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September 2015
Investor Presentation September 2015 Agenda 1. Operational - - PowerPoint PPT Presentation
Investor Presentation September 2015 Agenda 1. Operational - - PowerPoint PPT Presentation
Investor Presentation September 2015 Agenda 1. Operational performance for the year ended 30 June 2015 a) Like-for-like Normalised Earnings to June 2015 3 b) Group Highlights 4 c) Somkhele Operational Highlights 5 d) Somkhele Sales
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September 2015
Like for Like Normalised Earnings to June 2015 up 38%
(R 000) Year ended 30 June 2015 6 months ended 30 Jun 2015 6 months ended 31 Dec 2014 Year ended 30 June 2014 % change (FY 2015 Vs 2014) Profit/(loss) for the year 125 043 77 890 47 153 (119 425) Adjust for after-tax effect of:
- Loss on sale of PPE
9
- 9
5 999
- Mark to market of listed investments
- 13 464
- Impairments
7 064 7 064
- 200 834
- NRV impairment of inventory
- 6 703
- Reversal of accruals
- (5 855)
Normalised profit after tax 132 116 84 954 47 162 101 720 30% Shares in issue (millions) 544 577 (6%) Adjusted profit per share 24.28 15.88 8.40 17.63 38% Production and sales Anthracite tonnes produced 1 335 233 657 231 678 002 1 125 089 19% Anthracite tonnes sold 1 222 150 562 396 659 754 1 026 250 19% Anthracite cost per tonne R657 R665 R650 R708 (7%) Energy product produced 368 413 196 939 171 474 244 298 51% Energy product sold 352 255 83 467 268 788 174 556 102% Energy product cost per tonne R175 R161 R191 R230 (24%)
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September 2015
Group Highlights
Normalised Profit After Tax Normalised profit after tax up 38% from R102m (17.63cps) to R132m (24.28cps) despite a 2% reduction in at-mine-gate export prices (ZAR) Annual Revenue Annual revenue of R1.27 billion up 25% (2014: R1.02 billion) Net Cash Flows Net cash flows from operating activities up 35% to R901m (2014: R668m) BEE Transaction Transaction arranged to ensure new shares (20%) flow to the community and employees for R350 million, subject to shareholder approval NAIC Market conditions have prevented the unbundling of NAIC. The project remains on track and a site has been selected Headline Earnings Headline earnings per share (HEPS) up 62% to 24.28cps (2014: 14.95cps) Dividend A dividend of 5 cents per share declared Shareholders Dividend of R17m paid during the year 28m shares acquired during the year at an average price of R1.53, for a total of R44m
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September 2015
Somkhele Operational Highlights
Anthracite Production Anthracite production increased by 19% to 1 335 233 saleable tonnes (2014: 1 125 089 tonnes) Yields Production yields up 5% from 41.85% to 44.13% Energy Coal Energy coal production up 51% to 368 413 tonnes (2014: 244 298 tonnes) Safety Performance Lost Time Injury Frequency Rate of 0.214 (2014: zero), and complimented by NOSA for the continuous focus on risk and the implementation of measures to eliminate and control those risks Salary and Wage Negotiations Tendele concluded a 2 year wage agreement with NUM and AMCU, effective from 1 July 2015, comprising of a Total Cost To Company (TCTC) increase of 8.6% for 2015/2016 and 6.5% for 2016/2017. In addition, a 3 year wage agreement was signed with Solidarity comprising of a TCTC increase of 6% for 2015/2016, 6.5% for 2016/2017 and 7% for 2017/2018. A TCTC increase of less than 6% for 2016 was agreed with mine management and HOD’s Costs Ex-mine gate cost per tonne of R 657 (2014: R708) CPR 3 March 2014 independent Competent Persons Report valued Somkhele at ~ZAR1.6 billion (~ R2.90/Petmin share). Updated CPR to be published shortly Energy Cost Ex-mine gate cost per tonne of R 175 (2014: R230)
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September 2015
Somkhele Sales Highlights
Energy Coal Sales of energy coal increased 102% to 352 255 tonnes (2014: 174 556 tonnes) Domestic Market Domestic sales of anthracite were up 24% from 553 194 tonnes in 2014 to 683 573 tonnes Export Market Export sales up 14% from 473 056 tonnes to 538 577 tonnes Anthracite Increased sales volumes of 19% to 1 222 150 tonnes (2014: 1 026 250 tonnes) were
- ffset by a 2% reduction in at-mine-gate export prices (ZAR) reflecting tough
international market conditions for metallurgical and thermal coal
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September 2015
Petmin Group Balance Sheet
Audited 30 June 2015
ASSETS (R ‘000) 30 June 2015 30 June 2014 Non-current assets
1 569 463
1 552 484 Property, plant and equipment 1 062 878 1 122 531 Investment in equity accounted investee 420 452 337 572 Investment / Loan -Joint Venture 61 133 67 381 Investments
25 000
25 000 Current assets 621 395 482 951 Inventories 250 118 264 532 Trade and other receivables 110 249 121 549 Current tax assets 3 681 2 095 Cash and cash equivalents 257 347 94 775 Total assets 2 190 858 2 035 435 EQUITY AND LIABILITIES (R ‘000) 30 June 2015 30 June 2014 Ordinary share capital and reserves 1 284 849 1 169 304 Non-current liabilities 451 362 602 692 Interest bearing loans and borrowings 108 405 289 159 Deferred taxation liabilities 258 632 246 670 Environmental rehabilitation provision 84 325 66 863 Current liabilities 454 647 263 438 Trade and other payables 138 377 116 520 Revenue in advance 147 562
- Current portion of non-current liabilities
143 671 75 042 Hedge liability 4 628
- Bank overdraft
20 409 71 876 Total equity and liabilities 2 190 858 2 035 435 Net Gearing (interest bearing debt/equity) 12.66% 29.19%
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September 2015
(R million) 12 months 30 Jun 2015 12 months 30 Jun 2014
Total capital expenditure - excluding pre-strip 28 45 Somkhele 26 39 Group 2 6 Capital pre-strip (57) (23) Capital expenditure including pre-strip (29) 22 Investments 38 74 NAIC 29 68 CPF 3 Somkhele Plant JV (6) 6 West Road Property 12
- Total Capex and Investments *
9 96
* Estimated Capex for 2016 of R83 million at Tendele with a further investment of $4 million into NAIC
Capex and Investments
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September 2015
Pre-stripping costs
Somkhele: Pre-strip costs June 2015 June 2014 Opening balance on balance sheet 305 328 Cash spend in the period 448 498 Mining – expensed on units of production basis (Depreciation) (505) (521) Closing balance on the balance sheet 248 305
- Petmin incurred cash stripping costs amounting to R448 million during the current period (2014:
R498 million). It is Petmin’s accounting policy to record the cash cost incurred on these stripping activities as additions to mine development cost under property plant and equipment (a non-current asset).
- These capitalised cash costs are expensed (depreciated) as coal is extracted. This is done on a
units-of-production basis over the life of the component of the ore body to which access is improved and amounts to R505 million during the current period (2014: R521 million). This resulted in a net decrease in the capital expenditure capitalised to pre-stripping activities of R57 million during the current period (2014: decrease of R23 million).
- The depreciation is, in reality, the mining cost (stripping cost) that is expensed during the period
when run-of-mine coal is removed from the pit.
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September 2015
Somkhele Production and Sales
(tonnes or BCM) 30 June 2015 30 June 2014 % Change BCM overburden mined 6 639 766 6 757 099 (2%) ROM tonnes mined 2 965 355 2 719 984 9% ROM tonnes washed 3 025 567 2 688 561 13% Discard tonnes washed 1 374 716 1 174 419 17% Total tonnes washed 4 400 283 3 862 980 14% Yield (Anthracite only) 44.13% 41.85% 5% Yield (Energy Coal) 26.80% 20.80% 29% Saleable tonnes produced - Anthracite 1 335 233 1 125 089 19% Tonnes sold – local 683 573 553 194 24% Tonnes sold – export 538 577 473 056 14% Tonnes sold – anthracite total 1 222 150 1 026 250 19% Saleable tonnes produced – Energy coal 368 413 244 298 51% Tonnes sold – Energy coal 352 255 174 556 102%
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September 2015
Forecast Sales to June 2016
Market/Product June 2015 2016 Confirmed 2016 Unconfirmed 2016 Total Export 538 577 278 206 425 000 703 206 Inland 683 573 662 151
- 662 151
Total Anthracite 1 222 150 940 357 425 000 1 365 357 Energy Coal 352 255 253 488 150 000 403 488
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NAIC
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September 2015
Executive Summary: NAIC
- The purpose of this Executive Summary is to provide a synopsis of the status of this multifaceted and
complex project
- It is virtually impossible to do justice to the enormous amount of work undertaken and completed over 5
years in a few slides and it is trite that one cannot develop any sense of the magnitude, complexity and potential of the project without going into a degree of detail
- In sum, despite a 50 % drop in the price of Merchant Pig Iron (“MPI”) and numerous extraneous other
hurdles, we have developed a detailed business model, based on real inputs, backed by the best in the business, that has enabled us to maintain our required return profile
- 4 production cases were designed and reviewed by Tenova and NAIC:
− 2 production levels – 425ktpa and 850ktpa − 2 smelting furnaces – electric arc furnace (“EAF”) and submerged arc furnace (“SAF”) − All cases include pre-reduction in a rotary hearth furnace (“RHF”)
- The economics of each case are reviewed in the detailed presentation however the IRRs were all
very similar - The qualitative, and risk and risk mitigation factors are what ultimately lead to the decision
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September 2015
Executive Summary: NAIC
- NAIC has made the decision to proceed with a production scenario of 425ktpa using an EAF
smelter: − Total Capital Required $ 313 million − NPV of the Project (Plant 1 Only): $ 144 million − Ungeared Project IRR: 15% − 70% geared Project IRR 21% − Payback period 5 years
- We are currently testing the market with a number of funding structures
- The analysis of the funding structures will also include the investment returns to Petmin, taking into
account Petmin’s initial total investment of some $ 25 million and the decision as whether to invest any additional capital
- A detailed presentation is available, which will deal with the following key areas:
− NAIC History & Business Plan Formation and development − Merchant Pig Iron (“MPI”) Market & Overview- Why MPI? − Site Selection − Current Technical Work – Tenova − Financial Analysis − Next Steps
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September 2015
Risk Mitigation
- The entire development of the current business model over the past 2 years has been centred around
risk mitigation in order to ensure the economic viability of the project
- This will continue as we build the final business case to present to funders/investors when we
commence with capital raising
- Key risk and risk mitigating factors include:
− Site Selection:
- Logistics – access to a port within reasonable shipping distance for raw materials and end
markets
- Energy – gas and electricity availability and price
- Permitting – timeline and local sensitivity
- Government support – local, state and federal
− Technical risk
- Reduced the risk of the process through the significant test work undertaken at the test
facility in Forks PA signed off by Hatch /Tenova
- In addition 4 production cases were designed and reviewed by Tenova and NAIC in order to
ensure minimum technical risk production
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September 2015
Risk Mitigation
− Market risk
- Mitigated by refocusing production on nodular grade pig iron used in foundries which carries
up to a $100 /t premium over standard merchant grade pig iron
- Supply, demand and pricing analysis undertaken by Dr Joe Pavaromo and Mr Steve Miller
(two preeminent experts in the field of metallics markets)
- In addition 4 production cases were designed and reviewed by Tenova and NAIC in order to
ensure minimum technical risk production and market risk − Key risks remain
- State of the market (over supply/demand/price)
- Funding (how can the project be funded)
- Executive management succession
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September 2015
Site Selection Port Saguenay – A Superior Plant Location
- The site selection process encompassed a study of 13 locations over 2 years
- Site selection is complete, and an agreement has been concluded with the Port Saguenay which
provides NAIC the exclusive right for a period of up to six (6) months from the date of execution of the MOU, to conclude the site specific work on the agreed site at the Port and NAIC will have 60 days to exercise its ROFR to lease the site post the 6 month period
- Site selection has a significant impact on the project’s economics:
− Logistics – access to a port within reasonable shipping distance for raw materials and end markets − Energy – gas and electricity availability and price − Permitting – timeline and local sensitivity − Government support – local, state and federal
- Our first plant based in Saguenay, Quebec will have a significant cost advantage over material currently
delivered to the U.S. In particular, it will avoid the significant costs of material movement from New Orleans to the Midwest and provides inter alia: − Deep water port − Cheap and environmentally cost effective electricity and gas − Access to U.S. Great Lakes, East Coast and Western Europe for raw materials and MPI − <5 days shipping to either the U.S. or Western Europe − Area for plant (60 Acres) has already been pre-cleared − Rail access within a few kms
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September 2015
18 Port Saguenay - Superior Plant Location
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September 2015
Port Saguenay
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September 2015
Port Saguenay
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September 2015
Technical Cases Reviewed and Our First Plant
- 4 production cases were designed and reviewed by Tenova and NAIC:
− 2 production levels – 425ktpa and 850ktpa − 2 smelting furnaces – electric arc furnace (“EAF”) and submerged arc furnace (“SAF”) − All cases include pre-reduction in a rotary hearth furnace (“RHF”)
- A mass and energy balance was calculated for each case ensuring accurate consumables, energy and
natural gas usage
- In each case, all required equipment was budgeted for and costed for that case, enabling an “apples to
apples” comparison, for example the EAF or SAF were scaled and priced for each production level, as were the RHFs
- In each case it is assumed the 425ktpa of production will be of foundry grade MPI. In the 850ktpa
cases, the remaining production is assumed to be basic grade MPI and sold to steel mills at a price below the foundry grade
- The economics of each case are reviewed in the detailed presentation however the IRRs were
all very similar - The qualitative, and risk and risk mitigation factors are what ultimately lead to the decision
- NAIC has made the decision to proceed with a production scenario of 425ktpa using an EAF
smelter
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September 2015
Financing our first plant
Uses Capex 273.1 Working capital 13.1 Interest during construction 18.6 Fees 8.6 Total 313.4 Sources Senior debt 195.0 Working capital financing 20.4 Equity 97.9 Total 313.4
- The table below sets out the capital in US$ required to develop the plant in Saguenay
- In addition, it is estimated that before we reach the level of certainty that banks would require - we
would need to invest a further $20 m
- The sources of funding and the ultimate capital structure is the subject of a detailed ongoing analyses
and will be refined over the coming months
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September 2015
Why the 425ktpa EAF Configuration ?
- Focus on the highest value portion of the MPI market
− NPI for the foundry industry cannot be substituted for and thus is more stably priced
- Requires only one RHF furnace
− The 850ktpa production case requires 3 total furnaces, 2 RHFs and 1 EAF − Starting up 1 less furnace will de-risk commissioning
- Less capital required
− Capital in the commodities space is currently at a premium − Limits the “quantum of funds” risk
- Less competition
− Few MPI producers make NPI
- Given today’s prices, smaller production does not mean lower returns
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September 2015
Economic Summary of the 4 Cases
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September 2015
The way forward
$m Month: 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Major project milestones (1) Finish Site Specific PFS $1.0 (3) Initial Permitting review $0.5 (4) Construction contracting strategy $0.0 (5) PPA w ith Hydro Quebec $0.1 (6) Pig iron offtake aggreement $0.0 (7) Iron ore supply aggreement $0.0 (8) Demonstration Test Programs $2.0 (9) Basic engineering $4.0 (10) Detailed engineering $6.0 (11) Long lead items ordered TBD (11) Permitting $2.5 (12) Engineering and permitting completed Debt Financing (1) Approach lenders $0.0 (2) Issue RfP $0.0 (3) Select lender group $0.0 (4) Lender due diligence and negotiation $5.0 (5) Signing of loan documents $0.0 Financing close and drawdown
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September 2015
The Unbundling: Quo Vadis
- It remains the intention of both Petmin and Grand River Inc to ensure a single entry point for
shareholders into the project through the consolidation of the legal entities and the ultimate unbundling thereof to shareholders. However, the factors listed below mitigate against executing this strategy in the short term: − We are all acutely aware of the global economic turndown, the concomitant collapse of commodity prices and the enormous pressure on all producers of basic materials − In the current market environment, both Grand River Inc. and Petmin believe it will be prudent to continue to develop the project in its current form rather than overlay the additional cost of a separate listing − We simply cannot afford the cost of multiple listings in this environment when our key focus has been on cost containment − We remain committed to commissioning our first plant in Saguenay and must work towards this goal as expeditiously as possible
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Update on Veremo
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September 2015
Veremo status
Outstanding claims regarding the “guaranteed” payments
- Discussions to resolve the dispute now at arbitration
Project issues
- Mining Licence obtained on 31 January 2014, not yet executed in Limpopo Province
- Project Team has been established to start mine development
- Project Team has been established to contact a smelter to produce pig iron as the Mintek lab scale
report concluded that pig iron can be produced
- Water Licence outstanding
- Power solution outstanding
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Tendele BEE Transaction
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September 2015
The Proposed BEE Transaction
- While Petmin is empowered at the corporate level, it has taken the strategic decision to ensure long term
stable BEE ownership at the Tendele level
- Petmin has financed Tendele through its development phases and holds a loan account of R106 million
(as at 30 June 2015) in Tendele
- Tendele will make a distribution and reduce the Pemin loan account – providing Petmin with circa. R280
million to fund its investment projects
- Refinance Standard Bank debt with Nedbank debt (reduced security)
- Petmin believes it would be expedient to combine the BEE transaction, the capital raising and the
repayment of its loan account in one transaction
- In order to ensure the transaction is fairly priced for all stakeholders, as announced on 3 March 2014 on
SENS, an independent Competent Persons Report for the Somkhele Mine was completed by SRK, valuing Somkhele at ZAR1.6 billion. An updated CPR will be published in the Category 1 Circular that will be mailed to all shareholders in due course.
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September 2015
BEE Transaction Structure
Petmin (80%) BVI (20%)
Tendele
ESOP (20%) Community Trust (80%)
BVI
Qualifying Employees Nedbank 1 1 2
R270m A Pref
3
R80m B Pref
4
R350m BEE Subscription Shares
6 5
Distributions and Trickle Dividends
7
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September 2015
BEE Transaction Structure
Following shareholder approval the following steps are required to conclude the BEE Transaction: 1. The Community Trust (the beneficiaries being the children of the community) will subscribe for 80% (eighty percent) of the issued ordinary shares in BEE SPV at an aggregate nominal subscription price of R1.00 (one rand), and the Share Trust will acquire 20% (twenty percent) of the issued ordinary shares in BEE SPV at an aggregate nominal price of R2.00 (two rand) 2. Nedbank will subscribe for "A" Preference Shares at an aggregate subscription price of R270,000,000.00 (two hundred and seventy million rand) 3. Petmin will subscribe for 80 (eighty) "B" Preference Shares at an aggregate subscription price of R80,000,000.00 (eighty million rand) 4. BEE SPV will utilise the aggregate subscription proceeds of R350,000,000.00 (three hundred and fifty million rand) to subscribe for the BEE Subscription Shares 5. Tendele will utilise R180,000,000.00 (one hundred and eighty million rand) of the subscription proceeds in repayment of Petmin's existing loan claim against Tendele and for a distribution to Petmin 6. Petmin shall enter into an agreement with BEE SPV where it shall undertake to subscribe for subordinated preference shares (the “C Prefs”) to the extent that there is any shortfall in the payment of a dividend or redemption of any of the A Prefs 7. The BVI will receive distributions made to the holders of ordinary shares in the Tendele from time to time and an annual Trickle dividend. These funds will then be distributed as follows:
- The Community Trust will be entitled to receive 80% (eighty percent)
- The Share Trust will be entitled to receive 20% (twenty percent)
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September 2015
Trickle Dividend
In addition to the distribution made by Tendele to the holders of ordinary shares, the Company will also make the following aggregate cash contribution (Trickle Dividend) to the Community Trust and Share Trust: A. Community Trust
- The Trust will receive contributions during the period commencing on the Effective Date and terminating on the date
- n which there are no more "B" Preference Shares in issue
- Tendele will pay to the Community Trust 1 (one) or more contributions, in aggregate, not exceeding an amount of
R1,000,000 (one million rand) on each anniversary of the Effective Date
- In addition to the above, Tendele will pay the Community Trust one aggregate payment, not exceeding R1,000,000
(one million rand), consisting of R166,670 (one hundred and sixty six thousand six hundred and seventy rand) for every 50,000 (fifty thousand) tonnes of anthracite product produced by Tendele's Somkhele mine which exceeds the Threshold of 900 000 (nine hundred thousand) tonnes, during any financial year of Tendele B. Share Trust
- The Trust will receive contributions during the period commencing on the date on which the participants of the Share
Trust holds any units in the Share Trust and terminating on the date on which there are no "B" Preference Shares in issue
- Tendele will pay to the Share Trust 1 (one) or more contributions on each anniversary of the Effective Date which, in
aggregate, will be calculated by multiplying R1,000 (one thousand rand) by the number of Participants as at the applicable date
- In addition to the above, Tendele will pay the Share Trust one aggregate payment, not exceeding R1,000,000 (one
million rand), consisting of R166,670 (one hundred and sixty six thousand six hundred and seventy rand) for every 50,000 (fifty thousand) tonnes of anthracite product produced by Tendele's Somkhele mine which exceeds the Threshold of 900 000 (nine hundred thousand) tonnes, during any financial year of Tendele
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Strategy – A Reminder
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September 2015