The Brazilian boom is it happening and what will it mean for copper industry growth in this newly industrializing economy? Presented by Paranapanema S.A. Brazil Mario L. Lorencatto
Table of Contents 1. Introduction to Paranapanema 2. Economic Scenario in Brazil 3. Brazilian Copper Industry 4. Prospects for the Copper Business in Brazil 5. Paranapanema s Investment Program & Upcoming Business Opportunities 6. Contact Details 2
INTRODUCTION TO PARANAPANEMA 3
2,512 3,192 4,098 4,026 Largest non-integrated producer of refined copper in Brazil: Production capacity: 280,000 t/yr; 98% of total domestic production; 40% of total consumption; 650,000 t/yr. of suphuric acid; Operates other 3 plants producing copper & alloys products (rolled, bars, drawn wires, tubes and fittings): Production capacity being raised from 72,000 to 130,000 t/yr.; 41% share of the domestic market; Net Revenues (R$ MLN) Employs 3,500 people; Market maker of the local copper scrap segment, controlling 65% of the local volume; 2009 2010 2011 2012 4
100 106 42 125 Compelling case of business turnaround new management and improved results; Focus on the copper business retain its leadership position; Adjusted EBITDA (R$ MLN) Sold its non-copper businesses: fertilizer, tin mining, zinc semi manufactured, mining rights; CAPEX program of $600MLN in 2011/14; Social/environmental responsability; 2009 2010 2011 2012 Shares listed in the Novo Mercado of BM&FBOVESPA 53% of capital owned by Caixa, PREVI and PETROS: Shares price up by 170% since Jun/12. 5
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7 ECONOMIC SCENARIO IN BRAZIL
Economic Scenario in Brazil - 2013 Policy Focus: economic growth, employment and social development; Anticyclical economic measures: Expansionary monetary and fiscal policies; Public investments in infrastructure; Less market driven vs. government interventions; The country s basic infrastructure as bottlenecks to higher growth; Increased protective barriers on foreign trade; Domestic inflation projected at 5.74% - above the 4.5% target; The Brazilian Real expected to trade within 1.95-2.05 vs. the US Dollar; Government holds political majority through a diverse group of parties kickoff of the 2014 elections for the Federal and States administrations. 8
GDP of US$ 2.5 TLN World s 7th largest GDP by sector Population: 198MLN 5.2% unemployment Sources: IBGE/IMF 9 9
% of GDP 50% 47% 40% 36% 34% 30% 29% 26% 26% 26% 25% 24% 22% 21% 21% 20% 10% 0% Source: International Monetary Fund 10 10
70 60 67 Billion US$ 65 66 50 40 45 49 30 20 34 26 10 0 2007 2008 2009 2010 2011 2012 2013F Source: IMF, Bloomberg, IBGE, Haver and Itaú 11 11
PAC was introduced in 2007 to promote the planning and execution of investments linked to social and urban infrastructure, logistics and energy, contributing to rapid and sustainable development. PAC 1 Investments 2007-2010 = US$ 328.5 BLN Focus on infrastructure projects: stadiums, urban mobility, ports and airports and services such as security, IT, electric power and turism. Investments 2011-2014 = US$ 494.0 BLN 12 12 PAC 2 The investments concentrate on the infrastructure projects to improve the sport facilities, urban mobility and housing. Source: Brazilian Government
Brazil will host two of the world s major sport events: 2014 FIFA World Cup Investments 2009-2013 = US$ 13.1 BLN Focus on infrastructure projects: stadiums, ports and airports upgrading, urban mobility and services as security, IT, electric power and turism. 2016 The Olympic and Paralympic Games Investments 2010-2015 = US$ 6.3 BLN The investments are concentrated on the infrastructure projects, construction works to improve the sport facilities, urban mobility and accomodation. Sources: Brazilian Government 13 13
THE BRAZILIAN COPPER INDUSTRY 14 14
Mining Mineração Caraíba/Glencore Vale Yamana Gold Semi-manufactured Paranapanema Termomecânica Cecil Ibrame Refining Paranapanema Mineração Caraíba/Glencore Vale Wire-rod 11 out of the 17 established companies also manufacture wires and cables. Wires and cables: More than 100 companies several including international companies such as Commscope, Draka- Telcon, Furukawa, General Cable, Phelps Dodge, Nexans and Prysmian. Source: Sindicel and ABC 15 15
The Brazilian copper chain reached total production of 805 th tons (contained copper) in 2011. 1200 Thousand tons 1,139 Based on the investments for the next years, the production could reach 1,139 th tons in 2016. 1000 800 600 830 236 152 746 199 130 815 805 234 237 149 134 295 190 280 Wires and Cables Semi-manufactured Cathode Concentrate 400 200 0 230 202 218 218 374 212 215 214 216 2008 2009 2010 2011 2016 Source: Sindicel and ABC 16 16
FORECAST 2012-14 REGIONS (th t) Africa North America LATAM Asia Europe Middle East Oceania Total Brazil MINE PRODUCTION REFINED PRODUCTION REFINED USAGE 2008 2009 2010 2011 2012 2013 2014 2008 2009 2010 2011 2012 2013 2014 2008 2009 2010 2011 2012 2013 2014 1,031 1,205 1,355 1,447 1,713 2,005 2,147 608 742 883 971 1,181 1,435 1,609 296 309 296 297 315 344 367 1,952 1,695 1,643 1,740 1,863 2,022 2,080 1,710 1,496 1,405 1,280 1,370 1,451 1,466 2,188 1,764 1,897 1,957 1,929 1,917 1,904 7,240 7,271 7,290 7,305 8,194 8,745 9,123 4,064 4,197 4,135 4,178 4,367 4,430 4,405 889 768 903 889 908 941 983 2,699 2,998 3,084 2,858 3,094 3,384 3,621 7,565 7,787 8,298 8,789 10,076 11,475 12,552 9,183 10,035 11,269 11,729 12,437 13,160 13,918 1,416 1,434 1,463 1,500 1,569 1,609 1,660 3,490 3,380 3,596 3,687 3,821 3,968 4,003 4,482 3,536 3,861 3,994 3,980 4,064 4,250 333 343 338 369 382 446 431 322 255 265 292 300 300 300 740 760 906 932 966 1,012 1,061 1,034 1,012 1,021 1,060 1,113 1,121 1,128 501 449 427 500 482 475 475 151 130 131 134 135 140 146 15,705 15,958 16,194 16,279 17,928 19,332 20,190 18,260 18,306 19,009 19,697 21,597 23,534 24,810 17,929 17,301 19,264 19,931 20,670 21,578 22,630 219 215 222 219 254 288 334 225 199 225 218 265 280 280 372 316 435 409 421 441 465 Brazilian Copper Concentrate Production (th t) Mines 2008 2009 2010 2011 2012 2013 Chapada 63 65 68 75 61 51 Jaguari 30 31 31 35 33 27 Salobo - - - - 50 90 Sossego 126 119 123 109 110 120 Total Brazil 219 215 222 219 254 288 Chinese GDP is 3.6x the Brazilian GDP China consumes 20x more copper than Brazil Source: Brook Hunt 17 17
Refined Copper - World Consumption Copper Concentrate - World Production Saudi Arabia 1% Thailand 1% Poland 1% Mexico 1% Turkey 2% Brazil 2% Taiwan 2% India 3% Russia 4% Others 25% South Korea 4% Japan 5% USA 9% China 40% Mexico 3% Congo 3% Canada 3% Indonesia 3% Zambia 4% Kazakhstan 2% Russia 4% Poland 3% Iran 2% Brazil 1% Australia 6% Others 10% USA 7% Peru 8% Chile 33% China 8% Source: Sindicel 18 18
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2008 2012 CAGR = 7.1 % 21 21
2008 2012 Complete Line Products (th t) Complete Line Products (th t) Others 100.5 60% Paranapanema 56.4 34% CAGR = 7.1 % Others 115.0 52% Paranapanema 84.9 39% Total = 167.6 th t Imports 10.7 6% Total = 220.7 th t Imports 20.8 9% Tubes and Alloys (th t) Tubes and Alloys (th t) Others 12.4 40% Imports 3.6 12% Paranapanema 14.9 48% CAGR = 3.6 % Others 10.6 30% Imports 11.2 32% Paranapanema 13.7 38% Total = 30.8 th t Source: Paranapanema s estimate Total = 35.5 th t 22 22
2008 2012 CAGR = 2.5 % 23 23
PROSPECTS FOR THE COPPER SECTOR IN BRAZIL 24 24
Growth in refined copper usage: Brazil Global 2013 4.8% 4.4% 2014 5.4% 4.9% Recovery in the domestic industrial production; Infrastructure projects and favorable momentum in civil construction; Weaker local currency; Reduction in the VAT incentives to imported products; Increased import duties on copper tubes: from 15% to 25%; Import substitution growth opportunities for the local producers; Sharp cuts in electricity prices; 25 25
Tax Incentive Programs: Reintegra and Desenvolve ; Reduction of payroll taxes; Attractive long term financing from public Development Banks; Growing threat of substituting copper in some applications: PVC tubes in civil construction; Aluminum in the cable & wires and auto segments; Development and expansion of new applications for copper; New Regulations for mining activities: tougher to obtain mining licenses; higher royalties; more strict environmental protection; incentives to vertical integration; Excess capacity: industry consolidation semi-manufactured segment. 26 26
PARANAPANEMA S INVESTMENT PROGRAM 2011/14 27 27
CAPEX Projects (Revised in Feb., 2013) 2011 2012 2013 2014 Total I. Expansion and upgrade of the refined copper plant Update and expansion of refined copper plant: Cu production from 220 to 280 thousand t /yr; Production cost from $629/t to $432/t; Use of scrap from 20% to 24%; Sulphuric acid from 572 to 650 thousand t/yr. New precious metals refinery: 2,4 t/yr of gold, 33,5 t/yr of silver, platinum and selenium. $8MLN $156MLN $32MLN $ 25MLN $196MLN $ 25MLN Enviromental Improvement Projects. $14MLN $4MLN $18MLN II. Expansion and update of the plants of semielaborated products New plant of seamless copper tubes: from 18 to 36 thousand t/yr cast & roll. Expansion of rolled copper plant (cold rolling process) from 28 to 55 thousand t/yr. Expansion of rolled copper plant (hot rolling process) from 60 to 200 thousand t/yr. $11MLN $48MLN $27MLN $77MLN $85MLN $86MLN $77MLN $85MLN Total I and II $19MLN $204MLN $73MLN $191MLN $487MLN III. Other projects and maintenance $51MLN $13MLN $9MLN $40MLN $113MLN Total I, II and III $70MLN $217MLN $82MLN $231MLN $600MLN 28
PARANAPANEMA S UPCOMING BUSINESS OPPORTUNITIES 29 29
Further expand production capacity of refined copper: From 280 to 320 thousand t/yr. up to 69% of the local consumption; Required investment: $35MLN plus additional working capital; Expanding exports sales of copper tubes and laminated products: Paranapanema s production capacity will represent about 83% and 124% of the domestic consumption, respectively; New products niche opportunities in semi-manufactured; Vertical Integration: participation in the copper mining segment: Focus on opportunities within Brazil; Leverage on the company s strategic advantages: logistic/smelter; Paranapanema will not develop mining operations capability; Preference for projects in advanced stages of development; Medium and small size deposits 300 to 400 thousand t; Secure up to 30% equity ownership and 100% of the offtaking; Increase domestic sourcing of copper concentrate from 23% to 70%. 30 30
Edson Monteiro Machado President/VP Operations edson.monteiro@paranapanema.com.br Tel. +5511 2199-7501/+5511 98706-0521 Mário L. Lorencatto CFO and Investor Relations Director mlorencatto@paranapanema.com.br Tel. +5511 2199-7652/7904/+5511 99519-2000 José Rodolfo Montemurro Investor Relations Dept. jmontemurro@paranapanema.com.br Tel. +5511 2199-7566/7904 dri@paranapanema.com.br www.paranapanema.com.br/ri. 31 31
THANK YOU! 32 32