1503,8351778,1382,636200219,1815163,9057303,8562357,7292,210200119,5035323,6515733,8413208,0012,585200017,8054823,2583943,3853107,4522,525199916,6674512,7932773,4472807,2012,2181998TotalSouth AfricaAsiaChinaJapanOther EuropeEUAmerica(In thousand tonnes)

Charge chrome/ HC FeCr demand vsStainless steel melting productionIn thousand tonnes80,000ActualForecast20,00070,00018,00016,00060,000Charge / HC FeCr DemandCAGR 2008 - 2020: 7.2%14,00050,00012,00040,000Stainless Steel ProductionCAGR 2008-20: 7.0%10,0008,00030,0006,0004,00020,0002,00010,00001998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020ProductionDemand20

Tool and high speed steels demand4,400Other AsiaJapan3%4%America2%Typical chrome content is 2-15%EU22%3,900In thousand tonnes3,4002,9002,400China69%CAGR 11.2%1,9001,4001998 1999 2000 2001 2002 2003 2004 2005 2006 200721

Engineering steels demand34,000Other Asia3%Am erica13%CIS1%S. Africa1%Typical chrome content is 1-5%In thousand tonnes32,00030,00028,00026,00024,00022,000Japan15%EU67%CAGR 1.3%20,00018,00016,0001998 1999 2000 2001 2002 2003 2004 2005 2006 200722

High strength low alloy steels demand34,00032,000Other Asia11%America9%China40%Typical chrome content is 1-3%30,000Japan16%CAGR 5.9%In thousand tonnes28,00026,00024,00022,000EU24%20,00018,00016,0001998 1999 2000 2001 2002 2003 2004 2005 2006 200723

Carbon and other alloy steels1,150,0001,050,000EU9%Other Asia11%Japan9%S. Africa1%China43%Typical chrome content is 0.5-4%in thousand tonnes950,000850,000750,000America12%CIS15%CAGR 7.0%650,000550,0001998 1999 2000 2001 2002 2003 2004 2005 2006 200724

Stainless and alloy steel growth500450400CAGR in %:11.2 Tool High Speed Steels7.0 Carbon & other low alloy1.3 Engineering steelCAGR in %:4.93.96.7Tool HighSpeed SteelsStainless steelproductionin index points 1998 = 1003503002502001505.9 High Strength Low Alloy6.4 Stainless steel production3.67.0Carbon &other low alloyEngineering steelHigh StrengthLow Alloy1005001998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 202025

Summary: Demand – key markets: steels• Consumption per capita remains significantly lower in the developingworld than in the mature economics• Tremendous growth potential, particularly in China, India, Russiaand Brazil• Forecast growth remains strong: stainless steel 7% pa, alloy steel 4% pa• At these levels the world needs more than 500,000mt of ferrochromeadditionally every year26

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7bld0903_screenshowSupply - high-carbon ferrochrome / charge chrome

Producers of HCFeCr / Charge ChromeEstimated output 2007in thousand tonnes of Cr units (rounded)Company Country ´000 tCompany Country ´000 tLow GradeHCFeCrVarious China 775Serov Russia 50Darfo Albania 10IMFA India 120Jindal India 40FACOR India 35Various India 205Zimasco Zimbabwe 125Abadan Iran 10Charge ChromeFerbasa Brazil 100Outokumpu Finland 125Vargön Sweden 50Xstrata S. Africa 580Samancor S. Africa 500Hernic S. Africa 240Feralloys S. Africa 165Merafe S. Africa 125ASA Metals S. Africa 55IFM S. Africa 40Total 1,370Total 1,980Company Country ´000 tHigh GradeHCFeCrKazChrome (ENRC) Kazakhstan 680Cheliabinsk Russia 75Yildrim Turkey 43Vargön Sweden 27Total 82529

Production – charge / HC ferrochrome2007Growth rate 1998-2007 in % pa2018161412108642ChinaRussiaIndiaKazakhstanBrazilProduction in thousand tonnes7,5007,0006,5006,0005,5005,0004,5004,0001998 1999 2000 2001 2002 2003 2004 2005 2006 2007CAGR 6.0 %South AfricaZimbabwe0EU(2)…(18)Others10 20 30 40 50 60 70 80 90 100Share of Total in %30

Charge / HCFeCr supply – demand1998 – 20078,0007,5007,000In thousand tonnes6,5006,0005,5005,0004,5004,0003,5003,0001998 1999 2000 2001 2002 2003 2004 2005 2006 2007FeCr ConsumptionFeCr Supply31

Charge / HCFeCr price vscapacity utilisation100100959080Capacity utilisation in %908580706050in US$ c/lb407530701996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 200720Capacity utilisationCharge / HC FeCr prices US$ c/lb32

Capacity changes 2007 – 2012Charge / HCFeCrPrel. (Forecast in thousand tonnes)ForecastCountry 20072008 2009 2010 2011 2012Subtotal Europe845865935940945905South AfricaZimbabweSubtotal Africa3,8002504,0504,2002504,4504,8002505,0506,0002506,2506,0002506,2506,3002506,550BrazilSubtotal Americas190190190190190190200200210210210210China1,1001,200800800700600IndiaIranKazakhstanSubtotal Asia & M. East700201,0201,740750501,0201,820750501,1001,900800701,1502,020800701,2002,070850701,2002,120Total Capacity7,9258,5258,87510,21010,17510,385DemandUtilisation (%)7,26691.78,48399.58,85799.59,33691.49,75095.810,02996.633

Summary: Supply -high-carbon ferrochrome / charge chrome• China has been the fastest growing producer but producers are notintegrated• ENRC dominates high grade High Carbon Ferrochrome production• High capacity utilisation expected for 2008 and 2009• Majority of new ferrochrome projects in South Africa - electricity?• These indicators are Heinz Pariser’s and are based on positiveforecasts for the global economy …34

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7bld0903_screenshowNickel / Chrome substitution

Substitution potential between Chrome and Nickel2007Chromein %Chromesubstitution potentialNickelin %Nickelsubstitution potentialStainless steelAusteniticFerriticCrMn64.828.624.411.8IrreplaceableIrreplaceableIrreplaceable59.256.00.03.2Downgrading, Duplex, Rising Scrap InputMn replaces NiAlloy steel29.8Limited substitution7.4Limited substitutionNi-Base alloys0.9Irreplaceable11.9Wide Range of Substitutes incl. Cu-Alloys,Ceramics, High Grade Stainless SteelsCu-Base alloys0.01.4Not relevantPlating0.011.3High substitution risk! Decorative usageFoundry3.4Limited substitution3.1Stainless scrapOthers1.15.7Total100.0100.0Mill t units4.71.337

Austenitic / duplex stainless steelsAusteniticsDuplexSteel gradeCrNiMoSteel gradeCrNiMoSteel gradeCrNiMo304 2,20118.0 21.58.0-1.50.3316 2,20518.0 23.012.0 4.82.0 0.3904L (superaustenitic) 1.446220.0 22.025.0 5.74.5 3.138

The substitution triggerRatios of:FerriticsCrMn23.822.7 22.0 22.5 23.0 24.6 22.7 26.63.6 4.7 5.0 6.8 9.8 10.8 9.3 14.65079.0454074.0LME Ni Price in ´000 US$/t353025201569.064.059.0Austenitic Ratio in %105Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q32000 2001 2002 2003 2004 2005 2006 200754.0Ni PriceSS Austenitic Ratio39

Summary: Nickel / Chrome substitution• No substitution for Cr in stainless: no Cr no stainless• High Ni prices trigger substitution• Switching to high Cr duplex / ferritic grades added c. 175,000mt toferrochrome demand in 2007• Lower scrap in ferritic also aids high carbon ferrochrome demand• Not clear at this point how much of the switching is here to stay40

7bld0903_screenshowRefined ferrochrome

Refined ferro chromium production20079001210BrazilProduction in thousand tonnes800700600500400300Impact of Advanced StainlessMelting & RefiningTechnologiesChina´s Explosion ofStainless & Alloy SteelProductionExit of VariousLC FeCrProducersGrowth Rate 1989-2007: - 0.1 % p.a.1989 1991 1993 1995 1997 1999 2001 2003 2005 2007Growth Rate 1998 – 2007 in % pa8642KazakhstanChinaRussiaEUCAGR 5.1%Turkey0South Africa(2)Japan10 20 30 40 50 60 70 80 90 100Share of Total in %Note:USA DLA also supplies c40,000mt pa; 2 years of stock42

MC and LC FeCr supply – demand 1998 – 2007850800750700In thousand tonnes6506005505004504003501998 1999 2000 2001 2002 2003 2004 2005 2006 2007MC & LC SupplyMC & LC Demand43

Average price progression1.91.71.5US$ cents/lb Cr1.31.10.90.70.50.31995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007Price Progression44

Summary: Refined ferrochrome• Technology switch to AOD devastated industry• Last 10 years significant overcapacity• Technology upgrade mainly complete … market now growing at c4% perannum• DLA stockpile gone in an estimated 2 years45

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7bld0903_screenshowSupply - chrome ore

World Chromite Ore Reserve / Mine ProductionMillion mtChromite ore reserveChromite ore output2007‘000 m tonnesReservesReserve Basein mtin %Rankin mtin %RankUSA110120S. Africa5,50072.418.740.01India25,00057,000Zimbabwe93012.220.93.96Kazakhstan290,000470,000Kazakhstan3204.233.817.72South Africa160,000270,000Source:United States Geological SurveyFinland1201.640.62.77India670.953.315.23Turkey200.361.35.95Brazil170.270.62.68Others6268.282.612.24Total7,600100.021.8100.0Source:Heinz H. Pariser48

Global material flow chrome ore & concentrates2007South Africa8.7 Mill tKazakhstan3.8 Mill tIndia3.3 Mill tTurkey1.3 Mill tAll others5.6 Mill tChrome Ore Usage22.7 Mill tRefractories0.2 Mill t(1.0 %)Foundry Sands0.8 Mill t(3.8 %)Chemical0.9 Mill t(4.2 %)Metallurgical20.6 Mill t(91.0 %)Sodium ChromateIntegrated Smelters16.1 Mill t(78.2 %)Fe Cr Converters4.5 Mill t(21.8 %)Other chrome compoundsChrome metalCharge CrS. AfricaBrazilFinlandCharge CrSwedenHCFeCrKazakhstanIndiaZimbabweRussiaTurkeyHCFeCrChinaRussiaSweden49

World apparent consumption of chromite ore2007Growth Rate 1998 – 2007 in % pa24201612840(4)(8)ChinaIndiaRussiaConsumption in thousand tonnesKazakhstan24,00022,00020,00018,00016,00014,00012,000BrazilZimbabwe1998 1999 2000 2001 2002 2003 2004 2005 2006 2007CAGR 5.9 %South AfricaEU(12)Japan(16)Others10 20 30 40 50 60 70 80 90 10050

China – chrome ore import prices65.060.055.0S. Africa 33% (1)50.0in US$ c / lb Cr- content45.040.035.030.0India 50% (1)25.020.0Turkey 47% (1)15.0Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct2005 2006 2007(1) Average Cr2O3 content51

Summary: Supply - chrome ore• Not easy to find comparable reserve estimates• Majority of ore consumed by integrated producers – expansion designedfor internal consumption• Tightness in ore related to India’s desire to curb exports• China likely to remain the largest importer of ore• South African situation may alter dynamics• Ore prices at historically high levels52

7bld0903_screenshowRegional focus - China

China – stainless steel market40,000ActualForecast35,00030,000In thousand tonnes25,00020,00015,000CAGR 45.1%CAGR 25.4%CAGR 10.8%CAGR 10.8%10,0005,00001998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020Apparent ConsumptionMelting Production54

China – FeCr market12,000ActualForecast10,000In thousand tonnes8,0006,000CAGR 17.5%CAGR 10.7%4,000CAGR 30.4%2,00001998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020ProductionDemand55

Breakdown of FeCr Production CashSouth AfricaChina2007 2008 2007 200808/0708/07Structure Change Structure Structure ChangeStructureUS$ c/lb In % In % US$ c/lb In % US$ c/lb In % In % US$ c/lb In %Cr Ore13.6028.0+ 5.014.3025.753.1263.8+ 32.270.2065.9Reduction10.2021.0+30.013.3023.96.738.1+ 108.014.0013.1Energy9.2018.9+20.011.0519.912.3914.9- 4.811.8011.1Labour11.6524.0+ 9.012.7022.85.346.4+ 16.16.205.8Internal Cost / Transport3.908.0+10.04.307.75.656.8- 23.94.304.0Total Cash Cost48.55100.0+14.655.65100.0083.23100.0+ 28.0106.50100.0056

5784828078767472706866646260585654525048464442403836343230282624222018Comparison of Costs ex Works 2006/2007Average Costs ex Works51.61IMFA (ICCL)MerafeHernicSamancorFeralloysIFMFerbasaXstrataVargoenOutokumpuASAJindalFACORChinaKazChrome10 20 30 40 50 6070 80 90 100Market Share in %US cents / lb

Summary: Regional focus - China• The main demand driver – stainless production forecast looks realistic• Fastest growing chrome producer – fine in strong market, long termintegration• High cost ferrochrome producer – higher floor price on ferrochrome58

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7bld0903_screenshowSummary