The Manganese and Chrome The Manganese and Chrome MarketsMarkets

The S. Africa/China The S. Africa/China The S. Africa/China The S. Africa/China Connection Connection

Macquarie ConnectionsMacquarie ConnectionsChina Day in South Africa 2012China Day in South Africa 2012Cape TownCape Town3 February 20123 February 2012Alastair D. StalkerAlastair D. StalkerManaging Director Managing Director –– Ore & Metal Company LimitedOre & Metal Company LimitedDirectorDirector--AssmangAssmang LtdLtdPast Chairman International Manganese InstitutePast Chairman International Manganese Institute

DisclaimerDisclaimer

Disclaimer:

This presentation has been prepared by the speaker in his personal capacity and does not reflect the views of

Assore Ltd , Assmang Ltd , The International Manganese Institute or The International Chrome

Development Association . It shall not be reproduced in whole or in part without permission.in whole or in part without permission.

The information contained herein has been obtained from sources which and from persons whom I believe

to be reliable, but is not guaranteed for accuracy, completeness or otherwise.

The author will not be liable in any manner whatsoever for any representation or other statement herein

contained.

Crude Steel Production Met ForecastsCrude Steel Production Met Forecasts

-4-20246810121416

1000

1200

1400

1600

%

'000

mt

World crude steel output, million metric tonnes, and growth rate, % (RHS)World crude steel output, million metric tonnes, and growth rate, % (RHS)

-26-24-22-20-18-16-14-12-10-8-6-4

0

200

400

600

800

2003 2004 2005 2006 2007 2008 2009 2010 2011

%

'000

mt

Rest of the world China YoY World % YoY World excl. China

Data: MacQuarie Commodities Research

World Crude Steel Production World Crude Steel Production Forecasts are still optimisticForecasts are still optimistic

1531

1600

1697

1778

1849

1652

1710

1769

1600

1700

1800

1900‘M

ill m

etric

ton

CRU

Macquarie

1253

13571334

1228

1419

1531

1520

1575

1200

1300

1400

1500

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

‘Mill

met

ric to

n

However Monthly Crude Steel However Monthly Crude Steel Production Has Been ReducingProduction Has Been Reducing

80

90

100

110

120

130

140

Mill

ion

0

10

20

30

40

50

60

70

Mill

ion

World ex China China

And Most of the Predicted Growth is in ChinaAnd Most of the Predicted Growth is in China

421

495 500568

627683

734785

828868

500

600

700

800

900

Mill

met

ric to

ns

355421

0

100

200

300

400

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Mill

met

ric to

ns

Africa / Middle East Latin America North America Japan Western Europe China

Regional Crude Steel Forecasts Regional Crude Steel Forecasts --Some of These Look Very OptimisticSome of These Look Very Optimistic

110

114

114

106

103

107

110

112

113

116

120

119

110

106

110

114

117

119

190 20

2

206

200

147

181 18

9 195 20

5 211 21

6

150

200

250

Mill

met

ric to

ns

34 36 37 36 35 39 39 42 46 49 52

62 62 66 65

53

61

68 73 77 80 84

110

114

114

106

68

94 99 103

107

110

112

113

116

88

110

106

110

114

117

0

50

100

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Mill

met

ric to

ns

Africa / Middle East Latin America North America Japan Western Europe

Manganese OreManganese Ore

Manganese Ore Demand Tracks Crude Manganese Ore Demand Tracks Crude Steel ProductionSteel Production

25

30

35

40

45

50

800

1,000

1,200

1,400

Mill

mt O

re

Mill

mt C

rude

Ste

el Crude steel CAGR ’1949-2011: 3.4 %pa

0

5

10

15

20

0

200

400

600

1950

1953

1956

1959

1962

1965

1968

1971

1974

1977

1980

1983

1986

1989

1992

1995

1998

2001

2004

2007

2010

Mill

mt O

re

Mill

mt C

rude

Ste

el

Crude steel Mn ore

Source: Worldsteel. IMnI

Mn ore CAGR 1949-2011: 3.7%pa

But Manganese Ore Prices have been But Manganese Ore Prices have been Declining for 20 monthsDeclining for 20 months

6.5

7

7.5

8

8.5

9

US

D /

mt

4

4.5

5

5.5

6

6.5

Jul-0

9A

ug-0

9S

ep-0

9O

ct-0

9N

ov-0

9D

ec-0

9Ja

n-10

Feb

-10

Mar

-10

Apr

-10

May

-…Ju

n-10

Jul-1

0A

ug-1

0S

ep-1

0O

ct-1

0N

ov-1

0D

ec-1

0Ja

n-11

Feb

-11

Mar

-11

Apr

-11

May

-…Ju

n-11

Jul-1

1A

ug-1

1S

ep-1

1O

ct-1

1N

ov-1

1D

ec-1

1

US

D /

Lets Look at the Manganese Ore price History Lets Look at the Manganese Ore price History

8.40

10.40

12.40

14.40

1100

1200

1300

1400

1500

1600

Mn

Ore

Pric

e ($

/mtu

)

Ste

el P

rodu

ctio

n (M

mt)

Crude Steel

Japanese/Chinese Price $/mtu

This caused the Problem

0.40

2.40

4.40

6.40

600

700

800

900

1000

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

Mn

Ore

Pric

e ($

/mtu

)

Ste

el P

rodu

ctio

n (M

mt)

Source: WSA, Tex Report

And Also at And Also at MnMn Ore Seaborne TradeOre Seaborne Trade

South …

Norway

Russia

France

USA2008 - 17.4mill t

2009 - 15.2mill t

2010 - 20.23mill t

2011 - Ann

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14

China

Japan

Ukraine

India

South …

Mill Tons

Chinese Chinese MnMn Ore ImportsOre ImportsSignificant Growth of OthersSignificant Growth of Others

50%

60%

70%

80%

90%

100%

Others

Ghana

Gabon

0%

10%

20%

30%

40%

50%

2006 2007 2008 2009 2010 YTD 2011

Brazil

Australia

South Africa

China trade partners 2010 China trade partners 2010 –– Significant Significant Tonnages from Non Traditional OriginsTonnages from Non Traditional Origins

Rank Partner Country YEAR 2010

1 Australia 3 160 436

2 South Africa 3 115 683

3 Gabon 1 296 774

4 Brazil 1 245 629

5 Myanmar 749 632

6 Malaysia 661 695

7 Indonesia 198 186

8 India 174 133

9 Ghana 130 728

Australia27%

Brazil11%

Myanmar6%

Malaysia6%

Indonesia2%

India2%

Ghana1%Kazakhstan

1%

Namibia1%

Bulgaria1% Vietnam

1%

Morocco1%

Mexico1%

Zambia1%

Others1%

Source: GTIS

Origin of China imports in 2010:• Imports from over 20 countries: various grades and qualities of Mn ore

• The big 4 majors >75% of total imports: mostly high grade ores (8.8 mln mt)

• Therefore, other imports > 2.7 mln mt (varying quality)

9 Ghana 130 728

10 Kazakhstan 105 328

11 Namibia 104 296

12 Bulgaria 100 121

13 Vietnam 81 986

14 Morocco 71 379

15 Mexico 62 067

16 Zambia 62 031

17 Thailand 56 859

18 Cote d Ivoire 56 134

Others 164 437

Total 11 597 534

South Africa27%

Gabon11%

But Major Players also to BlameBut Major Players also to Blame

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

Jan - Nov 2010

Jan - Nov 2011

-

500,000

1,000,000

1,500,000

2,000,000

Others Brazil Gabon South Africa Ghana Australia

Chinese Chinese MnMn Ore Ore –– Stocks Finally Reducing Stocks Finally Reducing

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

Mn Ore Imports

Port Inventories

-

500,000

1,000,000

1,500,000

2,000,000

Jan-

09F

eb-0

9M

ar-0

9A

pr-0

9M

ay-0

9Ju

n-09

Jul-0

9A

ug-0

9S

ep-0

9O

ct-0

9N

ov-0

9D

ec-0

9Ja

n-10

Feb

-10

Mar

-10

Apr

-10

May

-10

Jun-

10Ju

l-10

Aug

-10

Sep

-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11F

eb-1

1M

ar-1

1A

pr-1

1M

ay-1

1Ju

n-11

Jul-1

1A

ug-1

1S

ep-1

1O

ct-1

1N

ov-1

1D

ec-1

1

Changing landscape of the Mn Ore MarketThe Effects of Capacity Expansions and New Projects:

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

High-grade (>43% Mn) Mid-grade (>30% and <44% Mn)

Low-grade (<31% Mn)

The Changing Mn Ore Supply

1. Moved from a handful of major

suppliers to many players

2. More price volatility: annual to

quarterly to monthly contracts

3. More mid-grade and low-grade

ores on market

Mln

mt

Assumptions 2014:

• 3 new projects in RSA will be successful in bringing planned output to market

• China to lose 3 mln mt of 18% Mn ore output through depletion and substitution

• Major producers will produce according to their announced capacity expansions

• Exclusion of projects which have no definitive start date or annual capacity projections

0.0

2.0

4.0

6.0

2006 2008 2010 2014 ('e) Possible Game Changers:

1. RSA logistics do not

accommodate additional ore

2. Too much new ore if demand

forecasts do not materialize

3. Can the world absorb so much

S.A carbonate ore

Source: CRU, Metal Bulletin, Metal Expert and IMnI

Port Elizabeth5.5 million tpa

Commitment to vacate by 2016. Allocation process for 2013 to 2016 should take place shortly

Saldanha +/ - 13 Million tpa

Transnet is no longer considering Mn ore in the next Sishen – Saldanhaexpansion

Durban3 Million tpa

Trucking expensive but BMA terminal efficient and cost

Cost Effective

SA Manganese OreSA Manganese OreLogisticsLogistics

DurbanRail and Truck

3 Million tpa terminal efficient and cost effective plus containers

Richards BayTruck

1 Million tpa ?

Trucking more expensive than Durban. Competition with chrome ore/ magnetite in the port.

Coega 10 – 16 Million tpa

Requires upgraded heavy haul rail track plus new terminal. Feasibility study underway. Transnet’s preferred option

Expensive

Incremental Ore Logistics Incremental Ore Logistics in SA are Very Expensivein SA are Very Expensive

38 % Mn Ore through Richards Bay Port

US$ / mtTrucking plus Port Loading Costs 90Current Freight to China 30Current Freight to China 30

+/- $120/mt≈ $3.15/dmtu

Mining, marketing, finance costs, etc still have to be addedCurrent Price +/- $4.00/dmtu CIF; Only leaves +/- R260/mt to

cover these costs

No Shortage of No Shortage of MnMn ore ore Expansions and New MinesExpansions and New Mines

South Africa;Assmang : 3 Mill tpa to 4 Mill tpaBHP-Billiton Wessels: 1Mill tpa to 1.5 MilltpaBHP-Billiton Mamatwan: Increase of 1 MilltpaBHP-Billiton Mamatwan: Increase of 1 MilltpaUMK: Increase from 2 to 2.7 Milltpa by mid 2012Kgalagadi: 2.4 Mill tpa of sinter from mid 2012Tshipi e Ntle: 2.4 Mill tpa by mid/end 2012Several other projects at or close to bankable feasibility stage

No Shortage of No Shortage of MnMn ore ore Expansions and New MinesExpansions and New Mines

Rest of the World;BHP-Billiton Australia- Gemco: 4.2Mill tpa to 4.8 Milltpa by 2013Comilog Eramet- Gabon: Increase from 3.5 – 4 Mill tpa in 2012Mill tpa in 2012Citic Dameng Gabon: Increase from 0.3 to 1.15 Milltpa by mid 2012Minera Autlan Mexico Tajo Naopa: 0.3 Mill tpa in 2012Zambia: Multitude of small projects 0.5 Mill tpa ?

Manganese Alloys

Manganese Alloy Prices Manganese Alloy Prices Continue to DeclineContinue to Decline

1800

2000

2200

2400

2600

US

D /

mt

HCFeMn

MCFEMn

SiMn

800

1000

1200

1400

1600

Jul-0

9A

ug-0

9S

ep-0

9O

ct-0

9N

ov-0

9D

ec-0

9Ja

n-10

Feb

-10

Mar

-10

Apr

-10

May

-…Ju

n-10

Jul-1

0A

ug-1

0S

ep-1

0O

ct-1

0N

ov-1

0D

ec-1

0Ja

n-11

Feb

-11

Mar

-11

Apr

-11

May

-…Ju

n-11

Jul-1

1A

ug-1

1S

ep-1

1O

ct-1

1N

ov-1

1D

ec-1

1

US

D /

But World Real Consumption of But World Real Consumption of Manganese Alloys at Record Levels Manganese Alloys at Record Levels

3712 41

47

4122

4073

3721 42

05

5798 63

32 6769

7764 80

92

7765

8578

5000

6000

7000

8000

9000

10000

‘000

met

ric to

ns

948

1058

1146 14

29

1449

1314

1502

3435 37

12 4147

4122

4073

3721 42

05

0

1000

2000

3000

4000

5000

2004 2005 2006 2007 2008 2009 2010

‘000

met

ric to

ns

Ref FeMn HCFeMn SiMn

Manganese Alloy Predicted Manganese Alloy Predicted ConsumptionConsumption

7500

9000

10500

12000

13500

‘thou

sand

met

ric to

n

SiMnHCFeMn

0

1500

3000

4500

6000

7500

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

‘thou

sand

met

ric to

n

HCFeMnRefined FeMn

But Where Will That Additional But Where Will That Additional Demand BeDemand Be

China ; China is virtually self sufficient in Mn alloys with limited imports, has underutilised smelting capacity and is the major Mnore import market

India ; India is virtually self sufficient in Mn alloys with only India ; India is virtually self sufficient in Mn alloys with only limited imports of high spec alloys. Becoming an important Mnore market and a major alloy exporter

Developing World; largely being supplied at present from domestic and/or other developing nations.

Key Factor :Chinese Manganese Alloy Key Factor :Chinese Manganese Alloy Exports have Virtually DisappearedExports have Virtually Disappeared

573

410 44

1

687

640

400

500

600

700

800

‘000

met

ric to

ns

106

79

205

121 14

6

135

148

21 9

61 55

79

112

181

34

73

0

100

200

300

400

2004 2005 2006 2007 2008 2009 2010

‘000

met

ric to

ns

SiMn HCFeMn Ref FeMn

Key Factor: South Korean Exports are Key Factor: South Korean Exports are Taking their PlaceTaking their Place

8000

10000

12000

14000

16000

18000

0

2000

4000

6000

8000

HCFeMn SiMn Refined FeMn

Key Factor :As Are India Key Factor :As Are India SiMnSiMn Alloy ExportsAlloy Exports

300000

400000

500000

600000

0

100000

200000

300000

2005 2006 2007 2008 2009 2010

HCFeMn SiMn

MnMn Alloys Are in OversupplyAlloys Are in Oversupply

20000

40000

60000

80000

-80000

-60000

-40000

-20000

0

Q1 11 Q2 11 Q3 11

SiMn

HCFeMn

Refined FeMn

Manganese ConclusionsManganese Conclusions

• Mn ore and alloys are currently in oversupply• Mn ore demand is very dependent on Chinese steel recovery• Major Mn ore players need to show some production restraint• Too much Mn ore capacity was incentivised by the high prices• More Mn ore capacity coming on stream• More Mn ore capacity coming on stream• Probability that Mn ore will be in oversupply for several years • Mn alloys demand in developed world likely to remain depressed for a

number of years• Mn alloy production costs generally increasing but particularly in S.A.• Production of Mn alloys will continue to move eastwards (India,

Malaysia, S. Korea)

Chrome Market Chrome Market

32 .

World Stainless Steel ProductionWorld Stainless Steel Production

Total 28.69-million tons Total estimated 32.63-million tons

Source: CRU

SS ProductionSS Production

Source: CRU

World FeCr ProductionWorld FeCr Production

13%

2006

16%

6%

2011

Total 6.4-million tons Total estimated 9-million tons

44%

14%

10%

0%

19%

South Africa China

India Eastern Europe

Russia & Kazakhstan Others

37%

28%

11%

2%

16%

South Africa China

India Eastern Europe

Russia & Kazakhstan Others

Source: ICDA

China China FeCrFeCr Imports Imports Trend for China to produce ferrochrome rather than importTrend for China to produce ferrochrome rather than import

2000

2500

3000

2000

2500

3000

‘00

0m

t P

rod

uct

ion

‘00

0m

t Im

po

rts

Production

0

500

1000

1500

0

500

1000

1500

2006 2007 2008 2009 2010 2011e

‘00

0m

t P

rod

uct

ion

‘00

0m

t Im

po

rts

Kazakhstan South Africa Turkey Russia India Others Production

Source: ICDA Statistics & CRU

South Africa South Africa FeCrFeCr capacity capacity UnderutilisedUnderutilised

3

3.5

4

4.5

5

Mill

ion

tons

Source: ICDA Statistics & estimated Forecast

0

0.5

1

1.5

2

2.5

2004 2005 2006 2007 2008 2009 2010 2011e 2012f 2013f 2014f

Mill

ion

tons

Production Capacity

South Africa has become the swing South Africa has become the swing

ferrochrome producerferrochrome producer-- falling market sharefalling market share

6000

7000

8000

9000

10000

0

200

400

600

800

1000

1200

1st Q

08

2nd

Q 0

83r

d Q

08

4th

Q 0

81s

t Q 0

92n

d Q

09

3rd

Q 0

94t

h Q

09

1st Q

10

2nd

Q 1

03r

d Q

10

4th

Q 1

01s

t Q 1

12n

d Q

11

3rd

Q 1

1

'000

mt

SA Quarterly Production

0

1000

2000

3000

4000

5000

6000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011e 2012f

'00

0 m

t

Other S.Africa

Source: ICDA Statistics & CRU forecast

1st Q

08

2nd

Q 0

83r

d Q

08

4th

Q 0

81s

t Q 0

92n

d Q

09

3rd

Q 0

94t

h Q

09

1st Q

10

2nd

Q 1

03r

d Q

10

4th

Q 1

01s

t Q 1

12n

d Q

11

3rd

Q 1

1

0

200

400

600

800

1000

1200

1400

1600

1st Q

08

2nd

Q 0

83r

d Q

08

4th

Q 0

81s

t Q 0

92n

d Q

09

3rd

Q 0

94t

h Q

09

1st Q

10

2nd

Q 1

03r

d Q

10

4th

Q 1

01s

t Q 1

12n

d Q

11

3rd

Q 1

1

'00

0 m

t

World excl SA Quarterly

Production

Charge Chrome PricesCharge Chrome Prices

• European prices exclude

discounts, which have

increased

• When prices increase – China

and India increase production

rates, i.e less demand for

Prices quoted exclude discounts

80

100

120

140

160

US

c/lb

Cr d

eliv

ered

imported materials from

China.

• Q3 2010: 130c/lb Cr Del

• Q4 2010: 130c/lb Cr Del

• Q1 2011: 125c/lb Cr Del

• Q2 2011: 135c/lb Cr Del

• Q3 2011: 120c/lb Cr Del

• Q4 2011: 120c/lb Cr Del

• Q1 2012: 115c/lb Cr Del

Source: CRU – Dec 2011

0

20

40

60

80

Jan-

09

Mar

-09

May

-09

Jul-0

9

Sep

-09

No

v-09

Jan-

10

Mar

-10

May

-10

Jul-1

0

Sep

-10

No

v-10

Jan-

11

Mar

-11

May

-11

Jul-1

1

Sep

-11

No

v-11

Jan-

12

US

c/lb

Cr d

eliv

ered

European Contract China Spot

Chrome Ore Reserves and ProductionChrome Ore Reserves and Production

20112011

World Chromite Reserves

7.6 billion tons (estimate)

World Chromite Production

23.14mill tons (forecast)

Source: Metal Bulletin Research

Chrome Ore Imports into ChinaChrome Ore Imports into China

2006 4.3 Mill Tons 2011 estimated 9.7 Mill Tons

Source: ICDA and TEX Report

China Chrome Ore Stocks at Main PortsChina Chrome Ore Stocks at Main Ports

2500

3000

3500

4000

Estimated Stocks

0

500

1000

1500

2000

2009 2010 2011

Imports

Cr Ore Pricing (SA 44% Conc)Cr Ore Pricing (SA 44% Conc)

� High demand for all ore, but particularly for Lumpy and metallurgical concentrates (min 44%)

� Current spot prices � Current spot prices estimated US$ 200 CIF for metallurgical concentrates (min 44%)

Source: CRU – Dec 2011

S.A Ferrochrome industry under ThreatS.A Ferrochrome industry under Threat

• Since 2007, FeCr production costs increased by +/- 11% p.a.– Electricity prices have doubled

– Labour increases between 8-10% p.a.

– Scarce expensive technical skills

– Met Coke increased by 15% p.a since 2005

• Local transport costs increased- more road transport has to • Local transport costs increased- more road transport has to be used because Transnet does not have the capacity

• Chinese production costs using imported ore very similar to S.A. costs

• S.A. has become the marginal producer

• More profitable to sell Cr ore than produce FeCr

Future ThreatsFuture Threats

• Eskom continues to escalate prices by 15-25% p.a.

• Cr ore oversupply into export market ( UG 2)

• S.A. Carbon Tax ( proposed level increases cost of

production by +/-7 US c/lb) production by +/-7 US c/lb)

• Chinese smelters adopt more advanced technology

(pelletising, pre-reduction, bigger furnaces)

80

100

120

140

160

2008

2014

2013

2015

Power Comparison between Ferrochrome Power Comparison between Ferrochrome

Producing CountriesProducing Countries

0

20

40

60

802008

2009

2010

2011

2012

Forecast of SA exports of Forecast of SA exports of

Cr Ore to ChinaCr Ore to China

Source: CRU

MckinseyMckinsey Report on the Chrome Value Report on the Chrome Value

ChainChain

• R42 Bn contribution to GDP in 2010

• This is under threat

• Recommendations;

– S.A should implement an export tariff of US $ 100/t on chrome orechrome ore

– Set up a S.A chrome marketing arm

– Agree with Government a justifiable electricity power price path

– Align S.A CO2 tax implementation with main competition

– Optimise resource management incl review of mining licence issue and UG2 production.

ConclusionsConclusions

• Future of S.A Chrome industry very uncertain

• With increasing platinum production, the increased

availability of UG2 suggests continuing Cr ore oversupply

• Higher cost Cr ore producers may be squeezed out of the

market as prices fallmarket as prices fall

• S.A FeCr producers continue to move up the cost curve

due mainly to administered price increases and

inefficiencies inherent in S. Africa

• Probability that some FeCr producers will merge or close

in the short term