Magnesita Refratários S.A.
May, 2013
Disclaimer
The material that follows is a confidential 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].
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.
2
Summary
Industry overview
Company overview
Financial Highlights
3
Refractory industry overview
Refractories are continuously consumed during steel production…
Electric Arc Fumace Steel Refining
Facility
Continuos Casting
Basic Oxygen
Furnace
Recycled Steel
Direct Reduction
Coal Injection
Iron Ore
Coal
Coke Oven
Limestone
Blast Furnace
Natural Gas
ELECTRIC ARC FURNACE
Volume: 120 tonnes
Life Expectancy: 1 month
BLAST FURNACE
Refractory Volume:
900 tonnes
Life Expectancy: 15 years
TORPEDO CAR
Volume: 200 tonnes
Life Expectancy: 2 years
CONVERTER
Volume: 800 tonnes
Life Expectancy: 6 months
CONTINUOUS CASTING
Volume: 25 tonnes
Life Expectancy: 10 hours
STEEL LADLES
Volume: 70 tonnes
Life Expectancy: 1 month
Source: Company
…and cement production
Preheater Tower
CLINKER COOLER
Volume: 500 tonnes
Life Expectancy: 1 - 3 years
PREHEATER TOWER
Volume: 1,000 tonnes
Life Expectancy: 5 - 10 years
ROTARY KILN
Volume: 250 tonnes
Life Expectancy: 10 months
Industry overview
What are refractories: Fireproof materials
consumed within various production processes,
providing heat, chemical and mechanical
resistance in industrial furnaces
Raw material: Minerals with high melting point,
including magnesite, dolomite and alumina. Raw
material quality and assured supply are essential
Represents ~3% of COGS in steel manufacturing
and less than 1% in cement
Bricks
Pre castables, valves and slide gates
Monolithic
1 ton of steel = ~10 kg of refractories
1 ton of cement = ~0.6 Kg of refractories
Types of refractories Consumption (average)
Refractories are crucial consumables for manufacturing processes with high temperatures
4
Refractory: USD25 billion global industry
Source: Freedonia.estimates 2011 Source: Company estimates .
Main consumers worldwide Fragmented industry – Global market share (in USD)
RHI ~ 9%
Steel Non-ferrous
(aluminum, copper, nickel, silver, zinc)
Nonmetallic (cement, glass, lime)
Other
Global players
Segment players
Regional players
Vesuvius-~10%
Magnesita ~ 5%
~10%
Shinagawa Krosaki ANH Qinghua Magnezit
~13%
Chinese players
~37%
~60%
~15%
~15%
~10%
Refratechnik Saint Gobain Calderys Minteq
Small local players
Magnesita is a global player with a unique business model in the industry
Fully Integrated
Manufacturing Only
CPP-Integrated
Higher margins; difficulty to replicate + -
Integrated Manufacturing
Integrated Services
Mining Refractory manufacturing Services
Full (performance -based)
Different business model across the value chain… …lead to different margins levels Source: Bloomberg
25,7%
Vesuvius
30,4%
21,6%
RHI Shinagawa
17,7%
Magnesita
17,4%
Krosaki
~16%
5
Gross Margin (2012)
Summary
Industry overview
Company overview
Financial Highlights
6
Company overview
70 years expertise in refractories and industrial minerals
3rd largest player in the refractory sector worldwide, present in the main steel markets
1st in the steel and cement industries in Brazil and South America
1st 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 is a global leader in refractories solutions and industrial minerals
Magnesita in numbers
Revenues of R$ 2.46 billion in 2012
Production in 4 continents, supplying globally to more than 850 clients worldwide
6,500 employees
29 industrial facilities with a nominal capacity of 1.6 million tons/year of refractories
7
Business highlights
Net revenues (2012)
R$ 148 million
(6% of the total revenues)
R$ 130 million
(5% of the total revenues)
Gross margin (2012)
11% 43%
Details/ description
Current: Talc, caustic magnesia and magnesia sinter
Development: Graphite and talc expansion
Enginering, assembly and
installation of refractories
Value-added services, including
spot contracts
Refractory Solutions Services
Applications
Talc: Plastic, cosmetics, pharmaceuticals, food, ceramics, pulp and paper, etc Caustic magnesia: Fertilizers, abrasives, animal nutrition, etc Sinter: refractories
Industrial Minerals
Magnesita leverages its competitive advantages throughout the whole value chain
Refractories with tailor made
formulations and shapes as
well as strong technical service
Two commercial models (CPP
and conventional)
R$ 2.186 million
(89% of the total revenues)
31%
Steel
Industrial (cement, non-
ferrous, non-metallic)
Steel
Industrial (cement, non-
ferrous, non-metallic)
Mining
UPSTREAM DOWNSTREAM
8
Experienced management team
Octavio Pereira Lopes - CEO
Otto Levy Reis - VP Commercial
Peter Estermann - COO Global
Vinícius Silva - VP Minerals
Martin Bartmann - Global Supply Chain
Eduardo Moretti - COO China
José Roberto Beraldo - CFO
Felipe Sommer- VP People and MGMT
Luis Rodolfo Bittencourt - VP R&D
Functional Team
Operational Team
Successful as CEO of Equatorial and as a
Managing Director at GP Investments
Solid financial background
Senior roles and extensive
experience in global companies
Over 70 years of combined
experience in the industry
Close relationships with
key players and clients in the
industry
Industry Experience: +11 years Joined Magnesita in 2008
Industry Experience: +27 years 27 years in Magnesita
Industry Experience: +5 years Joined Magnesita in 2008
Industry Experience: +17 years Joined Magnesita in 2011
Industry Experience: +18 years Joined Magnesita in 2009
Industry Experience: +3 years Joined Magnesita in 2010
Previous experience
Joined Magnesita in 2007 as board member and became CEO in 2012
Joined Magnesita in 2012
Joined Magnesita in 2012
Industry experience
Over 70 years of combined experience in the industry
9
Sales Office Refractory production Mines
Global scale, with local presence in key markets, with an integrated supply chain
Sales per region 2012
York unit production (USA)
Contagem units production (BRA)
Coronel Fabriciano unit production (BRA)
San Nicolás unit production (ARG)
Valenciennes and Flaumont units production (FRA)
Hagen-Halden, Oberhausen and Kruft units production (DEU)
Chizhou unit production (CHN)
Taiyuan JV’s unit production (CHN)
York Dolomite Mine (USA)
Qingyang dolomite mine (CHN)
Sinterco Dolomite JV (BEL)
Magnesite mine (Brumado - BRA)
Chromite mine (BRA)
Talc mine (BRA)
Europe
Asia
NAM
22%
8%
18% 49% SAM
Others
2%
Taiwan JV’s unit production (CHN)
Unique global footprint
DMR unit production (CHN)
10
On
e g
lob
al o
rgan
izat
ion
Vision: Be the best provider of refractories solutions and industrial minerals,
leveraging and developing our minerals base
Expand industrial minerals base
Ensure leadership in our core markets
Maintain a global low cost production base
Grow selectively and aggressively
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
Strive to keep offering high quality and
innovative products, unrivaled services and
cost performance
Optimize production globally to improve
efficiency and support growth
Develop global supply chain management
Pursue long term growth opportunities in selected
markets where we can deliver superior value to
our customers and shareholders
▪Meritocracy ▪Ethics
▪Profit ▪Management and Method
▪Agility and Transparency ▪Respect for Safety, Environment and Communities
▪Customer ▪People
Our values
11
New strategic vision
I – Ensure leadership in our core markets
12
South America
Dolomitics in North America
Dolomitics in Western Europe
Long standing relationship with blue-chip customers
Our differentiated competitive position and leadership in core markets support our growth as they recover
~50% in stainless steel ~20% in mini-mills
Magnesita’s share* in core markets
Vertically integrated low-cost producer
Continuous investments in R&D and technology
Specialized technical assistance
Logistic advantages due to privileged locations
Captive CPP contracts with long-term alignment of
interests
Brand recognition and historical leadership
Magnesita’s competitive advantages in its core markets
~60% in stainless steel ~15% in mini-mills
~65% in steel ~60% in cement
*Company estimates
Pursue long term growth opportunities in select markets where we can deliver superior value
Access to high quality and low cost raw materials
Exposure to emerging markets
Global scale with an integrated supply chain
Best-in-class technical and R&D capabilities
Increasing reach of our sales force
Historically low exposure in several important markets
Source: ¹CRU and ²Company estimates
Crude Steel Production¹ (mln ton) and Magnesita’s share² (%)
Opportunities for diversification into non steel industries
Magnesita refractory sales (2012)
Refractories consumption - Global Market
Opportunities for geographic diversification in steel Opportunities for geographic diversification in cement
13812211880
2017(f) 2013(f) 2012(e)
2009
16%
228204202
162
2017(f)
2013(f)
2012(e)
2009
13111511298
2017(f) 2013(f) 2012(e)
2009
9.6%
0.3%
60514738
2017(f) 2013(f) 2012(e)
2009
56434034
2017(f)
2013(f)
2012(e)
2009
363305293
226
2013(f) 2012(e)
2009 2017(f)
Industrial
40%
Steel 60%
Industrial 16%
Steel
84%
65% 2.1%
1%
North America Europe
CIS
140130123115
2014(f)
2013(f)
2012(e)
2011
345328317327
2014(f)
2013(f)
2012(e)
2011
Central & South America
MEA
Asia ex-China
2014(f)
3.093
2013(f)
2.947
2012(e)
2.781
2011
2.618
Cement Production¹ (mln ton) and Magnesita’s share² (%)
133124116108
2014(f)
2013(f)
2012(e)
2011
338315295270
2014(f)
2013(f)
2012(e)
2011
25% <5% <1%
60% <1%
North America Europe Asia
Central & South America
Others
Source: ¹CW Group and ²Company estimates
II – Grow selectively and aggressively
13
Unlocking our internal expertise and the industrial minerals opportunity in Brazil
→ Initial portfolio of attractive mineral rights
→ 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; very favorable geography
→ It has been historically unexplored
→ Viewed as a reliable source (vs China)
The Brazilian opportunity
Magnesita is very well positioned to occupy the “white space” in Brazil
Magnesita’s strategic positioning
→ Attractive due to global unbalance of supply and demand
→ Minerals out of big players’ radar
→ Logistic is not predominant
→ Commercial development is necessary
→ US$2bi – US$10bi global markets
Focused 0pportunity set
III – Expand industrial minerals base
14
Our goal is to have at least one project moving to the next phase every 12 – 18 months
Projects in development phase
Graphite project
Become self sufficient supplying our refractory business
Surplus to supply third parties, focusing on high end users
Positive outlook and growing demand from new applications
Restrictions from Chinese exports (~80% of global production)
Environmental license granted in March 2013
Talc expansion
Leader in Brazil, producing ~40kton/y
~50% gross margin
Low environmental license and geological risk
Commercial development underway
Project should double capacityover next 2 years
1.Preliminary 5 to 10 analysis
per year
2.Development Graphite
Talc expansion
3.Installation 4.Operational DBM, Talc, CCM
• Preliminary geological work • Market analyses • Low capex; high risk
• Complete geological work and reserve certification •Environmental license • Industrial project •Commercial development • Medium capex; medium risk
• Investment in the industrial plant •High capex; low risk
•Cash flow generation • Maintenance capex
III – Expand industrial minerals base
15
Sinterco Dolomite JV (Belgium)
31 million tonnes of reserves
Expected life: 30 years
Brumado (Bahia-Brazil)
830 million estimated tonnes
of reserves (549 million measured)
Only mine to allow the economical production of 98.3%-grade DBM
Expected life: ~200 years
The mine is connected to the port
of Aratu by the FCA railway
York Dolomite Mine (PA-USA)
25 million tonnes of reserves
Expected life: 45 years
Qingyang Dolomite Mine (China)
18 million tonnes of reserves
Expected life: 50 years
IV - Maintain a global low cost production base Opportunities for further industrial and supply chain optimization
North American facility (PA-USA)
European facilities (3 in Germany and 2 in France)
South American facilities (MG-Brazil and Argentina)
Asian facility (Chizhou-China)
Raw material flow
Finished product flow
Brumado has the highest quality of raw material in the world with more than 200 years of reserves
DMR facility (Dalian-China)
16
17
DMR (manufacturing unit in China)
Low cost production base: The plant is located in the city of Dalian, northeast China, region which owns around 20% of world’s reserves of magnesite, making it a highly strategic location for refractory production
New markets: This new plant will allow us to better serve geographies and segments where Magnesita has a marginal presence today and where we want to expand sales in a selective way
Location: Dalian is an important export hub in China with excellent logistics
Capacity: 50.000 tons/year
Closing: Expected to occur in ~60 days, after approval of the Economic and Trade Bureau of Dalian Development Area, in the People´s Republic of China.
Recent aquisitions
DMR external view China
CHINA
Maintain a global low
cost production
base
Grow selectively
and aggressively
18
Refractory assembly in rotary kiln
Reframec (51% of equity)
Ensure leadership in our core markets: The Reframec acquisition reinforces Magnesita's leadership in its core industrial markets in South America, as it expands its services beyond the steel industry
Reframec: Leader in engineering, installation and repair services for refractories used in cement production in Brazil
Closing: ~60 days. Post-close, Reframec will continue to operate independently
Recent aquisitions Ensure
leadership in our core
markets
Summary
Industry overview
Company overview
Financial Highlights
19
Revenues EBITDA and EBITDA margin (excl. non-recurring)
2.464
2011
2.319
2010
2.276
2009
1.927
+6,2% +8,5%
2012
Steady organic growth
Proven resilience in adverse market conditions
CAPEX funded comfortably with operational cash flow
373337425
340
2011
14,5%
2010
18,7%
2009
17,7%
+10,7%
2012
15,1%
2008 2009 2010 2011 2012
30,4%
22,6%
12,5%
-3,0%
30,0%
32,5%
14,4%
0,7%
34,2%
44,6%
17,6%
14,2%
32,5%
35,5%
16,7%
11,5%
37,5%
48,7%
26,0%
34,2%
Magnesita¹ CSN Gerdau Usiminas
Operational Cash Flow and Capex
Source: Companies report (only parent company for Usiminas and CSN) ¹Magnesita in 2011 was adjusted due to accounting reallocation
257
165
92
2012
342
171
120
51
2011
552
78
2010
365
37
2009
131
OCF CAPEX Brumado expansion
Financial highlights (BRL mln)
20
Gross margin Magnesita vs clients
1Q13 Results
21
Steel production in Magnesita’s core markets (mln tonnes)
-8%
-5%
1Q13
11,0
4Q12
11,6
1Q12
11,9
South America -9%
3%
4Q13
21,2
4Q12
20,7
1Q12
23,2
United States
4%
-6%
41,4
1Q13 4Q12
39,7
1Q12
43,9
EU-27
+2%
+1%
1Q13
617,9
4Q12
611,1
1Q12
606,9 116
8388
1Q13
18,8%
4Q12
13,5%
1Q12
14,4%
Revenues (BRL mln)
Despite the challenging scenario, results have improved in 1Q13
401373358352337
4Q12
14,6%
1Q12
14,3%
1Q13 4Q12
16,2% 15,1%
1Q13
14,6%
Ebitda margin Ebitda LTM EBITDA EBITDA margin
*EB
ITD
A e
xclu
din
g n
on
rec
urr
ing
EBITDA (BRL mln) EBITDA LTM (BRL mln)
Debt and Leverage
Amortization Schedule (R$ million) Net Debt per currency
Total Excluding Perpetual Bond
1.0591.0581.0311.002907
401373357350334
2,6x2,8x2,9x2,9x2,7x
1Q13 4Q12 3Q12 2Q12 1Q12
Net debt / Ebitda EBITDA* LTM Net Debt
22
*EBITDA excluding non recurring *EBITDA excluding non recurring
678
7880621530
964
508
1.472
2018+ 2017 2014 2015 2016 2013 Mar-13
Perpetual Bond
Cash
Amortization 2%
80%
-14% BRL
USD 104%
13%
19%
Others
EUR
-3%
-2%
Dec-12
Mar-13
566536513486
907
401373357350334
1,4x1,4x1,4x
2,7x
1,4x
1Q12 1Q13 2Q12 4Q12 3Q12
Net debt / Ebitda EBITDA* LTM Net Debt
Solid balance with no refinancing risk
Key messages
Strong management team and corporate governance practices
Global vertical integrated player with unique geographic position
Opportunities for growth and diversification into selected markets and industries
Unique solution-based model (CPP) and performance-based applied R&D
Focused on delivering superior returns to shareholders
Significant value of mineral reserves with opportunities to expand industrial minerals base
Solid financial fundamentals
23
24
Annex
Strong support from shareholders
Only common shares
2 independent board members
Free float 58.8% (minimum required is 25%)
Tag-along rights to all shareholders
Quarterly results in English in accordance with
International Financing Report Standards (IFRS)
Shares included in the IGC (Index of Differentiated
Corporate Governance) and ITAG (Index of Tag Along)
Listed in the Novo Mercado segment, which correspond to the best practices of corporate governance
Ownership structure Corporate Governance
Latin America and worldwide leadership in Private Equity
Active management
Culture of promotion by merit
Proven track record in the Brazilian and global capital markets,
with various success cases
58,8%
34,0%
7,2%
Free Float
Rhône
GP
Controlling Group
25
26
Investor Relations contacts:
Octavio Pereira Lopes CEO and IRO
Eduardo Gotilla
Global Finance & IR Director
Daniel Domiciano Silva Investor Relations
Phone: 55 11 3152-3203/3241
[email protected] www.magnesita.com