Transcript Project DELTA - ArcelorMittal South Africa

DISCLAIMER
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART IN OR INTO CANADA OR
JAPAN OR AUSTRALIA
This document is intended solely to provide certain information on Iscor Limited (“Iscor”) and Kumba Resources Limited (“Kumba”) and
does not constitute a recommendation regarding the purchase or sale of the ordinary shares of Iscor and Kumba. Shareholders should
seek advice from an independent financial adviser as to the suitability of any action for the individual concerned. This document does not
constitute an offer or invitation to purchase any securities or a solicitation to vote in favour of the proposed transactions referred to herein.
Any shareholder action required in connection with the proposed transactions is set out in the Iscor Limited circular, and any decision made
by shareholders should be made only after consultation with appropriate legal, tax, business, investment, financial and accounting
advisers.
This document includes unaudited pro-forma financial information prepared under South African GAAP. The analyses and calculations
reflected in this document do not purport to be appraisals of the assets, stock or businesses of Iscor or Kumba.
Certain statements in this document, those regarding synergies, debt, costs, dividends, earnings, returns, divestments, reserves and
growth are or may be forward looking statements that are subject to risks and uncertainties associated with the assets, businesses and
subsidiaries of Iscor and Kumba as well as the proposed operations of Iscor and Kumba following the proposed transactions. Actual
results may differ materially from the statements made depending on a variety of factors, including successful implementation of the
transactions.
No representation or warranty, express or implied, is made or given by or on behalf of Iscor and/or Kumba or any of their respective
directors, officers, employees or advisers or any other person as to the accuracy or completeness of the information or opinions set out in
this presentation and no responsibility or liability is accepted by any of them for any such information or opinions.
UNBUNDLING PRESENTATION
NOVEMBER 2001
HANS SMITH
CHAIRMAN
ISCOR LIMITED
3
STRATEGIC RATIONALE

Seven-year restructuring programme in three phases now complete
 Iscor’s own initiatives
 Full scale re-engineering
 Business restructuring

Now the unbundling
 Platform for further value release
4
UNBUNDLING OF ISCOR

Creation of two focused independent entities (Iscor and Kumba)
 Proven track records of international competitiveness
 Excellent executive and management teams in place
 Strong government and IDC support
 Free to pursue growth strategies locally and internationally
5
UNBUNDLING TIMETABLE

Proxies from Iscor shareholders
19 November 2001

Iscor general meeting
21 November 2001

Kumba listing
26 November 2001
6
AFRICA’S DOMINANT STEEL PRODUCER
NOVEMBER 2001
LOUIS VAN NIEKERK
CHIEF EXECUTIVE OFFICER
ISCOR LIMITED
8
STRUCTURE POST UNBUNDLING
ISCOR
Flat Products
Long Products
Other
• Vanderbijlpark
• Newcastle
• Suprachem
• Saldanha
• Vereeniging
• Other *
66%
28%
Revenue
* Iscor has undivided share in Sishen’s iron ore rights entitling it to 6.25 Mtpa for life of mine
6%
9
OVERVIEW OF OPERATIONS
Flat Products
Thabazimbi

Vanderbijlpark
 2.7 Mtpa final product

Saldanha
 0.9 Mtpa final product
Vanderbijlpark
Johannesburg
Vereeniging
Long Product
 Newcastle
Sishen
Newcastle
 1.4 Mtpa final product
 Vereeniging
Durban
 0.3 Mtpa final product
South Africa
ISCOR TOTAL
 5.3 Mtpa final product
Saldanha
Cape Town
Iron ore supply
 6.25 Mtpa iron ore from Sishen
 2 Mtpa iron ore from Thabazimbi
* Based on 2000/01 actual sales
10
STRATEGY
Industry
consolidation
Global
partner
Restructuring
of RSA steel industry
Market
optimisation
Market optimisation
Operational
excellence
Saldanha Steel value release
Continuous improvement
11
OPERATIONAL EXCELLENCE
Improvements since re-engineering commenced in 1994
Vanderbijlpark
2001
Cash cost - HRC
$/t
- Billet
$/t
Position on cost
curve
CRU rank
Headcount
Employees
Through-yield
185*
Improvement
Newcastle
2001
Improvement
24%
141*
8th*
44%
4th*
8 700
48%
3 400
46%
%
82
4%
87
1%
On time delivery
%
85
124%
91
15%
Prime output
%
88
11%
98
-
* Source : CRU 1999 & 2000 reports
12
OPERATIONAL EXCELLENCE
(L O W C O S T P R O D U C E R)

Low input costs
Cost curve
 Power
1st quartile
 Coal
2nd quartile
 Iron ore
1st quartile
 Labour
1st quartile

Modernised plant and processes

High efficiency levels

70% Rand based cost
13
OPERATIONAL EXCELLENCE
(C O S T R E D U C T I O N P O T E N T I A L)

Iron ore procurement benefit

Further re-engineering savings

Impact of depreciating currency
Improvement on cost curve expected
14
OPERATIONAL EXCELLENCE
(S A L D A N H A T U R N A R O U N D)
Continuous
improvement
Break-through
Cash in on Corex
refractory repair
1.3 Mtpa
$180/t
Stabilise/plant
availability
$18/t
1.1Mtpa
$190/t
0.95 Mtpa
Ramp-up
$13/t
$204/t
Cash cost
$9/t
Price premium
Jun ‘02
Real terms at exchange rate of R9.00/$
Including $12/t HRC iron ore benefit
Jun ‘03
Dec ‘03
15
OPERATIONAL EXCELLENCE
(S A L D A N H A T U R N A R O U N D C H A L L E N G E)

Iscor management responsibility from January 2001

Re-engineering credentials

Fast track programme in place

Project ahead of schedule

Synergies flow from integration
16
OPERATIONAL EXCELLENCE
(S A L D A N H A I N T E G R A T I O N)

Cost for IDC’s 50%
 20 million post-unbundling Iscor shares
 10 million Kumba shares
 Less: IDC R250 million cash contribution

Value
 Synergy benefits
 State-of-the-art plant
 Low cost producer
 Premium price product
 High potential payback
 Ungeared balance sheet
Challenge – achieving turnaround and synergies
17
MARKET OPTIMISATION
(D O M E S T I C / E X P O R T S A L E S
M I X)

51% of sales volume exported

Domestic pricing at import parity

Significant historic domestic/export margin differential

Historic average domestic volume growth multiplier: > 2x GDP growth above 2%

Economic policy “medicine” has set base for sustained domestic economic
growth
Potential for greater % high margin domestic sales
18
MARKET OPTIMISATION
(C A P T U R I N G R A N D W E A K N E S S)

Domestic sales priced at import parity

Effectively total sales at $ related prices

Only 30% of total input costs $ denominated
Significant leverage from Rand weakness
19
MARKET OPTIMISATION
(S T E E L P R I C E C Y C L E)
450
CRU
MBR
Mid cycle (CRU, MBR, WSD 10 yr. av.)
350
300
250
215
200
150
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
$/t HRC net FOB Durban
400
1994
1995
1996
1997
1998
1999
Price expected to recover from current low
2000
2001
2002
20
MARKET OPTIMISATION
(E X P O R T M A R K E T S)


51% of sales volume exported
Products
Good spread of
 Products
 Destinations

Current duties
 USA hot rolled - 15.6%
 EU hot rolled - 5.2%

Recent cases in favour of Iscor
 USA - wire rod
 Canada - cold rolled
HRC > 1.6mm
35%
HRC < 1.6mm
13%
CRC
6%
Galv
3%
Colour coated
1%
Tin
2%
Billets
6%
Profiles
2%
Bar
6%
Rod
12%
Slab & Plate
7%
Seamless tubes
2%
Sections
5%
Far East
38%
Destinations for Q3 2001
NAFTA
9%
EU
12%
South America
13%
Africa
19%
Middle East
9%
21
INDUSTRY CONSOLIDATION
(R A T I O N A L I S I N G S A S T E E L I N D U S T R Y)
Potential synergies

Replacement capital > R1 billion

Costs/revenue > R300 mpa
Flat Products production
Vanderbijlpark
67%
Saldanha
25%
92%
Highveld
8%
Long Products production
Newcastle
Vereeniging
41%
11%
Highveld
Dav
Scaw
Cisco
52%
15%
12%
15%
6%
22
INDUSTRY CONSOLIDATION
(I N T R O D U C I N G G L O B A L P A R T N E R)

Access to

Technology

Markets

Skills and training

Assistance in driving costs down further

Discussions with potential partners continuing
23
MALCOLM MACDONALD
CHIEF FINANCIAL OFFICER
ISCOR LIMITED
24
PROFIT RECORD
Operating profit excluding Saldanha (LHS)
Operating profit including 100% Saldanha (LHS)
Iscor HRC FOB price (RHS)
Rm
1 000
$/t HRC
965
350
900
827
300
763
700
250
574
500
200
288
275
300
239 150
100
100
-100
50
(157)
-300
1994/95
1995/96
Adjusted for Sishen iron ore supply
1996/97
1997/98
1998/99
(268)
1999/00
0
2000/01
25
PROFIT LEVERAGE POTENTIAL

Iron ore procurement

Vanderbijlpark further re-engineering

Saldanha turnaround

Sales mix shift from export to domestic

Price cycle recovery

Exchange rate
26
RIGHTS ISSUE RATIONALE

Retention of iron ore ownership in Iscor a condition to unbundle

Optimise shareholder value - Kumba market rating higher than Iscor

Kumba value maintained by transferring debt from Kumba to Iscor

Higher debt in Iscor not bankable, hence R1.67 billion rights issue

Fully underwritten

Shareholders avoid dilution by following rights
27
FINANCIAL STRUCTURE
Pro-forma as at 30 June 2001
Including rights
issue
Shareholders’ equity (Rm)
9 972
Net debt (Rm)
1 811
Debt/equity ratio (%)
18
EBITDA interest cover (times)
3.3
28
LOUIS VAN NIEKERK
CHIEF EXECUTIVE OFFICER
ISCOR LIMITED
29
INVESTMENT CASE

Low cost producer

Iron ore ownership

Naturally protected domestic market

Significant potential earnings leverage from


Recovery in steel prices

R/$ weakness

Switch from export to domestic sales

Saldanha turnaround and synergies

Further efficiencies at other plants
Benefits from potential consolidation of South African steel industry
30
HANS SMITH
CHAIRMAN
ISCOR LIMITED
31
CONCLUSION

Declared 1994 strategy successfully implemented

Creation of two independent focused internationally competitive entities

Value release through unbundling

Competent and motivated management teams in place

Immediate opportunities for future earnings growth
32