Global Ferronickel Holdings, Inc. Investor Relations Presentation - - PowerPoint PPT Presentation

Investor Relations Presentation

July 2016

Global Ferronickel Holdings, Inc.

Section I. Nickel

3

66% 24% 8% 3%

Industry Consumption (%)

Stainless Steel Other Alloys Electroplating Chemicals

Nickel

• Nickel is one of the most commonly used metals and can be

found in over 300,000 products for consumer, industrial, military, transport, aerospace, marine and architectural applications

• The biggest use of nickel is to produce alloys, particularly with

chromium and other metals to produce stainless and heat resisting steels. These alloys are used from everyday appliances, such as pots and pans to buildings and medical equipment

• Other uses of nickel include coins, batteries, electronics and

hybrid cars etc.

• Nickel also has strong catalytic properties and can be found in

many catalysts that are used to make chemical reactions more efficient

Nickel is used to produce stainless steel used in many buildings Coins are one of the many popular use of nickel

Source: CRU Consulting 909 159 123 107 66 59 53 37 35 32 100 200 300 400 500 600 700 800 900 1,000 China Japan USA Germany South Korea Italy Taiwan India South Africa Spain

Top 10 Nickel Consumers 2013 ('000 mt)

Uses of Nickel

Source: The Economist

4

Nickel Price

10 20 30 40 50 60 Jan-2007 Jan-2008 Jan-2009 Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Jan-2016 Price/Tonne (US$’000)

Source: Bloomberg Prices dropped by 85% from a ten year high of US$51,600 to low of US$7,595 in Feb 2016 Prices have rebounded by 31% from a ten year low of US$7,595 Prices are trading at US$9,985/tonne as at 6 July 2016

Nickel is at a historical low price and LME nickel price has rebounded more than 30% from its 10-year low of US$7,595 per tonne in February 2016. This rebound is supported by the prospect of demand exceeding supply, as well as fear of lower output from the Philippines

5

Nickel Price Outlook

• World Bank and IMF have forecasted that LME nickel prices would exceed an average US$10,000 per tonne in 2016
• Various industry experts believe that the increase in nickel price is driven by
• The growth in end use demand from China, which is the largest consumer of nickel globally
• The depletion in US inventories of finished nickel to normalized levels
• The depletion of Chinese inventories for feedstock for nickel pig iron (“NPI”) smelters, a group that has sustained production levels

through the Indonesian ban on ore export

• The International Nickel Study Group (“INSG”) has forecasted a global deficit in 2016, in line with a Reuters survey of metal analysts

(‘000 ton) 2012 2013 2014 2015 2016F CAGR Global Output 1,745 1,962 1,989 1,983 1,913 1.9% Global Consumption 1,648 1,785 1,875 1,890 1,962 3.6% Global Surplus/Deficit 97 177 114 93

• 49

INSG Forecast

Source: INSG

6

China as a Key Driver of Demand

China has high demand going into the future and has been in structural deficit for refined nickel since 2012

(‘000 ton) 2012 2013 2014 2015F 2016F CAGR China Output 559 700 700 620 580 0.9% China Consumption 747 867 940 960 980 7.0% China Surplus/Deficit

• 188
• 167
• 240
• 340
• 400
• The main bulk of this demand goes to producing stainless steel and Chinese consumption of stainless steel is projected to grow as a

function of industrialization and urbanization

• The main use of stainless steel is metal products, followed by mechanical engineering, construction, motor vehicles and electrical

machinery

• China’s per capita consumption of stainless steel still trails other Asian industrial countries like Taiwan, Japan and South Korea by

a huge margin. It should grow consumer consumption and the growing middle class

• Though GDP growth has slowed, infrastructure spending still remains strong with China planning to invest $70 billion on transport

infrastructure projects over the next three years. This spending will support demand for stainless steel and nickel

• The China State Council has announced in June 2016 that it will increase reserves in some base metals, including nickel, for strategic

stockpiling

INSG Forecast

• China is the largest consumer of nickel in the world today, consuming 50% of the total world production. It currently consumes more nickel

than it can produce by a factor of 1.7x

Electrical Machinery Motor Vehicle and Parts Mechanical Engineering Other Transport Construction Metal Products Total 7.9% 10.3% 24.8% 5.1% 12.8% 39.1% 100%

Source: International Stainless Steel Forum

7

Philippine Nickel

Demand for Philippine nickel in particular is poised to increase in the near term

• In 2015, over 97% of nickel ore imported by China was from the Philippines, driven by:
• The Philippines’ strategic close proximity to China, which keeps transport costs low
• The country’s mining law which allows open-pit mining, a low cost extraction method of ore
• Indonesia’s export ban on nickel ore
• China’s output in 2016 includes 373k tonnes of NPI production. In order to meet this required output, China will require approximately 38

million WMT of nickel ore in 2016 and will have to import

• Nickel laterite ore, the type of ore used by the Chinese in NPI production, is found mostly in Indonesia, the Philippines and New Caledonia.

The Philippines is benefiting from China’s import demands given:

• Export ban on raw ore in Indonesia since 2014
• Export cap of 700,000 tonnes of lower grade nickel ore to China over a period of 12-18 months from April 2016 in New Caledonia

(previously export ban)

Source: Bloomberg, Reuters, Beijing Antaike

Section II. Global Ferronickel Holdings, Inc. (“FNI”)

9

Company History and Overview

Company Overview

Company Overview

Source: Bloomberg as at 5 July 2016, company filings Exchange rate: 1 USD: 46.16 PHP

• Global Ferronickel Holdings. Inc. (“FNI”) is the second largest

nickel ore producer in the Philippines

• The Company has mining rights to the Cagdianao mine located in

Northern Mindanao, and currently operates two open pit deposit sites

• In 2015, the Company acquired an additional nickel mine in

Palawan which increases its annual production capacity

• The Company has a dividend policy of at least 20% of retained

earnings of the preceding year and recently approved a share buy- back program for up to 10% of its outstanding shares over a period

• f up to 3 years

Market Data Shipment Information

Share price (PHP) 0.88 52 week high (PHP) 1.65 52 week low (PHP) 0.45 No of shares outstanding (mn) 17,467 Free float (%) 30.1 Board lot (shares) 1,000 Market capitalization (PHP mn) 15,371 Enterprise value (PHP mn) 16,169 Cash & near cash items (PHP mn) 170 Debt (PHP mn) 968 NAV (PHP mn) 6,353 Debt to equity (%) 15.4 Historical P/E (x) 13.3 P/B (x) 2.4 Historical EV/EBITDA (x) 9.2 2014 2015 Revenue (PHP mn) 9,047 6,533 Gross profit (PHP mn) 6,491 2,959 % Margin 71.7 45.3 EBITDA (PHP mn) 4,928 1,851 % Margin 54.5 26.4 Net income (PHP mn) 4,817 1,112 % Margin 53.2 17.0

Financial Highlights

506 1,952 3,766 4,148 5,929 4,501 6,303 5,407 2,000 4,000 6,000 8,000 2008 2009 2010 2011 2012 2013 2014 2015

Total Shipment of PGMC ('000 WMT)

10

Key Milestones

Southeast Asia Cement Holdings (now known as FNI), was established as a holding company for industrial material manufacturer Lafarge Republic in the Philippines FNI entered into a memorandum

• f agreement to

purchase 100%

• f Southeast

Palawan Nickel Ventures Inc. (“SPNVI”)

May 1994 Nov 2007 October 2014 Nov 2014 June 2016 July 2016 Aug 2015

FNI executed the acquisition of 100% interest of SPNVI (which owns 2,835 hectares)

Dec 2012

Annual ore production and shipment volume from the Cagdianao mine exceeded 5 million WMT PGMC commenced mining operations at Cagdianao mine (4,376 hectares) and made its first commercial shipment FNI obtained an exploration permit covering 927 hectares in the land next to the Cagdianao mine FNI received a 25 year extension for its operating permit at the Surigao mines FNI executed a deed of exchange for a share swap with shareholders

• f PGMC. FNI

issued shares in exchange for 99.85%

• utstanding

shares of PGMC

11

Key Management Profile

Source: Company Information

Joseph C. Sy - Chairman and Director

• The chairman of FNI and PGMC since 6 Aug 2015
• Director and President of Ipilan Nickel Corporation
• Director of Mining for the Philippine Chamber of Commerce

and Industry

• More than 15 years of experience in managing companies

engaged in mining and mineral exploration and development

• Atty. Dante R. Bravo - President and Director
• President and Director of FNI and PGMC since 6 Aug 2015
• Chief Finance Officer of PGMC from 2011 to 2013
• Also an attorney at law and a certified public accountant in

the Philippines Mary Belle D. Bituin - Chief Finance Officer and Director

• Director of PGMC and Chief Finance Officer and Director of

the Company since 22 October 2014

• Previously vice president for Business Transformation of

Globe Telecom, Inc. where she has worked since 1998

• Atty. Noel B. Lazaro - Corporate Secretary, Compliance Officer and

Corporate Information Officer

• Joined PGMC on 1 August 2014 and became a director of PGMC
• n 1 August 2014
• A director and the Corporate Secretary of Southeast Palawan

Nickel Ventures, Inc. and Ipilan Nickel Corporation.

• An attorney at law in the Philippines

Ramon E. Adviento - Senior Vice President – Investor Relations

• Over 18 years in mining industry from mine planning/design, mining
• peration, rehabilitation, consultancy for copper, gold, nickel,

chromite and coal

• 14 years in investment banking industry as analyst/investment
• banker. Voted by the Fund Management Association of the

Philippines as the best mining analyst for 4 years from 2012 till 2015 Carlo A. Matilac - Senior Vice President Technical Mines

• Over 19 years of experience in the mining industry, including

mineral evaluation, planning and design, mine development and production

• Work experiences include working with BHP Billiton-SIRC, QNI

Philippines Inc., Manila Mining Corp and Verum Terra Geosciences Inc. Corsino L. Odtojan - Vice President—Operations

• Oversees the mine operations of the company in Surigao
• Has extensive work experience in the mining industry including,

among others, as Mine Planning Engineer, Site Engineer and Safety Engineer in ‘MRL Gold’ Philippines, Inc., FRASEC Ventures Corporation and Manila Mining Corporation

12

Investment Highlights

Strong Financial Position

• FNI generated a net income of PHP1.1 bn (US$24 mn) in FY2015, displaying its defensive capabilities despite a weak nickel price

environment

• Cost efficient operations led to a high profit margin of 17% which was the highest among listed nickel miners
• For every increase of US$100 in nickel prices per MT from US$9,500 onwards, FNI’s net income in FY2015 would have increased by

PHP92 mn

• Strong customer base in China
• During the first quarter of 2016, FNI has already secured commitments from three of China’s biggest stainless steel producers for

the delivery of 4.5 million WMT of nickel ore for a period of one year at spot prices

FY2015 FY2015 Actual LME Nickel Price (per MT) (PHP mn) US$8,500 US$9,500 US$10,500 US$11,500 US$12,500 Net Income 1,112 116 581 1,541 2,501 3,461 EPS (PHP/share) 0.06 0.01 0.03 0.09 0.14 0.20

13

Investment Highlights (Cont’d)

Continued Strong Growth

• With the successful acquisition of Southeast Palawan Nickel Ventures, Inc. (“SPNVI”), whose Ipilan mine comprises predominantly

medium to high grade nickel ore and has a mining season which complements the existing Cagdianao mine, FNI’s permitted production limit has increased significantly from 7m to 8.5m WMT of nickel ore

• SPNVI will start contributing to FNI’s financials in the final quarter this year
• The new Ipilan mine will yield higher profit margins due to the higher average selling price of high grade and medium grade ore.

SPNVI’s royalty payable is 2% as opposed to 14% on Surigao mines, which would further improve FNI’s profit margins

• FNI will be able to benefit from economies of scale and cost efficiencies due to larger production
• On 7 July 2016, FNI received a new extension of the existing production permit at Surigao mines by another 25 years
• On 17 June 2016, FNI acquired an exploration permit covering 927 ha of land at the Surigao Mineral Reservation, which is contiguous to

its existing Cagdianao mine

• Only 20% and 22% of the total area at the Surigao and Palawan sites respectively have been explored and discovery of more ore is

expected

14

Investment Highlights (Cont’d)

Strong Commitment to Delivering Shareholder Value

• Share Buy-back
• FNI approved a share buy-back program for up to 10% of its outstanding shares over a period of up to 3 years as a capital

management strategy

• Based on current capital structure, FNI may acquire up to 3,908 mn shares (22.4% of the outstanding shares)
• Dividend Policy
• FNI has a dividend policy to declare dividend equivalent to at least 20% of the unrestricted retained earnings of the preceding year

Responsible and Sustainable Mining Practices

• FNI has always been focused on responsible and sustainable mining. It ensures that it is in compliance with environmental regulations and

has set up a mine rehabilitation fund for use in satisfying those obligations

• ISO 14001:2015 is part of the ISO 14001 series and forms the cornerstone of the family of standards. It sets out the criteria for an

environmental management that allows organization to follow an effective environmental management system (“EMS”)

• PGMC initiated an ISO 14001:2015 certification process with the aid of an international environmental consultant, ECC International (ECCI),

which has been completed, and PGMC has been favorably endorsed to receive the ISO certification

Deep Value

• Based on the current share price of PHP0.88, FNI is trading at a historical P/E of 13.4, which is substantially less than Nickel Asia Corp,

which is trading at a historical P/E of 19.7

• As at 11 July 2016, the Philippines market trades at 59.7x CY15 earnings and 23.6x CY16F earnings

15

53.0% 33.39% 34.6% 17.0% n.m. 13.2% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% FNI MARC NIKL

Net Profit Margin

2014 2015

Financial Metrics

Revenue

196.3 56.9 556.4 143.6 51.2 339.2 100 200 300 400 500 600 FNI MARC NIKL

Revenue (US$m)

2014 2015

Net Profits

104.5 19 192.7 24.4

• 2.6

44.7

• 50.0

0.0 50.0 100.0 150.0 200.0 250.0 FNI MARC NIKL

Net Profit (US$m)

2014 2015

Net Profit Margin Gross Margin

71.7% 44.4% 76.9% 45.3% 12.9% 57.0% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% FNI MARC NIKL

Gross Profit Margin

2014 2015

FNI has the highest net profit margin among its peer group

Source: Bloomberg, Company filings

16

Return on Assets Return on Equity EBIT/Assets EBIT/Equity

Return Metrics

FNI has delivered the highest returns both on equity and asset bases among its peer group

Source: Company filings

63.2% 40.6% 21.9% 13.8% 11.8% n.m. 0% 10% 20% 30% 40% 50% 60% 70% FNI NIKL MARC

EBIT/Assets

2014 2015 89.1% 46.6% 26.7% 19.8% 17.2% n.m. 0.0% 20.0% 40.0% 60.0% 80.0% 100.0% FNI NIKL MARC

EBIT/Equity

2014 2015 62.9% 26.7% 25.3% 12.2% 5.3% n.m. 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% FNI NIKL MARC

Return on Assets

2014 2015 88.8% 35.9% 28.8% 17.0% 7.7% n.m. 0.0% 20.0% 40.0% 60.0% 80.0% 100.0% FNI NIKL MARC

Return on Equity

2014 2015

17

Shareholding Summary

Name Shareholding % of Total Outstanding Shares Joseph Sy through:

• Sohoton Synergy, Inc.
• Ultimate Horizon Capital, Inc
• Blue Eagle Elite Ventures, Inc

5,669,536,777 32.5 Huatai Investment Holding Pty. Ltd 2,923,430,140 16.7 Regulus Best Nickel Holding 1,569,464,006 9.0 Alpha Centauri Fortune Group, Inc. 563,856,102 3.2 Bellatrix Star, Inc. 563,856,102 3.2 Antares Nickel Capital, Inc. 300,165,876 1.7 Red Lion Fortune Group, Inc. 172,766,598 1.0 Wei Ting 148,785,648 0.9 Great South Group Ventures, Inc. 97,934,554 0.6 Seng Gay Chan 48,778,389 0.3 Other Shareholders 5,408,432,860 31.0 Total 17,467,007,052 100.0

Shareholders

Shareholding % of Total Outstanding Shares Listed shares 7,003,920,939 40.0 Unlisted shares 10,463,086,113 60.0 Total 17,467,007,052 100.0 Shareholding % of Total Outstanding Shares Public shares 5,263,901,154 30.1 Non-public shares 12,203,105,898 69.9 Total 17,467,007,052 100.0 Shareholding % of Total Outstanding Shares Foreign-owned shares 2,923,430,140 16.7 Local-owned shares 14,543,576,912 83.3 Total 17,467,007,052 100.0

Listed and Unlisted Shares Public and Non-Public Shares Foreign and Local-Owned Shares

Source: Company Public Ownership Report, 31 March 2016

18

Disclaimer

The information in this presentation has been prepared by Global Ferronickel Holdings, Inc. (“FNI”) and its subsidiaries (together, the “Group”). None of the Group or any of its directors, officers, employees or shareholders shall be in any way liable for the contents hereof. By attending the meeting where this presentation is made, or by reading the presentation slides, you agree to be bound by the following limitations and represent that you are a person who is permitted under applicable law and regulation to receive information contained in this presentation. Any failure to comply with these limitations may constitute a violation of law. This presentation and accompanying slides contains certain statements that are or may be forward-looking, including those relating to general business plans and strategies of the Group. By their nature, these forward-looking statements are based on a number of assumptions about FNI’s operations and factors beyond FNI’s control and are subject to significant risk and uncertainties because they relate to events and depend on circumstances that will or may occur in the future. Accordingly, actual results may differ materially from these forward-looking statements due to a number of factors, including movements in nickel prices and fluctuations in supply and demand for nickel, reserve and resource estimates, production estimates and replacement of the Group’s reserves through acquisitions and exploration and development activities, competition in acquiring additional mineral resources and in selling nickel ore, FNI’s ability to successfully implement its current and future strategies, its ability to anticipate and respond to local and regional trends and general political, social and economic conditions in the Philippines. There may be additional material risks that are currently not considered to be material

• r of which FNI and its advisors or representatives are unaware. FNI assumes no responsibility to update forward-looking statements or to adapt them to

future events or developments. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness or correctness of, and no reliance should be placed on, such information or opinions contained in this presentation. This presentation and accompanying slides are strictly confidential to the recipient. No part of this presentation may be reproduced, retransmitted or further distributed to any other person in any form or manner and may not be published, in whole or in part, for any purpose. This presentation and accompanying slides must not be distributed to the press or any media organization. Neither this presentation nor any of its contents may be used for any other purpose without the prior written consent of FNI. Furthermore, the distribution of this presentation may be restricted or prohibited by law. This presentation is not intended to be a complete or a comprehensive description of FNI or its securities, nor it is a complete or comprehensive analysis of the financial or trading position or prospect of the Company or the Group. This presentation is for information purposes only and does not constitute or form part of, and should not be construed as, a prospectus, offering circular or offering memorandum or an offer, or a solicitation of any offer, to purchase or sell, any securities in any jurisdiction and should not be considered as a recommendation to subscribe for or purchase any of FNI's securities nor shall it or any part of it form the basis of or be relied upon in connection with any contract, commitment or investment decision