Rodrigo Franklin - Samarco Mineração - Megatrends for the Iron Ore market, positioning Samarco to...

November 11, 2014

Americas Iron Ore Conference

Rio de Janeiro

Rodrigo Franklin Samarco Mineração SA.

Iron Ore – Mega Trends (Samarco View)

Samarco Position to meet expected Demand

P4P Update

Presentation Outline

Samarco

Iron Ore – Mega Trends (Samarco View)

Samarco Position to meet expected Demand

P4P Update

Presentation Outline

Samarco

Samarco

SAMARCO IS A BRAZILIAN IRON ORE COMPANY

THAT SERVES LOCAL SOCIETY AND THE WORLD

STEEL INDUSTRY.

Started operation in 1977;

A pioneer in transferring low grade ore

reserves into premium pellets for the World

Steel Industry;

Second largest supplier of iron ore pellets on

the seaborne market (2013);

Private company, controlled in equal parts by

two shareholders: Vale S.A. and BHP Billiton.

Samarco – Key Numbers

2013 2012

2,899 2,517

3,492 3,443

21.1 21.3

3,333 3,366

1. MINE

2. CRUSHING AND SCREENING3. SURGE PILE4. GRINDING / DESLIMING / FLOTATION5. BLENDING TANK AND PUMPING TANKS6. DAM7. PIPELINES TO UBU

Samarco - Production Process Germano

VS2: El. 381 m

VS4: El. 381 m

VS6: EL 381 m

250

500

750

1000

1250

1500

1750

2000

2250

2500

0 50 100 150 200 250 300 350 400

Alt

itu

de

[m

]

Distance from Mine [Km]

Max El. 1.180 m

Terminal

PS1: El. 1.011 m

PS4: El. 968 m

PS6: EL. 1.108 m

VS1: El. 803 m

VS3: El. 803 m

VS5: EL 803 m PS2: El. 814 m

PS5: El. 818 m

PS7: EL 867 m

Samarco - Profile Pipelines

PS = Pump Station, VS = Valve Station

8. THICKENER AND BLENDING TANK 9. FILTRATION 10. INDUSTRIAL WASTEWATER

TREATMENT PLANT 11. ROLLER PRESS 12. MIX PLANT 13. PELLET PLANT 14. ELECTROSTATIC PRECIPITATORS 15. INDURATION FURNACE 16. CLASSYIFING SCREEN 17. STOCKPILE YARD/WIND FENCE 18. PORT

Samarco - Production Process Ubu

Samarco - Geography

Samarco - Sales Distribution Pellets 2013

MENA 30%

Europe 19% China 15%

Americas 14%

Other Asia 22%

Source: Samarco Business Intelligence Area

Samarco - Business Sustainability

Code of conduct Compliance policies Customer relationship management

Community relationship policies Project Best Practice – IPA Institute

71,9

0,7*

2011 2013

71,6

0,7*

P4P –Results Reputation

Global mining industry for general public

in 2013

65,0

•REFERENCE: Excellent:Above 80 Strong 70 – 79 Average 60 – 69 Weak 40 – 59 Poor < 39 •Samarco General count: 2013 = 1930 | 2011 = 1670 •*SIGNIFICANT DIFFERENCE: Pulse index

Iron Ore – Mega Trends (Samarco View)

Samarco Position to meet expected Demand

P4P Update

Presentation Outline

Samarco

Iron Ore – Mega Trends (Samarco View)

Samarco Position to meet expected Demand

P4P Update

Presentation Outline

Samarco

P4P – Project Scope

Increase the pellet production capacity by 37%, via a new:

Concentrator # 3

9.5 Mdmt/year

Pipeline # 3

20 Mdmt/year

Pellet Plant # 4

8.25 Mdmt/year

15

Retaining Samarco's good Safety Performance;

Relationship Communities (860,000 people) and landowners (1,284);

Union relationship – 104 days of stoppage due to 21 strikes;

Social Political Demonstrations (World Cup);

Lack of skilled workforce;

Cost of labor and equipment increasing more than inflation;

P4P - Special Challenges

CHALLENGES

P4P – Cost of Labour for Projects

P4P – Skill Level Workforce

Society:

330 million USD paid in taxes;

140 million USD invested in environmental protection;

5 million USD voluntarily invested in communities.

P4P – Results Timeline and Capex

Target Actual

Schedule (months) 33 35

Capex (x 1,000 USD) 3,265 3,178

P4P – Results Safety

Incident Classification Target Actual Industry Average

Fatality 0 0 6

Recordable (per 1 mln wh) 3.85 1.06 3.65

Restricted or Transfer of Duty (per 1 mln wh)

0.30 0.15 1.40

13,000 workers during peak of construction;

65 million working hours

P4P – Germano Concentrator #3

P4P – Pipeline Pump and Valve Stations

P4P CHALLENGES AND RESULTS

Pipe Line

P4P – Ubu Pellet Plant #4

Iron Ore – Mega Trends (Samarco View)

Samarco Position to meet expected Demand

P4P Update

Presentation Outline

Samarco

Iron Ore – Mega Trends (Samarco View)

Samarco Position to meet expected Demand

P4P Update

Presentation Outline

Samarco

• The growth of the steel industry will continue to be led by emerging economies (BRICS) despite the recent

recovery in developed countries.

• The construction sector will remain the main driver of steel consumption in emerging countries (51.2% of

steel consumption).

Steel Demand Mega Trends

Steel demand will increase driven by long-term macro-economic mega-trends) …

Steel Demand Mega Trends

Steel demand will increase driven by long-term macro-economic mega-trends…

Urbanization

Steel Demand

• There are currently ~660 million people living in Chinese urban areas (~50%) and another ~200million are expected to migrate to urban spaces by 2030.

• India’s average economic growth is expected to reach 7.2 percent per year over the period 2012 to2025

• After a decade of considerable growth a installed steel stock will be created in the form of buildings,bridges, pipelines, railroads, etc. requiring constant maintenance or full replacement which willprovide a solid base for steel demand in the years ahead.

• Chinese growth will be slower but not lower with positive long-term repercussions for iron oredemand growth and prices.

• Construction and machinery will account for the vast majority of the steel demand growth while theautomotive sector will also grow at an increased speed.

• Developed countries will continue requiring maintenance or full replacement of their existingbuildings, bridges, pipelines, railroads which will require a considerable amount of steel in thecoming years.

Industry Mega Trends

Raw Material Quality deterioration

Quality Deterioration

Environmental Concerns

• Between 2014-2016 the most of the seaborne supply growth will be in low and medium grades.

• Decreasing quality of mining reserves impacts availability of high grade pellets and scarcity of prime-grade scrap supports the use of DRI.

• The deterioration of quality should increase the price difference between the ores of different levelsof Fe or other chemical and physical parameters.

Availability of Scrap

• Pollution controls: Governments have been putting pressure on the steel industry to reduceemissions: China (SOx & NOx).

• Reduced sinter use: closure of outdated / inefficient capacity including sinter plants.

• Mining bans in India will turn it to iron ore importer

• In China, given the maturity of steel production in the country, generating local scrap not presentsubstantial increase to the point of affecting the international market in the medium and long term.

• China should not become a major exporter of scrap in the next 10 to 15 years, but its domesticconsumption for scrap may intensify which may bring a negative impact on the demand for iron orein the medium and long term.

• Despite the tendency of higher scrap availability worldwide the quality of this material has beendeteriorating over time.

Iron Ore – Mega Trends (Samarco View)

Samarco Position to meet expected Demand

P4P Update

Presentation Outline

Samarco

Iron Ore – Mega Trends (Samarco View)

Samarco Position to meet expected Demand

P4P Update

Presentation Outline

Samarco

Samarco - Sales Evolution (wmt)

5,4 6,1

4,9 5,2 5,8 6 6,1 5,8

9,5 10,5

12,7

9,5

12,3

13,7 14,1 14,1 14,1 14,5

16,6 17,1

21,8 22,1 21,8 21,5

3,2 2,7 2,6 2,8 3,5 3,5

4,1 3,8

2,2 1,9 2 2 2,5 2,7 2,2 1,4 1,9 1,9

0,7 1,8 1,3 0,9 1,0 0,7

0

5

10

15

20

25

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

pellets Fines

20

14

25.0

30.0

20

15

Source: Samarco Business Intelligence Area

1997 2008 2014

92 USD/dmt pellet* 271 USD/dmt pellet*

P2P

Strategy

Asset optimization

SCOPE

Concentrator revamp

New Pelletizing

Stockyard revamp

P3P

Strategy

Customers’ needs

SCOPE

New Concentrator

New Pipeline limited

New Pelletizing

Stocking and loading

system revamp

P4P

Strategy

Customers’ needs and

Reserve increase

SCOPE

New Concentrator

New Pipeline spare

capacity

New Pelletizing

Stocking and loading

system revamp

352 USD/dmt pellet*

Time Line – Samarco’s Past Investments

* Values updated in May/2014

Time Line – Premium Quality Evolution

Fe %

Delivered Direct Reduction Pellets Quality Delivered Blast Furnace Pellets Quality

Main developments: • Reserve increasing • % Fe decreasing • Iron ore getting coarser and

harder

Results: • Process developments, R&D

and Investments have allowed Samarco to keep delivering the same high quality products since 1977

Source: Samarco Production Area

35

Idle Pipeline Capacity after the P4P and offers opportunity for further expansion

Future – Maximum Capacity Project (PMC)

2020

30.9

10.3

8.3

12.3

2019

29.4

10.3

7.7

11.4

2018

30.2

10.5

8.2

11.5

2017

29.9

9.4

8.0

12.5

2016

30.6

10.4

8.2

12.0

2015

32.2

10.5

8.5

13.2

2014

32.2

10.4

8.9

12.9

Conc. 3 Conc. 2 Conc.1

36.5

20.0

0.0

16.5

2019

36.5

20.0

0.0

16.5

2018

36.5

20.0

0.0

16.5

2017

36.5

20.0

2020

0.0

16.5

2016

36.5

20.0

0.0

16.5

2015

36.5

20.0

0.0

16.5

2014

36.5

20.0

0.0

16.5

8.3

8.2

2020

28.6

8.2

7.5

4.6

2019

29.4

8.3

7.5

5.4

2018

29.4

8.3

8.2

7.5

5.4

2017

28.2

8.3

8.2

7.5

4.2

2016

30.4

8.3

8.2

7.4

6.5

2015

29.6

8.2

8.2

7.2

6.0

2014

28.9

7.1

8.2

7.1

6.5

Plant 4 Plant 3 Plant 2 Plant 1 Pipeline 3 Pipeline 2 Pipeline 1

Detailed chain

Concentrator I

Concentrator II

Concentrator III Pipeline III

Plant I

Plant II

Plant III

Plant IV

Pipeline I

Pipeline II

Mine Concentration Pipeline Pelletizing Shipping

Standby

8.5 Mtpy

Concentration - estimated capacity Million dmt

Pipeline – installed capacity in use Million dmt

Pelletizing – installed capacity in use Million dmt

PIER I

33.5 Mtpy

45.0 Mtpy

Future – PMC Phases 1 and 2

P4P

Strategy

Customers’ needs and

Reserve increase

SCOPE

New Concentrator

New Pipeline spare

capacity

New Pelletizing

Stocking and loading

system revamp

1997 2008 2014

PMC (1 and 2)

Strategy

Debottleneck and Asset

Optimization of

Germano

Customers’ needs?

SCOPE

New Concentrator

New Filtering area

Stocking and loading

system revamp

2018 and ?

P2P

Strategy

Asset optimization

SCOPE

Concentrator revamp

New Pelletizing

Stockyard revamp

P3P

Strategy

Customers’ needs

SCOPE

New Concentrator

New Pipeline limited

New Pelletizing

Stocking and loading

system revamp

October, 2014

Thank You!

Rodrigo Franklin Rodrigo.franklin@samarco.com www.samarco.com