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How to Survive 2009 – A True Story - Ormet

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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 “anticipates,” “believes,”
“estimates,” “expects,” “hopes,” “targets,” “should,” “will,” “will likely result,” “forecast,” “outlook,” “projects” or other words
of similar meaning. All statements that address the Company’s expectations or projections about the future, including
statements about the Company’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 Company’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 Company’s future results could differ materially from the Company’s
current results and from those anticipated in the Company’s forward-looking statements.
Market and Industry Data
п‚·
The market and industry data contained in this presentation are based on management’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:
 Ormet files for chapter
11 bankruptcy
1955
1960
2000
2004
 Start-up of Hannibal smelter
begins
 Shutdown of Burnside
refinery
 $50 million rights offering
 Sale of parcels of land
surrounding Burnside Alumina
Refinery
2008:
 $10 million subnote
 Tolling Agreement
2009:
2005
1958:
2005:
 Hannibal Reduction
Plant
 Burnside Alumina Plant
 Emergence from Chapter 11
 Final Power
Agreement
 Arbitration Award
2010
2007:
1998:
 Burnside Bulk Marine Terminal






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:
 Complete
Refinancing
Hannibal, OH Smelter

270,000 mt / year capacity
– 2nd largest operating smelter in the U.S.

6 potlines (currently running 4)

~1,000 employees

Access to river transportation, close to customers

Midwest premium (~$0.06/ lb)

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

Idled in late 2006

Idled in 2007

Capacity: 540,000 mt / year

Capacity: 5,000,000 mt / year

2,200 acres (includes ~1,000 acres
unused land)

Handles shipments of aluminum, alumina
and other bulk commodities

Sold approx. 315 acres for $11mm from
2008 - 2010

Ability to restart or sell

Ability to restart
Backdrop of 2008/2009
Financial Climate
 Metal prices went from an all time high to an all time
low in 6 months
 Banks were not open for business
 Equity not available except at prices terribly dilutive to
equity holders
 No sign of recovery and many opinions, will it be a
L,V, W or U recovery?
 Fear prevalent
 Theories of economics as we knew it “at an end”
 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
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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
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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
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Further decrease power consumption
Finalize 2010 alumina and metal
agreements
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Achieve maximum benefit from
upswing in aluminum prices
Reach full capacity
Continue marketing Burnside terminal
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Maintain operating flexibility
пѓ�
Refinance debt
Key Elements to Ormet’s Success
 People
 Risk management
 Operations and cost performance
 Nontraditional financial alternatives
People
 About 1000 employees
 History of conflict including strikes
 Extensive operating experience
 Mix of supervisory backgrounds
 Changed work and people environment
 Very supportive local and district USWA
Alignment of Management and Labor
 One union, one contract (United Steelworkers)
 Assist management in execution of strategic plan
– Instrumental in new power contract
– Union contract extended to May 2011
– Multiple VEBA deferrals, including $3.4mm deferral
(Nov 2009)
– 91% decrease in grievances
– 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




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
 CFO, Treasurer and Secretary since July 2007
 Previously Chief Financial Officer of CSK Auto Corp., Chiquita Brands International
Inc., Elliott Company, and Republic Engineered Steels Inc.
 Director of Wheeling-Pittsburgh Corp. 2003 – 2006, Entegra Power 2005 – 2006,
Republic Engineered Steels Inc. 1989 – 1998
 BBA, University of Cincinnati; MBA, Miami of Ohio
 Vice President of Operations of Ormet since June 2007
 Previously with Alcoa and Reynolds Metals
 B. S., Electrical Engineering, Clarkson University
Prepricing Strategy
 Utilize medium-term pre-pricing to manage
price volatility
 Forward pre-pricing arrangements and/or put
strategies
 No margin or credit requirements
 Quick market decisions – nimble strategic
committee
 Size provides opportunity to hedge up to full
production
 2009 performance positively impacted
Leverage to Aluminum Prices
High LME Price Environments
Difficult LME Price Environments

$100/mt = ~$13mm EBITDA delta
 Up to $60 million in reduced power costs

Flexibility to hedge
 Anode pricing and alumina costs decline

Move to 6 pot lines
 Workforce reduction
– Increase annual production from
180,000 mt to 270,000 mt
 Defer non-essential maintenance / relines
– Limited working capital need
 Tolling agreement
Environmental and Safety Performance
Fluoride Emissions (lbs. TF/TAP)



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 – Total Injury Count




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




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
 Poised to rapidly ramp up the business with the
rebound in aluminum prices
 Minimal cost to expand operating assets from 4
pot lines to a full complement of 6 pot lines
 Input material sources able to support
expanding production
 Ability to idle entire pot lines or individual pots
 Little to no capital required in a downside
scenario with 2 or more idled pot lines
 “Option value” 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
 Work began in 2007
 Ohio legislation dictated move to market at end of
2008
 Legislation was rewritten toward a regulated
environment
 Key legislative terms for Ormet were included
– Recognize uniqueness of large loads
– Economic development
– AEP recovery of delta revenues
– Ability to file contract directly with PUCO
Secure and Low Cost Power (now 22% of COGS)
 10 year term
 $15mm added liquidity in 2009
 LME indexed contract
‒ $60mm maximum annual discount, declining in future years
‒ Based on full company cash costs (operating, pension, capital)
 $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
“Nontraditional” Cash Funding




Sale of Burnside property
Commercial terms
Power contract terms
Tolling agreement
 Total - $98 million
Refinancing of Debt
 New Asset Base Loan – $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????
 Need to be flexible and nimble to react quickly to
change
 Actively manage cash and suppliers terms
 Manage enterprise risk
 Involve Union in all aspects of the business to align
objectives
 Don’t let egos get in the way
 No internal barriers
 Do what you say
 Pray and/or carry your favorite good luck charm!!!!!!
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