www.arcelormittalsa.com

ArcelorMittal South Africa Presentation to the PPC on Transport

March 2015

1

Overview of ArcelorMittal South Africa

• Largest steel producer on the African continent, with a capacity of 6,5 million tonnes of liquid steel per annum and an annual steel production of 5 million tonnes of liquid steel for flats and long products

• 87 years of technical expertise and alignment with international best practices, which has forged the organisation into a modern, most equipped, competitive and supplier of high quality products to the domestic and global markets

• Shipments into domestic market, Africa Overland (Botswana, Malawi, Zimbabwe, Zambia, Mozambique, Namibia) and Exports (EMEA)

• Biggest local steel employer, with over 14 800 direct employment

• Part of the ArcelorMittal’s Group, the largest steel producer in the world, employing 232000 people worldwide and with an industrial presence in 27 countries and business activities in 60 countries. The group is leader in all major global markets including Automotive, Construction, household appliance and packaging, with leading R&D and technology

• Through this association ArcelorMittal South Africa has access to world-class R&D, best industrial and management processes and procurement knowledge and international markets leverage to ensure the company remains at the cutting edge of the international steel industry

2

ArcelorMittal South Africa: the leading producer of primary steel, or

input materials for the merchants, fabricators, contractors

Vereeniging Works

• Gauteng Province

• 2 electric arc furnaces

• Seamless tubes, Profiles and

forged steel

• 0.4 mtpa

Newcastle Works • Kwa-Zulu Natal Province

• 1 blast furnace; 1 laddle furnace;

2 basic oxygen furnaces

• Wire rod, Profiles, Billet rebar, &

other

• 1.9 mtpa liquid steel capacity

Saldanha Works • Western Cape Province

• Corex, Midrex continuous process

• Hot rolled coil

• 1.25 mtpa

Vanderbijlpark Works • Gauteng province

• 2 blast furnaces; 3 basic oxygen

furnaces

• Slabs, plates, hot-rolled, cold-

rolled, electrogalvanised (EGL),

tinplate, colour coated

• 2.8 mtpa

Cokes and Chemicals • Pretoria, Newcastle &

Vandebijlpark

• Commercial coke production for

ferro-alloy industry; metallurgical

and steel by-products

beneficiation, including coal tar

3

ArcelorMittal South Africa: value creation model

Key: t = Tonnes kt = Kilotonnes TWh = Terawatt hour ML = Mega litres

Steelmaking process

Plate

Hot rolled coil

Blast furnace

Raw materials

Coiled rounds

Flats, rails, joists, rounds, angles,

billets and channels

Flats, reinforced bar, rounds, angles and

blooms

INPUTS

Natural capital

Raw materials consumed

2013 2014

Iron ore 6 659kt 6 092kt

Coal 4 245kt 4 718kt

Purchased

scrap 235kt 341kt

Fluxes 1 724kt 1 612kt

Energy

Electricity

purchased

(TWh)

3.67 3. 52

Water intake

Water intake

(ML) 17 682 18 150

Human and intellectual

capital

2013 2014

Employees* 9 016 8 817

Hired labour* 1 869 1 411

Service

contractors* 3 918 3 316

Training

spend R138m R151m

Salaries and

wages

R3

408m

R3

764m

*Average for year

Financial capital

2013 2014

Capital

expenditure

R1

569m

R2

798m

Manufactured

capital 2013 2014

Flat steel products 2 771kt 2 981kt

Domestic market 2 003kt 1 951kt

Export market 768kt 1 030kt

Long steel products 1 459kt 1 259kt

Domestic market 1 123kt 1 051kt

Export market 336kt 208kt

Coke and chemicals

Market coke 545kt 466t

Tar 109kt 110kt

Other 994kt 1 323kt

Financial capital

Shareholders/Investors

/

Employees

2013 2014

Revenue R32

421m

R34

852m

EBITDA R1 768m R1 258m

Profit from operations R47m (R301m)

EBITDA margin 5.5% 3.6%

Human capital

Employees/Contractors 2013 2014

Safety : LTIFR 0.56 0.58

Safety : Fatalities 0 4

Social capital Local communities/suppliers/local

business

2013 2014

Social-economic

development R37.4m R18.5m

Procurement spend R25 000m R26 786m

Direct GDP 1% 1%

Indirect GDP

contribution

R11 000m

(0.4%)

R11 000m

(0.4%)

Economic value

contribution R32 421m R34 852m

Taxes contributed R1 500m R870m

Procurement spend -

QSE & EME R2 000m R3 100m

Blast furnace

Electric arc

furnace

Caster

Billet mill

Hot strip mill

Revenue 2013 2014

Domestic R25 174m R26 125m

Export R7 247m R8 727m

Our markets, our customers, our world

AMSA exports 2013 2014

Total 1 104kt 1 238kt

Sub-Sahara 82% 77%

• SADC 29% 25%

• East Africa 53% 51%

• West Africa 16% 21%

Far East 7% 11%

Middle East 8% 6%

Other 3% 6%

The real cost of

steel ** (2014)

Steel

content in

product

weight

Steel input

material

cost as %

of price

Shipping container 98% 65%

Beverage can 98% 30%

Washing machine 50% 12%

VW Polo 48% 3%

Isuzu KB DC 51% 2%

Ford Ranger DC 49% 2%

**AMSA estimates

Domestic

market National**

2014 (2013)

AMSA

2014 (2013)

Sectorial Industries 4 900kt (5

400kt)

3 002kt (3

126kt)

Construction 56% (56%) 60% (60%)

Metal products 24% (22%) 20% (20%)

Automotive &

assembly 12% (13%) 11% (11%)

Mining & agriculture 8% (9%) 9% (9%)

OUTPUTS

4

South Africa crude steel production around 6.5 million

tons

5

ArcelorMittal South Africa steel production decreased by

500kt to 4.5mt in 2014,compared to 5mt in 2013

7,033 7,261 7,055

6,375 5,774

5,307 5,674 5,453

5,090 5,096 4,518

6,182 6,054

0

1000

2000

3000

4000

5000

6000

7000

8000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015e 2016e

Liquid steel production

3,879 3,485

4,400 4,422 4,375

3,072 3,414 3,507 3,336

3,126 3,512

3,725

2,344 2,745

1,794 1,397

,714

1,401 1,627

1,201 1,286 1,104

2,020 1,784

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015e 2016e

Domestic

Export

Shipments

4,240

Local+exp

6

ArcelorMittal South Africa market share around 60%

• SA total consumption contracted by 9% in 2014 from 5.4mt to 4.9mt mainly due to strikes

• AMSA sales into the domestic market decreased 3% with flat dropping 10% and long reducing 4%

• Increase in AMSA market share estimated at about 62% with flats gaining 5 points and longs 3 points e

Source : SAISI actuals up to 2008, thereafter AMSA estimates

Ap

pa

rent co

nsu

mptio

n

(00

0t)

AM

SA

ma

rket s

ha

re (%

)

7

SA has experienced increasing imports of primary and finished

steel products from 2012, currently declining from 18% to

around 15% due to weakened rand and replacement initiatives

17%

0%

5%

10%

15%

20%

25%

50

100

150

200

250

300

350

400

450

2009 2010 2011 2012 2013 2014

Primary % of consumption Primary steel Finished steel

Source : SAISI actuals up to 2008, thereafter AMSA estimates

Imp

ort

s (

00

0t)

Prim

ary

% o

f ap

pa

ren

t co

nsu

mptio

n

8

Enabler of S.A. development

through supply of steel

Catalyst for change in South Africa

Impact on local communities

Employer, job creator and

skills developer

Economic growth engine

ArcelorMittal Socio-Economic footprint in South Africa

Economic Social Environmental

Note: All figures as of 2014 with 2013 in brackets (except environment) Source: AMSA, BCG analysis

68% (70%) of new recruits employed locally within

plants’ location

R18.5m (R37.4m) invested in local communities in 2014

through CSI programmes

15 (40) local community organisations engaged in

2014, with outcomes documented

Utilised 1 123 (659) vendors located in close

proximity to our plants with total spend of R4.8bn

(R5.9bn)

4.5mt (5.1mt) of liquid steel produced supplying just over 60% of South African steel supporting

key domestic industries

3.5 formal jobs created economy-wide for every R1m spent by AMSA

Total export rebates of R53m (R213m) paid out by AMSA in 2014

R26bn (R25bn) value addition representing almost 1% (0.9%) in

direct GDP

R0.9bn (R1.5bn) contribution to the fiscus in various taxes and rates

R46.8m (R42m) invested in technical training; Multiple global steel

innovations introduced to South Africa

Over 13 500 (14 800) people in direct

employment due to AMSA

Over 94 912 (120 000) training seats provided with R151m (R138m)

invested in training

Mostly positive Positive and negative Mostly negative

R3.1bn (R2.0bn) in procurement spend on

QSE and EME

11% (11%) female employment, 59% (57%)

HDSA employment and 75% (75%) unionisation

9 701 (8 819) received health & safety and

598 (1 667) received anti-corruption training

Open disclosure of financial,

environmental and social indicators

AMSA at B-BBEE

Level 7 (7)

Voluntary participant in

several debates at national level

R27.8bn (R25bn) spent on over 3 500 (2 000)

suppliers, with more emphasis on supplier

development

R8.7bn (R7.2bn) export revenue generated into the

domestic economy

Environmental footprint

15.2 m tons Scope 1 and

2 of CO2 emitted

1.65 m tons by-products disposed of ;

290 ha of land under restoration

48 % improvement in water abstraction since

2005. Continuously improving effluents

management

125 PJ of energy 17.5 bn litres of water abstracted and 13.4 m tons of raw material

consumed

2.5 kt of dust and 23.5 kt of SO2 emissions

per annum

1. Estimated at average 57% of domestic market share using estimated consumption data from World Steel Association Year Book 2013 2. Estimated by the Automotive Industry Export Council, figures for 2012

Source: StatsSA, Automotive Industry Export Council, World Steel Association Year Book 2013, AMSA, BCG analysis

100

80

60

40

20

0

% of AMSA production

2013

29%

71%

...meaning AMSA indirectly accounts for nearly 10% of SA GDP and 900k jobs

Automotive

Construction

Energy, Mining,

Chemicals & Water

71% of AMSA steel used in key industrial sectors...

9.7% of GDP ~900 000 formal jobs

...which together account for 17% of GDP and 1.6m jobs

17%7%

7%

3%

0

10

20

% of GDP

Total Automotive2 Energy Mining Water

Construction

1 568200548

820

0

1 000

2 000

Automotive2

# of employees( '000)

Construction Total

57%1 AMSA share of

domestic steel market

Energy Mining Water

With 57% of domestic market, AMSA indirectly support nearly

10% of SA GDP and nearly 1m jobs

9

10

• AMSA experienced continuous drop in volumes due to market movements

• Decrease and cyclical effects in market consumption since the world cup events to a market around +/- 5mt, but a market which could regain its dynamism with the SIPs

• Increased competition and imports

• AMSA had to contend with margin-shrinking effects of rising inputs costs

• Coking coal: cost/ton increased by 92% over the past 2Y

• Electricity: increase of 153% in the tariff over the past 5Y and 118% in costs even though AMSA’s production and energy consumption has decreased significantly

• Natural gas: cost has increased effectively by 105% since 2008 even though AMSA is being more energy efficient

• Freight: costs have escalated by 61% in the last 5Y without commensurate productivity

• Manpower: despite crisis and manufacturing sector shedding close to a million job, AMSA has maintained employment and absorbed increase in Manpower costs (without commensurate productivity) above economic growth and above inflation. On R/ton basis, Manpower has increased by over 30% since 2008

• AMSA’s ambition

• Increase production level to capacity, ensure maximum local service and Customer satisfaction

• Decrease costs

• Improve manufacturing capability, environment management and reliability

• Strengthen government relations and compliance

• Support infrastructure programs (SIPs)

AMSA experiencing severe challenges since the past

4 years

11

Infrastructure spending (CAPEX) are catalysts for growth of steel

consumption, but with its slow down, it is suggested to localise as

much as possible

3,000

3,500

4,000

4,500

5,000

5,500

6,000

6,500

7,000

7,500

8,000

R ,0

R 100,000

R 200,000

R 300,000

R 400,000

R 500,000

R 600,000

R 700,000

R 800,000

R 900,000

R 1000,000

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

kt

Rm

Project Value & Apparent Consumption Data 1993-2014

Private Sector General Government

Public Corporations Actual Capex @ Constant 2013 Prices

Apparent Steel Consumption 4 per. Mov. Avg. (Apparent Steel Consumption)

Source: National CAPEX 2014, Nedbank * 2014: Value of announced projects in the first Half of the year, ANNUALISED

Apart from 2010 Soccer infrastructure, demand coming from projects like Gautrain

TCTA water pipeline

Madupi & Kusile plants

12

AMSA has defined the SIPs as key priorities in its strategy and

collaborate with public / private stakeholders to ensure mutual

local successes

Typical interventions into the infrastructure programs to localise them:

Collaboration during

feasibility, scoping,

planning

• Engagement in bilateral discussions with stakeholders amongst the supply chain

(public/private), from ownership and lobbying to execution

• Technical assistance on matters related to steel (global & local)

R&D • Review of specification required for projects, global benchmark vs. local equivalence

• Co. development (with industry) of new local products matching specifications

CAPEX • Investment in technology and equipment when required to manufacture locally

Commercial gesture • Project pricing and rebate scheme awarded to the industry to facilitate & support projects

Some key achievements:

• AMSA’s steel used in multiple current infrastructure programmes (Energy, Water, Transport, ICT, Oil & Gas)

• Transport: participated in developing local products to supply steel for PRASA coaches. Working on providing local capabilities for material required for Transnet locomotives, wagons and tankers

• Renewables - Solar: AMSA one of the catalyst of localisation of Solar systems, developed special qualities during R&D period and awarded rebates to support the projects. Despatched over 60% of the steel required

• Renewables - Wind: Tower for R1 and R2 imported, AMSA developed local products and invested R20m+ in local equipment to localise materials for DCD and Gestamp to be able to produce towers locally. AMSA awarded price of “Best Contributor to localisation of Wind towers” by SAWEA in 2014

• Water: improved pipeline material qualities through research and collaboration with pipe mills to limit imports

13

In Conclusion

• AMSA is main user of transport infrastructure for its raw materials and finished

products

• with its position and expertise is well positioned to facilitate steel supply through the

interaction with private/public stakeholders participating in projects

• Positioned to support the local industry and thereby facilitating beneficiation of iron

ore

• Our product research & development capability enables us to partner with our

customers for innovation

• Our footprint supports job creation and economic growth

• Cooperation in protecting local market from unfair competition (business and

government)

• AMSA has good experience in infrastructure projects (and well positioned to enable

the downstream and construction sector)

Thank you 14

,0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Actual 5y Trend from 1994 3y Trend from 1994 AMSA forecast

1.28%pa

1.73%pa

South Africa apparent steel consumption contracted to 5.4mt in 2014, down 9% from 4.9mt in 2013

Source: SAISI 2014

Steel manufacture supports NDP and government industrial

policy on beneficiation, through creating significant value add,

employment and skills

10 000

20 000

30 000

40 000

0

Value (R m)

20 112

Value of finished steel

(AMSA Rev.)2

32 374

AMSA steel value

add

9 253

Coal (Export Parity)1

3 009

Iron ore (Export Parity)1

1. Raw materials considered are iron ore and coking coal (excludes limestone and dolomite), export parity price as per 2013 average estimates as reported by IMF (Iron Ore) and World Bank (South African export coal) 2. AMSA Annual Report

Source: Steel Index at IMF, World Bank, AMSA, BCG analysis

AMSA will enable NDP by creating value through converting raw material

to steel

AMSA inputs of iron ore and coal if exported would be worth R13.27 bn at export parity prices

However, by converting raw material to steel, AMSA adds a further R20 bn of value by creating direct and indirect local jobs; operating expenditure on electricity, logistics, capital expenditure and profit

NDP Targets include GDP growth, new jobs and skills development

By 2030, SA's National Development Plan targets:

Grow GDP by 2.7 times at a rate of 5.4 % pa

• Increase capital expenditure to 30 % of GDP from current 17 %

• Increase public infrastructure spend from 8 % to 10 % of GDP

Create 11m new jobs

• Encourage training and skills development

• Expand innovation output through research and development

• Ability to expand capacity for further mineral beneficiation

AMSA will be a key enabler of NDP targets, creating value add through conversion of raw material to steel

16

AMSA activities support implementation of specific NDP targets

across all six pillars

Key targets of plan Source of

Impact

Employer, job creator and skills developer

Impact on local communities

Economic growth engine

1

2

3

AMSA contribution to plan

• Increase GDP by 2.7 times by 2030

• Increase GDP growth to 5.4 %

• Promoting exports and competitiveness. Exports to grow by 6% a year to 2030

• Increase number of jobs by 61 %. 11 m more jobs by 2030

• Reduce unemployment to 6 %.

• Encourage training and skills development

• Produce 30 000 artisans a year

• More people living closer to their places of work

• Increase university enrolment by 70 %

• Provide 1m learning opportunities through community educ.

• Increase students eligible for maths and science degrees

• Expand innovation output by increasing research and development

• Upgrade all informal settlements on suitable land by 2030.

• Universal access to basic services, health care, education

• Universal access to clean and potable water

• Electricity access to at least 90 % of households

• Improving public services and spaces, integrated housing and sports facilities

• Safety audits done for all communities

• Eradicate school infrastructure backlog by 2030

• AMSA contributes 1.3 % of GDP

• AMSA revenue not growing significantly

• Export of R7.3 bn in 2012

• Provides employment to 14 874 people

• No increase in no. of people employed

• Spent R138 m on training in 2013

• Training to produce artisans >750 artisans

• 70 % employed locally in 2013

• 137 university bursaries in 2013

• Local community educ. via science centres

• Promotes science via science centres

• Introduction of technical innovations, with lighter, stronger and env. friendly steel • Steel required for construction of houses

• Built 2 schools and clinic for community

• R40M for community development

• Steel for construction of electric. distribution

• Built schools, science centres and re-roofing of houses in local communities

• Safety audits for employees only

• Built 2 schools for community

National Development Plan (NDP)

• Impact on GDP

• Net Exports

• Direct Employment

• Training

• Investment in Community cap devt

• Devt into skilled postions

• Investment in Innovation

• Human settlement devt

• New schools built

Source: National Development Plan, BCG analysis 17

Key targets of plan Source of

Impact

Environmental footprint

Enabler of S.A. development through supply of steel

Catalyst for change in

South Africa

5

6

AMSA contribution to plan

• Reduce carbon footprint

• Ensure compliance with environmental regulations

• Investment in sustainable tech., rehabilitation

• Reduce water demand by 15 % below business as usual

• By 2030, carbon price should be entrenched

• Zero emission building standards by 2030

• Reductions in the total volume of waste disposed to landfill

• Increase capital expenditure to 30 % of GDP

• Increase public infrastruc. spending to 10 % of GDP

• Invest in large infrastructure projects in Health, Education, Energy and Transport

• Increase Durban port capacity from 3 m to 20 m containers

• Better quality public transport.

• Effective redress by creating employment equity

• Clear targets set for expanding economic participation

• Reduce prevalence of non-communicable chronic diseases

• Reduce injury, accidents and violence by 50 %

• Deploy primary healthcare teams to provide care

• A set of indicators for natural resources and publication of annual reports

• Corruption is reported on and monitored

• CO2 per ton of steel unchanged

• Some violations in 2012/2013

• Reduced water abstraction ~40 % in 8 yrs

• Do not support carbon pricing for steel

• Currently, no plan for 0 emission standards

• Recycled 0.97 m tons of scrap in 2013

• Provides 57 % of domestic steel

• Steel from AMSA critical for NDP infrastructure projects

• 57 % HDSA employed, no sig. increase

• Targets to reflect national racial distrib.

• Occupational disease frequency not significantly reduced

• Injury rate reduced >50 % over last 2 yrs

• Sponsored clinic in local community

• Publishes award winning annual sustainability report with env. indicators

• Corrupt practices monitored and reported

National Development Plan (NDP)

4 • Total CO2

• Env Mgmt & Std.

• CO2 equiv. reduction

• Total water withdrawal

• CO2 emissions reduction

• Recycled material use

• Total steel contribution

• Employment equity

• Safety & Health hazards

• Employee Wellness

• External reporting

• Anti-corruption

Source: National Development Plan, BCG analysis 18

AMSA activities support implementation of specific NDP targets

across all six pillars

AMSA supported downstream industry with investment over

R1.5bn over the past 5 years

19

Initiative 2009 2010 2011 2012 2013 Comments

Value Added Export

Rebates 189 258 293 237 229 ArcelorMittal-specific additional Value Added Export incentive.

Strategic Rebates 22 1 2 26 34 Projects in process or as required by industry like, for instance,

transport, energy / power transmission, water, oil & gas, etc.

COSM levy 36 46 55 28 66 National Value Added Export Rebate administered by SAISI -

ArcelorMittal contribution to national fund.

Total 247 305 350 291 329 Total contribution to RSA Domestic downstream manufacturing.

Excluding Steel Association contributions to the value of R5.0m pa.

• AMSA has designed and implemented a number of direct and indirect initiatives to protect

and develop the downstream manufacturing industry over a period of time