Iron ore beneficiation Africa – Opening Remarks

17 March 2014

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Iron Ore Beneficiation Value Chain

• The process is demand driven – i.e. Steel consumption drives the value chain

• Thanks to China demand has boomed in recent times

• Current market conditions will require a rethink of strategy

• New mega low cost iron ore mines (Simandou) influencing the cost curve

• China has a significant over capacity (as does the world) of steel

• Markets are facing panic:

“China's steel industry in full panic mode as rumours of large mills collapsing see iron ore price and imports plummet. ..”

Frik Els March 10, 2014

Distribution

(Merchant)

Processing/

Value Add

Steel

Making

Iron

Making Raw Materials

World Steel Demand

• Moderate growth is forecast for the developed world

• China growth down but still forecast to account for 50% of growth

• Idle / excess capacity means steel capacity can be increased relatively quickly

Mt 2013 2014 2015 2016 2021 Growth

Europe 243 245 249 253 273 1.1%

N America 128 130 132 135 146 1.2%

S America 52 54 58 61 84 5.0%

Africa 27 29 32 35 51 6.6%

Asia excl China 341 353 366 381 460 3.1%

China 678 708 738 767 902 3.0%

World 1,469 1,520 1,574 1,631 1,915 2.7%

Source: World Steel Association

World trends

• There is 450 million tons excess world steel capacity

• China alone has 180 million tons excess capacity

• Capacity and economically viable capacity need to be distinguished

Source: McKinsey

5

2003 to 2008 were the only recent years the steel industry made profits – but even then not all producers

Source: McKinsey

Capacity Utilisation

Global Steel Capacity Utilisation (%)

Source: WSA, Avior Research

• There was a sudden drop in global capacity utilisation after the global financial crises in 2008

• This was followed by a recovery in 2009 to an average level of utilisation of around 75%

7

New modern low cost production capacity continues

Source: World Steel

8

• Competitiveness in the steel industry is resulting in a lowering of the cost curve for steel

• This is despite increasing raw material costs

• New facilities are increasingly more efficient through leveraging modern technology advances in equipment and energy

• Ageing plants’ non competitiveness to increase rapidly

• Capex backlogs increasingly difficult to “catch up”

HRB – Hot Rolled Band (Coil)

New capacity is lowering steel production costs

Source: World Steel Dynamics

Iron Ore

• World demand growth is primarily driven by China

• China imports ~90% of their iron ore

• Logistic costs are a key cost determinant

• Long term iron ore prices are anticipated to be below USD100 (currently USD105) i.e. this is good times!

Source: World Steel Association

Steel Demand (mt)

Iron ore price (USD)

Steel making Technologies

Blast Furnace steel production is the dominant steel making method and requires iron ore (pelleted or lump)

Source: Hatch

Scrap availability will put iron ore under pressure

• World Steel Scrap exports were 100mt (2012)

• At 1.4% growth in China’s steel demand, surplus scrap will be 87mtpa (2025)

• Some estimates have China steel demand slowing to 1%

• Shale gas as an energy source has potential to make scrap based steel making more competitive

Source: World Steel Dynamics

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