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Magnesita Refratários S.A.Magnesita Refratários S.A.
August, 2013August, 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 toand 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.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 HighlightsFinancial Highlights
3
Refractory industry overview
Industry overview
Refractories are fireproof materials consumed within
various production processes, providing heat, chemical
and mechanical resistance in industrial furnaces
Their raw material are minerals with high melting point,
including magnesite, dolomite and alumina. Bricks
Monolithic
Types of refractories Main consumers worldwide
Refractories are crucial consumables for manufacturing processes with high temperatures
Source: Freedonia.estimates 2011
SteelNon-ferrous
(aluminum, copper, nickel, silver, zinc)
Nonmetallic(cement, glass, lime)
~15%
~15%
Refractories are continuously consumed during steel production…
Electric Arc Fumace Steel Refining
Facility
Iron Ore
STEEL LADLES
Volume: 70 tonnes
Life Expectancy: 1 month
…and cement production
Preheater Tower
CLINKER COOLER
Volume: 500 tonnes
Life Expectancy: 1 - 3 years
Crucial, but represents ~3% of COGS in steel
manufacturing and less than 1% in cement
Refractories are consumables: ~10Kg per ton of steel;
~0.6Kg per ton of cement
Pre castables, valves and slide gates
Steel (aluminum, copper, nickel, silver, zinc)
Other
~60%~10%
FumaceFacility
Continuos Casting
Basic Oxygen
Furnace
Recycled Steel
Direct Reduction
Coal Injection
Coal
Coke Oven
Limestone
Blast Furnace
NaturalGas
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
Source: Company
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
4
Technology
Key drivers
ManufacturingOnly
Mining Refractorymanufacturing
Services
Full TCO(performance-based)
Business highlights
Magnesita’s unparalleled business model
Global scale, local presence
Products and services breadth and depth
Access to high-quality materials
Global scale, local presence
Fully Integrated
CPP-Integrated
Access to high-quality materialsIntegratedManufacturing
Technology, local presenceIntegratedServices
Products and services breadth and depth
Relationship with clients
CPP-Integrated
+-
*Source: Bloomberg (Krosaki and Shinagawa refer to 1Q13. Fiscal Year ends in march)
Gross Margin in 1H13* (%)
27,2%
Vesuvius
33,6%
23,6%
RHI Shinagawa
16,5%
Magnesita
16,3%
Krosaki
5
Summary
Industry overview
Company overview
Financial HighlightsFinancial Highlights
6
Company overview
More than 100 years of expertise in refractories and industrial minerals
3rd largest player in the refractory sector worldwide, present in the main steel markets
#1 in the steel and cement industries in Brazil and South America
Magnesita is a global leader in refractories solutions and industrial minerals
#1 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 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
28 industrial facilities with more than 1 million tons/year of refractories produced in 2012
7
Business highlights
Engineering, assembly and
Refractory Solutions ServicesIndustrial Minerals
Magnesita leverages its competitive advantages throughout the whole value chain
Refractories with tailor made
UPSTREAM DOWNSTREAM
Details/description
Current: Talc, caustic magnesia and magnesia sinter
Development: Graphite and talc expansion
Engineering, assembly and
installation of refractories
Value-added services, including
spot contracts
Applications
Talc: Plastic, cosmetics, pharmaceuticals, food, ceramics, pulp and paper, etcCaustic magnesia: Fertilizers, abrasives, animal nutrition, etcSinter: refractories
formulations and shapes as
well as strong technical service
Two commercial models (CPP
and conventional)
Steel
Industrial (cement, non-
ferrous, non-metallic)
Steel
Industrial (cement, non-
ferrous, non-metallic)
Mining
Net revenues(2012)
R$ 148 million
(6% of the total revenues)
R$ 130 million
(5% of the total revenues)
Gross margin(2012)
11%43%
R$ 2.186 million
(89% of the total revenues)
31%
8
Experienced management team
Octavio Pereira Lopes - CEO� Successful as CEO of Equatorial. Previous
Managing Director at GP Investments
Previous
experience
Joined Magnesita in 2007 as board
member and became CEO in 2012
Industry experience
Over 70 years of combined experience in the industry
Otto Levy Reis - VP Commercial
Peter Estermann - COO Global
Vinícius Silva - VP Minerals
José Roberto Beraldo - CFO
Felipe Sommer- VP People and MGMT
Functional Team
Operational Team
� Solid financial background
� Senior roles and extensive
experience in global companies
� Over 70 years of combined
experience in the industry
� Close relationships with
Industry Experience: +11 years
Joined Magnesita in 2008
Industry Experience: +5 years
Joined Magnesita in 2008
Industry Experience: +3 years
Joined Magnesita in 2010
Joined Magnesita in 2012
Joined Magnesita in 2012
Vinícius Silva - VP Minerals
Martin Bartmann - Global Supply Chain
Luis Rodolfo Bittencourt - VP R&D
key players and clients in the
industryIndustry Experience: +27 years
27 years in Magnesita
Industry Experience: +17 years
Joined Magnesita in 2011
Joined Magnesita in 2010
9
Global scale, with local presence in key markets, with an integrated supply chain
Unique global footprint
Valenciennes and Flaumontproduction units (FRA)
Hagen-Halden, Oberhausen and Kruft production units (DEU)
Sinterco Dolomite JV (BEL)
York production unit (USA)
Contagem production units (BRA)
production units (FRA)
Chizhou production unit (CHN)
York Dolomite Mine (USA)
Qingyang dolomite mine (CHN)
Magnesite mine (Brumado - BRA)
Chromite mine (BRA)
Talc mine (BRA)
Sales per region 1H13
Taiwan JV’s production unit (CHN)
DMR production unit (CHN)
production units (BRA)
Coronel Fabricianoproduction unit (BRA)
San Nicolásproduction unit (ARG)
Sales per region 1H13
Sales Office MinesRefractory production
10
. .22%
13%19%
8%
39%
Europe
Brazil
North America
South America
Other
Vision:Be the best provider of refractoriessolutions and industrial minerals,
leveraging and developing our minerals base
III-Expand industrial I-Ensure leadership II-Grow selectively
New strategic visionO
ne
glo
ba
l o
rga
niz
ati
on
III-Expand industrial minerals base
I-Ensure leadership in our core markets
IV-Maintain a global low cost production base
II-Grow selectivelyand 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
I – Ensure leadership in our core markets
Dolomitics in North America
Dolomitics in Western Europe
Our differentiated competitive position and leadership in core markets support our growth as they recover
~50% in stainless steel
Magnesita’s share* in core marketsMagnesita’s share* in core marketsMagnesita’s competitive advantages in its core marketsMagnesita’s competitive advantages in its core markets
~60% in stainless steel
Vertically integrated low-cost producer
Continuous investments in R&D and technology
Specialized technical assistance
South America
Long standing relationship with blue-chip customers
~50% in stainless steel
~20% in mini-mills~60% in stainless steel
~15% in mini-mills
~65% in steel
~60% in cement
*Company estimates
Specialized technical assistance
Logistic advantages due to privileged locations
Captive CPP contracts with long-term alignment of interests
Brand recognition and historical leadeship
12
Access to high quality and low cost raw materials, specially good for industrial customers
Global footprint, global scale with an integrated supply chain
Best-in-class technical and R&D capabilities with brand recognition
Increasing reach of our sales force with a new commercial structure
II – Grow selectively and aggressively
Pursue long term growth opportunities in select markets where we can deliver superior value
Increasing reach of our sales force with a new commercial structure
Historically low exposure in several important markets
Magnesita refractory sales(1H13)¹
Refractories consumption Global Market²
Opportunities for growth in a fragmented global industry Opportunities for diversification into non steel industries
IndustrialIndustrial 17%
Global market share (in USD)
RHI ~ 9%
Vesuvius-~10%
Magnesita ~ 5%
~10%
Chineseplayers
~37%
40%
Steel60%
Steel
83%
13
Source: Company estimates .
Regional players
Segment players
Global players
~10%
ShinagawaKrosakiANHQinghuaMagnezit
~13%
RefratechnikSaint GobainCalderysMinteq
Small local players
~16%
Source: ¹Company figures and ²Freedonia.
III – Expand industrial minerals base
� 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
Magnesita’s
strategic
positioning
Unlocking our internal expertise and the industrial minerals opportunity in Brazil
� 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)
� Attractive due to global unbalance of supply and demand
� Minerals out of big players’ radar
� Logistic is not predominant
The Brazilian
opportunity
Focused
Opportunity � Logistic is not predominant
� Commercial development is necessary
� US$2bi - US$10bi global markets
Magnesita is very well positioned to occupy the “white space” in Brazil
Opportunity
set
14
1.Preliminary5 to 10 analysis
per year
2.DevelopmentGraphite
Talc expansion
3.Installation
III – Expand industrial minerals base
4.OperationalDBM, Talc, CCM
Our goal is to have at least one project moving to the next phase every 12 – 18 months
�Complete geological work
and reserve certification
�Environmental license
� Industrial project
�Commercial development
�Medium capex; medium risk
per year Talc expansion
�Preliminary geological
work
�Market analyses
�Low capex; high risk
�Investment in the
industrial plant
�High capex; low risk
� Cash flow generation
� Maintenance capex
Graphite project Talc expansion
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
Leader in Brazil, producing ~40kton/y
~50% gross margin
Low environmental license and geological risk
Commercial development underway
Project should double capacity over next 2 years
15
IV - Maintain a global low cost production base
Sinterco Dolomite JV (Belgium)31 million tonnes of reserves
Expected life: 30 yearsNorth American facility (PA-USA)
European facilities (3 in Germany and 2 in France)
DMR facility (Dalian-China)
Opportunities for further industrial and supply chain optimization
Brumado (Bahia-Brazil)
830 million estimated tonnes of
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
South American facilities (MG-Brazil and Argentina)
Asian facility (Chizhou-China)
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
(MG-Brazil and Argentina)Raw material flow
Finished product flow
Brumado has the highest quality of raw material in the world with more than 200 years of reserves
16
Summary
Industry overview
Company overview
Financial HighlightsFinancial Highlights
17
Net Revenues EBITDA and EBITDA margin (excl. non-recurring)
Steady organic growth
Proven resilience in adverse market conditions
CAPEX funded comfortably with operational cash flow
Financial highlights (BRL mln)
+8,5%
2.46417,2%
15,5%15,1%14,5%18,7%17,7%
45%49%
Magnesita¹CSNGerdauUsiminas
CAPEX Gross margin Magnesita vs clients
+1,3%
1H13
1.261
1H12
1.244
2012
2.464
2011
2.319
2010
2.276
2009
1.927
+12,7%
+3,1%
1H13
217
1H12
193
15,5%
2012
373
15,1%
2011
337
14,5%
2010
425
2009
340
CAPEXBrumado expansion
25%
3%
12%
34%
30%
24%
12%
-3%
30%
33%
14%
1%
34%
45%
18%
14%
33%
36%
17%
11%
38%
26%
34%
2008 2009 2010 2011 2012 1H13
Source: Companies report (only parent company for Usiminas and CSN)¹Magnesita in 2011 was adjusted due to accounting reallocation
18
2012
257
74165
118
2011
171
120
1H12
92
44
60
51
1H132010
78
2009
37
Debt and Leverage
Total Excluding Perpetual Bond
1.205
3,0x
1.058
2,8x2,9x2,9x
Net debt / EbitdaEBITDA* LTMNet Debt
2,9x
Net Debt Net debt / EbitdaEBITDA* LTM
Solid balance with no refinancing risk
Amortization Schedule (R$ million) Net Debt per currency
2Q12
397
1.205
2Q13
373
1.058
4Q12
352
1.002
4Q11
338
971
*EBITDA excluding non recurring *EBITDA excluding non recurring
2Q12
397
4Q12
639536
373
2Q13
1,6x
352490
1,4x
338
971
4Q11
1,4x
Perpetual bond
19
2018+
1.500
946
554
2017
77
2016
78
2015
112
2014
33
2013
38
Jun-13
633
Cash position
Amortization
Perpetual bond
Others
EUR
-4%-3%
USD73%
19%13%
104%
BRL12%
-14%
Jun-13
Dec-12
Key messages
Global vertical integrated player with unique geographic position
Opportunities for growth and diversification into selected markets and industries
Focused on delivering superior returns to shareholders
markets and industries
Unique solution-based model (CPP) and performance-based applied R&D
Significant value of mineral reserves with opportunities to expand industrial minerals base
Strong management team and corporate governance practices
Solid financial fundamentals
20
Annex
21
Strong support from shareholders
Only common shares
2 independent board members
Free float 58.6% (minimum required is 25%)
Listed in the Novo Mercado segment (Ticker: MAGG3), which correspond to the best practices of corporate governance
Ownership structure Corporate Governance
34,2%GP
Controlling GroupFree float 58.6% (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)
Latin America and worldwide leadership in Private Equity
Active management
58,6%
7,2%
Free Float
Rhône
Controlling Group
ADR Level I (Ticker: MFRSY)Active management
Culture of promotion by merit
Proven track record in the Brazilian and global capital markets,
with various success cases
22
OTC: Over- the-counter market
Program established in 2010
1 ADR = 2 ordinary shares
MFRSY
Crude steel production¹ (mln ton) and Magnesita’s market share² (%)
+3%
138118120
82
206209
162
+2%
229+3%
12811411198
+4%
59
+7%
58
+4%365
308300
238
North America Europe CISSouth & Central America MEA Asia ex-China
Market growth forecast and Magnesita’s share %
%
Magnesita’s share
Mkt growth (CAGR)
Source: ¹CRU (Report May/2013) and ²Company estimates
2017(f)2013(f)2012(e)
2009
82
16%
2013(f)2012(e)
2009 2017(f) 2017(f)2013(f)
2012(e)
2009
9.6% 0.3%
2017(f)
59
2013(f)
50
2012(e)
48
2009
38
2012(e)
42
2009
35
2017(f)
58
2013(f)
45
2017(f)2013(f)2012(e)
2009
65% 2.1% 1%
+5%
North America Europe Asia Others
Cement production¹ (mln ton) and Magnesita’s market share² (%)
South & Central America
140130123115
+7%
2014(f)2013(f)2012(e)
2011
345328317327
+4%
2014(f)2013(f)2012(e)
2011
+5%
2014(f)
3.093
2013(f)
2.947
2012(e)
2.781
2011
2.618
133124116108
+7%
2014(f)2013(f)2012(e)
2011
338315295270
+7%
2014(f)2013(f)2012(e)
2011
25% <5% <1%60% <1%
Source: ¹CW Group (Report Feb/2013) and ²Company estimates
23
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 ita highly strategic location for refractory production
New markets: This new plant will allow us to better serve geographies
Recent aquisitionsMaintain a global low
cost production
base
Grow
selectively
and
aggressively
New markets: This new plant will allow us to better serve geographiesand segments where Magnesita has a marginal presence todayand where we want to expand sales in a selective way
Location: Dalian is an important export hub in China withexcellent logistics
Capacity: 50.000 tons/year
The acquisition was concluded on July 31, 2013
24
DMR external viewChina
CHINA
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
Recent aquisitionsEnsure
leadership in our core
markets
Reframec: Leader in engineering, installation and repair servicesfor refractories used in cement production in Brazil
The acquisition of 51% of Reframec was completed on June 28, 2013
25
Refractory assembly in rotary kiln
Investor Relations contacts:
Octavio Pereira Lopes CEO
Eduardo Gotilla Global Finance & IRO
Daniel Domiciano SilvaInvestor Relations
Phone: 55 11 3152-3203/3241
26
Phone: 55 11 3152-3203/3241ri@magnesita.com
www.magnesita.com
MFRSY