1

Steel and Manganese Prospects to 2012

2007 International Manganese Institute Annual Conference

Vienna, June 17-19, 2007

2

Synthesis

•  Manganese demand prospects have never been so good –  Steel demand to exceed 6%/yr for many years to come –  Specific Mn consumption growing again –  Mn intensive steel grades to grow faster than average –  Non steel applications also facing good prospects –  Limited downside risks for next ten to fifteen years

•  Manganese supply can further leverage good prospects –  Recent price increases, but major energy and freight increases –  Low barriers to entry prevent sustained price increases –  Ample mineral resources to develop in line with demand –  Marketing and communication to strengthen : Mn is sexy !

3

Since the beginning of this century, the steel industry has entered a era of sustained growth

Source: Steel Statistical Yearbook, IISI, Laplace Conseil analysis

World crude steel production (Mt)

00

400

800

1900 10 20 30 40 50 60 70 80 90

Glorious Thirty

Iron Age

2010

Ugly Twenty Five

New Era !

+6%/yr

+1%/yr

+2,5%/yr

0

1 200

1 600 2010 :~1550 Mt

2006 : 1240Mt

+6%/yr

4

This is mostly due to the rapid industrialization of Asia, led by China

Economic Development of Asian populations (Million inhabitants)

0

1 000

2 000

3 000

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010E

4 000

2015E 2020E

By 2010, more than 2 billions Asian inhabitants will have entered the industrialization phase

GDP per Cap, PPP (USD) > 3000 growing and high steel usage GDP per Cap, PPP (USD) > 13000 rich and declining/stable steel usage

GDP per Cap, PPP (USD) < 3000 poor and low steel usage

Source: World Bank, Laplace Conseil analysis

5

China’s steel intensity curve is expected to peak in 2015 around 50 Kg per 1000 US$ of GDP

Source: IISI OECD (constant GDP PPP), World Bank Laplace Conseil Analysis

China steel specific production per unit of GDP forecasts

GDP/capita (constant 1995 US$ PPP )

Prod

uctio

n in

tens

ity o

f cru

de s

teel

(kg

per 1

000

US$

of G

DP)

10

20

30

40

50

5000 10000 15000 20000 25000 30000

North America

Western Europe

Japan Latin America

China

2000

2012 - 2015

2005

Pre industrialization Industrialization Transition Post industrialization

6

Source: IISI, USGS, Laplace Conseil analysis

China’s current evolution is similar to the one experienced by developed economies in the past.

Crude steel production growth rate (%)

USA/Canada. Japan

China

India

0%

30%

Western Europe

Korea Taiwan

FORECAST

1960 1970 1980 1990 2000 2010 2020 1920 1930 1940 1950 1900 1910

20%

10%

7

Summary of trends and drivers of steel demand

•  The new consumers in Asia and transition economies pull global steel demand by 5 to 6 % per year for 20 to 30 years

•  The world economy “muddle through” with renewed shocks and cycles but the system remains resilient. Steel grow by 2 to 4% per year with substantial fluctuations

•  Major disruptions, in part caused by a growing gap between “have and have not” (energy shortage, environment catastrophe, major terrorist outbreak) trigger recession in developed economies and halt progress in developing world. Steel return to mid 2000’s level, then remains more or less constant with large cycles

65 % 20 % 15 %

Probability by 2020

8

Only global risks could derail the new era of continuous steel growth

“China Hard Landing” Following Olympic euphoria and Shanghai world exhibition success, regional dissatisfaction could arise in China poorer provinces leading to major political, then economic instability. Uncertainty would lead to reduction in Chinese demand. Excess capacity would be dumped in global markets triggering world recession. Probability is viewed by most experts as fairly small.

“Environmental Catastrophy” Numerous threats are regularly assessed from climate change to major pandemics. Competition for dwindling resources could also trigger conflicts leading to oil shocks, terrorism or transnational crime. Are you an optimist or a pessimist ?

“US or Western Recession” In the past, steel demand and prices were heavily influenced by Western economies. Today, a major US recession would reduce steel demand by 30 Mt at the most, that is the equivalent of three weeks of China consumption or four months of Chinese growth. Steel dynamics are no longer governed by Western trends. Of course, these events can and will trigger pricing volatility and at times instability.

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-5% 0% 5% 10% 15% 20%

Beryllium Gallium Arsenic Sélénium Tin

Boron Tantalum

Zinc Copper

Titanium Nickel

Baryum Lithium

Zirconium Chromium Vanadium Antimony

Molybdenum Silicon

Rare Earths Aluminum

Germanium Magnesium

Indium Carbon steel

Stainless steel Cobalt

Manganese Tungsten Niobium

Manganese is among the 10 most valuable metals and records one of the highest CAGR

1 10 100 1 000 10 000 100 000 1 000 000

Gallium

Arsenic

Germanium

Tantalum

Indium

Antimony

Boron

Magnesium

Tungsten

Titanium

Manganese

Molybdenum

Nickel

Aluminum

Stainless Steel

Metals and Minerals value ranking (M$)

Beryllium

Selenium

Bismuth

Lithium

Rare Earths

Zirconium

Niobium

Vanadium

Cobalt

Tin

Silicon

Zinc

Chromium

Copper

Carbon steel

log scales Source : USGS, Wikipédia, Laplace Conseil analysis

Compounded Average Growth Rate 2000-2006 (%)

10

China accounts for about 45% of world Mn demand

Source: IISI, Organisation Internationale des Constructeurs Automobiles, International Aluminum Institute, Coal Institute, Wikipedia, China Metals, BP, Eramet, China Geological Survey, International Mn Institute, Laplace Conseil analysis

Chinese market share in metals, minerals, and intermediaries products worldwide consumption (%)

2006 0

10

20

30

40

1972 1976 1980 1984 1988 1992 1996 2000 2004

Steel

Aluminum Cement

Coal

Share of world population

Cars Oil

50

Nickel

Manganese

11

World Mn production increased by 8% since 2000, while spread with steel improved by 4,5%

Source : USGS, IISI, IMnI, Laplace Conseil analysis

World manganese ore & carbon steel production

Steel Mt

0

2

4

6

8

10

12

14

1950 1960 1970 1980 1990 2000 0

200

400

600

800

1 000

1 200

1 400 Mn Mt (Mn content)

Glorious Thirty CAGR Mn = 3,5% CAGR Steel = 6% Spread = -2,5%

Ugly Twenty five CAGR Mn = -1,5% CAGR Steel = 1% Spread = - 2,5%

New Era CAGR Mn = 8% CAGR Steel = 6% Spread = + 2%

12

0

5

10

15

20

25

1950 1960 1970 1980 1990 2000

Manganese specific consumption has been increasing since the beginning of the New Era

Specific consumption of Manganese in steel production (kg/ton of steel)

Source : USGS, IISI,International Manganese Institute, Laplace Conseil Analysis

2006e

Glorious Thirty

Ugly Twenty five New Era

+3,5 kg/t since 1998

13

8

10

12

14

16

18

20

22

1970 1980 1990 2000 8

10

12

14

16

18

20

22

1950 1955 1960 1965 1970 1975

Consumption unit (Kg/t of steel) = 20,45 -10,25*(%EAF+%BOF)

R 2 = 0,850

Mn past specific consumption decline was mostly due to the change in steel making processes

Correlation (%EAF+%BOF) to Mn specific consumption before 1975 (kg/ ton of steel)

Consumption unit (Kg/t of steel) = 17,5-4,3*(%EAF+%BOF)-4,9*% CC R2= 0,858

Correlation (%EAF+%BOF) and %Concast to Mn specific consumption from 1970 to 2000 (kg/ ton of steel)

Source : IISI, Laplace Conseil analysis

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Crude steel production is now almost exclusively produced via EAF or BOF and continuously cast

0%

20%

40%

60%

80%

100%

1950 1960 1970 1980 1990 2000

Source : IISI, Laplace Conseil analysis

BOF + EAF crude steel production (% world total production)

Continuous casting evolution rate (% world crude steel production)

0%

20%

40%

60%

80%

100%

1950 1960 1970 1980 1990 2000

15

Mn intensive steel represents 13% of total steel production but consumes 41 % of Mn used

Steel production breakdown 2006 : 100% = 1 239 Mt

Low carbon steel

87%

HSLA 7%

Engineering Steels 3%

Hadfield steel 1% High Mn non-magnetic steel 1% Stainless (excl. Serie 200) : 2%

Stainless (Serie 200) : 0,4%

Source : IISI, ISSF, IMnI, Laplace Conseil Analysis

Mn consumption by steel industry 2006 : 100% = 10,4 Mt (Mn content)

59%

HSLA 13%

Engineering Steel 3%

Hadfield steel 9%

High Mn non-magnetic steel 8%

Stainless (excl Series 200) 3% Stainless (Series 200) 3%

Low carbon steel

Steel absorbs 93% of all Mn production

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“Mn intensive steel” should grow faster than ordinary low carbon steel

Material Growth per year Mn content

•  Carbon steel 6,0% 0,5%

•  Construction steel 7,6% 1,0%

•  Stainless steel (other series) 8,0% 1,0%

•  HSLA 12,0% 1,5%

•  High Mn non magnetic steel 6,5% 11%

•  Hadfield steel 8,0% 13%

•  Stainless steel (series 200) 12,0% 12%

Doubling Mn conso by 2015

17

0

100

200

300

400

500

600

700

1980 1985 1990 1995 2000 2005

China

Developed countries

Rest of World

Evolution construction steel consumption (Mt)

World

In volume, steel for construction has increased by 7,6%/year since 2000

Source : JF King, Laplace Conseil analysis

CAGR00-06 World a= 7,6% CAGR00-06 China = 20,0% CAGR00-06 Developed countries= 1,5% CAGR00-06 RoW= 5,4%

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World Stainless Steel 200 Series production (12% Mn) (Mt) and total share of Stainless steel

The market reacted to the high Ni price by promoting Stainless Steel 200 Series

Source : ISSF, Eramet, Manganese Metal Company, Laplace Conseil analysis

0

2

4

2002 2003 2004 2005 2006

3%

6%

9% 10%

13%

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HSLA provides 25 to 35 % weight gain and represents real benefits for consumer

Source: Arcelor Mittal, USGS, SSAB, Engineering Fundamentals, US Vanadium Corporation, Laplace Conseil analysis

Steel weight required according to yield strength

0%

20%

40%

60%

80%

100%

235 300 400 500 600 700 800 900 1000

Common steels

235-250 MPa

HSLA (Nb, V, Ti) 355-700 MPa

Super High strength steel

(Nb,V, Ti+treatment)

Yield Strength (MPa)

700-1700 MPa

Average weight=70%

Theoretic weight

Weight with safety coefficient

Relative weight

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Hadfield steels containing 13% Mn should grow strongly in coming years

•  Austenitic manganese steel, contains between 12% and 14% manganese.

•  High toughness and ductility with high work-hardening capacity and good resistance to wear. Extend by 3 to 5 fold service life for components exposed to slow abrasive wear.

•  Earthmoving, mining, quarrying, oil well drilling, steelmaking, railroading, dredging, lumbering, and in the manufacture of cement and clay products.

•  Sectors experience strong growth to sustain Asia and in particular China economic development.

Source : Key to Steel, Wikipedia, Laplace Conseil analysis

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1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 0

50

100

150

200

250

300

TCAM 1995-2000=14% TCAM 2000-2006=13%

FORECASTS 2006-20: +10% / an

Cell phones and PC growth should exceed 10%, hence high Alkaline and Li-ion batteries and EMD

World cellular phones sales (Millions Units)

0

200

400

600

800

1 000

1998 1999 2000 2001 2002 2003 2004 2005 2006est

1998-2006e: +22,7% /an 2000-2006e: +13,2%/an

Source : Gartner, Nokia, analyse Laplace Conseil

FORECASTS 2006-10: +13% / an 2010-20 :+10% / an

World personal computers (per 1,000 people)

Source: World Bank, Laplace Conseil analysis

22

New application could add potential development for Manganese dioxide

•  A group of researchers from Kyoto University, led by Professor Hideki Koyanaka, has developed a new process designed to reproduce photosynthesis process, i.e. able to absorb large quantity of CO2 emissions, using manganese dioxide.

•  Researchers have developed a combustion technique enabling to produce pure dioxide manganese particles with a size of few nanometers. Small particles size enable to make this material more reactive and efficient to copy natural photosynthesis phenomenon.

•  In theory, this technique could be 300 times more efficient than natural photosynthesis.

•  If this process could be developed , it would represent huge potential development for manganese dioxide.

Source : Le Monde (23/04/2007), Analysis Laplace Conseil

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Synthesis

•  Manganese demand prospects have never been so good –  Steel demand to exceed 6%/yr for many years to come –  Specific Mn consumption growing again –  Mn intensive steel grades to grow faster than average –  Non steel applications also facing good prospects –  Limited downside risks for next ten to fifteen years

•  Manganese supply can further leverage prospects –  Recent price increases, but major energy and freight increases –  Low barriers to entry prevent sustained price increases –  Ample mineral resources to develop in line with demand –  Marketing and communication to strengthen : Mn is sexy !

24

Rising demand and cost pressures have led to increases in manganese alloy prices

Source : CRU

Price evolution of Mn alloys in Europe

Price did not hold due

to low entry barriers

25

Logistics cost increases and competition from other bulk commodities is major factor for industry

0

0,2

0,4

0,6

0,8

1,0

1,2

1,4

2003 2004 2005 2006 2007

High Grade 48%

Low Grade 34%

Average transport cost on Atlantic to China route (USD/dmtu

26

Low barriers to entry for SiMn requires careful capacity management for price/volume trade-off

Mn alloys production evolution (Mt Mn content)

Source : International Manganese Institute , Laplace Conseil analysis

2000 2001 2002 2003 2004 2005 2006 0

1

2

3

4

5

6

7

8

9

Source : International Manganese Institute , Laplace Conseil analysis

2000 2001 2002 2003 2004 2005 2006 0

1

2

3

4

5

6

7

8

9

HCFeMn 3,1%

SiMn 10,5%

Refined FeMn 7,8%

27

Vast Mn reserves, unequally spread, will need careful planning to accommodate future demand

Australia Brazil China Gabon

India Mexico

South Africa

Ukraine

Known Manganese reserve base (Mn content) 100% = 5 200 Mt

Source USGS mineral survey

Measu remen t o f reserves as stated by individual country; methodology not fu l ly comparable

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Strengthening Marketing and communication could help capture value potential

•  Manganese value is mostly captured by steelmaker and end user, not enough by manganese producer.

•  Substitution mostly favor Manganese, but awareness could be increased.

•  Manganese producers have room to increase value without triggering negative substitution

•  Focus on specific segments : HSLA, Hadfield, SS200 Series,…

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Thank you for your attention

Laplace Conseil Metal and Mining consultant

www.laplaceconseil.com