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ArcelorMittal South Africa Investors’ Day
12 September 2007
1
Agenda
• South Africa at a glance
• ArcelorMittal South Africa’s standing
• ArcelorMittal’s involvement
• Strategy going forward
• Commitment to the economy & community
– Safety, Health & Environment
– Corporate Social Responsibility
• Outlook
2
South Africa at a glance
3
• Current six-year upswing now twice the duration of the last (1993-96) upswing and still going strong (GDP output growth at 4.5%).
• Real fixed investment doubled during 1994-2005.
• Inflation way down its 1986 peak.
• Government spending as a share of GDP increased from 22% in 2002 to an expected 27% in 2007.
The South African Economy
At GDP growth of 3%, steel demand should be 3%; but at 6% steel demand should be 20%
Comparison between Steel Consumption, GDP & GDFI (Q2-Q4=FC)
90
100
110
120
130
140
150
160
170
180
2000 2001 2002 2003 2004 2005 2006 2007In
de
x 1
Q 2
000
= 1
00
GDPGDFISteel Cons
Source: STATSSA & SARB Quarterly Bulletin
4
Manufacturing
• Although manufacturing production fell from 6.2% in Q1 2007 to 4.6% in Q2 2007, the overall trend for growth in this sector is expected to remain on the positive side for the foreseeable future.
• The slowdown, especially in June to 2% was as a result of the weaker competitiveness emanating from currency strength.
• Production of durable goods such as motor vehicles was also heavily affected by the higher interest rates and the introduction of the new credit act.
• The recent weakening of the RAND should improve this short term situation
Building
• Non-residential building plans passed recovered strongly over the last couple of years.
• The relative strength of construction activity and fixed investment drive not only cement sales but that of steel especially rebar.
• Prospects for construction growth remain positive given the infrastructural investment drive which is likely to be undertaken in the run-up to the 2010 Soccer World Cup.
Geographical sales distribution in 2006
Domestic market segmentation in 2006
The South African Market
Building and
construction
36%
Furniture and
applicances
3%
Pipes and
tube (welded)
18%
Machinery &
Equipment
9%
Energy,
mining
9%
Automotive
13%
Other
3%
Packaging
9%
Africa, 9%
Europe, 4%
Americas, 4%
Asia, 11%
,
South Africa,
72%
Manufacturing and Building & Construction make up almost 80% of local steel demand
5
South African Iron & Steel Sector
• Employed 15 060 people (2005 = 16 476 or down 8,6 %).
• Produced 8,6mt of crude steel (2005 = 8.8mt or down 1,1%).
• Produced 7.7mt of finished steel products.
• Sold 5,8mt finished steel products to the domestic market (incl. imports), up 28%.
• Exported 2,4mt of finished steel products, down by 74%.
• Iron & steel products contributed 1,7% to GDP and 7.5% to the total value of sales by the manufacturingindustry.
ArcelorMittal South Africa produced 82% of the country’s liquid steel
6
ArcelorMittal South Africa’s positionin context
ArcelorMittal South Africa produced 82% of the country’s liquid steel output in 2006
Liquid steel production (mt)
Finished steel products to thedomestic market (mt)
Employee reduction (000)
14.5
9.8
2001 2006
6.57.1
2001 2006
2.3
3.6
2001 2006
• Turnover = R25bn (US$3.8bn).
• Produces 7.1 mt of liquid steel per annum (long & flat steel).
• A modern, highly competitive supplier of steel products to the domestic and global markets.
• ArcelorMittal South Africa is amongst the world’s lowest quartile cash cost producers of steel.
• Benefit to the country/community:
• Direct taxes to the state US$660m (R4 469m).
• Remunerate employees US$330m (R2 243m).
• Procurement from affirmative business enterprises US$110m (R732m).
• Pay shareholders with cash dividends US$230m (R1 550m).
7
ArcelorMittal South Africa’s standing
8
Evolution of ArcelorMittal South Africa
Iscor entersinto Strategicpartnership with LNM(LNM 34%share-Holding)Start ofBAA
LNM lifts stake to over 50% and name changes to Ispat IscorLNM and Ispatmerge toformMittal Steel
1928
Iscor privatized and listed on the JSE
Iscorembarks on majorRestruct-uringprogramme
19891997
20012002
2004/52006
Iscor founded
Mittal Steel mergewith Arcelorto form ArcelorMittal
Unbundling of steel & mining intoIscor & Kumba
Company in existence for almost 80 years
9
ArcelorMittal South Africa
Overview of Operations
• Flat Steel Products
• Vanderbijlpark Works – 3.2 Mtpa*
• Saldanha Works – 1.1 Mtpa*
• Long Steel Products
• Newcastle Works – 1.5 Mtpa*
• Vereeniging Works – 0.4 Mtpa*
• Iron ore supply
• 6.25 Mtpa from Sishen
• 2.5 Mtpa from Thabazimbi
• Coke & Chemicals
• Coke - 597 000 tpa*
• Tar - 133 000 tpa*
Vereeniging
Johannesburg
NewcastleSisheniron ore mine
Vanderbijlpark
Thabazimbiiron ore mine
DurbanSouth
Africa
Saldanha
Cape Town
* Based on 2006 actual final product sales
Steel plants in close proximity of key markets
10
Company Structure
Hot rolled Hot rolled coil Rolled profiles Rolled profiles (Vereeniging)
Heavy Plates - thin and ultra thin Special profiles (Pretoria)Cold rolled Forged products (Pretoria & Vereeniging)Coated Seamless tubes (Vereeniging)
- Galvanised Directly reduced iron (Dunswart)
- Painted
- TinplatedCoke batteries
- Pretoria
- Vanderbijlpark
- Newcastle 50%- Vanderbijlpark 50%
Tar plant- Vanderbijlpark Export marketing
Shipping
40% 50%50% 50%
Can Reclamation Wire drawing
Vanderbijlpark Works Saldanha Steel (Pty) Ltd
Flat steel products Long steel products
Newcastle Works Vereeniging Works
ArcelorMittal South Africa Limited
ArcelorMittal
Coke & Chemicals Joint Ventures
Collect a Can (Pty) Ltd
Mr Eric Samson
Anglo American LtdNampak Ltd
Consolidated Wire
Industries (Pty) Ltd
Macsteel International
(Pty) Ltd
Diversified primary steel producer
11
Management
Highly experienced management team with 166 years service amongst them
Rick Reato CEO
Kobus Verster Executive Director, Finance
Juba Mashaba Executive Director, Human Resources
Johan Fourie Chief Operating Officer
Hercu Aucamp General Manager: Sales & Marketing
Tami Didiza General Manager: Corporate Affairs
Heyno Smith General Manager: Vanderbijlpark Works
Heinrich Kriel General Manager: Saldanha Works
Jaco Stapelberg General Manager: Newcastle Works
Jose Gutierrez General Manager: Vereeniging Works
Alph Ngapo General Manager: Coke & Chemicals
12
Operational improvements over time
7.055
7.662
0
1
2
3
4
5
6
7
8
1934 1944 1954 1964 1974 1984 1994 2004
(Mtp
a)
33.1
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
1935 1945 1955 1965 1975 1985 1995 2005
(%)
Liquid steel output since first productionOperating margin since first production
• Increase in operating margin since ArcelorMittal investment
• Steady increase in steel output to 7.1mt. Growth potential to 9.7mt
Data n/a during WW2
Output levels increased since ArcelorMittal investment.Margins were steadily eroded until recent actions established new trading range
13
ArcelorMittal’s involvement
14
Search for International partner
• Iscor searched for international partner that could assist with:
– Business issues:
• Needed international exposure.
• Real benchmarking.
• Knowledge sharing.
– Technical assistance:
• R & D.
• Output/throughput & yield/prime %.
– Procurement:
• Coal/alloys/refractories/electrodes.
– Marketing:
• European auto markets.
• LNM approached and became the preferred partner.
* Through yield: Liquid steel to final product
Stagnation of efficiencies and a decline in through yield prompted the search
15
Technical assistance
• Key technical improvements resulting from the relationship with ArcelorMittal includes:
* Through yield: Liquid steel to final product
Efficiency improvements realised R1 386million savings
7 0556 468Liquid steel production (‘000t)
Prime output (%)
87.2%88.0%• Vanderbijlpark
99.97%
97.0%
99.3%
81.0%
• Newcastle
• Saldanha
91.6%
94.0%
88.4%
94.0%
• Newcastle
• Saldanha
83.8%82.0%• Vanderbijlpark
Through yield* (%)
20062001
16
ArcelorMittal project management assistance
Capital expenditure assistance
Capital expenditure totalled R3.1bn over the last two years
Vanderbijlpark:
BOF control systems.Blast Furnace C – throat armour repair. Blast Furnace D – rebuild. New DRI kilns.Blast Furnace D – Hot blast stoves. New galvanising line.2 new cells on Electro galvanising line.
Coke & chemicals:
Market coke expansion.
Saldanha:
Third roll grinder.
Newcastle:
Pulverised coal injection.New market coke battery.
ArcelorMittal contributed towards project management assistance on large capital projects, including:
17
Strategy going forward
18
• Improve capabilities through a dedicated focus on operational excellence
• Industry leading value creation for our shareholders
• Positive economic value-add over steel price cycle
• Improve market share in Sub-Saharan Africa
• Build and improve performance culture
• Be a responsible corporate citizen
• Increase liquid steel production capacity by 2.6mtpa from 7.1mtpa to 9.7mtpa by 2011 with efficiency improvements contributing 29%
• Increase hot strip mill throughput at Vanderbijlpark from 3mtpa to 3.9mtpa
• Increase through yield from 87.3% to 89.3% together with significant increases in value-added production
• Enhance EBITDA by US$479m by 2011 (2006 cost & price base)
• IRR of all capex projects exceeds 20%
• Capture more than 50% of the target market
Vision & long term objectives
Vision
Vision: To be a key player in the Sub-Saharan Africa steel market while also being oneof the highest operating margin steel producers globally
Qualitative strategic objectives Quantitative strategic objectives
19
Sub-Saharan African
steel market
Africa Map & target market
Focus is to be a key player in the Sub-Saharan Africa steel market
Total Sub-Saharan Africa market estimated at 18.4mt by 2011, of which the target market is 14.9mt.
South Africa plans to capture in excess of 50% of the latter.
Focus on products in demand in this market
Key elements of strategy
20
Operations
SustainableDevelopment &
SocialResponsibility
Cost
Sourcing
Public/Government/
Environment/
Investment community
Iron ore supply
Procurement
All operations
Vanderbijlpark &
Newcastle
Establish presence
in Mozambique
Vanderbijlpark
Securing raw materials for the expansion strategy is a crucial elementValue in Flat products and Volume at long products
� De-bottleneck & improve efficiencies
� Recapture production losses
� Cost leadership
� Increase liquid steel production & add downstream
capacity from 2008 to 2011
� Re-commission existing mill and install new bar/rod mill.
Existing mill 2008 / New mill 2009
� Replace aged coke oven batteries by 2011 - more efficient design
� Secure participation rights in new developments
� Cost leadership (TCO)
� Improve image and relationships
� Address legacies & comply with new legislation
Key elements of strategy
21
Strategy
Strategic goals
• Industry leading value-creation for our shareholders:
– Positive economic value add over the steel cycle.
• Sub-Saharan market leader: – 80% sales into Africa.
• Improve operating capabilities:– Value-creating throughput increases of 2.6mtpa.
• Build on our existing performance culture:– Create an environment that generates true employee
pride and attracts, develops and retains top-performing people.
• Be a responsible corporate citizen.
Strategic drivers for creating value for our shareholders:
• Sales revenue:
– Africa vs Export sales.– Increase production of value added products.
• Cost reduction:– Efficiency improvements & technology upgrade (PCI).– Raw materials initiatives.– Iron ore expansion projects.– Reduce dependence on imported coking coal.– Procurement initiatives.
• Throughput expansion:– Productivity improvements.– Productivities and de-bottlenecking.– Capital investments.
• Corporate Social Responsibility:– Investment in community, environment & human
resources.
To be a key player in the Sub-Saharan Africa steel market
We want to be one of the highest operating margin steel producers globally
To be a key player in the Sub-Saharan Africa steel market while also being oneof the highest operating margin steel producers globally
22
Liquid steel development – 2006 to 2011(Tonnes ‘000)
7 055
9 662
1 887
500
220
2 000
4 000
6 000
8 000
10 000
12 000
2006 New DRI kilns atVdbp
Efficiencies Projects underinvestigation
2011
Efficiency improvements play an important role in our expansion strategy
23
Commitment to the Economy & Community
24
Safety focus
The impact of the overall SHE programme
is evident in our safety performance
indicators. The following was achieved
during the first 6 months:
• H107 performance negatively affected by Blast Furnace rebuild.
• ArcelorMittal South Africa achieved 26 days without LTI (about 3.7m LTI free man hours).
• 172 days without an LTI at Saldanha Works - new record.
• 1m LTI free hours achieved:
– 4x at Vanderbijlpark Works.
– 3x at Newcastle Works.
Blast Furnace D rebuild impacted on our most recent safety record
Lost Time Injury Frequency Rate (Employees and Contractors)
2
3
4
5
6
7
2002 2003 2004 2005 2006 2007
Lo
st
Tim
e I
nju
ry f
req
uen
cy r
ate
(L
TIF
R)
IISI ArcelorMittal South Africa (LTIFR)
25
Implementing an ambitious Corporate Social Responsibility strategy
ISO 14001 Air Pollution
ManagementWater
Management
Waste/By-
product
Management
• All production facilities are certified besides the Dunswart DR Kiln operation
• Target for Dunswartcertification is end 2008.
• Saldanha and Vanderbijlpark have zero effluent status.
• Newcastle to follow in 2008 after completion of crystalliser plant.
• ArcelorMittal South Africa’s consumption is world class at 3.2 m3/ton of LS produced.
• Air pollution biggest environmental risk.
• Planned projects:
- Coke gas cleaning system
- New dust/fume extraction system at both Vereenigingand Vanderbijl plant
- EAFMeltshop at both Vereenigingand Vanderbijl plant
- New sinter off gas cleaning system
• 75% of waste/by-products is recycled or sold within the group.
• Target is to achieve a sale/ recycling rate of above 90% by 2011.
Future focus is on air quality
26
Corporate Social Responsibility
CSR focus is on Education, Housing and Job Creation
• ArcelorMittal South Africa Science Centre
- Partnership between Gauteng Department of Education and ArcelorMittal South Africa
- 1 690 learners & teachers (Sedibeng District) receive maths& science classes from highly trained teachers
- Renovations, upgrading & operations sponsored by ArcelorMittal South Africa (R8,5m in 2006).
- High tech computer centre now completed (2007)
• Enterprise Development Fund to assist SME’s in downstream steel sector (R250m)
• Gas cylinder project in conjunction with Department of Minerals & Energy.
• HIV/AIDS program.
• West Coast Business Development Centre.
• Bophelong Community Project.
Current CSR projects
Corporate social responsibility aligned
with government initiatives.
Invested R220m in Social Projects aimed at empowering historically
disadvantaged communities.
Forming strategic alliances withgovernment departments
Improving education. Enhancing housing
conditions.Addressing
HIV/Aids
Committed towards “making a
sustainable
difference”.
CSR
ArcelorMittal South Africa Investors’ Day
12 September 2007
Thank you