How to Survive 2009 – A True Story - Ormetкод для вставки
Surviving and Thriving in Extreme Commodity Cycles the Ormet Experience Preliminary Matters Forward-Looking Statements п‚· п‚· This Statement contains forward-looking statements that can be identified by use of words like вЂњanticipates,вЂќ вЂњbelieves,вЂќ вЂњestimates,вЂќ вЂњexpects,вЂќ вЂњhopes,вЂќ вЂњtargets,вЂќ вЂњshould,вЂќ вЂњwill,вЂќ вЂњwill likely result,вЂќ вЂњforecast,вЂќ вЂњoutlook,вЂќ вЂњprojectsвЂќ or other words of similar meaning. All statements that address the CompanyвЂ™s expectations or projections about the future, including statements about the CompanyвЂ™s strategy for growth, cost reduction goals, expenditures, financial results, liquidity and capital needs, are forward-looking statements. Forward-looking statements are based on the CompanyвЂ™s estimates, assumptions and expectations of future events and are subject to a number of risks and uncertainties and may or may not be realized. The Company disclaims any intention or obligation (other than as required by law) to update or revise any forward-looking statements. Although the Company believes the expectations reflected in its forward-looking statements are reasonable, the Company cannot guarantee its future performance or results of operations. All forward-looking statements in this Statement are based on information available to the Company on the date hereof; however, the Company is not obligated to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law. When reading any forward-looking statements, the reader should consider the risks and uncertainties referenced above as well the other disclosures contained in this Statement. Given the significant uncertainties and risks to which the Company is subject (a) the reader should not place undue reliance on these forward-looking statements and (b) the CompanyвЂ™s future results could differ materially from the CompanyвЂ™s current results and from those anticipated in the CompanyвЂ™s forward-looking statements. Market and Industry Data п‚· The market and industry data contained in this presentation are based on managementвЂ™s own estimates, internal company research, surveys and studies conducted by third parties and industry and general publications, and in each case, are believed by management to be reasonable estimates. The Company has not independently verified market and industry data from third party sources. This data is subject to change and cannot always be verified with complete certainty due to limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties inherent in any statistical survey of market and industry data. As a result, you should be aware that market and industry data set forth herein, and estimates and beliefs based on such data, may not be reliable. Ormet History 2008-2009: 2006: 2004: п‚§ Ormet files for chapter 11 bankruptcy 1955 1960 2000 2004 п‚§ Start-up of Hannibal smelter begins п‚§ Shutdown of Burnside refinery п‚§ $50 million rights offering п‚§ Sale of parcels of land surrounding Burnside Alumina Refinery 2008: п‚§ $10 million subnote п‚§ Tolling Agreement 2009: 2005 1958: 2005: п‚§ Hannibal Reduction Plant п‚§ Burnside Alumina Plant п‚§ Emergence from Chapter 11 п‚§ Final Power Agreement п‚§ Arbitration Award 2010 2007: 1998: п‚§ Burnside Bulk Marine Terminal п‚§ п‚§ п‚§ п‚§ п‚§ п‚§ Completion of smelter start-up $175 million credit facilities established $30 million equity raised $35 million convertible note New management team put in place Shutdown of casting operations 2010: п‚§ Complete Refinancing Hannibal, OH Smelter п‚§ 270,000 mt / year capacity вЂ“ 2nd largest operating smelter in the U.S. п‚§ 6 potlines (currently running 4) п‚§ ~1,000 employees п‚§ Access to river transportation, close to customers п‚§ Midwest premium (~$0.06/ lb) п‚§ Operating at high efficiency 2010 NA Production (1) Source: Company filings, Company websites and HARBOR Intelligence. (1) CRU estimates and forecasts of world smelting production. Other Facilities Burnside Alumina Refinery Burnside Bulk Marine Terminal п‚§ Idled in late 2006 п‚§ Idled in 2007 п‚§ Capacity: 540,000 mt / year п‚§ Capacity: 5,000,000 mt / year п‚§ 2,200 acres (includes ~1,000 acres unused land) п‚§ Handles shipments of aluminum, alumina and other bulk commodities п‚§ Sold approx. 315 acres for $11mm from 2008 - 2010 п‚§ Ability to restart or sell п‚§ Ability to restart Backdrop of 2008/2009 Financial Climate п‚§ Metal prices went from an all time high to an all time low in 6 months п‚§ Banks were not open for business п‚§ Equity not available except at prices terribly dilutive to equity holders п‚§ No sign of recovery and many opinions, will it be a L,V, W or U recovery? п‚§ Fear prevalent п‚§ Theories of economics as we knew it вЂњat an endвЂќ п‚§ Ormet undercapitalized from the beginning Aluminum Pricing Strength Realized LME Prices $ / Metric Ton $3,600 $3,200 $2,800 $2,400 $2,000 $1,600 $1,200 Apr-08 Jun-08 Aug-08 Oct-08 Dec-08 Feb-09 Apr-09 Source: Bloomberg, London Metals Exchange Primary Aluminum 3-month forward contract (realized prices) Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Business Strategy 2008 пѓ� пѓ� пѓ� пѓ� пѓ� пѓ� 2009 Maximize operational flexibility with improved safety results Stabilize revenue Get value from working capital Stabilize raw material prices Sell unneeded assets Set stage for long term power contract пѓ� пѓ� пѓ� пѓ� пѓ� Further improve operating efficiency Get more value from working capital Sell non-core assets Negotiate longer term commercial agreements New labor agreement for the Hannibal facility 2010 Onward пѓ� пѓ� пѓ� Further decrease power consumption Finalize 2010 alumina and metal agreements пѓ� пѓ� Achieve maximum benefit from upswing in aluminum prices Reach full capacity Continue marketing Burnside terminal пѓ� Maintain operating flexibility пѓ� Refinance debt Key Elements to OrmetвЂ™s Success п‚§ People п‚§ Risk management п‚§ Operations and cost performance п‚§ Nontraditional financial alternatives People п‚§ About 1000 employees п‚§ History of conflict including strikes п‚§ Extensive operating experience п‚§ Mix of supervisory backgrounds п‚§ Changed work and people environment п‚§ Very supportive local and district USWA Alignment of Management and Labor п‚§ One union, one contract (United Steelworkers) п‚§ Assist management in execution of strategic plan вЂ“ Instrumental in new power contract вЂ“ Union contract extended to May 2011 вЂ“ Multiple VEBA deferrals, including $3.4mm deferral (Nov 2009) вЂ“ 91% decrease in grievances вЂ“ Overall injury count at historically low levels Experienced Management Team Michael Tanchuk President, Director and Chief Executive Officer James Riley Chief Financial Officer, Secretary and Treasurer Michael Griffin Vice President of Operations п‚§ п‚§ п‚§ п‚§ President, Director and Chief Executive Officer since May 2007 Previously with Nordural, Century Aluminum, Alcoa and Reynolds Metals B.S. Civil Engineering, Bucknell University Executive Business Certificate, University of Washington п‚§ CFO, Treasurer and Secretary since July 2007 п‚§ Previously Chief Financial Officer of CSK Auto Corp., Chiquita Brands International Inc., Elliott Company, and Republic Engineered Steels Inc. п‚§ Director of Wheeling-Pittsburgh Corp. 2003 вЂ“ 2006, Entegra Power 2005 вЂ“ 2006, Republic Engineered Steels Inc. 1989 вЂ“ 1998 п‚§ BBA, University of Cincinnati; MBA, Miami of Ohio п‚§ Vice President of Operations of Ormet since June 2007 п‚§ Previously with Alcoa and Reynolds Metals п‚§ B. S., Electrical Engineering, Clarkson University Prepricing Strategy п‚§ Utilize medium-term pre-pricing to manage price volatility п‚§ Forward pre-pricing arrangements and/or put strategies п‚§ No margin or credit requirements п‚§ Quick market decisions вЂ“ nimble strategic committee п‚§ Size provides opportunity to hedge up to full production п‚§ 2009 performance positively impacted Leverage to Aluminum Prices High LME Price Environments Difficult LME Price Environments п‚§ $100/mt = ~$13mm EBITDA delta п‚§ Up to $60 million in reduced power costs п‚§ Flexibility to hedge п‚§ Anode pricing and alumina costs decline п‚§ Move to 6 pot lines п‚§ Workforce reduction вЂ“ Increase annual production from 180,000 mt to 270,000 mt п‚§ Defer non-essential maintenance / relines вЂ“ Limited working capital need п‚§ Tolling agreement Environmental and Safety Performance Fluoride Emissions (lbs. TF/TAP) п‚§ п‚§ п‚§ Environmental improvement is a key focus for all plant wide teams Operating procedures were modified to reduce emissions Supervisors and crews audit their performance daily Safety вЂ“ Total Injury Count п‚§ п‚§ п‚§ п‚§ Joint plant wide and departmental safety teams were established Problems and hazards are now resolved at the department level Daily safety alerts process and hazard identification training was completed Joint accident repeater program established Proven and Efficient Production Capabilities п‚§ п‚§ п‚§ п‚§ 50+ years in operation Safe and reliable environment for the production of aluminum Current efficiency at benchmark levels for technology and industry At $5,000 per metric ton of capacity, a new facility with comparable production capacity would cost approximately $1.4 billion to construct Current Production Efficiency Flexible Manufacturing Platform п‚§ Poised to rapidly ramp up the business with the rebound in aluminum prices п‚§ Minimal cost to expand operating assets from 4 pot lines to a full complement of 6 pot lines п‚§ Input material sources able to support expanding production п‚§ Ability to idle entire pot lines or individual pots п‚§ Little to no capital required in a downside scenario with 2 or more idled pot lines п‚§ вЂњOption valueвЂќ and real estate value in idled alumina refining facility Components of Cost 2009PF COGS (1) (1) Pro forma as though Ormet was a purchaser of Alumina during the January through August tolling period. Long Term Power Contract п‚§ Work began in 2007 п‚§ Ohio legislation dictated move to market at end of 2008 п‚§ Legislation was rewritten toward a regulated environment п‚§ Key legislative terms for Ormet were included вЂ“ Recognize uniqueness of large loads вЂ“ Economic development вЂ“ AEP recovery of delta revenues вЂ“ Ability to file contract directly with PUCO Secure and Low Cost Power (now 22% of COGS) п‚§ 10 year term п‚§ $15mm added liquidity in 2009 п‚§ LME indexed contract вЂ’ $60mm maximum annual discount, declining in future years вЂ’ Based on full company cash costs (operating, pension, capital) п‚§ $294mm maximum total future discounts Annual Maximum Benefit 2010 2011 2012 2013 2014 2015 2016 2017 2018 $60mm $60mm $54mm $44mm $34mm $24mm $14mm $4mm $0 вЂњNontraditionalвЂќ Cash Funding п‚§ п‚§ п‚§ п‚§ Sale of Burnside property Commercial terms Power contract terms Tolling agreement п‚§ Total - $98 million Refinancing of Debt п‚· New Asset Base Loan вЂ“ $50 million 3 year facility @ L + 275 BP(L floor 2%) secured by current assets п‚· New Term Loan - $110 million 4 year note at 95%. 14% interest secured by fixed assets. Also, 1.85 million warrants at $3 п‚· Pension waiver prepaid п‚· All prior debt prepaid What we have learned???? п‚§ Need to be flexible and nimble to react quickly to change п‚§ Actively manage cash and suppliers terms п‚§ Manage enterprise risk п‚§ Involve Union in all aspects of the business to align objectives п‚§ DonвЂ™t let egos get in the way п‚§ No internal barriers п‚§ Do what you say п‚§ Pray and/or carry your favorite good luck charm!!!!!!