Outlining a methodology for product development and the need for a marketing

approach up front

November 2013

DISCLAIMER

The presentation is based in whole or in part on opinions of NeoMet Engineering P/L and information and data provided to NeoMet Engineering P/L by third parties. NeoMet Engineering P/L represents that it exercised reasonable care in the preparation of this presentation. NeoMet Engineering P/L is not responsible for confirming the accuracy of information and data supplied by third parties and NeoMet Engineering P/L does not attest to or assume responsibility for the accuracy of such data or information. NeoMet Engineering P/L also does not attest to or assume responsibility for the accuracy of any recommendations or opinions contained in this presentation or otherwise expressed by NeoMet Engineering P/L or its employees or agents which recommendations or opinions are based in whole or in part upon such information or data. Any discussion of legal issues contained in this presentation merely reflects technical analysis by NeoMet Engineering P/L and does not constitute legal opinions or the advice of legal counsel. The use of this presentation or the information contained herein is at the users sole risk and the user specifically agrees to release, defend, indemnify and hold NeoMet Engineering P/L, its affiliated companies, and its/their officers, directors, employees, sub contractors and agents harmless from any and all liability, damages, or losses of any type, including consequential and punitive damages suffered by the user or any third party, even if such damages or losses are contributed to or caused by the sole or concurrent failure or negligence (other than gross negligence) of NeoMet Engineering P/L, its affiliated companies, or its/their officers, directors, employees or agents. None of the contents contained within this presentation may be republished in whole or in part without the express written permission of NeoMet Engineering.

Cover slide Images: Left : Core sample sourced from NeoMet Engineering Centre: Bulk Carrier loading at Cape Lambert sourced from Abc.net.au Right: Hot Roll Coil – stock photo China Producer

About NeoMet Engineering

• NeoMet Engineering was established in 2010

• Business focus is the provision of :

– metallurgical services relating to project development and optimisation of existing operations

– Operations support services to existing and planned operations

– Technical marketing services to iron ore producers, projects and steel mills

• Recent project activities include

– Scoping study metallurgical program design and execution for a magnetite project

– Concept through to Definitive feasibility study management of process metallurgy streams for hematite projects

– Operational management and logistics management support to a large scale rail and port development

– Technology evaluations for a major iron ore producer

Outline

• Outlining a Methodology for Iron Ore Product Development and the need for marketing involvement early in the process

• Examining a need for technical marketing involvement from week one of project development

• Adopting rigorous marketing principles to understand the customers’ requirements and not just planning to produce because there is perception of a ‘market’

• Introducing technical challenges that result from the processing of lower grade ores

So you think you have some iron ore… now what??

• During the assessment phase the typical approach is to focus on:

– Resource definition

– Basic metallurgy

– Engineering options

– Logistics paths

– with minor focus on market related activities

Assessment Selection Development Execution

• The typical project lifecycle

The typical technical areas of project development are:

• RoM Grades and variability • Production Rates

• Process Equipment • Process size • Nature of product

• Type and nature of ore • Mining Equipment • Mining complexity

• Production rates • Vessel sizes • Product variability

© NeoMet Engineering 2013

Product development & market related activities have an early and ongoing role in this iterative process

• RoM Grades and variability • Production Rates

• Product grades • Process Equipment • Process size • Nature of product

• Type and nature of ore • Mining Equipment • Mining complexity

• Cut off Grades • Production rates • Variability requirements

• Production rates • Vessel sizes • Product variability

© NeoMet Engineering 2013

Prepare to embark on your product development journey

• Preliminary market assessments in early stage developments are often completed by benchmarking a range of chemical attributes of your product option(s) versus what may already be in the market place in order to determine a price point for financial evaluation

• This approach to benchmarking has inherent risks that you need to be aware of:

– Usually only assess Fe, SiO2, Al2O3 and P

– Some products incur ‘hidden’ penalties / premia for elements such as S, TiO2

– Chemical benchmarking does not take into account performance of the material in the ironmaking process

– Chemical benchmarking does not take into account physical and mineralogical differences of ores

Beware – the iron ore market is changing

• The market is changing… some may argue it already has changed!

• Smaller steel mills are historically supporters of smaller iron ore projects and low grade ore sources due to their lower prices. It is the smaller mills that will come under increasing pressure due to environmental regulation

2008

2009

2009

2011

62%Fe

63/63.5%Fe

58%Fe

52%Fe

Platts IO Index introduction date by Specification

Market development for product derived from low grade resources must begin early in the project development phase

• Low grade products require additional up front market analysis and activity to factor into the assessment and selection phases of project development

• Low grade products must be carefully targeted at mills that can use the product and are likely to do so at the time of market entry

• Why?

– Low grade products are sold into tighter markets

– Low grade products are typically sold to smaller steel mills

– Low grade product demand is much more sensitive to prices

– Smaller steel mills (within China) are much more likely to be consolidated or cease production in relatively short timeframes

• You need to understand your potential market!

How to get an understanding of your potential market – visit it!

• Before booking your airfares you need to have a good view of:

– Indication of the resource size

– Outcomes of preliminary metallurgical testwork

– Viable options to get the product to market (logistics routes)

– ‘Study stage appropriate’ levels of capital required

Who do you visit??

• Consider for starters:

– Your project location

– Your indicative project size

– Your indicative product specifications

– Your product type and form

Source: Platts Top 100 Chinese Steelmakers 2012

Know what you don’t know…

• This is often the point where it is more efficient to engage a reputable experienced partner in the area of product development. They will:

– have the connections on the ground in your target market country

– provide initial advice as to acceptability of the project criteria

– work with your technical people to understand and outline the initial targets for your particular product

– have access to resources to provide translation of your materials – slides, handouts, etc

Remind me (and my MD) why I should travel at this early stage

• Low grade resource development requires a tradeoff of product grade final product tonnages and capital / operating costs

--Lets just assume there are a range of metallurgical upgrade options--

• The market ultimately decides how hard you have to work the upgrade and to what specification the product should be targeted

• Conducting a market research visit early in the project development phase will ultimately aid in shaping the metallurgical program and can have significant impact on the amount of sample collected and the testwork performed

• Of course you need some insight to the effects of market cycles on your particular products acceptability and likely price points

• All of this information factors into the project evaluation financial model

Get your visa and pack your bags… research, research, research

• Once you think you have a viable project, don’t be afraid to hit the road and commence initial technical discussions with potential customers to introduce your company, project and likely product suite.

• Again, prior preparation is essential, you need:

– In country logistics to ensure meetings and logistics are confirmed

– You want to be talking with raw materials, technical and operational personnel not commercial personnel at this early stage

– A very good translator who is fluent in English preferably with some technical background

– A great slidepack developed in the local language

– A general background in the current issues in the local sector you are visiting

• These visits are a two way street, the steelmills will often be quite happy to share their pain points with you

Now, back to the metallurgy…

A compelling case can now be developed for metallurgical sampling

• You now have a better understanding of what potential buyers are looking for in an iron ore product

• The normal sequence of development will ensure there are quite a few RC exploration drill holes (or similar) to utilise in the planning of metallurgical sampling - you may be fortunate enough to have geological or resource cross sections

• Combining the available geological information with the learnings from the marketing visits can lead to a very streamlined approach to metallurgical sampling targeting the most critical areas of the resource for evaluation and confirmation of metallurgical properties

It is more complex to produce a quality final product from a low grade resource

• Low grade resources require higher levels of up front evaluation (geological and metallurgical) compared with their higher grade peers.

• Why?

– Low grade resources often require some form of beneficiation / upgrade

– Low grade resources can exhibit a higher degree of variability – chemical and physical

– Low grade resources can lead to more marginal projects and therefore require increased levels of understanding and certainty for funding and development

– If beneficiation / upgrade is required market information should factor into the amount of upgrade to be selected for the go forward case

Image source: NeoMet Engineering

The lower the grade of your resource, the higher the level of front end loading for metallurgical development

• A typical approach will see minimal expenditure on metallurgical sampling in the early phases of development (ie scoping and pre feasibility studies)

• Identification of metallurgical variability – which is different to geological and chemical variability – is critical to plant design, equipment sizing and product development activities

• The more marginal or low grade an ore body, the more metallurgical sampling should be completed in early phases to reduce and quantify the associated process design risks

– To this end drilling/sampling should be biased to the early study stages eg PFS

– Sample gathered at these stages can then be utilised to support subsequent stages with minimal additional drilling

Ensure your market knows you product - product development testwork requirements

• Traditional product development approaches have involved producing very large samples of several tonnes and providing these to a large number of potential customers to perform their own internal test and evaluation programs.

• This approach is very expensive

– You need to produce several tonnes of product at final product grades

– Apart from sourcing the samples you normally need to operate a pilot plant to meet this requirement

• Involving steelmills and local (in country) research institutes early in the product development process has the benefit of allowing product evaluation testwork to be completed by research facilities with data shared to targeted steelmills resulting in smaller samples provided to steelmills

Market knowledge can impact capital requirements (+ / -)

• Contaminants vary widely – the main targets for removal from most low grade iron ores are silica and alumina

• In some cases the upgrade process is relatively simple eg scalping a particular size fraction or a simple coarse magnetic separation

– In these cases you get what you get with respect to grades however the miners have to work harder to ensure end product variability is as low as possible.

• In the majority of cases the upgrade process is more complicated therefore additional capital will be required

– These are the ores / projects where the selection of an appropriate product specification can save the development significant capital expenditure

– More importantly understanding of the effects of the market cycle can see appropriate levels of flexibility built into the process design

– The metallurgical development works must be completed in a manner which will provide high degree of certainty over the life of the project

Lower grade iron ores introduce all manner of downstream issues that require evaluation and management

• Upgrading of lower grade ores in Australia is not new, however the volumes of ore being upgraded and exported are new-ish

• Mining of below water table ores and the current style of desand / deslime plants introduce new issues which must be carefully evaluated during process design

• Most of these issues are moisture related and impact materials handling

• Higher moisture products also equate to inefficiencies in freight – ie increased moisture of products = increased water being shipped around the world

• Although not directly related to product development and marketability, it is worth placing considerable effort into understanding the end product moisture as this is a key parameter to steelmills – typically due to freight and inland transport impacts

Conclusions

• The iron ore market has changed – any iron units at any cost will no longer suffice to underpin project development

• The development of iron ore projects from low grade resources needs to be approached differently to high grade resource projects

• Lower grade products require product development activities to be integrated to the technical project development process and commence early

• Just because you can produce a very high grade product doesn’t always mean you should – the market will determine the upgrade requirements

• A market visit will pay for itself

For Further information contact:

Aaron Debono

Director

P: +61 419 511 850

E: aaron.debono@neomet.com.au