2. Disclaimer
The material that follows is a presentation of general background information about Magnesita Refratários S.A. and its consolidated subsidiaries (“Magnesita" or the
"Company") as of the date of the presentation. It is information in summary form and does not purport to be complete and is not intended to be relied upon as advice to
potential investors.
No representations or warranties, express or implied, are made as to, and no reliance should be placed on, the accuracy, fairness or completeness of the information
presented or contained in this presentation. Neither the Company nor any of its affiliates, advisers or representatives, accepts any responsibility whatsoever for any loss or
damage arising from any information presented or contained in this presentation. The information presented or contained in this presentation is current as of the date hereof
and is subject to change without notice and its accuracy is not guaranteed. Neither the Company nor any of its affiliates, advisers or representatives make any undertaking to
update any such information subsequent to the date hereof. This presentation should not be construed as legal, tax, investment or other advice.
Data in this presentation was obtained from various external data sources, and the Company has not verified such data with independent sources. Accordingly, the Company
makes no representations as to the accuracy or completeness of such data, and such data involves risks and uncertainties and is subject to change based on various factors. All
statements related to minerals reserves and recovery estimates are projections based on available geological information and statistical geological models. Actual future
production of minerals may differs substantially from those estimates.
This presentation contains forward-looking statements. Such statements are not statements of historical facts, and reflect the beliefs and expectations of Magnesita’s
management. The words "anticipates", "wishes", "expects", "estimates", "intends", "forecasts", "plans", "predicts", "projects", "targets" and similar words are intended to
identify these statements. Although the Company believes that expectations and assumptions reflected in the forward-looking statements are reasonable based on
information currently available to the Company's management, the Company cannot guarantee future results or events. You are cautioned not to rely on forward-looking
statements as actual results could differ materially from those expressed or implied in the forward-looking statements.
This presentation does not constitute an offer, or invitation, or solicitation of an offer, to subscribe for or purchase any securities, and neither any part of this presentation nor
any information or statement contained therein shall form the basis of or be relied upon in connection with any contract or commitment whatsoever.
Changes to Historical Numbers
In 3Q13, Magnesita adjusted its historical numbers due to the IFRS11 changes to the consolidation of KMR (Joint Venture) with retroactive effect to 1Q12 for the
purpose of comparison with the numbers in 2013.
Other changes in the information by segment
In line with the new strategic plan, the Company has revised a few accounting processes and systems. As a result, in 3Q13 the Company made a few
adjustments in the segmentation of a few clients. Consequently, there were marginal changes in the historical data per segment.
2
4. Refractory industry overview
Refractories are crucial consumables for manufacturing processes with high temperatures
Types of refractories
Industry overview
Main consumers worldwide
Source: Freedonia.estimates 2011
Refractories are fireproof materials consumed within
various production processes, providing heat, chemical
and mechanical resistance in industrial furnaces
Monolithic
Their raw material are minerals with high melting point,
including magnesite, dolomite and alumina.
Bricks
Nonmetallic
~15%
Steel
Pre castables,
valves and
slide gates
Refractories are continuously consumed during steel production…
Other (pulp&paper,
petrochemical, ceramic,
other)
…and other industrial processes
BOF
1 ton of steel demands
Integrated
mill
Non-ferrous
(aluminum, copper,
nickel, silver, zinc)
~10%
Refractories are consumables: ~10Kg per ton of steel;
~0.6Kg per ton of cement
Torpedo car
~15%
~60%
Crucial, but represents ~3% of COGS in steel
manufacturing and less than 1% in cement
Blast Furnace
(cement, glass, lime)
~10-15 Kg of refractories
1 ton of cement demands
~1 Kg of refractories
Iron Ore
Steel ladles Continuous casting
900 tonnes
~15 years
200 tonnes
~2 years
800 tonnes
~6 months
EAF
1 ton of glass demands
~4 Kg of refractories
1 ton of aluminum demands
70 tonnes
~1 month
25 tonnes
~10 hours
~6 Kg of refractories
Mini-mill
Scrap
1 ton of copper demands
120 tonnes
~1 month
~3 Kg of refractories
4
5. Company overview
Magnesita is a global leader in refractories solutions and industrial minerals
More than 100 years of expertise in refractories and industrial minerals
3rd largest player in the refractory sector worldwide, present in the main steel markets
#1 in the steel and cement industries in Brazil and South America
#1 in the stainless steel industries in North America and Europe
Highest vertical integration level in the industry (~80%), fully self-sufficient in high-grade magnesite
Best, largest and lowest-cost magnesite mine in the world outside China
Significant number of unexplored mineral rights in Brazil
Solid financial fundamentals
Magnesita in numbers
Revenues of R$ 2.46 billion in 2012
Production in 4 continents, supplying globally to more than 850 clients worldwide, in +70 countries
6,500 employees
28 industrial facilities with more than 1 million tons/year of refractories produced in 2012
5
6. Refractory business models
Magnesita’s unparalleled business model reaps value across the chain
Mining
Refractory
manufacturing
Full performance
based solution
Services
Key drivers
Manufacturing
Only
Technology
Integrated
Services
Technology, local presence
Integrated
Manufacturing
Access to high-quality materials
Fully
Integrated
Global scale, local presence
Products and services breadth and depth
CPP-Integrated
Access to high-quality materials
Global scale, local presence
Products and services breadth and depth
Relationship with clients
+
-
Gross Margin in 1H13* (%)
33,6%
27,2%
23,6%
16,5%
*Source: Bloomberg (Krosaki and Shinagawa refer to 1Q13. Fiscal Year ends in march)
Magnesita
6
Vesuvius
RHI
16,3%
Krosaki
Shinagawa
7. Global leader in cost per performance (CPP) solutions
More than just a contract, but a true value creation partnership
Methodology
Increased business process performance
Improved focus on core capabilities
Improved visibility and transparency
Enhanced reporting and decision making
Cost
Refractory consumption reduction
Improved conversion efficiency
Reduced downtime
Reduced consumption of other consumables
Working Capital
Increased asset availability
Refractory inventory reduction
Improved use of working capital
Safety, Quality, Environment
Improved quality
Enhanced safety of operations and personnel
Risk mitigation
Source: Magnesita
7
8. Unique global footprint
Global scale, with local presence in key markets, with an integrated supply chain
Sinterco Dolomite JV (BEL)
Hagen-Halden, Oberhausen and
Kruft Production Units (DEU)
Valenciennes and Flaumont
Production Units (FRA)
Dalian Production Unit (CHN)
York Dolomite Mine (USA)
York Production Unit (USA)
Qingyang Dolomite Mine (CHN)
Chizhou Production Unit (CHN)
Taiwan JV’s
Production Unit (CHN)
Clay Mine (Uberaba – BRA)
Magnesite Mine
(Brumado – BRA)
Chromite Mine (Santa Luz - BRA)
Talc Mine (Brumado - BRA)
Aratu Port
Contagem Production Unit (BRA)
Coronel Fabriciano Production Unit
(BRA)
San Nicolás Production Unit
Revenues per region - 9M13 (BRL)
Aratu Port
Headquarters
13%
Production Units
19%
Brazil
36%
South America ex-Brazil
North America
Mines
Europe
Sales Offices and Sales Representative
22%
8
10%
Other
9. Experienced management team
Unique combination of solid financial & strategic background with tenured industry experience
Industry experience
Octavio Pereira Lopes - CEO
Joined Magnesita in 2007 as board
member and became CEO in 2012
Previous
experience
Successful as CEO of Equatorial. Previous
Managing Director at GP Investments
Functional Team
José Roberto Beraldo - CFO
Joined Magnesita in 2012
Solid financial background
Senior roles and extensive
Felipe Sommer- VP People and Mngmt
Joined Magnesita in 2012
Otto Levy Reis – COO
Industry Experience: +11 years
Joined Magnesita in 2008
Pedro Gutemberg - VP Minerals (interim)
Industry Experience: +10 years
Joined Magnesita in 2013
Luis Rodolfo Bittencourt - VP R&D
Industry Experience: +27 years
27 years in Magnesita
experience in global companies
Jim Pirano – Commercial Head of Industrial
Industry Experience: +6 years
7 years in Magnesita
Operational Team
Over 100 years of
combined experience in the
industry
Close relationships with
key players and clients in the
industry
Rick Gladfelter – Head of Operations
Industry Experience: +36 years
36 years in Magnesita
Martin Bartmann - Global Supply Chain
Industry Experience: +17 years
Joined Magnesita in 2011
9
11. New strategic vision
Vision:
Be the best provider of refractories
solutions and industrial minerals,
leveraging and developing our minerals base
II-Grow selectively
and aggressively
One global organization
I-Ensure leadership
in our core markets
Strive to keep offering
high quality and
innovative products,
unrivaled services and
cost performance
III-Expand industrial
minerals base
Pursue long term growth
opportunities in selected
markets where we can
deliver superior value to
our customers and
shareholders
Continue to develop high
quality, low cost raw
material sources to
support our current
businesses as well as
new businesses where
we can have a
sustainable competitive
advantage
IV-Maintain a global low
cost production base
Optimize production
globally to improve
efficiency and support
growth
Develop global supply
chain management
Our values
▪ Customer
▪ People
▪ Meritocracy
▪ Ethics
▪ Profit
▪ Management and Method
11
▪ Agility and Transparency
▪ Respect for Safety, Environment and Communities
12. I – Ensure leadership in our core markets
Our differentiated competitive position and leadership in core markets support our growth as they recover
Magnesita’s competitive advantages in its core markets
Magnesita’s share* in core markets
Vertically integrated low-cost producer
Dolomitics in
North America
Continuous investments in R&D and technology
~50% in stainless steel
~20% in mini-mills
~25% in cement
Specialized technical assistance
Logistic advantages in strategic locations
Captive CPP contracts with long-term alignment of interests
South America
~65% in steel
~60% in cement
Brand recognition and historical leadeship
*Company estimates
Long standing relationship with blue-chip customers
12
Dolomitics in
Western Europe
~60% in stainless steel
~15% in mini-mills
13. II – Grow selectively and aggressively
Pursue long term growth opportunities in select markets where we can deliver superior value
Opportunities for growth in a fragmented global industry
Magnesita is poised to grow at above market rates
Global market share (in USD)
Market growth where penetration is at sustainable levels
Low exposure in several important markets and industrial sectors
Opportunities for share gains in attractive markets where
Global players
Segment players
Regional players
underrepresented and competitive advantage exists
10%
Chinese
players
~35%
Increasing reach of our refractory solutions through investments
9%
5%
~10%
~13% ~16%
in sales force and technical assistance
Small local
players
Source: Company estimates
Opportunities for diversification into industrial segments
Opportunities for diversification into new geographies
% of refractory sales (in BRL) per region
9M12
Global Refractories
consumption²
9M13
14%
CAGR
20%
14%
44%
20%
Refractory sales (BRL mln) to industrial
sectors and % of refractory business
22%
276
42%
21%
212
13.9%
23%
South America
Europe
North America
306
Industrial
40%
17.3%
18.0%
9M12
9M13
60%
Steel
Other
9M11
2
13
Freedonia
14. III – Expand industrial minerals base
Unlocking our internal expertise and the industrial minerals opportunity in Brazil
Initial portfolio of attractive mineral rights
Magnesita’s
strategic
positioning
70 years of mining experience in Brazil (DBM, CCM, talc, etc)
Expertise in geology, research and environmental requirements
Knowledge of local stakeholders management
Dedicated team to prospect, analyze and develop business
Brazil is fertile and has very favorable geography
The Brazilian
opportunity
Historically unexplored
Viewed as a reliable source (vs China)
Attractive due to global unbalance of supply and demand
Focused
Opportunity
set
Minerals out of big players’ radar
Logistic is not predominant
Commercial development is necessary
US$2bi - US$10bi global markets
Magnesita is very well positioned to occupy the “white space” in Brazil
14
15. III – Expand industrial minerals base
Our goal is to have at least one project moving to the next phase every 12 – 18 months
1.Preliminary
2.Development
3.Installation
5 to 10 analysis
per year
Graphite
Talc expansion
Complete geological work
and reserve certification
Investment in the
industrial plant
Preliminary geological
work
Environmental license
Market analyses
Cash flow generation
Maintenance capex
Commercial development
Low capex; high risk
4.Operational
DBM, Talc, CCM
Medium capex; medium risk
High capex; low risk
Industrial project
Talc expansion
Graphite project
Become self sufficient supplying our refractory business
Increase capacity from 44k ton/year to 60kton/year in 2015
Surplus to supply third parties, focusing on high end users
Capex of up to R$ 20 million
Growing demand from new applications
Plans to double the talc business in the next 3 to 5 years
Restrictions from Chinese exports (~80% of global production)
Environmental license granted in March 2013
15
16. IV - Maintain a global low cost production base
A sustainable low cost production base is key to support growth and value creation
Opportunities for further industrial and supply chain optimization
Sinterco (JV)
Valenciennes
Flaumont
York
Kruft
Hagen
Oberhausen
Dalian
Qingyang
Chizhou
Finished product flow
Raw material flow
Brumado
Contagem
Mines
Production unit
Cost control through vertical integration in raw materials
With ~80% of its raw material needs coming from its own mines, Magnesita is the most integrated company in the industry
Magnesita mine – Brumado, Brazil (+200 years of reserve)
Open pit
Best quality in the world (+98.5% DBM grade)
Dolomite mine (JV) – Belgium (+30 years of reserve)
Dolomite mine – Qingyang, China (+50 years of reserve)
Chromite mine – Bahia, Brazil (+28 years of reserve)
Other reserves in Brazil: dolomite, clays, pyrophyllite, kyanite
Dolomite mine – York, USA (+45 years of reserve)
Open pit; intergrated with the refractory plant
Only refractory grade dolomite mine in the US
Graphite project in Brazil will increase vertical integration level
16
19. Debt and Leverage
Solid balance sheet with no refinancing risk
Leverage
Net Debt
Leverage excluding Perpetual Bond
EBITDA* LTM
Net debt / Ebitda
Net Debt
EBITDA* LTM
Net debt / Ebitda
3.6x
2.9x
3.0x
2.8x
2.1x
1.4x
1.4x
1,369
1,205
1,058
1,002
803
490
397
373
352
2Q12
4Q12
382
2Q13
3Q13
639
536
397
373
352
2Q12
4Q12
2Q13
Amortization Schedule (R$ million)
Cash position
1.454
BRL
Dec-12
Sep-13¹
-14%
28%
104%
USD
456
Sep-13 2013
2014
128
2015
82
2016
80
2017
12
2019
Others
12
2018
52%
13%
20%
EUR
884
37
3Q13
Net Debt per currency
570
20
382
*EBITDA excluding non recurring
*EBITDA excluding non recurring
Perpetual bond
Amortization
1.6x
-3%
0%
2020+
¹ Considering swap contracted in October, 2013
19
20. Key messages
Focused on delivering superior returns to shareholders
Global vertical integrated player with unique geographic
position
Opportunities for growth and diversification into selected
markets and industries
Significant value of mineral reserves with opportunities to
expand industrial minerals base
Unique solution-based model (CPP) and performance-based
applied R&D
Strong management team and corporate governance practices
Solid financial fundamentals
20
22. Strong support from shareholders
Listed in the Novo Mercado segment which corresponds to the best practices of corporate governance
Ownership structure
Corporate Governance
Only common shares
2 independent board members
GP
34,2%
High free float: 58.6% (minimum required is 25%)
Controlling Group
Free Float
Tag-along rights to all shareholders
58,6%
7,2%
Quarterly results in English in accordance with
Rhône
International Financing Report Standards (IFRS)
Shares included in the IGC (Index of Differentiated
Corporate Governance) and ITAG (Index of Tag Along)
Latin America and worldwide leadership in Private Equity
ADR Level I (Ticker: MFRSY)
Active management
OTC: Over- the-counter market
Culture of promotion by merit
Program established in 2010
Proven track record in the Brazilian and global capital markets,
1 ADR = 2 ordinary shares
with various success cases
MFRSY
22
23. Results 9M13
In spite of the poor performance of its core markets…
Steel production¹ (M ton)
South America
Steel production¹ (M ton)
North America
Steel production¹ (M ton)
EU-27
-5%
-4%
-1%
35
35
9M12
9M13
Cement sales² (M ton)
Brazil
130
93
89
9M12
9M13
+2%
124
51
9M12
9M13
52
9M12
9M13
Sources: ¹ World Steel Association; ² Sindicato Nacional da Indústria de Cimento
…Magnesita has presented stable volumes and increasing gross margin
Volume* (Kton)
Revenues (R$ M)
Gross Profit (R$ M)
33.1%
31.9%
15.5%
6%
-1%
762
758
1,597
1,698
+10%
9M13
9M12
*Refractory volume without LTR both in 2012 and 2013
23
562
9M12
9M13
15.5%
+4%
509
9M12
EBITDA(R$ M)
9M13
283
294
9M12
9M13
24. Market growth forecast and Magnesita’s share
%
Magnesita’s share
%
Mkt growth (CAGR)
Crude steel production¹ (mln ton) and Magnesita’s market share² (%)
Middle East
Europe
North America
South & Central
America
Asia ex-China
CIS
Africa
+4%
+2%
+3%
+3%
38
48
48
120 118
56
+2%
208 206 227
138
+7%
168
82
9.6%
16%
65%
2009 2012 2013 2017
(e)
(f)
(f)
~1%
2009 2012 2013 2017
(e)
(f)
(f)
2009 2012 2013 2017
(e)
(f)
(f)
28
26
20
+5%
38
15
16
20
16
98
~1%
2009 2012 2013 2017
(e)
(f)
(f)
363
300 308
237
111 112 125
<1%
2009 2012 2013 2017
(e)
(f)
(f)
<1%
2009 2012 2013 2017
(e)
(f)
(f)
2009 2012 2013 2017
(e)
(f)
(f)
Source: ¹CRU (Report Sep/2013) and ²Company estimates
Cement production¹ (mln ton) and Magnesita’s market share² (%)
South & Central America
Europe
North America
Others
Asia
+5%
+7%
+7%
108
116
124
133
115
60%
2011
2012 2013(f) 2014(f)
(e)
123
130
140
327
25%
2011
2.947 3.093
2.618 2.781
+4%
2012 2013(f) 2014(f)
(e)
317
328
345
270
<5%
2011
+7%
<1%
2012 2013(f) 2014(f)
(e)
Source: ¹CW Group (Report Feb/2013) and ²Company estimates
24
2011
2012
(e)
295
315
338
<1%
2013 2014(f)
(f)
2011
2012 2013(f) 2014(f)
(e)
25. Investor Relations contacts:
Octavio Pereira Lopes
CEO
Eduardo Gotilla
Global Finance & IRO
Daniel Domiciano Silva
Investor Relations
Phone: 55 11 3152-3203/3241
ri@magnesita.com
www.magnesita.com/ri
www.magnesita.com/ir
MFRSY
25