BlueScope investor & analyst visit April 29, 2014 Important - - PDF document

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BlueScope investor & analyst visit

April 29, 2014

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Important BlueScope notice

THIS PRESENTATION IS NOT AND DOES NOT FORM PART OF ANY OFFER, INVITATION OR RECOMMENDATION IN RESPECT OF SECURITIES. ANY DECISION TO BUY OR SELL BLUESCOPE STEEL LIMITED SECURITIES OR OTHER PRODUCTS SHOULD BE MADE ONLY AFTER SEEKING APPROPRIATE FINANCIAL ADVICE. RELIANCE SHOULD NOT BE PLACED ON INFORMATION OR OPINIONS CONTAINED IN THIS PRESENTATION AND, SUBJECT ONLY TO ANY LEGAL OBLIGATION TO DO SO, BLUESCOPE STEEL DOES NOT ACCEPT ANY OBLIGATION TO CORRECT OR UPDATE THEM. THIS PRESENTATION DOES NOT TAKE INTO CONSIDERATION THE INVESTMENT OBJECTIVES, FINANCIAL SITUATION OR PARTICULAR NEEDS OF ANY PARTICULAR INVESTOR. THIS PRESENTATION CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS, WHICH CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS “MAY”, “WILL”, “SHOULD”, “EXPECT”, “INTEND”, “ANTICIPATE”, “ESTIMATE”, “CONTINUE”, “ASSUME” OR “FORECAST” OR THE NEGATIVE THEREOF OR COMPARABLE TERMINOLOGY. THESE FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE OUR ACTUAL RESULTS, PERFORMANCE AND ACHIEVEMENTS, OR INDUSTRY RESULTS, TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCES OR ACHIEVEMENTS, OR INDUSTRY RESULTS, EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. TO THE FULLEST EXTENT PERMITTED BY LAW, BLUESCOPE STEEL AND ITS AFFILIATES AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS, ACCEPT NO RESPONSIBILITY FOR ANY INFORMATION PROVIDED IN THIS PRESENTATION, INCLUDING ANY FORWARD LOOKING INFORMATION, AND DISCLAIM ANY LIABILITY WHATSOEVER (INCLUDING FOR NEGLIGENCE) FOR ANY LOSS HOWSOEVER ARISING FROM ANY USE OF THIS PRESENTATION OR RELIANCE ON ANYTHING CONTAINED IN OR OMITTED FROM IT OR OTHERWISE ARISING IN CONNECTION WITH THIS.

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North Star BlueScope Steel

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Senior Management Team

PRESIDENT MIGUEL ALVAREZ VP OPERATIONS JEFF JOLDRICHSEN VP FINANCE JOE BUDION VP HUMAN RESOURCES RICH MENZEL VP SALES & MARKETING MIKE HANSON VP BUSINESS DEV. & PROCUREMENT HECTOR MARQUEZ

• Miguel Alvarez; joined company in Feb 2010, comes from BlueScope’s Steelscape business,

where he was President for 6 years

• Jeff Joldrichsen; with company since start up, comes from Cargill’s North Star Steel business
• Joe Budion; started up the company, returned to Cargill for several years and came back 6

years ago

• Rich Menzel; came from Cargill’s North Star Steel business and has been with company since

start up

• Mike Hanson, joined the company 13 years ago, came from Cargill’s North Star Steel business
• Hector Marquez; joined company in Oct 2010, comes from BlueScope’s Steelscape business

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To be the preferred supplier in the steel industry by being the benchmark for safety, quality, service and on-time delivery North Star BlueScope Steel is a 50-50 joint venture between Cargill, Inc. and BlueScope, established in 1995

– Current production capacity of 2.2M short tons versus initial capacity of 1.6M short tons – Original construction capital cost was US$500M (100%); since then company has invested about US$200M, which includes installation of a new bag house to upgrade emissions control

Our Mission

Cargill, based in Minnesota, is a producer and manufacturer of food, agricultural, financial, industrial products and services. Cargill employs over 143,000 people in 67 countries. BlueScope is a flat steel producer for the domestic Australian, NZ and US markets and is a leading international supplier of steel products and solutions principally focused on the global building and construction industries

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Our Competitive Advantage

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Safety

• Core Value
• 100% involvement from employees:

– Safety audits every month – Near miss incident reporting and investigations – Incident investigation of serious incidents

• Home Safety Program
• Record Highlights in FY2013

– Lowest RIFR rate for plant – 12th time in 16 years of operations without a Lost Time Injury (achieved 3 years without a LTI in Jan-14)

1 1 1 1 3 7 4 9 4 4 10 9 11 2 4 6 8 10 12 2011 2012 2013 2009 2010 2005 2006 2007 2008 Lost time injuries Recordables

Actual Number of Incidents

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• Employ over 360 dynamic, highly skilled, and flexible workforce
• Our high performance workforce is completely non-union and company has never had to

contend with collective labor contracts, work stoppages, nor layoffs in our entire plant history

• Turnover has been low (less than 5%) over the past six years
• A profit sharing plan aligns the interests of employees with the Company’s performance

– Approximately 50% of overall compensation is “at Risk”, in other words tied to weekly bonus and annual profit sharing based on production performance metrics, safety, and earnings

Our People

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Strategically Located

• Mill located at Delta, Ohio

(20 miles west of Toledo)

• Directly within one of the

largest scrap steel surplus regions in North America

• Situated one mile south of

the Ohio Turnpike (I-80/I-90) and connected to a Norfolk Southern rail line

• Most customers within 250

mile radius of mill (currently around 90%)

• Near a number of major

manufacturing hubs

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Flat Rolled Market

• Sources: NSBSL, AISI, Steel Research Associates
• Approximately 26M short ton p/a U.S. domestic market for hot rolled coil (excludes

use for in-house re-rolling)

• NSBSL has increased U.S. domestic HRC market share to 8% in FY2013, and

maintained near 100% capacity utilization post GFC

Capacity Utilisation – NSBSL vs U.S. Steel Industry Producers

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End Markets and Customer Base

• Automotive builds were strong in 2013: Industry Sales of 15.6M units versus 14.5M in 2012
• Application of our steel includes: Industrial (tanks, rail cars, barges, cylinders), Agriculture

(grain bins, ag equip.), Construction (guardrail, tubing, metal structural), Automotive (non- exposed auto parts)

End Markets Customer Base

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Trading Conditions in June 2014 Half

• Capacity utilization and sales volume remain aligned at 100% of capacity
• Metal margins (spreads) so far this half are similar to first half 2014

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Benchmark in Customer Satisfaction

Customer satisfaction (Jacobson Survey)

• Since 1992 Jacobson & Associates has conducted continuous surveys of more than

2,000 major steel customers in North America

• Customers use a 10 point scale to measure their overall level of satisfaction with

supplier in the areas of: – Quality – Delivery – Service

• This is the 12th year in a row North Star BlueScope has received the highest rating

from the Jacobson Survey

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Production Overview

• Production facilities were built

between 1995 and 1996, making the mill among the newest in North America

• State of the art equipment includes:

– Two Fuchs (Germany) Electric Arc Furnaces – A Sumitomo (Japan) Caster – A Danieli (Italy) Hot Strip Mill

• Originally built with production

capacity of 1.6 million tons per year

– Since expanded to the current level of 2.2 million tons per year by increasing caster thickness and ongoing process improvements

• Located on 524 acres
• Norfolk Southern rail line is connected

at the southern boundary of the property

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Production Levels

• Company produces solely hot rolled coil of various grades
• Mill has been operating at high capacity utilisation since December 2009
• More than 400 trucks come to the facility every day to deliver raw materials
• Finished products breakdown

– Medium Carbon – 20% (construction applications) – Low Carbon – 26% (used in auto parts) – High Strength Low Alloy (HSLA) – 47% (auto accessories & components) – Boron – 7% 2.17 2.12 2.15 2.00 1.57 2.11 2.05 2.05 1.98 1.78 1.80 1.73 1.64 0.0 0.5 1.0 1.5 2.0 2.5 2009 2008 2007 2006 2005 2004 2003 2002 2001 2013 2012 2010 2011

Production Volume (million short tons)

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Raw Materials

Pig Iron Recycled Scrap

NSBSL Feed Stock Needs 2.3M tons

• 2.1

M Tons HRC

• Principal raw materials:

– Pig Iron – raw iron with high carbon content (typically 3.5%-5.0%) – Scrap – recycled metal suitable for reprocessing. Scrap types include: Clips, #1 Frag, #2 Frag, Plate & Structural, Roll Mill Scrap. Prime and obsolete scrap in broadly equal proportions. – Alloys – various alloys of iron such as ferroalloys (which have a high proportion of one or more elements such as silicon, manganese, or nickel) that are added to steel refining process to increase corrosion resistance, hardness, formability and/or strength

Yield 2.1M Tons HRC

– Pig Iron sourced from Brazil, Russia, and Ukraine – Shipped via vessels, to New Orleans or the Port of Toledo – At NOLA, pig iron is transferred to river barges and shipped to either Cincinnati, OH or Naples, IL. – Pig Iron is then railed to North Star – Scrap procured from a 250 mile radius – Best third party reference price series to look at is AMM CBP#1 bushelling Chicago

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Production Process

Scrap Receiving and Loading

• Scrap metal and pig iron delivered to mill via truck or

railcar and stored in segregated piles on the scrap storage yard

• Magnetic crane in the scrap storage yard picks up these

raw materials and transfers them to rail cars which transport the scrap to the processing plant

• Scrap crane’s magnets pick up these raw materials and

load them into scrap buckets. These buckets are sent to the furnaces for charging

Twin Electric Arc Furnaces

• Scrap is fed into one of the Company’s two Fuchs Electric

Arc Furnaces, which are heated by charged electrodes to ~1650°C

• The EAFs are capable of melting the scrap into 190 short

tons of liquid steel every 40 minutes and are lined with brick called refractory that acts as insulation and prevents the melted steel from burning a hole through the EAFs

• Impurities and slag in the scrap float to the top of the

EAFs during the melting process and are separated out and processed by Fulton Mill Service for eventual use in concrete or asphalt

Production Process

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Twin Ladle Metallurgical Furnaces

• Liquid steel drains from the EAFs into ladles that are

transported to the ladle metallurgical furnaces, which are designed to control chemistry, cleanliness and temperature for optimum slab quality and throughput

• Within the ladle metallurgical furnaces, 18” electrodes

re-heat the steel while additives, alloys, flux, and wire are added to create various metal grades to meet customer specifications

• Chemicals mixed into the steel at this point in the process

include carbon, boron, aluminum, titanium, and vanadium

Slab Casting Machine

• Steel mixture is transferred from the ladle metallurgical

furnaces to the Sumitomo slab caster, which molds the steel into rectangular slabs ~4” thick (102 mm) and up to 60” wide (1560 mm)

• The slab casting machine has twelve segments and a

pendulum shear to cut slabs to customer lengths

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Rolling Mill

• Steel slabs leave the slab caster and enter the tunnel

furnace, which heats the slabs to make them pliable for the Danieli rolling mill. This is a continuous process

• Rolling mill consists of eight stands, including two

roughing stands and six finishing stands. The roughing stands flatten the slabs into longer and thinner slabs, while the finishing stands roll the steel according to customer specifications for gauge and width

• Steel strip is cooled on the laminar flow run out table.

After cooling, the steel is transferred to the down coilers, which roll the steel into coils and band/number them

Finished Goods, Shipping & Storage

• Finished coils are moved to the coil storage yard on-site,

where they sit for two to three days to cool before customer pick-up. Finished product is loaded onto railcars

• r trucks with a crane or forklift at the loading station
• 70% of finished goods are shipped out via truck and the

remaining 30% are shipped by rail

Production Process

Raw Materials Sourcing Review Project

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What is Directly Reduced Iron (DRI)?

DRI is an iron rich substitute for pig iron and prime scrap in EAF steelmaking, replacing pig iron’s exposure to coking coals with natural gas

Cold DRI Hot Briquetted Iron Hot DRI

Hot DRI can be fed directly from production into an EAF, reducing the energy requirements to melt the iron feed. Cold DRI is transportable, however, is flammable when exposed to moisture, generally requiring a nitrogen blanket. HBI is a compressed form of DRI that makes is more transportable than Cold DRI. It is typically of lower carbon content. Iron Ore pellets are produced from concentrated iron ore fines, carbon rich natural gas is then flowed over these pellets in a reactor to produce direct reduced iron (DRI) pellets.

Iron Ore Pellets

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DRI Process

Generic Midrex technology process flow Generic Tenova HYL ZR technology process flow

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Main Cost Components of DRI

• Pig iron prices are essentially driven by iron ore and coking coal, which comprise over

70% of the pig iron cost base

• DRI has a lower unit cost, and can readily substituted for both pig iron and prime scrap

Conversion Costs Natural Gas Iron Ore

Indicative Cost Structure of DRI Production

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Value Drivers and Diligence Questions

• Key driver of value is cost differential between current raw material feed mix of pig iron

and scrap steel versus DRI and scrap steel raw material feed mix

• Cash cost benefit of a DRI-based feed mix relative to a pig iron based feed mix are:

– Price of coking coal (drives of pig iron prices) relative to natural gas (drives DRI costs) – Sustainable economic price spread to raw materials costs for pig iron producers (‘hot metal spread’) – High degree of correlation between scrap prices (both prime and obsolete) and pig iron prices

• Therefore our review of DRI feasibility is focussing on these factors, together with:

– Main costs (eg delivered iron ore pellets, gas etc) – Plant technology options – Plant location options (which directly impact how DRI is fed to the EAFs – eg cold vs hot DRI – which in turn impacts productiveness of EAF operations)

Summary

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Summary

We are focused on:

• The safety of our employees and contractors
• Servicing our customers
• Building on our quality capabilities
• Retaining our #1 Customer Satisfaction Rating
• Improving productivity and reducing cost
• Increasing shareholder value

Questions?

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