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GUJARAT NRE
SAILING AHEAD AMID TURBULENT
TIMES
Disclaimer The views expressed here contain information derived from publicly available
sources that have not been independently verified. No representation or
warranty is made as to the accuracy, completeness or reliability of the
information. Any forward looking information in this presentation has been
prepared on the basis of a number of assumptions which may prove to be
incorrect. This presentation should not be relied upon as a recommendation or
forecast by Gujarat NRE .
To the maximum extent permitted by law, Gujarat NRE does not warrant the
accuracy, currency or completeness of the information in this presentation,
nor the future performance of Gujarat NRE group companies, and will not be
responsible for any loss or damage arising from the use of the information.
The information contained in this presentation is not a substitute for detailed
investigation or analysis of any particular issue. Current and potential
investors and shareholders should seek independent advice before making
any investment decision in regard to Gujarat NRE or its activities
When did Man first think
“I shall dig the earth to
sustain myself and my
family” ?
Mining in the Stone Age
And for Hematite, to
make red pigment
ochre to decorate
his caves
The Neolithic Man
mined flint, to
make his tools and
weapons.
Ancient Egypt
• Ancient Egyptians
mined malachite,
turquoise, copper
and gold for
ornamentation,
pottery and
architecture.
Ancient Rome
Romans devised a
novel method of
hydraulic mining to
improve upon the
scale and scope of
mining.
Medieval Europe
Iron Ore extraction was
given a boost during
the Middle Ages.
The Crusades and
other wars demanded
an extensive and a
well-equipped military.
Industrial Revolution The Time had
come for Coal
to take its
rightful place in
history, as the
perfect raw
material for
Steel - which
led the way into
the modern
world
With COAL we have the electricity that lights
our houses, offices, malls and roads……
COAL gives us the Power that Lights up our Lives
There is COAL
In the Bridges that Connect
US
In the cars that take us to our destinations
In the ships & containers that ferry our cargo
In the planes that fly us
The Pumps that water our agricultural fields are made of iron & steel with the
help of coking coal
And run on electricity generated from COAL power
The Wind mills are made of Steel
with the help of coking coal
Even Solar energy cant be
generated without using steel and
thus, coal
From a safety pin to the tall buildings
COAL influences our lives
Each Tonne of Steel that we see around us
Has one tonne of coking coal
in it
It is COAL that has powered our Industries for ages
Even the tooth paste of our daily use has coal
And soda ash used in making washing powder is made with the help of coking coal
Without COAL
The Items of our daily use would either become unavailable or too costly –
beyond the means of the ordinary citizen
$20 $60 $250
$80
$350 $12/lt
Without COAL
Jobs would be lost in thousands
Unemployment would rise to humongous proportions
Do we want to plunge into darkness ??
And cut trees to give us light ??
Without Coal
Without COAL
Do we want to Roll Back the
Wheels of Civilization??
Global Climate Change is a truth that we all must face but we need to ensure that facts and figures are not used to forcefully slaughter the human civilization in a fashion similar to the Y2K scare at the beginning of this millennium which turned out to be one of the biggest hoax calls in the modern era.
No Greenmail. No Eco Pornography.
No sham.
It is time to be
more mature.
For the sake of the
Brotherhood of MAN
We would be cleaning our forests,
ending our civilizations Without COAL
Think before you say “No More Coal”
Love and Steel.
The story of 5 extraordinary women and the wars that paid tribute to their
love…
The face that launched a thousand
ships
Helen of Troy
Cleopatra
Queen of Egypt
Lover of Rome
Anarkali Love conquers fear.
Eva Braun Married in a bunker, she
died by taking cyanide, but kept her love
alive…For the man that the world hates.
Karuwaki
He pillaged Kalinga for her, only to renounce it all …
All these 5 Love Stories led to Epic Wars & advanced use of Steel
• All the five wars that were fought in the backdrop of these epic love stories witnessed an improved usage of steel….
• From the Kalinga war in 3rd century BC to the 2nd World War in the 20th century, all led to massive post war reconstruction and economic revivals…
• The use of steel in weaponry also saw giant leaps in the chosen periods.
Be it at Peace or in War
• Civilizations have Grown on
Steel
• The level of economic
development is measured by
the use of Steel
• It is Steel that is today
pillaring the growth of
China, India and other
breakout nations…
What is the India Story?
India on a Steeplechase
To cross GDP of major developed economies
Already crossed Australia’s GDP (in 2010 current international $) in FY08 and Spain, Russia and Canada in FY 11
Likely to cross Brazil & UK in FY14, France in FY 15 and Germany in FY 17
Expected to arrive near Japan’s level by FY 20 Source: D&B India
India has huge untapped market potential……..to be ignored by anyone at his own peril
Source : McKinsey Global Institute
India’s middle class constitutes 50 million people at present. Likely to go up to 583 million people by 2025 Households that can afford discretionary spending likely to go up from 8 million at present to 94 million by 2025
Middle Class is on the rise…
42
25
6
5
12
10
3
3
8
11
17
20
2
6
5
9
7 13
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2005 2025
Share of Average Household Consumption
Food, Beverages, and Tobacco Apparel Housing Utilities
Household Products Personal Products & Services Transportation
Communication Education & Recreation Health Care
Discretionary Expenditure (52%)
Necessities (48%) Necessities
(30%)
Discretionary Expenditure (70%)
Coupled with it is demographic dividend and growing consumption levels
Size of 15-59 age group
in 2007 (in million)
Size of 15-59 age group
in 2050 (in million)
Growth of 15-59 age
group ( in million)
India 696 1020 324
United States 191 225 34
Japan 76 45 -31
Germany 50 36 -14
United Kingdom 36 36 0
France 37 35 -2
China 895 755 -140
77
104
153
225
326
562
0 200 400 600
2004
2005
2006
2007
2008
2009*
*Upto 31st Dec 2009
6.37.2
8.59.7
11.1 10.9 11.2 11.4
024681012
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10*
Telecom subscriber base (in millions) Automobile production (in millions)
Source: United Nations
Rapidly Growing Middle Class will boost
Disposable Income
Ascent of Indian Middle
Class – Percentage of
population
Middle class as a
percentage of population
Source: Economic Times, PwC Analysis
Source: IDFC Institutional securities, PwC Analysis
The next few decades would be the India story
We are the protagonists - unfolding this play
.
Raw material availability
Rich in mineral resources and has large reserves of primary metal ores such as iron ore, bauxite, chromium, manganese and titanium
Bauxite and iron ore deposits in India rank among the best in the world in terms of their quality and mine ability
India’s quest to become an Economic Power House
.
India’s burgeoning demand of minerals and metals to fuel its growing appetite in manufacturing and infrastructure growth
Conducive policy framework
.
Unveiling of new mining policy The govt is promoting investments
Supporting Cost Framework
.
Among the lowest labour & conversion costs worldwide for the production of steel and alumina
Mining reserves in India
Mineral
Proven reserve in
2005 (million tonnes) Quality
Bauxite 3290
The reserves consist primarily of
Gibbsite whose conversion to
alumina is less expensive
Copper 1394
Low - metal content:1.2% as
against world average of 2-3%
Iron Ore 25249
Good; metal content 60% as
against world average of 40-45%
Lead - Zinc Ore 523
Good; metal content of 8-10% as
against world average of 5%
Manganese Ore 379 Medium; 35% metal content
Chrome Ore 66 Good; 40-52%, Cr203
The market is valued at over $ 90 billion Source: FIMI, IBEF
Challenges in Indian mining industry – scope of further growth
• Lack of adequate investment – potential that can
be tapped in future : Certain policy and procedural
bottlenecks are coming in the way of major investment in this
sector. However, certain reforms underway are aimed to mitigate
these challenges that may attract future investments
• Inadequate database on mineral concessions: Better dissemination of information about areas available for
different types of mineral concessions in India.
• Engaging the community : More community engagement
would help in getting the required local assistance
Geological environment (in sq km)
Area covered by prospecting and future opportunities
Gold: 1,12,000 Base Metal: 1,82,000 Diamond & Gemstone: 3,00,000
20% to 30% of the potential area prospected; significant scope for prospecting and exploration in virgin areas
Iron ore: 4,000 Manganese ore: 4,600 Chromite ore: 2,500
Geological mapping and delineation of potential area – 90% completed for hematite ore, 80% for manganese ore and 40% for chromite ore
Resource assessment carried out in early eighties
Most areas covered under lease or forest; free areas may be taken up
Platinum group of elements : 8,000
1% to 2% area covered by prospecting; virtually an untapped field
Coal: 48,500 70% explored up to 900 mt depth
Lignite: 9,300 40% explored between the depth of 300 metres and 500 metres
Future Growth Drivers
Huge demand growth – Increase in per capita consumption of steel and aluminum
Enhanced scope of new mining capacities in iron ore, bauxite, coal and gold
Rapid growth of user industry to drive demand for metals and minerals
IMMENSE GROWTH
POTENTIAL IN INDIAN
STEEL SECTOR Domestic crude steel production grew at a
compound annual growth rate of 8.4% in the last
few years.
222 MoUs signed for planned capacity of around
276 MT by 2020 (challenge remains of how many
translates into actual commissioning).
Investments at stake are to the tune of $187
billion
Increase in the demand of steel in India is
expected to be 14% against the global average of
5-6%
Growth in steel consumption
compared to GDP growth
No Scenario Growth in GDP in
the period 2012-17
Implied growth in steel
consumption
1 Scenario 1 8.0% 9.1%
2 Scenario 2 8.5% 9.7%
3 Scenario 3 9.0% 10.3%
4 Scenario 4 9.5% 10.8%
Expected to increase by around 9% (or little less than 9% under present
circumstances) and can go up to >10% if the over all economic condition
improves
In developing phase, i.e. during infrastructure build-up period, the Steel growth
to GDP >>1 failing to <1 as services surpass manufacturing and the
infrastructure build is completed. India having a large service sector, the effect is
likely to be more pronounced
Source: Report on Working group on steel, Ministry of Steel, Govt of India, Nov 2011
Although India has large coal reserves it is very short of prime HCC
Domestic Coking coal is characteristic of :-
o High ash
o Tends to have poor coke strength
o Requires imported high quality HCC
o Not really suitable for PCI
Domestic coking coal production has remained essentially flat for the past 10 years
Production has infact declined since 2004
Coke production has risen by almost 30% since 2004 and is poised to grow further
Increasing Coking Coal Demand in Line with Crude Steel Production
125.9
90.2
4.5
0
1
2
3
4
5
0
40
80
120
160
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17
Mil
lio
n T
on
nes
Steel Production
Coking Coal Demand
PCI
Source: Report on Working group on steel, Ministry of Steel, Govt of India, Nov 2011
Demand Supply Scenario in Coking Coal (in Million Tonnes)
Imp
ort
of
cok
ing
co
al
(mil
lio
n t
on
ne
s) (R
HS
)
Source: Annual Report 2011-12, Ministry of Coal, Govt of India
35.17 39.02 37.66 39.39 40
43.2
17.29 16.99 16.58 15.92 16.8 17.2
17.88 22.03 21.08 23.47 23.2
26
-5
5
15
25
35
45
0
5
10
15
20
25
30
35
40
45
50
2006-07 2007-08 2008-09 2009-10 2010-11 2011-12
Demand of coking coal Production Import
IN ABSENCE OF ADEQUATE
DOMESTIC PRODUCTION,
DEMAND TO BE MET BY IMPORTS
0
20
40
60
80
100
2005 2007 2009 2011 2013 (P)
2015 (P)
2017 (P)
2020 (P)
Mill
ion
To
nn
es India's Coking Coal Import Forecast
Source: various reports and internal estimates
But From Where would all this
Coking Coal Come From??
Australia Has all the coking coal that INDIA Needs
This quest for
coking coal has
brought me to
Australia which
is today my
second home
And Australia reinforced the strong Indian values in me
The values of thinking and acting long term
Long term in the off-take contracts
Long term in the shipping contracts
Long terms in establishing friendships
GUJARAT NRE COKE LIMITED (GNCL) The Indian Parent Company
In the most lucrative business of coking coal and met
coke whose supply is perennially short of rising demand
Steady supply of hard coking coal of one of the best
qualities available globally – offsetting the volatility in
this commodity market
Experienced Management
Robust track record of rewarding shareholders
Having a strong presence in Australia – the coal capital of
the world
Gujarat NRE group -
Strengths
GNCL - A SNAPSHOT Largest independent producer of Metallurgical Coke in India
Profit earning and dividend paying with strong financials and
credit rating
Present Met Coke capacity of over 1.43 MT, being increased to
4 MT by 2015
Strong focus on the Environment with ISO 14001:2004 & OHSAS
18001:1999 certification
Rated one of the top 10 company by 10-years profit
performance issued by Business Today on India’s Most Valuable
Companies (Nov 2009 edition)
58
Gujarat NRE group’s Operations
HARD COKING COAL
(NSW, AUSTRALIA) RESERVES 125 MT
RESOURCES 651 MT
METALLURGICAL COKE
1.434 MTPA
Gujarat NRE Coking Coal Limited (ASX: GNM)
NRE NO. 1 – 314 million tonnes NRE Wongawilli – 337 million tonnes
STEEL UNIT TMT BARS : 0.311 MTPA
BHACHAU (Kandla) 0.504 MTPA
KHAMBALIA (Jamnagar) 0.358 MTPA
Waste Heat Recovery Power Plants
Khambhalia* 15 MW Bhachau* 15 MW Dharwad* 30 MW Total 60 MW
Wind Power 87.5 MW
In Australia In India
Coal Washeries
Khambalia 0.75 MTPA Bhachau 0.75 MTPA Dharwad 0.90 MTPA
* Under implementation
DHARWAD (Hubli) 0.572 MTPA
60
Global crisis
0
20
40
60
80
100
120
31st March 2003
31st March 2004
31st March 2005
31st March 2006
31st March 2007
31st March 2008
31st March 2009
31st March 2010
31st March 2011
31st March 2012
A diverse global customer base spanning a variety of industries
Lowers any industry-
specific risk Commercial terms
with subsidiary are based on market price at arms length basis 61
Selected Customers
Coke Exports by Gujarat NRE
• Brazil
• France
• Japan
• Argentina
• SE Asian Countries
In addition to meeting the increasing domestic coke demand, Gujarat NRE
Coke has been tapping the opportunity in met coke export market
78%
9%
6%
4%3%
Brazil
France
Japan
Argentina
South Africa
GUJARAT NRE COKING COAL LTD - OVERVIEW
ASX listed hard coking coal producer
100% owner of two underground mines
in NSW, Australia
» NRE No. 1 & NRE Wongawilli
JORC reserves of 125 Mt and resources of over 650 Mt
The majority of unwashed coal is sold under contract to the Company’s major shareholder (Gujarat NRE Coke) at market price on arms length term
Targeting to increase coal production to >5 Mtpa by 2016
Wollongong
Kiama
Port Kembla
Port Kembla coal
loader 18 Mtpa Sutton
Forest
proposal
Berrima
Dendrobium
W. Tahmoor Appin
Westcliff Northcliff
Southern
Coalfield
NRE No. 1
NRE WONGAWILLI
BHP Illawarra
Coal
Peabody
Metropolitan
Xstrata
Tahmoor
NRE No.1 Colliery
Brownfield mine development strategically
located in Southern Coalfields of NSW
NRE No. 1 Colliery coal products known
for high quality
Extensive coal leases (64 sq km) include
three coal seams
Bulli
Balgownie
Wongawilli
In FY 2012, NRE No. 1 Colliery operations
focused on the installation and
commissioning of longwall equipment
surface upgrades
NRE No. 1 Colliery longwall
commenced production in April
2012
Targeting 3 Mtpa by 2016
2016+
Development
Current
Longwall Operations
2013
2014
2015
2016
2017+
FYE March 31
Asset Highlights
JORC Reserves 92 Mt
JORC Resources 315 Mt
FYE 3/2012A Production 0.3 Mtpa
FYE 3/2013E Production 1.1 Mtpa
Mine Life 30+ years
Distance to Port Kembla 16 km
Brownfield mine development
strategically located in Southern
Coalfields of NSW
Extensive coal leases (141 sq km)
targeting Wongawilli seam
Acquired in December 2007 and
commenced longwall operations
in 2009
Initiated new access driveage in
support of new longwall panels to
the west and south
By maximizing operational and
production capability of the
longwall equipment, targeting
2 Mtpa by 2016
2013
2014
2015
2016
2017+
FYE March 31
Current Longwall Operations
2016+
Development
Asset Highlights
JORC Reserves 33 Mt
JORC Resources 337 Mt
FYE 3/2012A Production 0.8 Mtpa
FYE 3/2013E Production 1.4 Mtpa
Mine Life 30+ years
Distance to Port Kembla 16 km
NRE Wongawilli Colliery
NRE Wongawilli
14 Km to Port
Kembla
NRE No. 1
16 Km to Port
Kembla
Source: Port Kembla Port Corporation.
Port Kembla Coal Terminal (“PKCT”) proximity
to mines provides significant cost savings
through reduced transportation costs
Located within 16 Km of NRE No.1 and 14
Km of NRE Wongawilli Collieries
Existing road and rail infrastructure offers
direct port access
PKCT is currently not operating at full
capacity
Provides minimal delays in loading and
dispatch of cargo
Results in lower demurrage charges and
reduced overall transportation costs
Current capacity utilization of 13.8 Mtpa
against rated capacity of 17.5 Mtpa
Undergoing capacity upgrade targeting of up to
31 Mtpa in two stages
Stage 1: Increasing throughput capacity
from 17.5 Mtpa to 22.5 Mtpa
Stage 2: Further infrastructure upgrade to
between 28 Mtpa and 31 Mtpa
Port Kembla Coal Terminal – Latent Capacity
Longwall system on display –
as it was being assembled on site
Recent Achievements
Highest quarterly coking coal
production from Australian mines
in Q2 2012
Q2 2012 coking coal increased by
32% in comparable year on year
quarterly production
60% increase in comparable year
on year half yearly production in
H1 2012
Sales increased by 34% in Q2 2012
(486 thousand tonnes) over Q2
2011 (363 thousand tonnes)
0
200
400
600
800
1000
H1 2011 H1 2012
Half Yearly Coking Coal Production in ’000 tonnes
Longwall Development
We are in Australia
The only ASX-listed pure-play metallurgical coal
developer/producer
Positioned for significant production growth to >5 Mtpa
by 2016
Attractive valuation metrics relative to other ASX coal
explorers, developers and producers
Advantage Australia
Democratic traditions
Shared commonwealth traditions
English speaking population
Strong, stable Government where Rule of Law
prevails
Industry friendly, proactive and transparent
bureaucracy
However
All that glitters is not gold
The bottlenecks that exist
• Infrastructure & port development
• Slow mine development approval process
• Lack of coordination between various
government departments and conflicting
statements which sometimes create confusion
in media & community
• New Taxes (Carbon Tax + MRRT)
• Mining Industry made the whipping boy
In pursuance of
Environmental
Activism……
We tend to forget….
There is hardly
any alternative
to Coal
A Sustainable and qualified response to Global Climate
Change is required without stopping development
The mining industry is sensitive to the carbon emissions
and is taking all the right steps
A matured workable strategy needs to be designed so
that we do not jeopardize development and at the
same time address the challenge of climate change
THERE’S A RIGHT WAY AND A WRONG WAY TO PROTECT
THE ENVIRONMENT
HUMANS ARE ALSO PART OF
THE ENVIRONMENT
ENVIRONMENTAL ACTIVISM
MUST RECOGNISE THAT
JOBS, LIFESTYLES & DREAMS
WILL BE DESTROYED.
IF WE RUSH TO A JUDGEMENT,
IMPOSE JOB CUTS &
KILL NEGOTIATIONS WITH AN
ECONOMY ALREADY MIRED IN RECESSION
We must protect THE ENVIRONMENT
while taking into account The needs of Society & the Community
• Energy is the lifeblood of the world economy
• Over 85% of world energy need is met from CO2 emitting fossil fuels
• Mining generates hundreds of millions of jobs worldwide – sustains the global economy
• Policymakers need to realise the negative consequences of radical environmental policies and global warming hysteria
• Mining generates hundreds of
millions of jobs worldwide –
sustains global economy
• With mines & industry
constrained, the world could
revert back to dark ages
EUROZONE CRISIS IS A LIVING EXAMPLE
There is much more to mining than meets the eye…
A view from Other side of the fence
AT GUJARAT NRE
We Produce Premium Hard Coking Coal
Which is considered the Greenest variety of coal
NRE – ENVIRONMENT IS OUR
MIDDLE NAME (NATURAL RESOURCES ENVIRONMENT)
We believe in giving back to
The environment in Multiples of what
We take from it
We believe that Employees are our biggest Asset
And take them along in our Growth Path
Employee Safety has been our watchword
• Organise regular safety drills and workshops
• Specialized Focus on Safety – Instituted an innovative
Quarterly Chairman Safety Awards for all employees
Which makes us one of the
largest employers of the region
The NRE
Family, over
500
employees
and their
families.
The Company has a strong
focus on strengthening its
bonds with the community
it operates in thereby
reassuring its staff and the
local community that it is
committed to be a long
term player and be a part in
scripting the ongoing
success in the region.
POWERING UP ILLAWARA
COMMUNITY IS AT THE HEART OF DEVELOPMENT
• Sponsor of various Sports events
• Major Sponsor of Cricket NSW
• Supporters and title sponsors of the Wollongong NRE Hawks NBL team
• One of the major employers of the Illawara region – over 600 employees
• Generates multiple numbers of indirect employment
Strong Bonds with the Community
A Snapshot of our Longwall Open Day
in Oct 2011
Building Bridges…
Accolades
In April 2008, appointed honorary NSW “Sydney Ambassador” to India by the Premier of NSW
This year declared as the “Person of the Year 2009 ” by the Illawarra Mercury
Premier’s NSW Export Awards
The Australian Export Awards is a national awards program which recognizes and honors export excellence thorough innovation and commitment. The Company won the 2009 Premier’s NSW Export Award in Minerals and Energy sector and became one of the finalists at National level.
Commitment to the Community
Commitment to the Community
THANK YOU
95
Arun Kumar Jagatramka Executive Chairman Gujarat NRE Coking Coal Ltd
