Client Roadshow Custom Template

Brazilian Copper & Scrap Industry
overview
June 2nd, 2014
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Disclaimer and Forward-looking Statements
This presentation may contain certain forward-looking statements and information relating to Paranapanema
S.A. that reflect the current views and/or expectations of the Company and its management with respect to
its performance, business and future events. Forward looking statements include, without limitation, any
statement that may predict, forecast, indicate or imply future results, performance or achievements, and may
contain words and/or any other phrases of similar meaning. Such statements are subject to a number of
risks, uncertainties and assumptions. We caution you that a number of important factors could cause actual
results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in this
presentation.
In no event, neither the Company nor any of its subsidiaries, affiliates, directors, officers, agents or
employees shall be liable before any third party (including investors) for any investment or business decision
made or action taken in reliance on the information and statements contained in this presentation or for any
consequential, special or similar damages.
This presentation and all its contents are proprietary information and may not be reproduced or otherwise
disseminated in whole or in part without the prior written consent of the Company. The information contained
in this presentation is subject to change from time to time without notice and the Company is under no
obligation to keep you advised of such changes.
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Agenda
1
Introduction
2
Copper Industry Overview
3
Brazilian Market / Paranapanema
4
Business Model
3
1
Introduction
4
History of Continuous Corporate
Development
A group of Pension Funds, lead
by Previ invested in
Paranapanema
First issuance of local
debentures
Merge of Caraíba Metais, the
largest producer of primary
copper in Brazil, with Eluma, 2nd
largest producer of semimanufactured copper products
Divestiture of non-core
businesses
New management to lead
the “Nova Paranapanema“
project
New rules (regulation of
import tax), removing
benefits for imported
products
Expansion of the Dias
D’Avila (BA) plant for the
production of copper
cathode
2013
2012
2011
2005-2010
60/70’s
80/90’s
Established in 1961
Shares listed on the São Paulo
Stock Exchange in 1971
Focus on heavy construction
and tin mining
2000-05
Investments concentrated
in non-ferrous activities
Focus on deleveraging and
improving capital structure
Large investments in
expansion and
modernization
New organization
structure
New CEO
Operating and
financial turnaround
Focus on increasing
margins and
strengthening cash
generation
Enhanced Risk
Management
Increased Corporate
Governance
New copper pipe mill
at the Utinga plant
employing Cast & Roll
Technology
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Paranapanema at a Glance
Overview
Paranapanema is the largest player in the Brazilian copper industry with leading market shares in all segments
It is the biggest copper Recycler in South America.
Owns 4 industrial plants, including the only smelter in Brazil responsible for 94% of domestically refined copper
Long-term relationship with suppliers and customers
Paranapanema’s cathode is listed in the LME and SHEX and its brands are known in the market for their superior
quality
Consolidated turnaround with several consecutive quarters of improving financial results
Positive industry fundamentals with copper consumption growing far above GDP
Financial Highlights
Solid Shareholder Base
2011
2013
79
125
169
208
R$4,098
R$5,549
Adjusted EBITDA* (million)
R$42
R$332
Adjusted EBITDA Margin
1.0%
6.0%
-R$103
R$724
Net Debt / Adjusted EBITDA
-2.4x
2.2x
Gross Debt / Adjusted EBITDA
16.6x
3.6x
Sale of Refined Copper (kt)
Sale of Semi-manufactured Copper (kt)
Net Revenues (million)
Net Debt (million)
24%
33%
Market
17%
6%
8%
EWZ
True corporation with no
controlling shareholder or
shareholders’ agreement
12%
* Adjusted for Non-Recurring Results
Source: Company Information
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2
Copper Industry Overview
7
Drivers of Global Copper Demand
International Copper Market
China is the most important player accounting
World’s Copper Market (in copper equiv.)
Copper Concentrate Production
for 44% of the global consumption
China also holds a disproportionate amount of
18.771
global stocks
16.153
16.742
17.659
Strong growth of copper mining supply in
2011
2013/14 puts upward pressure leading to higher
2012
2013
2014
Copper Smelter Production
TC/RC (larger discounts to smelters)
Although expected growth in refined production
will surpass growth in demand, tightness in the
physical market results in higher premiums
Refined copper prices to come under downward
pressure over the next few years
17.662
15.383
15.776
2011
2012
16.403
2013
2014E
Refined Copper Consumption
21.755
Total Demand 2013(E): 20.7 million t
20.702
19.606
19.605
2011
2012
Global output 2013(E): 20.9 million t
Source: Wood Mackenzie as of 2013
2013
2014E
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Global Markets of Copper Concentrate
Global Production of Copper Concentrate (million t)
Copper Concentrate (million t)
16.7
17.7
15.8
18.8
16.4
20.0
17.7
18.9
Others
24%
Chile
33%
Brazil
1%
Congo
5%
2012
2013
Mine Production
2014E
Zambia
4%
Canada
3%
Australia
5%
2015E
Smelter Production
Peru
7%
USA
7%
China
9%
Poland
2%
Source: Wood Mackenzie and Reuters
Future Contracts (US$/t)
TC/RC ¹
Improvement in copper concentrate
discounts may reduce interest in
expensive copper scrap
520,0
515,0
395,0
359,5
2012
2013E
2014E
2015E
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3
Brazilian Market
10
Trends for the Brazilian Copper Industry
Copper Concentrate Production (‘000 t)
Refined Copper Production (‘000 t)
Refined Copper Consumption (‘000 t)
469
497
523
419
320
221
2012
354
264
270
281
281
2013E
2014E
2015E
181
2013E
2014E
2015E
2012
2012
2013E
2014E
2015E
Consumption of refined copper in Brazil increased 5.5% in 2013 vs. 2012
Expected growth of copper consumption in Brazil is supported by:
Recovery on the domestic industrial production (end of the “Port War”)
Investments in Infrastructure: e.g. World Cup and The Olympic Games
Growth in primary consumption and the Real Estate sector
Paranapanema owns the only smelter in Brazil, responsible for 94% of the domestic production of
refined copper
Source: Wood Mackenzie
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Global & Brazilian Copper Markets
FORECAST 2013-14
REGIONS
(kt)
Africa
North America
LATAM
Asia
Europe
Middle East
Oceania
Total
Brazil
MINE PRODUCTION
REFINED PRODUCTION
REFINED USAGE
2011
1.447
1.740
7.305
2.858
1.500
369
1.060
16.279
2012
1.713
1.863
8.194
3.094
1.569
382
1.113
17.928
2013
2.005
2.022
8.745
3.384
1.609
446
1.121
19.332
2014
2.147
2.080
9.123
3.621
1.660
431
1.128
20.190
2011
971
1.280
4.178
8.789
3.687
292
500
19.697
2012
1.181
1.370
4.367
10.076
3.821
300
482
21.597
2013
1.435
1.451
4.430
11.475
3.968
300
475
23.534
2014
1.609
1.466
4.405
12.552
4.003
300
475
24.810
2011
297
1.957
889
11.729
3.994
932
134
19.931
2012
315
1.929
908
12.437
3.980
966
135
20.670
2013
344
1.917
941
13.160
4.064
1.012
140
21.578
2014
367
1.904
983
13.918
4.250
1.061
146
22.630
219
254
288
334
218
175
270
280
409
421
441
465
Chinese GDP is 3.4x the Brazilian GDP
China consumes 20x more copper than Brazil
Source: Wood Mackenzie and Paranapanema
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Brazilian Copper recycling overview
Copper Scrap consumption in Brazil 2013 (t)
Importers 2013
IMPORTED
13.700
10%
Others
14%
Total: 139,600
DOMESTIC
125.900
90%
Source: Paranapanema & market
PMA
86%
Copper Scrap utilization 2013 (t)
Copper Scrap Trade Balance (t)*
2011
2012
13.967
2014
(Jan-Apr)
2013
13.700
8.262
65.964
47%
73.636
53%
5.199
4.619
4.421
Imports
Exports
-1.644
-3.143
-3.841
-6.843
DIRECT MELT
-9.081
SMELTER/REFINING
Source: Aliceweb
*Excluded residues
-17.110
IMPORTS
BALANCE
EXPORT
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Production and Sales Volume
Production Volume – Primary Copper (‘000 t)
Production Volume – By-Products (‘000 t)
260
212
213
2010
2011
155
2010
2011
Source: Company Information
566
481
378
175
2012
2013
Production Volume – Copper and Alloy (‘000 t)
170
494
177
2012
2010
2011
2012
2013
Sales Volume – By product (2013)
206
Primary Copper
33%
Copper Products
61%
By Products
6%
2013
14
4
Business Model
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Paranapanema Holds Key Position in the
Brazilian Copper Industry
62% of Brazilian
consumption
MINING
Vale
Caraiba/Glencore
Yamana Gold
94% of domestic production
Paranapanema recycles
about 80.5 kton/year of scrap
COPPER
CHAIN IN
BRAZIL
Bars
Source: Wood Mackenzie and Paranapanema
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Core Business in Copper Processing
Suppliers
Primary (Refined) Copper
Semi-manufactured Copper Products
Clients
Export
36%
Largest Brazilian
producer of refined
copper with more
than 50% of total
sales
Domestic
64%
Chile as main copper
concentrate origin (~75%)
1 Primary Copper Unit
(Only Smelter in Brazil)
3 Copper and Copper Alloys Product Units
1 Distribution Center
Exports to over 30
countries
ROD (Largest supplier of copper rods in Brazil)
Copper Concentrate
+
Copper Scrap
WIRE
CATHODE
CATHODE
BY-PRODUCTS: Precious metals, sulfuric acid, iron silicate, anodic
slimes and others
Source: Company Information
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Industrial Footprint
Production Plants and Raw Materials Supply
Dias D’Ávila – (BA)
Smelting and
refining of primary
copper, cathodes,
rods, drawn wire
and by-products
Serra – (ES)
Production of
copper and bronze
fittings for civil
construction
Peru
Supplier of
copper
concentrate
Capuava – Santo
André (SP)
Production of copper
tubes for industry and
civil construction
Chile
Main supplier of
copper
concentrate
Utinga – Santo André
(SP)
Production of copper
and brass bars, wires,
laminates and bronze
Production plants
Efficient Distribution Channel
Paranapanema currently owns four processing plants
and one distribution center:
I. Santo André (SP): 2 units
II. Serra (ES): 1 unit
III. Dias D’Ávila (BA): 1 unit (smelter)
IV. Distribution center (RJ)
Paranapanema’s processing plants are strategically
located close to its main consumer markets
Imported copper concentrate comes through the Aratu
port (State of Bahia)
Local copper concentrate origination is justified by
lower logistic costs for the processing in Dias D’Ávila
Estimated Market Share of 62% in scrap origination all
over Brazil
Sales of sulfuric acid within a 50km radius of the
smelter
Anodic slime generated is refined in Europe or Asia
yielding 1.6 t of gold, 50 t of silver and others precious
metal per year
Distribution center
Copper Concentrate Origin
Source: Company Information
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Sales Across a Diversified Industry Base
Energy / Electricity
Traders /Retail
Cables, Wires
and
Connectors
Tubes
Source: Paranapanema
Cathods,
Rods and
Wires
Clothing
Refrigeration
Industry
Copper alloys
used in
buttons,
zippers,
jewelry,
surgical tools
Civil Construction
Tubes, fittings,
gas, bus bars
for electrical
power, wires
and power
cables
Rolling, Flats
and Bars
Others
Automotive
Electrical
vehicles,
brake pads,
radiators and
heat
exchangers
Wirehouse,
solar panels,
wind mills and
ethanol
production,
others
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Value Creation Rationale
Risk
Management
Risk Management
Mitigate currency and commodity
volatility impact on results
I. Hedge of metal exposure
II. Strict dollar-denominated cash
flow hedging
Well structured Governance,
policies and controls
Source: Company Information
EBT
Premium
Management
Net
financial
expenses
+ D&A +
Operating
expenses
EBITDA
R$ 5.2bn
Cost control
Metal Cost
Metal Revenue
Total Revenue
R$ 5.5bn
TC/RC +
Dicount Cu
recycled +
premium +
byproducts
revenues
Premium Management
TC/RC
Recycling quality process
Cost Controls
Introduction of Zero Base
Budgeting
Otimization of premium matrix
Leveraging on improved
technologies
Price premiums denominated in US
Dollar
Processes/plants consolidation
Premiums not linked to LME
quotation
More efficient funding structure
Transformation costs mostly in
Reais
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Thanks
www.paranapanema.com.br/en
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