TIM Investor Presentation - September 2010
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Transcript of TIM Investor Presentation - September 2010
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Investor Presentation
September 15th, 2010
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Silicon Metal Industry
3
2008 Global Sales(pre-global recession)
$6.4B
Aluminum
Chemicals:Polysilicon
Chemicals:Silicones
50%
10%40%
Chemicals:Silicones
AluminumChemicals:Polysilicon
Industry Breakdown by Market:
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Silicon Metal
The Backboneof Timminco
A leading producer for morethan 30 years
5th largest producer inWestern World
Generated revenue of $128Min 2008 the latest full year
of production Joint Venture with Dow
Corning Corporationannounced on August 10th,2010
4
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Our quartz mining rightsprovide security of
supply.
Quartz is processedinto silicon metal using
electricity, coal andwood chips.
Can be used as theprimary input in the
production of our solargrade silicon product.
Sold to thechemicals andaluminumindustries.
Silicon Metal Production
5
Raw MaterialElectric Arc
Furnace Process
Quartz
Silicon Metal
Si
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Grow ing Demand for Silicon Metal
Silicon world demand forecasted to grow by 26.6% from 2008 to 2014
Demand driven by macro-trends:
Increasing demand for new applications in silicones
Emergence of solar energy market
Increasing demand for aluminum
Growth in the Western World and China
0
500
1,000
1,500
2,000
2,500
3,000
2008 2009 2010 FC 2011 FC 2012 FC 2013 FC 2014 FC
000s MT
6
Source: CRU, 2010
World Consumption
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Chemicals
Industry:Silicones
Construction-related products,
including sealants, adhesives,lubricants, paints, coatings
2-in-1 shampoo and conditioner
Chemical Industry Demand: Silicones
7
SiliconMetal
Increasingly being used as asubstitute for petroleum-basedplastics
Consumer products includingcosmetics and heat resistantcooking utensils
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Polysilicon demand expected to grow by 15% 30% drivenprimarily by growth in solar PV market
Solar PV now accounts for half of polysilicon demand
Chemical Industry Demand: Polysilicon
8
Silicon
Metal
ChemicalsIndustry:
Polysilicon Source: European Photovoltaic Industry AssociationMay 2010
Solar M arket De velopment P otential
0
5
10
15
20
25
30
35
2004 2005 2006 2007 2008 2009 2010E 2011E 2012E 2013E 2014E
MWI
nstalled
33%Projected CAGR2009-2014
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Aluminum Industry Demand
9
SiliconMetal
AluminumIndustry
Source: Ducker WorldwideNote: As a percentage of curb weight (based on 3,600 lbs)
77 lbs
326 lbs
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Silicon Metal Pricing
10
Factors driving increasing nominal dol lar trend expected to continue
Pricing recovery continuing in 2010
Source: CRU, Mar 2010
Increasingly tight Western supply; consolidation
occurringInterruption of Chinese supply, or forecastedadditional supply does not materializeWeak U.S. dollarIncreases in input costs
Potential
additional
upside
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Western Market Focus
11
The Western World relies on Chinese export
to meet almost half of its silicon demand
Source: CRU Mar 2010
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Western supply is tightening
M&A transactions announced in past 12 months havecaptured 16% of Western silicon capacity for upstream
integration
12
Date Transaction Nameplate capacity(mt)
Nov 2009 DC acquires 100% Globe metals Brazil 44,000
Nov 2009 DC acquires 49% Globe WV Alloys 37,000
June 2010 Wacker acquires 100% Fesil Holla 55,000
August 2010 DC to acquire 49% Becancour Silicon 23,000
Total capacity captured 159,000
Percentage of total Western supply 16%
Source: Company Press Releases, CRU March 2010
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Reliance on Chinese Silicon Supply Grow th
Chinese silicondemand is forecast toincrease
Chinese forecastdemand growth is
likely to materializebefore supply growth
13Source: CRU Mar 2010
Could Result inSilicon Shortage in the
Western World
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Our Advantages
2. Competitive Costs
* Other includes maintenance, labour and SG&A
Power
Competitively priced source of electricity
Raw Materials
Own source of quartz
Proprietary electrode technology
3. Political Stability
4. High Capital Cost of Greenfield Construction
Capital cost of greenfield silicon plant $6,000 - $7,000 / mt
Long lead time for greenfield completion (3-5 years)
IRR on new construction sensitive to price and cost assumptions
25%
Power
40%
5%
30%
RawMaterials
Transport
Other*
14
1. Access to Stable Source of Electricity
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Grow th Strategy
15
Restore demand and full production Full production achieved Nov. 2009 and
maintained to present 2010 production essentially sold out
Lower production costs Achieved lower cost per tonne in Q2/10
Explore expansion opportunities
2.
3.
1.
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Future Opportunities: Solar Grade Silicon
16
~$3/ kgCurrent spot price
Silicon Metal
$36/ kgTimmincos average sellingprice for Q4/ 09
Solar Grade Silicon
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Solar Energy Industry
17
0
100
200
300
400
500
600
700
800
80 85 90 95 0 5 10 15 20 25 30
Growingenergydemand
Projected
QuadrillionBtu
M
WI
nstalled
Industry will require quality,economic alternatives to polysilicon
Global energy consumption is expectedto rise by 50% from 2005 to 2030
Solar Market Development Potential
0
5
10
15
20
25
30
35
2004 2005 2006 2007 2008 2009 2010E 2011E 2012E 2013E 2014E
Source: European Photovoltaic Industry Association,May 2010
33%Projected CAGR2009-2014
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Solar Grade Silicon: Market Dynamic w ith
Polysilicon
Solar grade silicon:
Substitute for polysilicon insolar cells
Demand increases as priceof polysilicon increases
Polysilicon demandforecasted to grow by 15%to 30% p.a. to 2013
2008 polysilicon spot price = $450/kg
2010 (Aug) polysilicon spot price = $70/kg
18
Polysilicon prices trending upward with increasing demand andtightening supply.
Spot prices could move up to higher-cost manufacturers cash cost,which fills last kg of demand.
Return of demand for solar grade silicon as a lower cost substitute
500
400
300
200
100
02005 2006 2007 2008 2009
Price($/Kg)
Spot Price for Polysilicon
8/2010
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Our Solar Grade Silicon P rocess
Proprietary, Patent Pending Process
19
Solar EnergyIndustry
Customers turn our raw solargrade silicon into solar panels
SiliconMetal
Solar GradeSilicon
Solar GradeSilicon
SemiconductorGrade Silicon
Reverserefinement(doping)
Ingot
Brick
Wafer
Cell
Timminco propietarymetallurgical process
Conventional polysilicon process:chemical ultra-refinement
ConventionalProcess
TimmincoProcess
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Economic Alternative to Conventional Process
Anticipated Capitaland Production CostAdvantages
20
Proprietary technology
Access to stable energy
supply
Access to own supply ofsilicon metal
7 purification lines installed
and production-ready
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Solar Grade Silicon Strategy
Goal:
21
1. Refine production
process
2. Fine-tune ingotingprocess
Enable customersto manufacture
solar cells that areindistinguishablefrom those madewith polysilicon
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Improving Y ield & Cell Efficiency
Doping Formula
Apply doping formula toremaining chunks of BatchABC (1,200 kg)
Batch ABC1,600 kg of chunks
Test Ingot X400 kg
Test Bricks60 kg
Accurate measurementof key brick data
Test Equipment
Production Ingot 1400 kg
Production Ingot 2400 kg
Production Ingot 3400 kg
22
Analytical Model
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Progress
We are closing thegap between cellsmade with oursolar grade siliconand those madewith polysilicon.
23
Achieved cell efficiencies:
Customer A: 15.7%
Customer B: 16.2%
ISC Konstanz: 15.8%
Improved breakdown voltagesover 12V, the standard forelectronic grade silicon cells
Reduced light-induceddegradation to a levelcomparable with electronic
grade cells
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Intro of Solar
Grade Silicon
2005 - 2006 re-stated to conform with 2007 and 2008 financial statement classifications.
*See Appendix regarding Non-GAAP financial measures.
Divestiture of
MagnesiumOperations (July)
24
Historical Financial Review(millions)
Silicon Metal Revenue
Solar Grade Silicon Revenue
Magnesium Revenue
Adjusted Income (Loss)*
$184.4
$(7.8)
$99.3
$85.1
$181.8
$(10.1)
$107.3
$74.5
$166.2
$(15.8)
$99.9
$62.4
$3.9
$252.6
$10.4
$61.7
$127.7
$63.1
$104.6
$(81.6)
$69.4
$30.1
$5.1
2006 2007 2008 20092005
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$252.6
$104.6
2008 2009
$22.3$34.3
Q2/09 Q2/10
Revenue(millions)
25
Recent Performance
Silicon Metal Revenue
Magnesium Revenue
$30.1
$63.1
Solar Grade Silicon Revenue
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$(50.9)
2008
$21.3
2009
$(134.2)$(22.6) $(81.6)$10.4
*See Appendix for more details about these Non-GAAP financial measures.
2008
2009
2008
2009
EBITDA*(millions)
Net Loss(millions)
Adjusted Income
(Loss)*(millions)
26
Recent Performance
H1/2010
$(7.0)
H1/2010
$(20.6) $(20.3)
H1/2010
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Q2/09 Q2/10
EBITDA*(millions)
Net Loss(millions)
Adjusted Income
(Loss)*(millions)
Q2/09 Q2/10 Q2/09 Q2/10
$(3.1)$(9.9) $(24.0) $(9.7) $(17.2) $(9.5)
Achieved positive EBITDA in Silicon Group in Q2/10*See Appendix for more details about these Non-GAAP financial measures.
27
Recent Performance
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(millions)
Bank Debt (June 30, 2010) $ 31.2
Long-term Debt (June 30, 2010) 27.9Due to Affiliated Companies Convertiblenotes (June 30, 2010)
5.4
Market Capitalization 195.7 million common
shares issued and outstanding*
79.3
*As of September 8, based on TSX closing price of $0.41 per share
Total Capitalization $143.8
28
Consolidated Capitalization
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Joint Venture w ith Dow Corning
29
Becancour Silicon Inc. (BSI) totransition silicon metal assets toJoint Venture, known as QuebecSilicon
Dow Corning (DC) purchases a49% interest in Quebec Silicon
Silicon metal is sold to BSI and
DC in quantities proportional toownership %
BSI retains existing customerrelationships and ships itsproduction allocation to third
party customers
Byproducts are sold by BSI asagent
51% of
output sold
to BSI
Timminco
BSI
Quebec
Silicon
Dow Corning
51% equity 49% equity
49 % of
output sold
to DC
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Liquidity and Capital Resources
As at June 30 th, 2010:
Working capital of $20.3 million, excluding cash items and interestbearing debt
Cash of $1.5 million
Credit facilities with Bank of America totaling US$45 million:
US$39 million revolving credit facility (subject to borrowing
base and availability reserve) US$6 million term loan facility
Term loan with Investissement Quebec of $25 million
Subsequent Events:
US$39.7 million in net cash proceeds expected upon closing JVtransaction, plus potentially up to US$10.0 subject to achievingcertain performance metrics
30
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Turnaround Strategy
31
Stabilize balance sheet
Restore demand and fullproduction of silicon metal
Reposition solar grade silicon operations
2.
3.
1.
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32
StabilizeBalance Sheet
Balance sheet activities
since January 1, 2009:
Announced a 51%-owned JV with Dow CorningCorporation in return for net cash proceeds ofUS$39.7 million upon closing and up topotentially an additional US$10.0 million subjectto achieving certain performance objectivesrelating to production cost and capacityimprovements
Raised $56.6M through issuance of commonequity
Converted $10.6M in convertible notes to equity
Converted $44.7M of customer deposit/otherliabilities to equity
Completed $25M term loan with Province ofQuebec
Raised $5.3M in convertible debt
Liquidated $13M of net working capital related tomagnesium
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33
Restore demand
and full productionin silicon metaloperation
Improved demand as customermarkets recover
Restarted all three silicon metalfurnaces
Reached full production in
November 2009
2010 capacity essentially sold out
Signed long-term contracts for
90,000 mt over next 5 years Return to EBITDA positive
operations
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34
Restore demand
and full productionin silicon metaloperation
Q2/10 Silicon Metal Sales
293% 389%
Value ($)Volume (MT)
Q2/09 Q2/10
5.8
22.8
Q2/09 Q2/10
7.0
34.3
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Investment Summary
Significantly strengthened balance sheet (post closing ofDow Corning JV transaction)
Leading provider of silicon metal
Silicon metal operations at full capacity
Established, core operation in silicon metal
Market demand recovering and price growth driven by macro-
trends
JV partner is a global leader in silicon metals business
Solar grade silicon product line provides additional longer-term opportunity
Progressing towards goal of indistinguishability ofcells manufactured with solar grade silicon compared to thosemade with polysilicon.
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Appendix
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Non-GAAP Financial Measures
EBITDA and Adjusted Income (Loss) are not recognizedmeasures under Canadian generally accepted accounting
principles and are unlikely to be comparable to similarmeasures provided by other issuers.
Timminco believes that EBITDA and Adjusted Income(Loss) are useful performance measures as they approximatecash generated from operations, before capital expendituresand debt service obligations, as well as representing measuresof profitability from ongoing operations.
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Reconciliations for Non-GAAP Financial MeasuresEBITDA BY QUARTER
($000s)
2010 2010 2009 2009 2009 2009 2008 2008
Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3
Net loss (9,704) (10,905) (69,403) (18,522) (23,980) (22,317) (1,278) (13,727)
Add back (subtract):
Income taxes - - (14) 17 6,653 (4,876) 1,611 2,035
Impairment of Fundo - - - - - 698 (1,415) 13,845
Equity in the loss of Fundo - - - - - - 1,415 1,822
Loss on disposal of MagnesiumGroup
- - 3,006 2,180 - - - -
Impairment of property, plant andequipment - - 39,039 - - - 1,025 -
Loss (gain) on the sale ofproperty, plant and equipment
14 - (19) 40 (11) - 5 (375)
Interest 1,678 2,113 2,298 2,372 1,830 934 796 549
Amortization of intangible assets 707 707 707 707 435 235 170 138
Amortization of property, plantand equipment
1,935 2,026 3,203 3,386 3,090 3,534 2,355 1,509
Reorganization costs - - 542 - (1) 3,752 970 824
Environmental remediation costs 161 161 1,230 132 133 132 (136) -
Pension curtailment costs - - - - - - (326) -
Stock-based compensation 2,094 2,042 1,979 1,996 1,991 1,961 1,215 269
EBITDA (3,115) (3,856) (17,432) (7,692) (9,860) (15,947) 6,407 6,889
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Reconciliations for Non-GAAP Financial Measures
39
ADJUSTED INCOME (LOSS) BY QUARTER
($000s)
2010 2010 2009 2009 2009 2009 2008 2008
Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3
Net loss (9,704) (10,905) (69,403) (18,522) (23,980) (22,317) (1,278) (13,727)
Add back (subtract):
Income taxes - - (14) 17 6,653 (4,876) 1,611 2,035
Impairment of Fundo - - - - - 698 (1,415) 13,845
Equity in the loss of Fundo - - - - - - 1,415 1,822
Impairment of property, plantand equipment
- - 39,039 - - - 1,025 -
Loss on disposal of MagnesiumGroup
- - 3,006 2,180 - - - -
Loss (gain) on the sale ofproperty, plant and equipment
14 - (19) 40 (11) - 5 (375)
Reorganization costs - - 542 - (1) 3,752 970 824
Environmental remediation costs 161 161 1,230 132 133 132 (136) -
Pension curtailment costs - - - - - - (326) -
Adjusted Income (Loss) (9,529) (10,744) (25,619) (16,153) (17,206) (22,611) 1,871 4,424
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Investor Presentation
September 15th, 2010