Global Ferronickel Holdings, Inc. Investor Relations Presentation July 2016
Section I. Nickel
Nickel Uses of Nickel Industry Consumption (%) Nickel is one of the most commonly used metals and can be 3% found in over 300,000 products for consumer, industrial, military, transport, aerospace, marine and architectural applications 8% The biggest use of nickel is to produce alloys, particularly with Stainless Steel chromium and other metals to produce stainless and heat resisting steels. These alloys are used from everyday 24% Other Alloys appliances, such as pots and pans to buildings and medical Electroplating equipment Chemicals 66% Other uses of nickel include coins, batteries, electronics and hybrid cars etc. Nickel also has strong catalytic properties and can be found in Source: CRU Consulting many catalysts that are used to make chemical reactions more efficient Top 10 Nickel Consumers 2013 ('000 mt) 1,000 909 900 800 700 600 500 400 300 159 200 123 107 66 100 59 53 37 35 32 0 Nickel is used to produce stainless Coins are one of the many popular China Japan USA Germany South Italy Taiwan India South Spain steel used in many buildings use of nickel Korea Africa Source: The Economist 3
Nickel Price Nickel is at a historical low price and LME nickel price has rebounded more than 30% from its 10-year low of US$7,595 per tonne in February 2016. This rebound is supported by the prospect of demand exceeding supply, as well as fear of lower output from the Philippines 60 Price/Tonne (US$’000) 50 40 30 20 Prices are trading at US$9,985/tonne as at 6 July 2016 10 Prices dropped by 85% from a ten year high of Prices have rebounded by 31% from a US$51,600 to low of US$7,595 in Feb 2016 ten year low of US$7,595 0 Jan-2007 Jan-2008 Jan-2009 Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 Source: Bloomberg 4
Nickel Price Outlook World Bank and IMF have forecasted that LME nickel prices would exceed an average US$10,000 per tonne in 2016 Various industry experts believe that the increase in nickel price is driven by The growth in end use demand from China, which is the largest consumer of nickel globally The depletion in US inventories of finished nickel to normalized levels T he depletion of Chinese inventories for feedstock for nickel pig iron (“NPI”) smelters, a group that has sustained production levels through the Indonesian ban on ore export The International Nickel Study G roup (“INSG”) has forecasted a global deficit in 2016, in line with a Reuters survey of metal analysts INSG Forecast (‘000 ton) 2012 2013 2014 2015 2016F CAGR Global Output 1,745 1,962 1,989 1,983 1,913 1.9% Global Consumption 1,648 1,785 1,875 1,890 1,962 3.6% Global Surplus/Deficit 97 177 114 93 -49 Source: INSG 5
China as a Key Driver of Demand China has high demand going into the future and has been in structural deficit for refined nickel since 2012 China is the largest consumer of nickel in the world today, consuming 50% of the total world production. It currently consumes more nickel than it can produce by a factor of 1.7x INSG Forecast (‘000 ton) 2012 2013 2014 2015F 2016F CAGR China Output 559 700 700 620 580 0.9% China Consumption 747 867 940 960 980 7.0% China Surplus/Deficit -188 -167 -240 -340 -400 The main bulk of this demand goes to producing stainless steel and Chinese consumption of stainless steel is projected to grow as a function of industrialization and urbanization The main use of stainless steel is metal products, followed by mechanical engineering, construction, motor vehicles and electrical machinery Electrical Machinery Motor Vehicle and Parts Mechanical Engineering Other Transport Construction Metal Products Total 7.9% 10.3% 24.8% 5.1% 12.8% 39.1% 100% Source: International Stainless Steel Forum China’s per capita consumption of stainless steel still trails other Asian industrial countries like Taiwan, Japan and South Korea by a huge margin. It should grow consumer consumption and the growing middle class Though GDP growth has slowed, infrastructure spending still remains strong with China planning to invest $70 billion on transport infrastructure projects over the next three years. This spending will support demand for stainless steel and nickel The China State Council has announced in June 2016 that it will increase reserves in some base metals, including nickel, for strategic stockpiling 6
Philippine Nickel Demand for Philippine nickel in particular is poised to increase in the near term In 2015, over 97% of nickel ore imported by China was from the Philippines, driven by: The Philippines’ strategic close proximity to China, which keeps transport costs low The country’s mining law which allows open -pit mining, a low cost extraction method of ore Indonesia’s export ban on nickel ore China’s output in 2016 includes 373k tonnes of NPI production. In order to meet this required output, China will require approximately 38 million WMT of nickel ore in 2016 and will have to import Nickel laterite ore, the type of ore used by the Chinese in NPI production, is found mostly in Indonesia, the Philippines and New Caledonia. The Philippines is benefiting from China’s import demands given: Export ban on raw ore in Indonesia since 2014 Export cap of 700,000 tonnes of lower grade nickel ore to China over a period of 12-18 months from April 2016 in New Caledonia (previously export ban) Source: Bloomberg, Reuters, Beijing Antaike 7
Section II. Global Ferronickel Holdings, Inc. (“FNI”)
Company Overview Company Overview Company History and Overview Market Data Global Ferronickel Holdings. Inc. (“FNI”) is the second largest Share price (PHP) 0.88 nickel ore producer in the Philippines 52 week high (PHP) 1.65 The Company has mining rights to the Cagdianao mine located in 52 week low (PHP) 0.45 Northern Mindanao, and currently operates two open pit deposit No of shares outstanding (mn) 17,467 sites Free float (%) 30.1 In 2015, the Company acquired an additional nickel mine in Board lot (shares) 1,000 Palawan which increases its annual production capacity Market capitalization (PHP mn) 15,371 The Company has a dividend policy of at least 20% of retained Enterprise value (PHP mn) 16,169 earnings of the preceding year and recently approved a share buy- Cash & near cash items (PHP mn) 170 back program for up to 10% of its outstanding shares over a period Debt (PHP mn) 968 of up to 3 years NAV (PHP mn) 6,353 Debt to equity (%) 15.4 Historical P/E (x) 13.3 P/B (x) 2.4 Historical EV/EBITDA (x) 9.2 Shipment Information Financial Highlights 2014 2015 Total Shipment of PGMC ('000 WMT) Revenue (PHP mn) 9,047 6,533 8,000 6,303 5,929 Gross profit (PHP mn) 6,491 2,959 5,407 6,000 4,501 4,148 % Margin 71.7 45.3 3,766 4,000 EBITDA (PHP mn) 4,928 1,851 1,952 2,000 % Margin 54.5 26.4 506 Net income (PHP mn) 4,817 1,112 0 2008 2009 2010 2011 2012 2013 2014 2015 % Margin 53.2 17.0 Source: Bloomberg as at 5 July 2016, company filings 9 Exchange rate: 1 USD: 46.16 PHP
Key Milestones FNI executed a FNI deed of exchange executed the for a share swap acquisition of with shareholders PGMC commenced FNI received 100% mining operations of PGMC. FNI a 25 year interest of at Cagdianao mine issued shares in extension for SPNVI (4,376 hectares) exchange for its operating (which owns and made its first 99.85% permit at the 2,835 outstanding commercial Surigao hectares) shipment shares of PGMC mines May 1994 Dec 2012 Nov 2014 June 2016 Nov 2007 October 2014 Aug 2015 July 2016 FNI entered into FNI obtained Southeast Asia Annual ore an exploration a memorandum Cement Holdings production and permit covering of agreement to (now known as FNI), shipment purchase 100% 927 hectares in was established as a volume from the of Southeast the land next to holding company for Cagdianao mine Palawan Nickel the Cagdianao industrial material exceeded 5 mine Ventures Inc. manufacturer million WMT (“SPNVI”) Lafarge Republic in the Philippines 10
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