norwegian russian business forum...q2 ‘12 q3’12 2013-2014 2016 capital required usd m (expected...

Norwegian Russian Business Forum

Oslo 2012-10-24

Harald Martinsen CDO/Utviklingsdirektør

Sydvaranger Gruve AS

Corporate overview


•3 3

• 100% owner of SVG iron ore mine, Norway

• Operated from 1910 to 1997 (200Mt of ore mined)

• Listed on the ASX in Dec 2007, mining commenced in May 2009 and first shipment in Nov 2009

• High quality magnetite concentrate

• Long term offtake contract with key European customer in place

• Long mine life expected

SVG project in Kirkenes

3

•4

Open Cut Mine – min 25 Yr mine life

8km Railway – owner and sole user

Concentrator – high quality magnetite concentrate Port – efficient and uncongested

• Market Overview

• Market cap at ASX (Australia) ca. A$ 330m • In NOK ca. 2 mrd • Accummulated investments since restart: ca. 2 mrd

• Largest Shareholders

• Tschudi Mining: ~20 % • OM Holdings Ltd: ~14 % • Eley Griffiths Pty Ltd: ~8 %

• Safety

• Company days without LTI: (2012-06-21) • Mine 96

• Record: 140 • Processing plant 5

• Record: 555

• Strategic Review • Process launched Nov 2011 - Goldman Sachs as advisor • Awaiting potential bids

Corporate Overview

5

¨ Indian company AB Birla and Russian (Swiss) company Prominvest have completed due dil

¨ Both based on unbinding bids at around AUD 1,40 per share

¨ Binding bids are expected shortly if at all ¨ NFE recently launced Entitlement offer of up to

AUD 55,5 million ¡ Underwritten by Goldman Sachs

•6

•7

Europe uses ca. 20% of the world’s mineral resources

Europe produces ca. 3 % of

the world’s mineral resources

2012: 1,8 mill t To Europe

2012: 0,7 mill t To China


Market & Fundamentals


¨ Market dominated by 3 huge, global players ¨ China dominates the demand side, specially given

the growth of the market ¨ In response to Chinese growth, we have seen the

following; ¡ Many aggressive expansion plans ¡ Old mines are being re-opened or considered ¡ «New» areas considered for development

¨ The market have responded «quick & dirty» to Chinese growth

¨ Over supply when Chinese growth was reduced ¡ Strong pressure on prices

•9

•10




•11

RGP4

RGP5

RGP6

Quantum 1

Hope Downs Stg 2Mesa A

Brockman 4

Pilbara 330mt Stg 1

Pilbara 330mt Stg 2

Simandou

Carajas

Carajas

Carajas Serra Sul

Apolo

Vargem Grande Itabiritos

FMG - 55

Sishen

Sishen South

Minas Rio - Phase 1

Sudeste Phase 2

Sudeste Phase 3 Namisa

Casa de Piedra

FMG - 95

FMG - 155

Hope Downs 4

0

20

40

60

80

100

120

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

mt

RIO Vale FMG Anglo American MMX CSN Hope Downs 4

•SVG expanded

•Sydvaranger

•Source: Royal Bank of Canada Capital Markets


•Sydvaranger Gruve •12

97,50 $US/tonne (13-09-12)

¨ Also EU have done some important work ¨ A mineral strategy revealed that EU consumes 20% of

worlds minerals and produce only 3% ¨ European countries encouraged to reconsider their

mineral opportunities ¨ «Look to the North» ¨ All Nordic countries now working on mineral strategies ¨ Result is a large number of «projects» in the Barents

region ¨ LKAB expansion, Northland, SVG, Rana and many

more

•13

•14




41

Kvannevann (Rana Gruber AS)

Kiruna (LKAB)

Malmberget (LKAB) Kaunisvaara

(Northland Resources Ltd)

Sydvaranger(Northern Iron Ltd)

Dannemora(Dannemora Minerals AB)

Port of Narvik

Port of LuleaMala

Stockholm

Norway

SwedenFinland

Oslo

Hannukainen(Northland Resources Ltd)

Tromso

Grangesberg (Grangesberg Iron)

Ludvika Mines (Nordic Iron Ore)

Boliden District (Boliden AB)

Gruvberget (LKAB)

Kallak (Beowulf Mining plc)

Kevitsa Project (International Finance

Corporation)

Kolari (Tertiary Minerals)

Leveäniemi (LKAB)Mertainen (LKAB)

Ruoutevare (Beowulf Mining plc)

Talvivaara (Talvivaara Mining

Company PLC)

Viscaria (Avalon Minerals Ltd.)

Adak(Avalon Minerals Ltd.)

Bidjovagge

Sakatti

Iron Ore/steel facility

Zinc

Nickel

Copper/Gold

Base MetalsKola MMC

(MMC Norilsk)

Olkon(Olenogorsk GOK)

Kovdorsky(Eurochem)

Karelsky Okatysh(Severstal)

St. Petersburg

¨ High quality iron ore concentrate ¨ Relatively small operations (LKAB is exception) ¨ Mainly slig producers (- LKAB, Rana) ¨ High cost countries (less Russia) ¨ Challenging market position ¨ Maximize sales to European market ¨ The balance must be shipped to China (- LKAB) ¨ Freight disadvantage to China ¨ The Northern Sea Route

•16

Global Iron Ore Cost Curve

17

1. Source: AME

0

10

20

30

40

50

60

70

80

90

100

0 200 400 600 800 1 000 1 200 1 400

FOB

Cos

ts (U

S$/t

)

Cumulative Production (Mt)

Sydvaranger Iron

The way forward - improvements


19

NORTHERN IRON VALUE CREATION STRATEGY

n Double the concentrate production capacity to 5.6 Mtpa

n Change out the mining fleet with larger equipment

n Achieve a 2.8 Mtpa

production rate during CY12

n Achieve sub 5% silica from April 2012

n Achieve sub 4% silica

for blast furnace pellet feed

n Achieve sub 2% silica for direct reduced iron (DRI) pellet feed

n Upgrade the port to handle cape size vessels

Long life, cost competitive

provider of high quality iron ore

pellet feed to customers in

Europe, the Middle East and Asia.

n Currently running

at ~2.1 Mtpa n 5.8% silica content

TODAY

ACHIEVE NAMEPLATE

OPTIMISE NAMEPLATE

EXPAND PRODUCTION

VISION

Q2 ‘12 Q3’12 2013-2014 2016

Capital required USD m (expected to be satisfied from operating cash flows)

16.0 16(already

committed)

280.0 50.0 – 60.0

– 360.0

Note: capital costs in 2013-2016 are at scoping study level

of accuracy.

Expansion capital costs vary based on

tailings disposal option selected.

Expected LOM operating costs (real) USD / dmt

< 50 < 55 < 40

Expected life of mine sales price FOB (% from base case)

100% 120% 120%

20

Logistics – Port upgrade & NSR n Three main activities required to enable cape

sized vessels to be loaded at Kirkenes: — Upgrade the shiploader to fit cape size — Dredging the berth to required depth — Additional silo to take total storage capacity

to approx. 240,000 dmt

n Current Status — Basic engineering commenced — Expected Capital Cost USD 30m — Expected Commissing: 2014

n Benefits — Lower shipping costs give higher FOB price

realised, especially for Asian sales

n Northern Sea Route — 40% saving on time, cost and CO2 — Who gets the benefits..? — Follow development closely — Total infrastructure development


21

HIGHER CONCENTRATE QUALITY

NFE’s and Noramco Engineering have identified conceptual pathways to higher quality products. Estimates are at a scoping study level of accuracy Sub 4% Silica Concentrate

n Additional magnetic separaton capacity required n Larger tailings thickener required n Additional water sources required n No additional environmental approvals required,

though local government building approval for the thickener required, and approval for additional water usage required from the National authority

n Capital Cost: USD 7m n Expected commissing: January 2014 n Improved pricing expected, and possible increased

European sales.

Sub 2% Silica Concentrate n All 4% equipment listed above required n Flotation plant required n Environmental approval required for disposal of

tailings from the flotation plant – either marine or dry tailings options

n Capital Cost: USD 20m n Earliest commissioning: January 2014 n Improved pricing expected, plus increased sales to

Europe and the Middle East


•22

SVG requires 2 main approvals to proceed with the expansion project:

¨ Local Government land use approval ¨ Environmental permits for the increase in mineral

and other waste emissions (KLIF)

To obtain these approvals the following activities and timeline is expected: ü Technical scope has been delivered ü Dialogue conferences held and conclusions made ü Present proposed planning program to SVK ü Public hearing of the planning program Ø Approval of the Scope of Work for the Environmental

and Social Consequences Investigation – Q4 2012 Ø Completion of the Consequences Investigation and

submission of the applications and reports – Q3 2013 Ø Decision from local government and national

envirornment agency on land use and emission applications – Q4 2013

Expansion - Permitting and Approvals

Tailings Disposal Objective study Evaluation of alternatives Credible monitoring and control procedure

Resource base (life time) Upgrade resources Look outside concession boarders Present a credible case

Distribution of financial resources

Social accounting Federal vs local taxation Sponsoring & participation Document local impact

Human Resources Most critical resource Recruiting Training and competence

•23


The political process

Takk for oppmerksomheten..! Thanks for your attention..!


Appendix


VIKINGOZ\Presentations (Company)\20120821 - Management Presentation\201208 - Management Presentation (part 1).pptx

MAP OF SYDVARANGER MINERAL DEPOSITS

26

136.8 Mt @ 32% Fe

Bjornevatn 282.9 Mt @

31% Fe

11.8 Mt @ 33% Fe

Kjellmansasen 17.4 Mt @

32% Fe

11.2 Mt @ 31% Fe

Tverrdalen 46.8 Mt @

31% Fe

6.7Mt @ 30% Fe

Fisketind 30.3 Mt @

31% Fe

Bjornfell 13.6 Mt @

32% Fe

Sostervann 4.7 Mt @ 37% Fe

Grundtjernn 2.9 Mt @ 34% Fe

Fisketind SW 17.5 Mt @

33% Fe

Jerntoppen 17.0 Mt @

31% Fe

N

Reserve

Pit Name

Resource


Mineral Resource Summary as at 01 February 2012 (at 15% Fe total cut-off grade)

Deposit Indicated (Mt)

Fe (Total%)

Inferred (Mt)

Fe (Total %)

Total Tonnes

(Mt) Fe

(Total %)

Bjørnevatn 146.2 32 136.7 30 282.9 31 Kjellmannsåsen 13.2 33 4.2 30 17.4 32

Fisketind Øst 11.1 31 19.2 31 30.3 31 Tverrdalen 20.4 32 26.4 31 46.8 31

Hyttemalmen 0.4 34 1.0 32 1.4 32 Bjornfell 13.6 32 13.6 32

Söstervann 4.7 37 4.7 37 Grundtjern 2.9 34 2.9 34

Fisketind SW 17.5 33 17.5 33 Jerntoppen 17.0 31 17.0 31

Total 191.3 32 243.2 31 434.5 31

Reserve Summary as at 01 February 2012 (at 15% Fe total cut-off grade)

Deposit Probable

Reserve (Mt) Fe

(Total%)

Kjellmannsåsen 11.8 33

Hyttemalmen 0 0 Bjørnevatn 136.8 32 Tverdalen 11.2 31

Fisketind Øst 6.7 30

Total

166.5

32

n A drilling program commenced in May 2011 aimed at:

— Providing infill drilling data

— Testing a number of greenfield targets within the existing concession area

n Additional resource and reserve upgrades are expected during 2012 as infill drilling converts Inferred to Indicated Resources

RESOURCE / RESERVES


VIKINGOZ\Presentations (Company)\20120821 - Management Presentation\201208 - Management Presentation (part 1).pptx

OVERVIEW OF PROCESSING FACILITIES

28


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• An engineering scoping study examining doubling concentrate production has been completed by Noramco Engineering Corporation and Barr Engineering, with second opinions on cost and concept provided by major Norwegian engineering consultancy Multiconsult and SRK Consulting (UK)

• The study examined four possible plant concepts to lift total SVG production to 5.6 Mtpa: ú Duplication of existing plant within existing buildings ú Construction of a new 2.8 Mtpa standalone plant adjacent to the existing facility at

Kirkenes ú Construction of a new 2.8 Mtpa plant at the mine site at Bjørnevatn ú A “hybrid solution” with primary grinding at mine site and pumping of slurry to

separators and filtering at Kirkenes

• The study also examined three different tailings disposal options: ú Continued use of the existing marine disposal system approved for the existing plant ú Construction of tailings dams adjacent to the mine site for disposal of wet tailings ú Construction of a dry tailings disposal plant for disposal of dried tailings into the

planned mine waste dumps

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