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Arrium Mining Site Tour Greg Waters, Chief Executive Mining 25 June 2013 For personal use only

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Page 1: For personal use only - ASXJun 25, 2013  · 'Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves'. Mr Leevers consents to the inclusion in For

Arrium Mining Site TourGreg Waters, Chief Executive Mining

25 June 2013

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This presentation contains certain forward-looking statements with respect to the financial condition, results of operations and business ofArrium and certain plans and objectives of the management of Arrium. Forward-looking statements can generally be identified by the useof words such as ‘project’, ‘foresee’, ‘plan’, ‘expect’, ‘aim’, ‘intend’, ‘anticipate’, ‘believe’, ‘estimate’, ‘may’, ‘should’, ‘will’ or similarexpressions. All such forward looking statements involve known and unknown risks, significant uncertainties, assumptions, contingenciesand other factors, many of which are outside the control of Arrium, which may cause the actual results or performance of Arrium to bematerially different from any future results or performance expressed or implied by such forward looking statements. Such forward-lookingstatements speak only as of the date of this presentation. Factors that could cause actual results or performance to differ materially includewithout limitation the following: risks and uncertainties associated with the Australian and global economic environment and capital marketconditions, the cyclical nature of the steel industry, the level of activity in the construction, manufacturing, mining, agricultural andautomotive industries in Australia and North and South America and, to a lesser extent, the same industries in Asia and New Zealand,mining activity in the Americas, commodity price fluctuations, fluctuations in foreign currency exchange and interest rates, competition,Arrium's relationships with, and the financial condition of, its suppliers and customers, legislative changes, regulatory changes or otherchanges in the laws which affect Arrium's business, including environmental laws, a carbon tax, proposed mining tax and operational risk.The foregoing list of important factors is not exhaustive. There can be no assurance that actual outcomes will not differ materially fromthese statements.

The information in this presentation that relates to Exploration Results, Mineral Resources or Ore Reserves is based on informationcompiled by Paul Leevers, who is a Member of The Australasian Institute of Mining and Metallurgy. Mr Leevers is a full-time employee ofOneSteel Manufacturing Pty Ltd. Mr Leevers has sufficient experience which is relevant to the style of mineralisation and type of depositunder consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2004 Edition of the'Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves'. Mr Leevers consents to the inclusion inthis presentation of the matters based on his information in the form and context in which it appears.

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Contents

3

Arrium business structure 4

Overview 5

Map of operations 6

History 7

Mining business doubled 8

Southern Iron & Middleback ranges operations 9

Market, sales & marketing 18

Whyalla port 25

Exploration 34

Summary 44

Appendix 47

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Arrium business structure

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Overview

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Mining expansion to double size of business• Completed on time and budget

‐ Southern Iron ‘ground breaking’ October 2011‐ First sales of Southern Iron ore October 2012‐ Achieved target sales rate of 12Mtpa June 2013

• 4th largest iron ore producer in Australia• Port to be at 13Mtpa capacity July – higher capacity ship loader in place• Success through leveraging core competency in development and execution of projects

Reasonable aspirations for 12Mtpa over 10 years Average sales Fe expected to be ~60% Loaded cash cost expected to be ~A$50/wmt1 (at 12Mtpa rate) Customer base predominantly China, but diversifying to include North Asia

• Tailored new blended products• Sales and marketing offices in Australia and China

Opportunity to utilise spare capacity of port Exploration

• Ferrous and non-ferrous• Track record of adding reserves

1 Includes mining, crushing, beneficiation, rail, road haulage and transshipping costs. Excludes capitalised costs (infrastructure, pre-stripping and mining licences) and depreciation and amortisation charges in respect of those costs, royalties, sales and marketing and corporate costs.

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Map of operations

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SOUTHERN IRON EXPLORATION LEASES

SOUTHERN IRON REGION

MIDDLEBACK RANGES REGION

CURRENT IRON ORE OPERATIONS

HIGHWAY

RAILWAY

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History

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Project Magnet announced 2004 (~$400M) • Conversion of Steelworks to Magnetite ore

– creation of new hematite ore export business

• Targeted 4 Mtpa• New export facility including narrow

gauge rail upgrade from MBR and transshipping

• Completed December 2007 Project Magnet Phase 2

• ‘Sweated’ assets to increase to 6Mtpa• Targeted extending 6 Mtpa rate for further

10 years - first declared Nov. 2009 Southern Iron + Port Expansion (~$600M)

• Increase iron ore exports to 12Mtpa • Aspirational target of 12Mtpa for 10 years

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Mining business doubled

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Key MilestonesSouthern Iron acquisition and Port development Southern Iron assets acquired – Oct 2011 Cutback commenced – Dec 2011 First ore haulage to Wirrida – Aug 2012 Crushing and screening commissioned – Sept 2012 First sales – Oct 2012 First ores through expanded Whyalla Port – Dec 2012 2nd shed completed – April 2013 Blending commenced – May 2013 New higher capacity ship loader arrived June 2013 (commissioning July 2013)

MBR upgrades Iron Baron OBP commissioned and mining recommencement – Jan 2012 Iron Duke OBP upgrade commissioned – Mar 2012 New locomotives and wagons commissioned – May 2013

Business doubled on time and budgetFor

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Southern Iron and Middleback Ranges Operations

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Southern Iron operations

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Peculiar Knob • Located 90kms from Coober Pedy• ~ 600kms from Whyalla• High Grade ore ~63% (all-in fines shipped)• Infrastructure ~$86m• Haul Road 96kms to Wirrida

Other Tenements• Hawks Nest• Windy Valley• Mount Brady• Tenements adjacent to Stuart Highway• Exploration access agreement - Dept. of Defence • Ferrous and non-ferrous exploration

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Southern Iron - leveraging infrastructure

Accommodation Village - Camp site

Crushing & Screening Plant ‐Wirrida

Rail Loop - Wirrida

Heavy Maintenance Facilities – PK Mine site

Wirrida Crushing & Train Loading

Peculiar Knob Mine Site

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Southern Iron – Woomera prohibited area

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Established relationship with Department of Defence Mining agreement in place for Peculiar Knob operations Access agreement in place for exploration activities in Hawk’s Nest, Windy Valley

and Mt Brady exploration tenements Encouraging discussions to date on access arrangements for Hawk’s Nest

hematite mining (Buzzard and Tui deposits located in Amber Zone 2 – located to west of Stuart Highway)

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Middleback Ranges operations

South Australia

ADELAIDE

Port Augusta

WHYALLAIron Knob

Iron BaronIron Duke

Kangaroo Island

Ardrossan

Coffin Bay

IRON KNOB

IRON BARON

WHYALLA

IRON KNIGHT

IRON DUCHESS

IRON DUKE

Camel Hills

Cooyerdoo

Katunga Hills

Spencer Gulf

N

North Middleback

Range

South MiddlebackRange

QUARTZ QUARRY

IRON CHIEFTAIN

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Middleback Ranges – mine areasMiddleback Region Range consists of 15 mine pits

• Mines are linked by an Arrium owned narrow gauge rail network, with G&W operating rolling stock to move ore from mines to Port

• Dedicated Power and Water services are provided across the Middleback Range of mines

Iron Knob area Pits: Monarch, Princess East, Princess West*Iron Baron area Pits: Prince Nth, Prince, Little Baron, Baron

East, Queen*, Cavalier*• Includes an Ore Beneficiation Plant, and crushing

& screening for both DSO and Beneficiation feed

North SMR area Pits: Knight Nth, Knight Sth, ChieftainSouth SMR area Pits: Duke, Magnet, Duchess North*

• Includes an Ore Beneficiation Plant, and fixed plant crusher and magnetite concentrator

50km range

*New developments

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Operations update MBR

• OBP’s operating to plan ~2Mtpa• New rail infrastructure providing increased blending options • Successful transition from HWE to BGC

Southern Iron • Mining performing well and in line with plan• Supply chain performing in line with expectations • Recent unseasonal heavy rain (dry season) impacted haulage and rail

Port• Outer harbour performing well • Inner harbour commissioning to schedule

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Production update

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Total export iron ore sales for FY13 expected to be ~8.2-8.4Mt • 4th quarter sales ~2.8-3.0Mt

- Unseasonal heavy rain at Southern Iron and Whyalla Expansion ramp up ahead of plan

• June shipments expected to be ~1Mt (Q3 FY13 1.97Mt)• June sales run rate expected to be 12Mtpa • Higher capacity (4,200t/hr) ship loader to be commissioned early July

- Enables 12Mtpa rate to be sustained- Increases port capacity to 13Mtpa

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Areas of focus

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Sustaining sales at 12Mtpa Cost and operational performance improvements Fully utilising capacity and capability of expanded Port and infrastructure

Opportunities include:• Additional volumes from MBR• Blending• Rail

History of ‘sweating’ supply chain to increase sales

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Market, Sales and Marketing

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External factors overview Demand for iron ore remains strong

• Continued strong economic growth in China• Longer term growth rate forecast to subside, but still at strong levels• Forecast increased demand from other developing economies• Expected recovery in US and Europe

Supply• Supply forecast to come into balance with demand• Some iron ore projects may be further delayed or not proceed• Development costs high for mining and infrastructure, particularly in remote

locations (regions and countries) • Materially reduced exports from India (historically ~70Mtpa)• A number of Chinese and “deep sea” mines estimated to be uncompetitive

<US$120/t Price

• Remains above historical averages • Subject to supply/demand factors• Influenced by Chinese domestic cost and supply • AUD price relevant for ArriumFor

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External factors - demand Chinese new GDP target 7% Fixed asset investment last year

> 18% More sustainable steel capacity growth Going forward 2-4% vs 5-7% past

5 years Rest of developed world ~3%

Source: World Steel Association and the Chinese Government’s "5 year" plan

600

800

1000

1200

1400

1600

1800

2000

2011 2012 2013 2014 2015 2016 2017

k tonn

es

Global Crude Steel Steel Production Estimates

Source : World Steel Association

China

World

0200400600800

100012001400160018002000

2011 2012 2013 2014 2015 2016 2017

Global Steel Production Estimates

EAF

BOF

Source : World Steel Association

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Some forecasters have supply capacity growth outstripping demand over next few years

• Assumes all approved (& 75% of projected) global capacity growth is delivered- History suggests not all listed projects will proceed

• High capital costs and lack of infrastructure remain a challenge China is increasingly reliant on seaborne ore

• Increasing cost of China’s production• Grade decline more significant in China than ROW

Mills changing focus to capital efficiencies• Increased environmental and energy costs

- Push higher quality ores • Materially reduced exports from India • Ultimately, high cost supply only sustainable in high price environment

Historically, demand growth underestimated and supply growth overestimated

External factors – supply

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Market Market continues to evolve

• Pricing now shifting across industry closer to discharge (than loading)− Reduces mills’ risk to price volatility between raw material and finished goods

• Larger mills seeking more contract coverage − More consistent feed to support productivity− Using Spot for top-up or cost-down opportunities− Discussions now turning to “capital efficiencies”

• Lump premium, incremental increases over past year but discounted when pricing falls quickly

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New product offers History HGO/MGO/LGO marketed as individual products in 2009 Doubled size of business to 12Mtpa through Southern Iron and Port development Peculiar Knob ore (63% Fe) blended with MBR LGO material to deliver average Fe ~60%

product• Available through leveraging Arrium’s unique position• Delivers volume and cost benefits

Two new blended fines products Whyalla blend – MBR fines (as well as MBR lump) Opal blend – Peculiar Knob fines / MBR fines Average sales Fe expected to be ~60% Silica/Alumina 6-9%, other impurities low Low moisture (Whyalla blend ~4%, Opal blend ~2%) Expanded port and rail infrastructure are key enablers for blending Strong market and customer demand for 59-61% Fe ore

Arrium’s blended products are well placed in an evolving iron ore marketFor

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Marketing Relationship based marketing with repeat customers A step change in volume delivers new potential customer profile Diversification of customer base

• Now includes Tier 1 Mills (spot and contract) FY13 contract sales ~60%, spot ~40% FY14 contract sales expected to be at least 60% of volume (strong support)

• Likely to also include other North Asian customers (trials concluding August) Many spot customers have multiple cape sales Confident of placing all additional volumes from expansion Blended products priced off Platts 62% Fe index Experienced sales and marketing team in place

• Sales managers located near our customers in China

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Whyalla PortJon Hobbs, General Manager Whyalla Port

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Whyalla Port history – 112 yearsThe first iron ore loading jetty was completed in 1901 together with a tramway of some 60km from Iron Knob

Now referred to as the Outer Harbour, a modern jetty #2 has since replaced the timber

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Whyalla Port history - Outer Harbour 2011

Outer Harbour No 2 Jetty

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Whyalla Port history (cont.)

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1939 Construction of the first blast furnace, Inner Harbour and shipyard (slipways and fit-out wharf) commenced

1978 Shipyards closed after building 66 vessels. Inner Harbour continues to support the Steelworks

2004 Announced Project Magnet (convert Steelworks to magnetite feed and free up hematite reserves for export)

2007 Outer Harbour upgrades commissioned with an export ore capability of 4Mtpa

2010 Outer Harbour achieves >6Mtpa through efficiency improvements August 2011 Announced Whyalla Port expansion to 12Mtpa export ore

capacity, with first ores by end 2012Includes construction of iron ore export facilities at Inner Harbour, together with both narrow and standard gauge rail connections, and additional transshipping capacity

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Whyalla Port - aerial view 2011

Outer Harbour with Iron Ore Jetty

Inner Harbour with Blast Furnace Wharf

Existing Ore Storage Shed

Narrow Gauge rail line to outer harbour

Expansion site at Inner harbour

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Whyalla Port – post expansionAn outer harbour capable of >6Mtpa servicing Arrium Mining Iron ore loading jetty of 2,000tph capacity, and a 10.7m berth depth Iron ore storage shed connected to NG rail line

An inner harbour capable of >6Mtpa servicing Arrium Mining and the Steelworks 650m wharf, of 10.7m draft, with berths for 1.3Mtpa steelworks products 2 iron ore storage sheds connected to both NG and SG rail lines A temporary iron ore loading berth capable of 3,000tph Construction in progress on a permanent iron ore loading berth capable of

4,200tph

13Mtpa transhipment fleet with 3 transhipment points

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Whyalla Port – Inner HarbourThe Inner Harbour Port in operation:

Note the construction of the wharf extension on the right hand side of the photo.

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Whyalla Port - work in progress Cut-over and commissioning of the 4,200tph travelling shiploader on the completed 135m permanent iron ore loading berth early July

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Lay-out recognises two sites for future potential Port development North: 25 hectares, access to standard & narrow gauge rail links Seafront of ~

1,400m for future berths South: 20 hectares, access to standard & narrow gauge rail links. 200m wharf

front

North site

South site

Whyalla Port – opportunity

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ExplorationGavin Hobart, General Manager Development

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Aims Investigate further ferrous opportunities

• Support aspiration of 12Mtpa x 10 years • Lifting sales to meet capacity of the Port

Investigate non ferrous opportunities• MBR• Southern Iron

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History of adding reserves Original expectation under Project

Magnet of (4Mtpa x 10yrs) Depletion has been replaced

• Reserves 2007 28Mt increased to 61Mt 2012 (including Peculiar Knob)

• Hematite tonnes shipped / consumed over 6 years reached 39Mt

• Added 57.8Mt of reserve since 2007 to FY2012 (including Peculiar Knob)

Reduction in Reserves Fe% due to:• Addition of tonnages at lower Fe%• Depletion of original reserve tonnes of

higher Fe% Grade in chart refers to reserve grade

only, product offer incorporates resource additions (DSO and beneficated)

Mt

Fe%

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Arrium Reserves

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History of adding Reserves

Hematite tonnes shipped/consumed over 6 year period have reached 39Mt Added 57.8Mt of Reserve since 2007 to FY2012, however overall Reserve has increased

28.7Mt – this is inclusive of the Peculiar Knob Reserve Increase supported by use of Resource (low grade ores either direct shipped or beneficiated) 55% Fe cut off Overall Reserve grade has reduced 2.0% global Fe at FY2012 Compensate grade drop with more beneficiation

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Reserves and Resource Southern Iron1

• 16.4Mt Reserve @ 63.1% Fe (Peculiar Knob)

• 32.5Mt Resource @ 63.2% Fe Middleback Range1

• 44.4Mt Reserve @ 59.5% Fe• 153.2Mt total Resource @ 58% Fe• 70.5Mt magnetite Reserve @ 42.8%

mass recovery• 228.2Mt magnetite Resource @

38.8% Mass Recovery Resources declared by WPG FY11,

not declared in current Arrium Statement

• 569Mt magnetite Resource @ 35% Fe

MiddlebackRanges

Peculiar Knob

1 Per FY12 Reserves and Resources Statement

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ExplorationWork required to prove up resources to reserve JORC standard, but reasonable aspirations for lifting iron ore sales for 10 years

10yrs x 12Mtpa iron ore volume to be sourced from exploration & development:

Reserve 60.9Mt (44.4Mt MBR, 16.4Mt SI)Total Resource 185.7Mt (153.2Mt MBR, 32.5Mt SI)

In essence we have 185.7-60.9 = 124.8Mt of opportunity

Of that opportunity, current targets:Insitu (Resource within pit shells) 15Mt – 20Mt (Resource >50%Fe + inferred)Excluded Resource 30Mt – 40Mt (key targets Hawks Nest & Cavalier)LGO beneficiated (stocks + mining) 10Mt – 20Mt (20Mt feed in stock)

Combining Reserve and target opportunity 116Mt – 141Mt

*As at year ended 30 June 2012 (YE2012) Reserve / Resource reporting.Note: excludes any greenfield exploration.

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Balanced Greenfields/Brownfields focus MBR Brownfields Hematite (2-3 rigs:17,500m) MBR Greenfields Hematite/Non-ferrous (1 rig: 5,500m) SI Brownfields Hematite (1-2 rigs: 5,250m) SI Greenfields Hematite/Non-ferrous (1 rig:14,750m) Resource allocated ~$15m

Exploration plan next 12mths

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Exploration – MBR MBR Brownfields Hematite

(2-3 rigs:17,500m)• Monarch• Baron/Cavalier • Duchess North• LGO assessment - potential LGO

adjacent infrastructure MBR Greenfields

(1 rig: 5,500m)• Hematite – RC under-drilled iron

formation• Non-ferrous – RC mineralised prospect

at Moola & significant geophysical anomalies at Moonabie

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Exploration – Southern Iron

Regional Aeromagnetics Mt Brady, Windy Valley, Hawks Nest - completed SI Brownfields Hematite (1-2 rigs: 5,250m)

• PK – Extension; underpin resource/reserve• Hawks Nest – Resource extension; underpin resource/reserve

SI Greenfields (1-2 rigs: 14,750m)• Hematite – Hawks Nest Regional AC and RC drilling along prospective stratigraphy• Non-ferrous – Windy Valley & Mt Brady AC and RC drilling aeromagnetic &

geochemical anomalies

G9 Corridor

Windy Valley

Olympic Dam

Prominent Hill

Peculiar Knob

Hawks Nest

Mt Brady

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Exploration summary

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Arrium Mining has infrastructure that provides a route to market from the heart of the highly prospective Gawler Craton

Our tenements reside in highly prospective geologically defined zones of the Gawler Craton

Our forward exploration program has a good balance of Brownfield and Greenfield activity

Targets for drilling are being further refined based on recent aeromagnetic surveys undertaken on all our new tenements from Southern Iron (Mt Brady, Windy Valley and Hawks Nest)

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Summary

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Summary

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Mining expansion to double sales completed on time and budget• Reached 12Mtpa sales run rate June• Port on track for 13Mtpa July (commissioning of high capacity ship loader)

Reasonable aspirations for 12Mtpa for 10 years New blended product offers Average sales Fe expected to be ~60% Loaded cash cost expected to be ~$50/wmt (at 12Mtpa rate) Opportunity to utilise spare capacity of Port

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Questions

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Appendix

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Freight costs FY13

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FY13 freight costs of ~US$17/t impacted by volume shipped under contracts of affreightment (COAs) with higher sea freight costs than the current market rate. (Approx. 25% of Middleback’s FY13 sales were shipped under COAs)

The last COA shipment was completed in April 2013

Arrium expects future freight costs to be more in line with the cape freight rate market (est. Ratio C5 x 1.7)

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1H13 reconciliation of Mining costs

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Historical data - Mining

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1H13 FY122 1H12 FY11 1H11 FY10 1H101 FY09 1H09 FY08 1H08$m $m $m $m $m $m $m $m $m $m $m

Total Revenue/Income 372.5 819.0 421.0 948.4 465.3 782.3 331.1 598.5 291.7 561.2 222.3

EBITDA 118.4 343.7 186.3 554.2 289.7 361.2 126.1 138.0 68.9 220.9 92.1

EBIT 88.4 302.9 170.7 523.5 275.5 333.4 113.0 113.0 56.6 212.9 89.1

Sales Margin 23.7% 37.0% 40.5% 55.2% 59.2% 42.6% 34.1% 18.9% 19.4% 37.9% 40.1%

Assets 1,955.9 1,685.9 1,427.8 948.4 849.6 816.7 794.8 769.2 713.3 542.0 479.2

Funds Employed 1,631.4 1,379.7 1,196.1 776.3 735.7 717.4 708.0 688.9 620.8 461.8 427.0

Return on funds employed 11.7% 28.1% 34.6% 70.1% 75.8% 47.4% 32.4% 19.6% 20.9% 46.1% 41.7%

Employees (number) 565 532 504 367 338 339 352 357 334 152 128

Total lump & fines (Mt) 3.42 6.29 3.13 6.04 3.06 6.03 3.18 5.07 2.18 4.46 1.89

Pellet & Ore by products (Mt)3 0.28 0.44 0.19 0.72 0.31 0.81 0.22 0.69 0.36 0.88 0.34

1 The December 09 results have been restated to reflect changes in organisation structure announced in February 2010 effective 1 July 2009. The pellet plant operations previously reported as part of the Manufacturing segment are now reported as part of the Mining segment. 2 These statistics include results relating to the WPG subsidiaries acquired on 6 October 2011.3 Ore by products include dolomite, centrix, filter cake and pellet chips

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Whyalla Port Site tour handouts

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Whyalla Port: Outer HarbourThe infrastructure forming the Outer Harbour Port is shown in the photo below:

In the background, the site for the Inner Harbour Port can be seen.

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Whyalla Port - Outer Harbour

The Outer Harbour Port rail line continuation and jetty are shown here.53

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Whyalla Port – Tip Pocket and Sheds

Tip pocket can accept both standard gauge and narrow gauge trains.

Tip pocket can offload iron ore material from trains at a rate of 4,200 tph.

The flexibility to tip to either shed, or to bypass the sheds directly to the shiploader.

Each shed can store up to 250,000t of iron ore.

Each shed contains three reclaim hoppers which are fed by front End Loader.

Conveyors are enclosed to meet EPA requirements for fugitive dust emissions.

The tip pocket and storage sheds have the following capabilities:

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Whyalla Port - Shiploader

Ability to load a range of vessels (CSL barges, CSL Whyalla and up to Handymax size) at a load rate of 4,200 tph.

An overall tramming distance of 80m.

Boom has ability to luff (raise / lower) and shuttle (travel in / out over water) allowing it to reach all areas of the hold of the design vessel(s).

A fully enclosed discharge spout ensures no fugitive dust emissions during loading operations.

The new shiploader has the following capabilities:

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Whyalla Port – Permanent Berth

Construction of the berth: whaler beams and tie rods

The completed berth prior to the arrival of the shiploader.

Note the conveyor gallery in the background

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Whyalla Port - Shiploader

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The arrival of the shiploader from Cargotec: 15 June 2013

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Whyalla Port - Shiploader

Unloading of the Cargotec Shiploader: 16 June 2013.

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All mechanical construction works completed and equipment installed. Conveyor number two test run and belt tracked. Electrical works scheduled for completion 29 June. Conveyor cut-over planning well advanced. Cut-over from existing shiploader to new shiploader scheduled for early July.

Whyalla Port – Current Status

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Shiploader safely landed on travel rails on the 85m extension to existing Inner Harbour berth

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