Saudi Arabian Mining Company (Ma'aden)
Saudi Arabian Mining Company (Ma’aden) Earnings Conference Call Q1 2017 May 7, 2017 Earnings Call Presentation Q1, 2017
1
Walid Al-Hakim
Head Investor Relations
Earnings Call Presentation Q1, 2017
2
Forward looking statement This presentation contains statements that are, or may be deemed to be, forward looking statements, including statements about the beliefs and expectations of Saudi Arabian Mining Company (the "Company"). These statements are based on the Company's current plans, estimates and projections, as well as its expectations of external conditions and events. Forward-looking statements involve inherent risks and uncertainties and speak only as of the date they are made. As a result of these risks, uncertainties and assumptions, a prospective investor should not place undue reliance on these forward-looking statements. A number of important factors could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements. The Company is not obliged to, and does not intend to, update or revise any forward- looking statements made in this presentation whether as a result of new information, future events or otherwise. This communication has been prepared by and is the sole responsibility of the Company. It has not been reviewed, approved or endorsed by any financial advisor, lead manager, selling agent, receiving bank or underwriter retained by the Company. This communication is provided for information purposes only. In addition, because this communication is a summary only, it may not contain all material terms and this communication in and of itself should not form the basis for any investment decision. The information and opinions herein is believed to be reliable and has been obtained from sources believed to be reliable, but no representation or warranty, express or implied, is made with respect to the fairness, correctness, accuracy reasonableness or completeness of the information and opinions. There is no obligation to update, modify or amend this communication or to otherwise notify you if information, opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate. You are strongly advised to seek your own independent advice in relation to any investment, financial, legal, tax, accounting or regulatory issues discussed herein. Analyses and opinions contained herein may be based on assumptions that if altered can change the analyses or opinions expressed. Nothing contained herein shall constitute any representation or warranty as to future performance of any financial instrument, credit, currency, rate or other market or economic measure. Furthermore, past performance is not necessarily indicative of future results. The Company disclaims liability for any loss arising out of or in connection with your use of, or reliance on, this communication. These materials may not be published, distributed or transmitted and may not be reproduced in any manner whatsoever without the explicit consent of Ma’aden’s management. These materials do not constitute an offer to sell or the solicitation of an offer to buy the securities in any jurisdiction.
Earnings Call Presentation Q1, 2017
3
Khalid Al-Mudaifer
President & Chief Executive Officer
Earnings Call Presentation Q1, 2017
4
Solid performance in first quarter of 2017
Record production
Outstanding cost performance
Strong financial performance
Growth projects underway
■ ■ ■ ■ ■
71 K ounces of gold, up 61% vs Q1 2016 369 K tonnes of alumina, up 5% vs Q1 2016 228 K tonnes of primary aluminium, up 5% vs Q1 2016 599 K tonnes of ammonia, up 97% vs Q1 2016 721 K tonnes of ammonium phosphate fertilizer, up 9% vs Q1 2016
■ ■ ■
Continued focus on efficiency, productivity and throughput Reduced cash cost in all our products Margins continue to increase with EBITDA margins higher by ~17 basis points
■ ■ ■ ■
Sales SAR 2,717 mn, up 20% vs Q1 2016 EBITDA SAR 1,437 mn, up 52% vs Q1 2016 Net income SAR 341 mn, up 70% Net cash from operation SAR 857 mn, up 137%
■
Ammonia plant for Ma’aden Wa’ad Al Shamal (MWAS) entered commercial operation on January 1, 2017 Remaining plants of MWAS project are on track for first production in Q2 2017 Feasibility of our new Mansourah / Massarah mines is being finalised Feasibility study for the third phosphate project is progressing well
■ ■ ■
Strong operating performance, supportive market conditions, benefits of low cost operations reflecting in healthier results Earnings Call Presentation Q1, 2017
5
Margin improvement with price and volume increase 160.00
Commodity price movement Aluminium
Copper
Gold
DAP
Ammonia
Ma'aden share price
Rebase to 100 as on 1 Mar 2016
140.00
120.00
100.00
80.00
60.00
40.00 1-Mar-16
SAR million
1600
Source: Bloomberg
1-May-16
EBITDA
1200
EBITDA Margins
947
800 600
1-Sep-16
1-Nov-16
EBITDA and margins
1400 1000
1-Jul-16
37%
1-Jan-17
1-Mar-17
1,437
60% 55%
952 41%
886
53%
50% 45% 40%
37%
35%
400
30%
200
25%
0
20% Q2 2016
Earnings Call Presentation Q1, 2017
Q3 2016
Q4 2016
Q1 2017 6
Firm phosphate market in Q1, but now showing signs of weakness ■
In Q1 2017 DAP prices averaged ~US$355/tonne1 and ammonia price averaged ~US$ 285 / tonne2
■
Phosphate and ammonia prices recovered from lows of 2016, due to low exports from China & US, high demand in China, Latin America, etc.
■
DAP demand from India is picking up but there are increasing exports from China on the back of firmer prices in Q1
■
Additional supplies expected in H1 2017 from MWAS and Morocco which may exert pressure on prices
■
Ammonia prices bounced back after a very weak Q4, on reduced supply from the Black Sea.
DAP and Ammonia price movement (US$/t) 600
Avg. FOB, KSA DAP Avg. FOB, ME Ammonia
500
400
300
200
100
0 Jan-15 1 Tampa
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Jul-16
Oct-16
Jan-17
FOB Index, 2 Middle East FOB Index
Earnings Call Presentation Q1, 2017
Source: Ma’aden SBU analysis, CRU , FMB and FERTECON
7
Recovery of aluminium prices continued in Q1 2017 ■
Aluminium price averaged US$1,858/tonne (LME), up 23% vs Q1 2016 and up 9% vs Q4 2016
■
Japanese premiums increased in Q1 2017, due to Australian smelter disruptions and higher netbacks for producers. Higher physical premium suggest market is in deficit outside China
■
China is heading towards a balanced market in 2017
■
Prices have improved partly due to Chinese announcements of production cuts due to expected implementation of new environmental policies
Aluminium Price Movement (US$/t) 2,200 Aluminium 2,000
1,800
1,600
1,400
1,200
1,000 Jan-15
Apr-15
Earnings Call Presentation Q1, 2017
Jul-15
Oct-15
Jan-16
Apr-16
Jul-16
Oct-16
Jan-17
Source: Bloomberg, Ma’aden SBU analysis, CRU Mar 2017, Harbor Mar 2017
8
Gold firm and copper is sustaining its recovery ■
Gold and copper prices averaged US$1,221/ounce and US$ 5,855/tonne, up 3% and 25% respectively vs Q1 2016
■
World economic growth forecast, particularly Chinese structural reforms remain on track supporting the prices outlook
■
Production disruption at world’s three largest copper mines helped to support copper prices, despite financial market weakness and industrial metals sell-off
■
Copper prices are expected to be driven by sustainability of Chinese demand into the second half of 2017 and US infrastructure spending announcement
Gold and copper price movement 1.20 Copper
1.10
Gold
Rebase to 1 as at 1 Jan 2015
1.00 0.90 0.80 0.70 0.60 0.50 0.40 Jan-15
Apr-15
Earnings Call Presentation Q1, 2017
Jul-15
Oct-15
Jan-16
Apr-16
Jul-16
Oct-16
Source: Bloomberg, CRU Mar 2017, SBU secondary analysis
Jan-17 9
Additional reserves and resources added in phosphate and copper business
461 Mt 232 Mt 288 Mt 210 Mt 16.5 Moz 4.3 Moz
Copper
Gold
Bauxite
P2O5
Ma’aden’s Total Resources & Reserves1
199 kt 569 kt Growth in Resources & Reserves in 2016
phosphate mine
Arabian Shield
Minerals with potential for further growth through exploration
metallurgical bauxite mine low grade bauxite mine
HIGH
bauxite, phosphate, gold, copper, zinc
MEDIUM
potash
gold mine copper mine
KM 0
1. 2.
500
Resources and reserves at December 2016 Resources for gold, phosphate and bauxite are stated inclusive of reserves
Earnings Call Presentation Q1, 2017
10
Vision 2030 is of particular relevance to the mining industry
Increased ambition and support to develop Saudi economy Raise competitiveness and productivity of national companies Support large Saudi companies to expand globally into regional and global leaders
Increase focus on sustainability and human capital
Strong focus on non-oil exports Reduce pollution, promote optimal use of water, fight desertification Grow local value chains Attract and develop talent Improve innovation and technology
Increased focus and expectation for the mining sector Intensify exploration and development of mineral resources Increase mining contribution to Saudi’s GDP to SAR97BN (USD26 BN) by 2020 creating 90,000 jobs Simplify the licensing procedures for exploration and extraction Earnings Call Presentation Q1, 2017
11 11
And our strategy is aligned with the Vision to ensure we build on the opportunity
Operational, capital, commercial excellence and leading sustainability
▪ ▪ ▪
National mining champion
Global presence
Focus on cost and productivity
▪
▪
Operational, capital and commercial excellence
Grow in Saudi fertilizers, aluminum, gold and base metals
▪
Grow in Saudi selected industrial minerals
▪ Grow globally in selected
Profitability and returns in line with international peers
▪
Best-in-class capabilities and technology
▪
Leadership in sustainability, health, safety and environment
Earnings Call Presentation Q1, 2017
▪
Leverage world class selected KSA deposits to be a world leader commodities
Champion the development of the Saudi mining sector
12 12
Darren C. Davis Chief Financial Officer
Earnings Call Presentation Q1, 2017
13
First quarter of 2017, showed the underlying strength of our business
Earnings Call Presentation Q1, 2017
14
Core of our business built on world scale competitive phosphate and aluminium businesses aluminium phosphate precious metals
SAR 2,270 mn
Revenues
Price strength aluminium and gold business Negative price impact on the phosphate business Production driven growth for all businesses
8%
Positive direction on prices and costs for aluminium Phosphate price and cost drops Margins are improving on efficiency and cost reduction
46% 46%
46%
42%
SAR 943
SAR 1,437 mn
7%
12%
+52% 41%
47% 46% 47%
Q1 2016 Earnings Call Presentation Q1, 2017
12%
+20%
EBITDA
SAR 2,717 mn
Q1 2017 15
Strong operating performance, supportive market conditions, benefits of low cost operations reflecting in stronger year on year results Net income bridge Q1 2017 vs Q1 2016 SAR MN
+70%
700
31 600
-60
86
-16
500
-206 245
400
-39
341
300 200
100
Q1 2016 IFRS
Price effect
200
100
0
Earnings Call Presentation Q1, 2017
Volume effect
Cost effect
Sales, marketing logistics
G&A
Write-off PPE
Finance charges
Others
Q1 2017 IFRS
16
Similarly, quarter on quarter saw sustained gains in profitability Net income bridge Q1 2017 vs Q4 2016 SAR MN -76
400
-81
200
0
341
594 -643 6
594
56 -200
-17
317 -400 201 -600
-800
Q4 2016 IFRS
Price effect
Earnings Call Presentation Q1, 2017
Volume effect
Cost effect
Sales, marketing logistics
G&A
Write-off PPE
Finance charges
Others
Q1 2017 IFRS
17
Operational performance
Earnings Call Presentation Q1, 2017
18
Phosphate performance Operational performance ■
■
During Q1, Ma’aden produced and sold 721,000 tonnes and 637,000 tonnes respectively of ammonium phosphate fertilizer, an increase of 5% and 6% respectively as compared to the same quarter last year. The increase in production and sales was mainly driven by improved utilization rates and higher efficiencies, notably increased phosphoric acid production. Ma’aden produced and sold (external) a record 599,000 tonnes and 467,000 tonnes of ammonia, an increase of 97% and 127% respectively as compared to the same quarter last year. The increased production and sales volume is largely attributed to the start of commercial operations of Ma’aden Wa’ad Al Shamal ammonia plant.
Ammonium phosphate fertilizer
687
659
Production (Kt)
Sales (Kt) DAP Avg prices (US$/t)
700
721 637
599 329
Q1 2016
320
297
Q4 2016
Ammonia
Q1 2017
Production (Kt) Sales (Kt) Ammonia Avg prices (US$/t)
Cost performance 599 ■
During the quarter ammonium phosphate fertilizer cash cost reduced by nearly 17% compared to the corresponding quarter of last year. The reduction in cost was primarily driven by lower input costs, better efficiencies and higher throughput.
466
355 304
206
313
204
267
173
Q1 2016
Earnings Call Presentation Q1, 2017
Q4 2016
Q1 2017
19
Aluminium performance Operational performance ■
During the first quarter of 2017, Ma’aden produced 228,000 tonnes of primary aluminium, an increase of 5%, compared to the same period of last year. The increase was mainly due to increased production efficiency and increased production from the recycling unit.
Primary aluminium
Production (Kt) Sales (Kt) Avg LME prices (US$/t)
230
1,858 1,663
225
228 228
1,503
220 ■
Ma’aden’s bauxite mine and alumina refinery operated well. During Q1, Ma’aden produced 369,000 tonnes of alumina, an increase of 5% compared to Q1 2016. Ma’aden made its first external sales of 30,000 tonnes of alumina in the last quarter.
219 215
215
■
During the quarter, our aluminium cash cost reduced significantly, due to increased volumes, decreased fixed costs through strong cost control measures, reduction in some of the raw material consumptions, and lower input costs, notably the lower price of alumina. However, we see some headwinds with the prices of key inputs such as caustic soda and coke prices increasing
216
210 205 Q1 2016
Cost performance ■
217
Q4 2016
2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 -
Q1 2017
Corporate aluminium sales (Kt) 140 135 135
130
128
125 120
Projects ■
The rolling mill operation continues to ramp up production and is making gradual progress in penetrating the market for can sheets in the Middle East region and beyond.
113
115 110 105 100
Q1 2016
Earnings Call Presentation Q1, 2017
Q4 2016
Q1 2017
20
Gold and Copper performance Operational performance ■
During the quarter, Ma’aden production of gold increased by 61% to 71,000 ounces compared to the same quarter last year. This was mainly due to increased volumes from Ad Duwayhi mine, Ma’aden’s largest gold mine, which was commercialized on April 1, 2016.
Gold volumes
Sales (Koz) Gold Avg prices (US$/oz) 80
1,182 71
60
64
Cost performance ■ Continued focus on cost has helped Ma’aden to reduce its gold cash cost by 22% compared to the same quarter last year. This is mainly attributed to increased volumes and better efficiencies. ■
Jabal Sayid C1 cash cost performance continued to improve through efficiency and higher throughput.
70
64
50 44
30
During the quarter, we produced 7,000 tonnes and sold 7,500 tonnes of copper concentrate. The Jabal Sayid mine is progressing well in terms of reaching its full production capability
1,200
1,192
70
40 ■
Production (Koz)
40
20
10 0 Q1 2016
Q4 2016
1250 1200 1150 1100 1050 1000 950 900 850 800
Q1 2017
Copper volumes (Kt) 9
Production
8
Sales 8
7
7.5 7
6 5 5
5
Q1 2016
Q4 2016
4 3
4
2 1 0 Q1 2017
1 Ma’aden attributable production & sales @ 50% Earnings Call Presentation Q1, 2017
21
Financial position
Earnings Call Presentation Q1, 2017
22
Financial position All numbers are in SAR millions
Long term borrowing By product
25,618
Other non current assets
Capital work in progress
Non controlling interest Other non current liability
53,669
45,266
5%
22% 29% 45% 66% 30%
MPC
Plant, property & equipment
By source
2% Equity
2,521 7,953
25,924
11,115
Balance sheet
WAS
Aluminium
Others
Banks
PIF
SIDF
Type of loan
Long term borrowing
47% Current assets
Assets
4,813
12,270
5%
53% Current Liability 95%
Liability
As on 31 March 2017 Floating Earnings Call Presentation Q1, 2017
Fixed
SAR
USD
23
Financial strategy ■
Maintain liquidity
■
Optimize capital structure
■
Ensure stable foundation for future growth
Cash equivalents and short term investments
29
Long term borrowings
33
Debt/total capital ratio1
40
Net debt
47
47 62%
62% 57%
57%
56%
45 12
2013
5
2014
7
7
2015
54
54
45
33 4
2
20163
Q1-17
1 Long term borrowings / (long term borrowings + total equity) 2 Long term borrowings – cash equivalents and short tern investments 3 Restated with IFRS
Earnings Call Presentation Q1, 2017
24
Summary
Record production in all our business first quarter 2017 Continued focus on volumes: ramping up new capacities and increasing throughput at existing operations
Leading position in fundamentally attractive commodities Better overall price environment in Q1 2017 but some concerns for the balance of the year, particularly in DAP
Underpinned outstanding cost performance Strong cost performance allows us to see the full benefits of improved commodity prices
Growth projects underway Wa’ad Al Shamal on track and we have a good pipeline of new projects
Aligned to Vision 2030 Our strategy is set to contribute to, and benefit from, the Vision 2030 initiatives
Earnings Call Presentation Q1, 2017
25
Appendix
Earnings Call Presentation Q1, 2017
26
Debt repayment profile 2500
Al numbers are in US$ million 2,067
MIC 2000
MGBM WAS 1,712
MBAC
1,631
MRC MAC
1500 1,321
MPC
1,269 1,198 1,132 998 1000 873 806 633 575
575
500 288
0 2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
As on 31 December 2016
Earnings Call Presentation Q1, 2017
27
Sales summary Particulars Phosphate business Ammonium phosphate fertilizer (‘000 tonnes) Ammonia (‘000 tonnes) Aluminium business Primary Aluminium (‘000 tonnes) Golds and base metals business Gold (‘000 ounces) Copper (‘000 tonnes)
Earnings Call Presentation Q1, 2017
Q1 2017
Q1 2016
% change y-o-y
Q4 2016
% change q-o-q
2016
2015
% change y-o-y
637
600
6%
700
-9%
2,676
2,633
2%
466
205
127%
204
128%
715
461
55%
228
219
4%
216
6%
871
839
4%
70 7.5
40
76%
64 5.2
10% 44%
225 24.8
165 2.4
36%
28
Saudi Arabian Mining Company (Ma’aden) IFRS Transition Impact on the Consolidated Financial Statements May 7, 2017 Earnings Call Presentation Q1, 2017
29
IFRS transition from SOCPA to IFRS ■
As per the Capital Market Authority (CMA) circular 7/5/7258/16 dated 18/11/1437H, referring to the transition to the International Financial Reporting Standers (IFRS), with effect from January 1, 2017 Ma’aden has transitioned its financial reporting framework to comply with the International Financial Reporting Standards (IFRS) as endorsed by SOCPA for financial reporting in the kingdom of Saudi IFRS transition Arabia. impact on
Ma’aden business ■ All of Ma’aden’s subsidiary companies have also transitioned to reporting under IFRS so as to enable us to prepare our consolidated interim financial statements in accordance with IFRS ■
We have made all the adjustments required by IFRS, “First time adoption of international Financial Reporting Standards “ to the standing balance sheet as of December 31, 2015 prepared in accordance with SOCPA accounting standards and audited in accordance with International standards on Auditing (“ISA”) endorsed by SOCPA.
■
The following slides summarize the key changes to our 2016 SOCPA financial statements as follows: - the changes to retained earnings as at January 1, 2016 under IFRS against the retained earnings as at December 31, 2015 as previously reported under SOCPA - the changes in net income for the quarter ended December 31, 2016 under IFRS versus the net income previously reported under SOCPA - the changes in net income for the quarter ended March 31, 2016 under IFRS versus the net income previously reported under SOCPA
■
For full details please refer to our consolidated interim financial statements for the quarter ended March 31, 2017
Earnings Call Presentation Q1, 2017
30
IFRS impact on the retained earnings for the opening statement of financial position as at 1 January 2016 Ma’aden retained earnings bridge (SAR mn) 7000
6,464 Impairment 6000 -2,172
5000 -3 -120 -50 84
313 4000
4,516
84
Impairment of (i) Ma’aden Rolling Company’s aluminium rolling assets, (ii) the company’s automotive rolling sheet assets; and (iii) the company’s investment in Sahara Ma’aden Petrochemical Company (SAMAPCO), following application of the IFRS impairment testing methodology
Actuarial Re-measurement of employees end of service benefit obligation in accordance with the actuarial valuation as required under IFRS
3000
2000
Tax Adjustments related to deferred tax as required under IFRS
1000 31 Dec 2015 Retained earnings SOCPA
Impairment
Earnings Call Presentation Q1, 2017
Non controlling interest share of impairment
PPE
Actuarial
Tax
Others
1 Jan 2016 Retained earnings IFRS
Non-Controlling Interest This is principally related to our JV partner’s share of the impairment of the Ma’aden Rolling Company and automotive sheets assets
31
Re-measurements due to conversion to IFRS reporting standard resulted to an increase in net loss by SR 620 mn Net income/loss bridge of Q4 2016 SOCPA vs Q4 2016 IFRS Sales
Impairment
Adjustments arising from provisional pricing in gold and aluminium business
Impairment of Ma’aden Rolling Company’s assets, following adoption of IFRS impairment methodology
Cost of sales
Share in net loss of JV
Due to the introduction of componentization of plant, property and equipment, increased the depreciation charge
Investment in SAMAPCO was impaired on the date of transition to IFRS, which resulted in the reversal of reported equity share of loss for Q4 2016 under IFRS
Actuarial
Others
SAR MN 0
-23
-643 3 -76
-100
-5
-566
-200
-300
-400
-500
-600 -23
17
29
-700 Q4 2016 SOCPA Net loss
Sales
Cost of sales
Earnings Call Presentation Q1, 2017
Actuarial Impairment Finance cost
Share in net loss of JV
Others
Q4 2016 IFRS Net loss
Re-measurement of employees end of service termination benefit obligation in accordance with the actuarial valuation as required under IFRS
Adjustments related to the deferred tax as required under IFRS applicable to noncontrolling interest
32
Re-measurements due to conversion of reporting standard to IFRS resulted to an increase in net profit by SR 15 mn Net income bridge of Q1 2016 SOCPA vs Q1 2016 IFRS
Adjustments arising from provisional pricing in gold and aluminium business
SAR MN
250 25
-9
Actuarial 200
200
Sales
185
-3
-1
5
-2
150
Re-measurement of employees end of service termination benefit obligation in accordance with the actuarial valuation as required under IFRS
Share in net loss of JV 100 Investment in SAMAPCO was impaired on the date of transition to IFRS, which resulted in the reversal of reported equity share of loss
50
Others
0 Q1 2016 SOCPA Net profit
Sales
Earnings Call Presentation Q1, 2017
Cost of sales
Actuarial
Finance cost
Share in net loss of JV
Others
Q1 2016 IFRS Net Profit
Deferred tax attributable to non-controlling interest
33
Thank You! Copyright © 2016. Ma’aden . All rights reserved.
Earnings Call Presentation Q1, 2017
34
1
Walid Al-Hakim
Head Investor Relations
Earnings Call Presentation Q1, 2017
2
Forward looking statement This presentation contains statements that are, or may be deemed to be, forward looking statements, including statements about the beliefs and expectations of Saudi Arabian Mining Company (the "Company"). These statements are based on the Company's current plans, estimates and projections, as well as its expectations of external conditions and events. Forward-looking statements involve inherent risks and uncertainties and speak only as of the date they are made. As a result of these risks, uncertainties and assumptions, a prospective investor should not place undue reliance on these forward-looking statements. A number of important factors could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements. The Company is not obliged to, and does not intend to, update or revise any forward- looking statements made in this presentation whether as a result of new information, future events or otherwise. This communication has been prepared by and is the sole responsibility of the Company. It has not been reviewed, approved or endorsed by any financial advisor, lead manager, selling agent, receiving bank or underwriter retained by the Company. This communication is provided for information purposes only. In addition, because this communication is a summary only, it may not contain all material terms and this communication in and of itself should not form the basis for any investment decision. The information and opinions herein is believed to be reliable and has been obtained from sources believed to be reliable, but no representation or warranty, express or implied, is made with respect to the fairness, correctness, accuracy reasonableness or completeness of the information and opinions. There is no obligation to update, modify or amend this communication or to otherwise notify you if information, opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate. You are strongly advised to seek your own independent advice in relation to any investment, financial, legal, tax, accounting or regulatory issues discussed herein. Analyses and opinions contained herein may be based on assumptions that if altered can change the analyses or opinions expressed. Nothing contained herein shall constitute any representation or warranty as to future performance of any financial instrument, credit, currency, rate or other market or economic measure. Furthermore, past performance is not necessarily indicative of future results. The Company disclaims liability for any loss arising out of or in connection with your use of, or reliance on, this communication. These materials may not be published, distributed or transmitted and may not be reproduced in any manner whatsoever without the explicit consent of Ma’aden’s management. These materials do not constitute an offer to sell or the solicitation of an offer to buy the securities in any jurisdiction.
Earnings Call Presentation Q1, 2017
3
Khalid Al-Mudaifer
President & Chief Executive Officer
Earnings Call Presentation Q1, 2017
4
Solid performance in first quarter of 2017
Record production
Outstanding cost performance
Strong financial performance
Growth projects underway
■ ■ ■ ■ ■
71 K ounces of gold, up 61% vs Q1 2016 369 K tonnes of alumina, up 5% vs Q1 2016 228 K tonnes of primary aluminium, up 5% vs Q1 2016 599 K tonnes of ammonia, up 97% vs Q1 2016 721 K tonnes of ammonium phosphate fertilizer, up 9% vs Q1 2016
■ ■ ■
Continued focus on efficiency, productivity and throughput Reduced cash cost in all our products Margins continue to increase with EBITDA margins higher by ~17 basis points
■ ■ ■ ■
Sales SAR 2,717 mn, up 20% vs Q1 2016 EBITDA SAR 1,437 mn, up 52% vs Q1 2016 Net income SAR 341 mn, up 70% Net cash from operation SAR 857 mn, up 137%
■
Ammonia plant for Ma’aden Wa’ad Al Shamal (MWAS) entered commercial operation on January 1, 2017 Remaining plants of MWAS project are on track for first production in Q2 2017 Feasibility of our new Mansourah / Massarah mines is being finalised Feasibility study for the third phosphate project is progressing well
■ ■ ■
Strong operating performance, supportive market conditions, benefits of low cost operations reflecting in healthier results Earnings Call Presentation Q1, 2017
5
Margin improvement with price and volume increase 160.00
Commodity price movement Aluminium
Copper
Gold
DAP
Ammonia
Ma'aden share price
Rebase to 100 as on 1 Mar 2016
140.00
120.00
100.00
80.00
60.00
40.00 1-Mar-16
SAR million
1600
Source: Bloomberg
1-May-16
EBITDA
1200
EBITDA Margins
947
800 600
1-Sep-16
1-Nov-16
EBITDA and margins
1400 1000
1-Jul-16
37%
1-Jan-17
1-Mar-17
1,437
60% 55%
952 41%
886
53%
50% 45% 40%
37%
35%
400
30%
200
25%
0
20% Q2 2016
Earnings Call Presentation Q1, 2017
Q3 2016
Q4 2016
Q1 2017 6
Firm phosphate market in Q1, but now showing signs of weakness ■
In Q1 2017 DAP prices averaged ~US$355/tonne1 and ammonia price averaged ~US$ 285 / tonne2
■
Phosphate and ammonia prices recovered from lows of 2016, due to low exports from China & US, high demand in China, Latin America, etc.
■
DAP demand from India is picking up but there are increasing exports from China on the back of firmer prices in Q1
■
Additional supplies expected in H1 2017 from MWAS and Morocco which may exert pressure on prices
■
Ammonia prices bounced back after a very weak Q4, on reduced supply from the Black Sea.
DAP and Ammonia price movement (US$/t) 600
Avg. FOB, KSA DAP Avg. FOB, ME Ammonia
500
400
300
200
100
0 Jan-15 1 Tampa
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Jul-16
Oct-16
Jan-17
FOB Index, 2 Middle East FOB Index
Earnings Call Presentation Q1, 2017
Source: Ma’aden SBU analysis, CRU , FMB and FERTECON
7
Recovery of aluminium prices continued in Q1 2017 ■
Aluminium price averaged US$1,858/tonne (LME), up 23% vs Q1 2016 and up 9% vs Q4 2016
■
Japanese premiums increased in Q1 2017, due to Australian smelter disruptions and higher netbacks for producers. Higher physical premium suggest market is in deficit outside China
■
China is heading towards a balanced market in 2017
■
Prices have improved partly due to Chinese announcements of production cuts due to expected implementation of new environmental policies
Aluminium Price Movement (US$/t) 2,200 Aluminium 2,000
1,800
1,600
1,400
1,200
1,000 Jan-15
Apr-15
Earnings Call Presentation Q1, 2017
Jul-15
Oct-15
Jan-16
Apr-16
Jul-16
Oct-16
Jan-17
Source: Bloomberg, Ma’aden SBU analysis, CRU Mar 2017, Harbor Mar 2017
8
Gold firm and copper is sustaining its recovery ■
Gold and copper prices averaged US$1,221/ounce and US$ 5,855/tonne, up 3% and 25% respectively vs Q1 2016
■
World economic growth forecast, particularly Chinese structural reforms remain on track supporting the prices outlook
■
Production disruption at world’s three largest copper mines helped to support copper prices, despite financial market weakness and industrial metals sell-off
■
Copper prices are expected to be driven by sustainability of Chinese demand into the second half of 2017 and US infrastructure spending announcement
Gold and copper price movement 1.20 Copper
1.10
Gold
Rebase to 1 as at 1 Jan 2015
1.00 0.90 0.80 0.70 0.60 0.50 0.40 Jan-15
Apr-15
Earnings Call Presentation Q1, 2017
Jul-15
Oct-15
Jan-16
Apr-16
Jul-16
Oct-16
Source: Bloomberg, CRU Mar 2017, SBU secondary analysis
Jan-17 9
Additional reserves and resources added in phosphate and copper business
461 Mt 232 Mt 288 Mt 210 Mt 16.5 Moz 4.3 Moz
Copper
Gold
Bauxite
P2O5
Ma’aden’s Total Resources & Reserves1
199 kt 569 kt Growth in Resources & Reserves in 2016
phosphate mine
Arabian Shield
Minerals with potential for further growth through exploration
metallurgical bauxite mine low grade bauxite mine
HIGH
bauxite, phosphate, gold, copper, zinc
MEDIUM
potash
gold mine copper mine
KM 0
1. 2.
500
Resources and reserves at December 2016 Resources for gold, phosphate and bauxite are stated inclusive of reserves
Earnings Call Presentation Q1, 2017
10
Vision 2030 is of particular relevance to the mining industry
Increased ambition and support to develop Saudi economy Raise competitiveness and productivity of national companies Support large Saudi companies to expand globally into regional and global leaders
Increase focus on sustainability and human capital
Strong focus on non-oil exports Reduce pollution, promote optimal use of water, fight desertification Grow local value chains Attract and develop talent Improve innovation and technology
Increased focus and expectation for the mining sector Intensify exploration and development of mineral resources Increase mining contribution to Saudi’s GDP to SAR97BN (USD26 BN) by 2020 creating 90,000 jobs Simplify the licensing procedures for exploration and extraction Earnings Call Presentation Q1, 2017
11 11
And our strategy is aligned with the Vision to ensure we build on the opportunity
Operational, capital, commercial excellence and leading sustainability
▪ ▪ ▪
National mining champion
Global presence
Focus on cost and productivity
▪
▪
Operational, capital and commercial excellence
Grow in Saudi fertilizers, aluminum, gold and base metals
▪
Grow in Saudi selected industrial minerals
▪ Grow globally in selected
Profitability and returns in line with international peers
▪
Best-in-class capabilities and technology
▪
Leadership in sustainability, health, safety and environment
Earnings Call Presentation Q1, 2017
▪
Leverage world class selected KSA deposits to be a world leader commodities
Champion the development of the Saudi mining sector
12 12
Darren C. Davis Chief Financial Officer
Earnings Call Presentation Q1, 2017
13
First quarter of 2017, showed the underlying strength of our business
Earnings Call Presentation Q1, 2017
14
Core of our business built on world scale competitive phosphate and aluminium businesses aluminium phosphate precious metals
SAR 2,270 mn
Revenues
Price strength aluminium and gold business Negative price impact on the phosphate business Production driven growth for all businesses
8%
Positive direction on prices and costs for aluminium Phosphate price and cost drops Margins are improving on efficiency and cost reduction
46% 46%
46%
42%
SAR 943
SAR 1,437 mn
7%
12%
+52% 41%
47% 46% 47%
Q1 2016 Earnings Call Presentation Q1, 2017
12%
+20%
EBITDA
SAR 2,717 mn
Q1 2017 15
Strong operating performance, supportive market conditions, benefits of low cost operations reflecting in stronger year on year results Net income bridge Q1 2017 vs Q1 2016 SAR MN
+70%
700
31 600
-60
86
-16
500
-206 245
400
-39
341
300 200
100
Q1 2016 IFRS
Price effect
200
100
0
Earnings Call Presentation Q1, 2017
Volume effect
Cost effect
Sales, marketing logistics
G&A
Write-off PPE
Finance charges
Others
Q1 2017 IFRS
16
Similarly, quarter on quarter saw sustained gains in profitability Net income bridge Q1 2017 vs Q4 2016 SAR MN -76
400
-81
200
0
341
594 -643 6
594
56 -200
-17
317 -400 201 -600
-800
Q4 2016 IFRS
Price effect
Earnings Call Presentation Q1, 2017
Volume effect
Cost effect
Sales, marketing logistics
G&A
Write-off PPE
Finance charges
Others
Q1 2017 IFRS
17
Operational performance
Earnings Call Presentation Q1, 2017
18
Phosphate performance Operational performance ■
■
During Q1, Ma’aden produced and sold 721,000 tonnes and 637,000 tonnes respectively of ammonium phosphate fertilizer, an increase of 5% and 6% respectively as compared to the same quarter last year. The increase in production and sales was mainly driven by improved utilization rates and higher efficiencies, notably increased phosphoric acid production. Ma’aden produced and sold (external) a record 599,000 tonnes and 467,000 tonnes of ammonia, an increase of 97% and 127% respectively as compared to the same quarter last year. The increased production and sales volume is largely attributed to the start of commercial operations of Ma’aden Wa’ad Al Shamal ammonia plant.
Ammonium phosphate fertilizer
687
659
Production (Kt)
Sales (Kt) DAP Avg prices (US$/t)
700
721 637
599 329
Q1 2016
320
297
Q4 2016
Ammonia
Q1 2017
Production (Kt) Sales (Kt) Ammonia Avg prices (US$/t)
Cost performance 599 ■
During the quarter ammonium phosphate fertilizer cash cost reduced by nearly 17% compared to the corresponding quarter of last year. The reduction in cost was primarily driven by lower input costs, better efficiencies and higher throughput.
466
355 304
206
313
204
267
173
Q1 2016
Earnings Call Presentation Q1, 2017
Q4 2016
Q1 2017
19
Aluminium performance Operational performance ■
During the first quarter of 2017, Ma’aden produced 228,000 tonnes of primary aluminium, an increase of 5%, compared to the same period of last year. The increase was mainly due to increased production efficiency and increased production from the recycling unit.
Primary aluminium
Production (Kt) Sales (Kt) Avg LME prices (US$/t)
230
1,858 1,663
225
228 228
1,503
220 ■
Ma’aden’s bauxite mine and alumina refinery operated well. During Q1, Ma’aden produced 369,000 tonnes of alumina, an increase of 5% compared to Q1 2016. Ma’aden made its first external sales of 30,000 tonnes of alumina in the last quarter.
219 215
215
■
During the quarter, our aluminium cash cost reduced significantly, due to increased volumes, decreased fixed costs through strong cost control measures, reduction in some of the raw material consumptions, and lower input costs, notably the lower price of alumina. However, we see some headwinds with the prices of key inputs such as caustic soda and coke prices increasing
216
210 205 Q1 2016
Cost performance ■
217
Q4 2016
2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 -
Q1 2017
Corporate aluminium sales (Kt) 140 135 135
130
128
125 120
Projects ■
The rolling mill operation continues to ramp up production and is making gradual progress in penetrating the market for can sheets in the Middle East region and beyond.
113
115 110 105 100
Q1 2016
Earnings Call Presentation Q1, 2017
Q4 2016
Q1 2017
20
Gold and Copper performance Operational performance ■
During the quarter, Ma’aden production of gold increased by 61% to 71,000 ounces compared to the same quarter last year. This was mainly due to increased volumes from Ad Duwayhi mine, Ma’aden’s largest gold mine, which was commercialized on April 1, 2016.
Gold volumes
Sales (Koz) Gold Avg prices (US$/oz) 80
1,182 71
60
64
Cost performance ■ Continued focus on cost has helped Ma’aden to reduce its gold cash cost by 22% compared to the same quarter last year. This is mainly attributed to increased volumes and better efficiencies. ■
Jabal Sayid C1 cash cost performance continued to improve through efficiency and higher throughput.
70
64
50 44
30
During the quarter, we produced 7,000 tonnes and sold 7,500 tonnes of copper concentrate. The Jabal Sayid mine is progressing well in terms of reaching its full production capability
1,200
1,192
70
40 ■
Production (Koz)
40
20
10 0 Q1 2016
Q4 2016
1250 1200 1150 1100 1050 1000 950 900 850 800
Q1 2017
Copper volumes (Kt) 9
Production
8
Sales 8
7
7.5 7
6 5 5
5
Q1 2016
Q4 2016
4 3
4
2 1 0 Q1 2017
1 Ma’aden attributable production & sales @ 50% Earnings Call Presentation Q1, 2017
21
Financial position
Earnings Call Presentation Q1, 2017
22
Financial position All numbers are in SAR millions
Long term borrowing By product
25,618
Other non current assets
Capital work in progress
Non controlling interest Other non current liability
53,669
45,266
5%
22% 29% 45% 66% 30%
MPC
Plant, property & equipment
By source
2% Equity
2,521 7,953
25,924
11,115
Balance sheet
WAS
Aluminium
Others
Banks
PIF
SIDF
Type of loan
Long term borrowing
47% Current assets
Assets
4,813
12,270
5%
53% Current Liability 95%
Liability
As on 31 March 2017 Floating Earnings Call Presentation Q1, 2017
Fixed
SAR
USD
23
Financial strategy ■
Maintain liquidity
■
Optimize capital structure
■
Ensure stable foundation for future growth
Cash equivalents and short term investments
29
Long term borrowings
33
Debt/total capital ratio1
40
Net debt
47
47 62%
62% 57%
57%
56%
45 12
2013
5
2014
7
7
2015
54
54
45
33 4
2
20163
Q1-17
1 Long term borrowings / (long term borrowings + total equity) 2 Long term borrowings – cash equivalents and short tern investments 3 Restated with IFRS
Earnings Call Presentation Q1, 2017
24
Summary
Record production in all our business first quarter 2017 Continued focus on volumes: ramping up new capacities and increasing throughput at existing operations
Leading position in fundamentally attractive commodities Better overall price environment in Q1 2017 but some concerns for the balance of the year, particularly in DAP
Underpinned outstanding cost performance Strong cost performance allows us to see the full benefits of improved commodity prices
Growth projects underway Wa’ad Al Shamal on track and we have a good pipeline of new projects
Aligned to Vision 2030 Our strategy is set to contribute to, and benefit from, the Vision 2030 initiatives
Earnings Call Presentation Q1, 2017
25
Appendix
Earnings Call Presentation Q1, 2017
26
Debt repayment profile 2500
Al numbers are in US$ million 2,067
MIC 2000
MGBM WAS 1,712
MBAC
1,631
MRC MAC
1500 1,321
MPC
1,269 1,198 1,132 998 1000 873 806 633 575
575
500 288
0 2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
As on 31 December 2016
Earnings Call Presentation Q1, 2017
27
Sales summary Particulars Phosphate business Ammonium phosphate fertilizer (‘000 tonnes) Ammonia (‘000 tonnes) Aluminium business Primary Aluminium (‘000 tonnes) Golds and base metals business Gold (‘000 ounces) Copper (‘000 tonnes)
Earnings Call Presentation Q1, 2017
Q1 2017
Q1 2016
% change y-o-y
Q4 2016
% change q-o-q
2016
2015
% change y-o-y
637
600
6%
700
-9%
2,676
2,633
2%
466
205
127%
204
128%
715
461
55%
228
219
4%
216
6%
871
839
4%
70 7.5
40
76%
64 5.2
10% 44%
225 24.8
165 2.4
36%
28
Saudi Arabian Mining Company (Ma’aden) IFRS Transition Impact on the Consolidated Financial Statements May 7, 2017 Earnings Call Presentation Q1, 2017
29
IFRS transition from SOCPA to IFRS ■
As per the Capital Market Authority (CMA) circular 7/5/7258/16 dated 18/11/1437H, referring to the transition to the International Financial Reporting Standers (IFRS), with effect from January 1, 2017 Ma’aden has transitioned its financial reporting framework to comply with the International Financial Reporting Standards (IFRS) as endorsed by SOCPA for financial reporting in the kingdom of Saudi IFRS transition Arabia. impact on
Ma’aden business ■ All of Ma’aden’s subsidiary companies have also transitioned to reporting under IFRS so as to enable us to prepare our consolidated interim financial statements in accordance with IFRS ■
We have made all the adjustments required by IFRS, “First time adoption of international Financial Reporting Standards “ to the standing balance sheet as of December 31, 2015 prepared in accordance with SOCPA accounting standards and audited in accordance with International standards on Auditing (“ISA”) endorsed by SOCPA.
■
The following slides summarize the key changes to our 2016 SOCPA financial statements as follows: - the changes to retained earnings as at January 1, 2016 under IFRS against the retained earnings as at December 31, 2015 as previously reported under SOCPA - the changes in net income for the quarter ended December 31, 2016 under IFRS versus the net income previously reported under SOCPA - the changes in net income for the quarter ended March 31, 2016 under IFRS versus the net income previously reported under SOCPA
■
For full details please refer to our consolidated interim financial statements for the quarter ended March 31, 2017
Earnings Call Presentation Q1, 2017
30
IFRS impact on the retained earnings for the opening statement of financial position as at 1 January 2016 Ma’aden retained earnings bridge (SAR mn) 7000
6,464 Impairment 6000 -2,172
5000 -3 -120 -50 84
313 4000
4,516
84
Impairment of (i) Ma’aden Rolling Company’s aluminium rolling assets, (ii) the company’s automotive rolling sheet assets; and (iii) the company’s investment in Sahara Ma’aden Petrochemical Company (SAMAPCO), following application of the IFRS impairment testing methodology
Actuarial Re-measurement of employees end of service benefit obligation in accordance with the actuarial valuation as required under IFRS
3000
2000
Tax Adjustments related to deferred tax as required under IFRS
1000 31 Dec 2015 Retained earnings SOCPA
Impairment
Earnings Call Presentation Q1, 2017
Non controlling interest share of impairment
PPE
Actuarial
Tax
Others
1 Jan 2016 Retained earnings IFRS
Non-Controlling Interest This is principally related to our JV partner’s share of the impairment of the Ma’aden Rolling Company and automotive sheets assets
31
Re-measurements due to conversion to IFRS reporting standard resulted to an increase in net loss by SR 620 mn Net income/loss bridge of Q4 2016 SOCPA vs Q4 2016 IFRS Sales
Impairment
Adjustments arising from provisional pricing in gold and aluminium business
Impairment of Ma’aden Rolling Company’s assets, following adoption of IFRS impairment methodology
Cost of sales
Share in net loss of JV
Due to the introduction of componentization of plant, property and equipment, increased the depreciation charge
Investment in SAMAPCO was impaired on the date of transition to IFRS, which resulted in the reversal of reported equity share of loss for Q4 2016 under IFRS
Actuarial
Others
SAR MN 0
-23
-643 3 -76
-100
-5
-566
-200
-300
-400
-500
-600 -23
17
29
-700 Q4 2016 SOCPA Net loss
Sales
Cost of sales
Earnings Call Presentation Q1, 2017
Actuarial Impairment Finance cost
Share in net loss of JV
Others
Q4 2016 IFRS Net loss
Re-measurement of employees end of service termination benefit obligation in accordance with the actuarial valuation as required under IFRS
Adjustments related to the deferred tax as required under IFRS applicable to noncontrolling interest
32
Re-measurements due to conversion of reporting standard to IFRS resulted to an increase in net profit by SR 15 mn Net income bridge of Q1 2016 SOCPA vs Q1 2016 IFRS
Adjustments arising from provisional pricing in gold and aluminium business
SAR MN
250 25
-9
Actuarial 200
200
Sales
185
-3
-1
5
-2
150
Re-measurement of employees end of service termination benefit obligation in accordance with the actuarial valuation as required under IFRS
Share in net loss of JV 100 Investment in SAMAPCO was impaired on the date of transition to IFRS, which resulted in the reversal of reported equity share of loss
50
Others
0 Q1 2016 SOCPA Net profit
Sales
Earnings Call Presentation Q1, 2017
Cost of sales
Actuarial
Finance cost
Share in net loss of JV
Others
Q1 2016 IFRS Net Profit
Deferred tax attributable to non-controlling interest
33
Thank You! Copyright © 2016. Ma’aden . All rights reserved.
Earnings Call Presentation Q1, 2017
34
