EFTA00730641.pdf

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Ok Cl EaPo.Mallo Proposed Pig Iron Plant A EFTA00730641  GLENCOU Geography -5,000 miles to Crystal City Sweden • (Wings) -6,000+ miles to Eastern Europe 600 miles • 3 BOr is wst«, A Ir tAr via Warn . 2 CAT via Rail 3.000 Miles to Gulf of Mexico Brazil EFTA00730642  GLENCOU Wings Layout Represents Wings Operations Represents KinderMorgan Operations Represents Kobe Steel Operations 45 mile pipeline -a Beneficiation O Pig Iron Facility Facility CO CO CO Tailings Mine -0 I I -0 • 4 MT Fe203 • 150 MT Iron Ore Resource • 1 MT Fe304 • 57% Iron Ore CD • 1MT Phos / Tailings Lake Apatite Grade Facility • 600KT Pyrite • 4MTPA Annual Prod'n • 75KT REO • 30 Year Mine Life Phase Capex Needs $mm I Initial capital raise (miscellaneous uses) $40.0 Pevelopmeni costs • Initial Capital Rake Breakout II Mine development costs $180.0 Payoff existing liabilities $20.0 II Iron ore beneficiation facility $150.0 Complete feasability studies $7.0 II Tailings lake facility $150.0 Misc working capital $13.0 Total (Gross) $520.0 Total $40.0 Tailings monetization (@> 25% disc. rate) ($215.4) Total (Net) $304.6 FXCIlldfli Kobe Steel development (1) Pig Iron Facility = $400mm4)700mm Fxrludes Kindermrvgart tioveloomeit; (2) Port= $600mm EFTA00730643  GLENCO1K Overview of Process 6mm tonnes iron ore mined (-57% Fe) Beneficiation 1 4mm tonnes of concentrate (-70% Fe) All sold to Pig Iron Partner for 1mm tonnes of OXIDES 3mm tonnes of IRON ORE pig iron - Specialty oxides (70%-71% Fe) - -70% Fe production - Chemical oxides (71.6% Fe) I 2mm tonnes of final PIG IRON product - -97% Fe, 3% carbon (Pig Iron/Wings) owns (20%/80%) of pig iron process EFTA00730644 Product Margins and Free Cash Flow Yield Calculations Products Oxide Margins Iron Ore Margins Pig iron Margins Price ($ftonne) $250 donne Price ($0.86:dmtu) $60 ;tonne Price ($lonne) $400 ;tonne Volume (tonnes) 0.600 Volume (tonnes) 3.400 volume (tonnes) 2.244 Revenue $150 Revenue $204 Revenue $898 Cash cost $60 /tonne $36 Cash cost $47 /tonne $160 Cash cost $300 /tonne $673 Transportation $10 donne $6 Transportation $2 /tonne $7 Transportation $10 /tonne $22 Total cost $70 /tonne $42 Total cost $49 /tonne $167 Total cost $310 /tonne $696 SITDA E180 /tonne $108 EBITDA $11 /tonne $37 SITDA $90 /tonne $202 r 6347 % margin 72% % margin 18% % margin 23% Wings ownership (100%) $108 Wings ownership (100%) S37 Wings ownership (80%) $162 $307 Free Cash Flow Yields Unlevered FCF Yield % Financial Partner Levered FCF Yield % Msc start-up costs $50 Financial Partner hvestment $150 Tailings facility $150 Mne development costs $180 Levered FCF (steady state) $171 Benet ication tacily $150 Ownership % 70% Roane $70 Financial Partner FCF $119 Total (Gross) $600 Tailings monetization ($175) yield % 80% Total (Net) $425 Unlevered FCF (LOM average) $176 yield % 41% 5 EFTA00730645  GLENCOU Overview #1: Oxides • -1mm tonne market in the U.S. • There are only two mines globally which contain sufficient Fe content to produce specialty and chemical oxides • Historically, the Pea Ridge Mine was the sole supplier of oxides to the U.S. market • When Pea Ridge closed in 2001, oxide purchasers were required to switch to the Kiruna Mine in Sweden -The distance from most U.S. oxide purchasers to the Kiruna Mine is over 5,000 miles • Jim Kennedy can hire Gene Koebbe, the former Quality Control and Customer Representative for Pea Ridge, now working for Reiss Viking / Koch as well as someone from Prince and Akers Type End Market Customers Price/ton Volume Revenue Specialty wade . Water treatment ___ Kemira. General Chemical $130-$170 _ . 100.000 tons _ . _ _ $15.0. Heavy media Akers. Massey $180-$220 400.000 tons $80.0 Chemical grade 71% Pigments Prince. Penn Mag $230-$350 200.000 tons $58.0 Chemical grade ++71% Brake pads. ceramics Misc 5400-$1.200 150.000 tons $120.0 $321 850,000 tons $273.0 Production and Logistical Cost Comparison Reiss-Viking (Kiruna Mine in Sweden) vs. Wings Enterprises (Pea Ridge Mine in Missouri) 5450 Oxide Margins Price ($11onne) S250 lonne $400 3541t:n a um Volume (tonnes) 0.600 $350 Revenue $150 $100 Cash cost $60 /tonne $36 $314/v. OHM ins Transportation $10 'tonne $6 $250 Total cost cog ice mtg. $70 /tonne $42 $200 EBITDA 5180 /tonne $108 $150 % margin 72% $100 Mho' $50 • Mena Iffeleassid 71.0%Ft Pt t0:1011 nulled 70% Fe Speclolty Gude Iron Oxides 71% Ft un.sizad Cnorr. ca2 Grade "On OakleS and Sind °Iowa, kanaeldes Glade 6 EFTA00730646  GLENCOU Overview #2: Iron Ore • The ideal strategy is to lock in 3mm tons of iron ore sales to our pig iron partner -The vast majority of iron ore is concentrated in the Mesabi region of the U.S. and is owned by vertically integrated BOF steel producers - Cleveland Cliffs is the only major merchant iron ore producers in the U.S. - The market is very tight with few imports/exports - Merchant sales of iron is a suboptimal strategy - Wings' cash cost is competitive, but it would be reliant on robust steel production such that BOFs possess insufficient capacity Iron Ore Cost and Margin Comparison Production Cost per Ton Finished Ton Average 65% Fe North American Steel Grade Iron Ore vs. 70% Fe Wings Special Grade Iron Ore Wings Production Cost/Ton S zo Hoisted Cost Per Ton $22.45 x 6mm tpy $33.40 70°A Fe Concentrate $11.50 x 4mm tpy $11.50 Pipeline to River $2.10 x 4mm tpy $2.10 Stan Fully Diluted Worst Case Production Cost° $47.00 S too WingartOretka craft Cleveland Cliffs Cash Operating Expenses $1.499 SW Tonnes (mmj 22.7 Oi S18.5/ton (22%) Cash Cost (Mona) $66.04 SWUM toff margin (18%) gloss romp. Iron Ore Margins Soo Price ($0.66/dirtu) $60 :Yonne S91 Roo SWAM martio Moo Volume (tonnes) 3.400 Market Price S'o 65%Fle MM $66/ton 70%f de Revenue $204 wing ere gaol We roma prodtxtion SOne. Cash cost 5471tonne $160 Con Vitt t Transportation $2 :Yonne $7 $20 Clit rAft Total cost $49 itonne $167 SO EBITDA $11 /tonne $37 Onent Noah Aintica, AVMS.% Wimp Preforms % margin 18% Wings ownership 100% $37 I Includes dewatering cost at River Site 7 2 Wings 70% magnetite concentrate. If one assuming a $1.32dmtu. then Wings' product would earn $1.32 x 5= -$6.5arton more than Cleveland Cliffs EFTA00730647  GLENCOR Overview #3: Pig Iron • Market Overview: -The U.S. imports 4-10mm tons of pig iron annually from Brazil (70% of imports) and Eastern Europe (20%) • 3 types of pig iron: End Market Ingredients Basic EAF steel production & iron castings <1.5% Silicon. 0.5.1.0% M2. <0.12% Phos Foundry grade Grey iron castings <1.5%-3.5% Silicon, 0.5-1.0% Mg, <0.12% Phos ▪i t Wings will produce foundry grade (15-20% premium) godurar— iron castings Z.55.% alnPhos • Pricing: - Pricing is a function of scrap price and capacity utilization in steel mills (i.e.- it scrap price I or utilization t then pig iron price I) - Kobe Steel estimates the long-term price of pig iron to be $400/ton - Brazilian pig iron cash costs are about $500/ton FOB - When pig iron prices last hit $250/ton, 80% of Brazilian capacity was curtailed •Strategy: - Wings has close geographic proximity to 27 EAFs in the region Pig Iron Margins Price ($itonne) $400 "tonne volume (tonnes) 2.244 Revenue $898 Cash cost $300 /tonne $673 Transportation $10 donne $22 Taal cost $310 donne $696 EBITDA S90 Ronne $202 8 % margin 23% EFTA00730648  GLENCOU Overview #3: Pig Iron Pig Iron Cost Comparison (Wings vs. Brazil) Wings Brazil Consumption Unit Unit Cost/ton CosVton per ton Amount Cost Nuggets Nuggets Iron oxide (I) 1.5 $47 $71 $208 Coal (0 0.5 $325 $163 $163 Natural gas (GJoules) 5.0 $4.00 $20 $33 Other ($) $64 $45 Subtotal $317 $449 Logistics Brazil C $32 Ocean Freight C $20 Logistics USA $10 $13 Total $327 $514 Yield increasetost Decrease 10% 0% Total Cost ($Iron) $294 $514 I 75% greater Foundry grade premium ($50) Total Cost (Snon) • w. foundry prem. $244 $514 110% greater Wings willproduce a 4.70% Fe. increasing yields by 10% or more. 9 EFTA00730649  GLENCOR Overview #3: Pig Iron (Cont'd) • Existing project: Mesabi Nugget Project — Steel Dynamics and Kobe Steel • Currently producing 500.000 tons and plans to increase production (all for Steel Dynamics internal consumption) • Start-up capex per unit $200mm-$250mm • Kobe Steel also has a project in Vietnam producing 2mm tons per year with 3 units • Kobe would arrange financing for 70%-80% of the pig iron facility •There are currently no merchant pig iron producers in the United States - Almost all domestic iron ore is controlled by vertically integrated BOFs who do not to supply their EAF competitors with supplies - Pig iron production has historically been a very pollutive and energy intensive endeavor - EAFs historically purchased pig iron from Brazil which lacked environmental regulations and access to cheap charcoal/coke - Coal currently sells for $325/ton - Pig iron production normally requires 0.5-0.6 tons of charcoal/ coke for each ton of iron ore • Wings' pig iron technology - Kobe system is attractive because it requires half the levels of charcoal/coke - Wing's technology reduces emissions by 40% and energy use by 30% -We can use Kobe Steel's ITkm3 technology to produce pig iron with a cost/ton of $300/ton - Jim Kennedy prefers to use Omnisource's technology with a cost/ton of $200-$280/ton 10 EFTA00730650  GLENCO1< Historical Pricing BRAZIL MPI PRICE DEVELOPMENT SCRAP-MPI PRICE DEVELOPMENT 5100) ...in•enfolern/31104111001310•1 -11310.01101,101emilliell NIADUANMPIPRKU 5c. Oc 1110 INK 5403 SIM PO) WO< 5603 Current value: 00010n FOB Ism 5103 550C $4,3 51m 1111111~1miiillllllll 5303 'MC 5203 5103 slm So 5: No •I MO, MP MN IMP Mel h•IN Mo, NINI rn le 1.•••01 Area: 1•• l7 On 0) /N•011 Apt Ot : A Iron ore prices (5/metric ton based on 64% iron content) Current value: -$125/ton CFR ($price and 96 change) 175 • Lump 87% 150 125 100 • 4 10 year average = $71/ton = $1.10dm 7536 SO • 25 0 0 Source: Otis and vanous industry pu bbCatiOnSfrepOrtS DMTU: $0.47 $0.55 $0.63 $1.25 $1.17 $1.25 $2.20 $1.14 $1.95 EFTA00730651  GLENCOKE Pig Iron Data USA Ore Based Metallics Imports - Tonnes MPI - VALUE CHAIN $100 0,01000 PAN 1Y0k31 value chain 10:0.000 tWOUL. $35 4003000 $SCO 0:30000 ganef !ma WM. US 1.10$000 Min 5400 • SOMA • TAMA! 3=000 IP Veitnab $100 CurcOak $195 1500.000 • Uttar* • Mime 1.0.0.003 • GYM 131.014 UMW $200 1X0$000 1.401.154 1,161.461 $103 100000 so 2003 31P1 29:19 IAN 1003 001 I0091101 2008 DRI/HBI Production MPI COST STRUCTURE 20 Raw Materials 18 - Iron ore ("1600 kg / 1000 kg pig iron) 16 - 2008 World DRI/HBI Coke or charcoal (500600 kg or 2.5-3.0mt / 1000 kg pig iron] Mellon Metric Tons 14 12 - production: 68.5 mt Fluxes, etc. Diamond = •Production 8 • Smelting • metal treatment + casting HSI countries 6 4 +Logistics 2 • Delivery to FOB lbente/rail/terminal, etc.) 0 iDnfor=— • Ocean Freight I • Delivery to customer Iclischarge/barip/rael/truck/stockyard, etc.) it iHi i i i1 8 1 1 1 I $* 1 ❖Financing a 1 Dots scurvy lAldre• Technologies l NOM +Trader/distributor margin 12 EFTA00730652  GLENCOU Rare Earth Metals • Pea Ridge possesses the highest value of heavy rare earth elements of any permitted mine globally • The Pea Ridge deposit is classified as a "Strategic and Critical- asset by the USGS • Producing 20,000tpy of rare earth concentrates could possibly be more valuable than the 4mm tonnes of iron ore concentrates • Much of Wings rare earth ore production will be at no cost, as it is a byproduct of the normal beneficiation process for the iron ore • China controls '-97% of total rare earth supply • Global demand expected to grow to190-210kt REO per year by 2014, representing a +10% CAGR over 2008 levels (124kt) • China expected to supply only 160 -170kt per year by 2014 -The numbers above suggest a minimum shortfall of 30kt annually. GMP notes that the shortage could be as high as 50kt annually -Global availability of REOs will depend to a large extent on China's export policies. Further restrictions will increase the planned shortfall. • The lower value REE from the mine could sell for $11/kilo ($11,000/ton) — volume would be -5,000 tpy • The higher value REE from the breccia pipes could sell for $18/kilo ($18,000/ton) - volume would be -10,000 tpy Pea Ridge has the highest value Heavy Rare Earths Distribution of any Rare Earths Suppty IS Demand Permitted mine in the World 19,,000 Relative REO Distribution of Lanthanides Pea Ridge vs. Other Deposits 30,,000 se UGY geftd, Pr. Oy •GSA ( 1 100 • Inc ) 95 Inc 90 aS 13%.• SOW so.= 10 21%- Nd.. Pr., Dy. 75 66%- Ce. + La. 70 2008 2108E 1010E 2011E 2017E 2013E 2314E 6S 60 Ctela Se* oft0INS.pm —Cara Cenrd GOA Derund Mt Pass 0rotou MI Weld Nol•nt Pea 0.46. SEGY = Heaviest and Most Valuable (Samarium. Europium. Gadolinium. Yttrium. and Terbrum) Nd. Pr. Dy = The kiddie REO Values (Neodymium. Praseodymium and Dysprosium) Ce • La • The Light abundant and lowest value (Cerium and Lanthanum) 13 EFTA00730653  GLENCOR Investment Merits • One of the two highest quality magnetite reserves mines in the world (57% Fe ore and 70% Fe concentrate) - Capable of serving the specialty and chemical oxides markets (+$250/ton price) and foundry grade pig iron (15-20% premium to basic) • Low cost producer at $47/ton - Iron ore: $47/ton fully diluted cost vs. $65-$75/ton for the industry' • $40/ton 'apples to apples- cost comparison with 65% Fe producers and '-$28/ton if byproduct production is included2 - Oxides: Kiruna Mine (Sweden) has 4x higher cost structure excluding transportation cost of -$50/ton - Pig iron: Cost basis (FOB) could be the lowest globally - $300/ton potential + $10/ton transportation = $310/ton • Logistical advantage - Pig iron — Wings can function as the only U.S. merchant pig iron producer servicing a 500 mile circumference primarily by barge • 4-10mm tons demand currently serviced by Brazil (+3,000 miles from Nola) and Eastern Europe (+6,000 miles from Nola) - Oxides— Specialty/chemical oxide producers currently source product from the Kiruna Mine in Sweden (+5,000 miles) • Upside Potential From Other Assets • Byproducts (cob rock, phosphorous, and REM) could generate north of $2,000mm LOM 14 (1) $65-$70/ton operating cost for Cleveland Cliffs and $75tIon-for NA: Australia estimated at $4Mon: China can range from $40,ton-$80ff on (2) $40/ton effective cost = f$47.00 $1.32 x (70%-65%)]; Byproducts could reduce cost/ton by another $10-$14/ton EFTA00730654  GLENCOlk Financial Model 15 EFTA00730655  GLENCO1< Liquidation Analysis ASSET LIQUIDATION VALUATION SUMMARY Mcnt; Full Feasability Sale Value S Under Ground Iron Ore Deposit. 150mm tons of proven reserves = 3x reserves = $450mm - $330mm startup costs $120mm 105mm tons of finished iron ore It would cost over $150mm to discover and "prove out" a green field ore body of similar size today (no permits or infrastructure included) Existing Operations: 330.000 tons at surface of mine Residual from 38 yrs of running the mill $20mm This is finished inventory: Sold as off spec oxides [330kT x (1-31% loss)] x ($120/ton - $18/ton) = $24mm Tailings Lake Reserve • (1) Rare Earth: REE willing to pay $25mm for 25% of the $240mm rare earths = $100mm value (2) Hematite - 4MT x $77/ton (price) - $15.1ton (transport) - $18/ton (processing) = $175mm (3) Maanetite - 1MT x 31% loss = 700kT x $200/ton (price) -$151ton (transport)-$18/ton (processing) = $115mm MINUS $150mm cost for tailings lake facility River Property/Port Jefferson County has approved $21mm of Industrial S10mm Revenue Bonds for other real estate properties. Wings would own 2.5 miles of therfront properties. Am believes the value is: $50-100mm Total $390mm Value Not Included (1) Capex funded by Bethlehem Steel from the 1950s-2001 (invested $75mm into the mine in 1950s alone) (2) Two major rail lines (BNSF and Union Pacific) intersecting on the property (3) Two shafts in the mine which go down 2.500 feet (4) 5 miles of underground roads (5) 30MW of electrical service onsite 16 EFTA00730656  GLENCOU Sources & Uses SOURCES ($mm) USES Sinm Lain la gat $amt 24 Debt: pipeline $70 10% 4.0% Phase I Msc start-up costs $40 6% (a) Debt: nine development & f acilities $240 36% 8.0% Iron ore development costs (b) Taillings Monetization $215 32% NA Phase Nine dev. costs (start up) $180 27% Financial Partner - Correnn Equity $150 22% NA Phase!! Iron ore beneficiation facity $150 22% TOTAL $675 100% Phase II Taings Lake lack/ $150 22% Phase!! Pipeful system w . dew ater $70 10% Equity Ownership Existinq Post Deal Phase II Cash on balance sheet $85 13% Jim KennedyNna Abboud 30% 30% Dividend Glencore 70% 30% TOTAL $675 100% Financial Partner - 40% TOTAL 100% 100% (a) Debt: Mine Development and Facilities Asset Amt %Debt Debt Arnt Tailings lacility $150.0 50% $75.0 Mine development costs $180.0 50% $90.0 Benelication facility $150.0 50% $75.0 $480.0 1 $240.0 (b) Tailings Monetization Year 1 Year 2 Year 3 Year 4 Year 5 Total Rthenue $850.0 170.0 170.0 170.0 170.0 170.0 850.0 EBIMA $400.0 80.0 80.0 80.0 80.0 80.0 400.0 NPV 631. 24.9% $215.4 17 EFTA00730657  GLENCOU Assumptions Cumuluati% Over 5 yrs Iron ore tailings monetization INCLUDED in the Model Revenue EBIIDA 1) Hematite - 4.8MT x 31% loss = 3,360kt x $120/ton (price) - $15/ton (transport) - $18/ton (process $403.2 $292.3 2) Magnetite - 1MT x 31% loss = 700kT x $200/ton (price) -$15/ton (transport)-$18/ton (processing) 1412-4 11E.2 543.2 409.2 Phosphorous and rare earth tailings EXCLUDED from Model 1) Phosohnrmic - 1MT x $100/ton (price) - $15/ton (transport)-$18/ton (processing) 100.0 67.0 2) REM - 75KT x $10/kilo (price) x 1000 kilos/ton -$15/ton (transport)-$18/ton (processing) 750.0 746.0 $850.0