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Contract Mining and Plant Rental Investor Day 2012 Erich Clarke – divisional CEO.

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Presentation on theme: "Contract Mining and Plant Rental Investor Day 2012 Erich Clarke – divisional CEO."— Presentation transcript:

1 Contract Mining and Plant Rental Investor Day 2012 Erich Clarke – divisional CEO

2 Open cast mining contractor Coal, platinum, nickel and other base metals Load and haul, ore recovery and rehabilitation Drilling Blasting Surface blasting Provides full range of packaged explosives, blasting accessories and pyrotechnic/electronic initiation systems to suit requirements Plant Hire Best earthmoving plant at competitive prices Commitment to service excellence Maintained and serviced by qualified field service mechanics with a world class workshop and rebuild facility Divisional overview – what we do 2

3 Largest division of Eqstra – 45% of revenues and 50% of revenue producing (leasing) assets, but currently only 24% of PBT Primary business units - MCC Contracts and MCC Plant Hire One of two large domestic open cast mining contractors in southern Africa Largest plant hire fleet in southern Africa and largest grader fleet in Africa Targeted job range R400 million – R1 billion in capex 5 010 employees (+5.5%) Divisional overview – the numbers… 3

4 Safety Achievements MCC achieved 1000 fatality free shifts in June 2012 Tharisa was nationally recognised by the DMR (Department of Mineral Resources) and received an award : “Highest Safety Standards” within a mining operation – this against mining giants like BHP, Exxaro and Xstrata, among others MCC Khutala received an award for “Best Safety Standards” throughout all BECSA operations 4

5 No direct impact from national / mining sector strikes DMO / Khutala contracts renewed / extended for three years Previously loss making Platmin contract breaking-even Conclusion of contract negotiations with Nkomati Nickel should stop bleed Management changes well received both internally and externally Improved availability has released capacity (negative impact on utilisation) Further intervention initiatives gaining traction Key points on current operations 5

6 Last reported financial results Rm20122011*% ch Revenue-generating assets 4 517 3 91215.5% Inventories 97 6159.0% Other assets 945 79119.5% Operating assets5 559 4 76416.7% Revenue 3 707 3 22514.9% EBITDA 1 137 96617.7% Operating profit 322 Asset reversal (impairment) 37 (50) Foreign exchange gains (losses) 270 Net finance costs (277) (221)25.3% Profit before taxation109 51113.7% PBT margin 2.9% 1.6% EBITDA to net finance costs 4.1x 4.4x * Income statement reclassified for segment reallocations 6

7 Commodity diversification Commodity and regional diversification has improved in recent years from past high exposure to PGM’s Identified opportunities in iron ore and copper Capacity available for one sizeable contract Revenue by commodity 7 Jun ‘09 Jun ‘10 Jun ‘11 Jun ‘12

8 Mining contracts Client Mineral/ ServiceLocation Monthly volumes End date Platmin - Pilanesberg Platinum Mine PlatinumNortham, North West1 250 000m 3 03/2014 ARM/Norilsk JV - Nkomati NickelNickel Machadodorp, Mpumalanga 1 200 000m 3 09/2014 Tharisa MineralsChromeMarikana, North West600 000m 3 06/2017 Rio Tinto - Benga MineCoalTete, Mozambique1 900 000m 3 12/2015 DMO ProjectCoalWitbank, Mpumalanga1 200 000m 3 11/2015 Khutala CollieryCoalOgies, Mpumalanga1 000 000m 3 10/2014 Total Coal – Dorstfontein EastCoalKriel, Mpumalanga1 600 000m 3 01/2016 Coal of Africa - Vele CollieryCoalMusina, Limpopo250 000m 3 12/2016 8

9 Contract demand outlook CommodityGlobal climateProject exposureImpact on Eqstra PlatinumTurmoil, industrial actionPlatmin Open cast mining at lower end of production cost curve No industrial action in past six months Potential for increased demand Coal: ThermalDemand outlook and prices have weakened Dorstfontein DMO Khutala Increased demand from Eskom Contracts extended / renewed for supply to Eskom Coal: MetallurgicalDemand outlook and prices have weakened Benga Vele Steady demand from Tata (35% Benga shareholder) for own smelter Scaled down demand and kit redeployed Nickel / ChromeLower steel demand has weakened prices Nkomati Tharisa Contract losses due to contract management Contract terms renegotiated Client has commissioned new plant Increased tonnage expected in 2013 9

10 Resignations: JC Pretorius: MD, MCC Contracts Trevor Adams: Projects Director Restructured into four operational areas: Hard Rock Soft Rock Africa (Mozambique) Plant Hire Recent management changes 10 Senior management reorganised and structured Established a Business Development Team: Marketing Tendering/Pricing Contract Management

11 A focused plan has been implemented to address all identified contract issues Legal reviews of contracts Matrix developed to ensure contract compliance Continuous contract performance evaluation Current tenders and new contracts to benefit from new improved contract management measures Contract management 11

12 Contract accounted for significant losses in recent years Contract renegotiated effective 1 January 2012 to exclude reefing and drilling Labour climate has remained challenging, but no significant disruptions to operations in recent months Platmin – at break-even 12

13 Significant contract loss posted in FY2012 Took over blasting from July 2012 after poor fragmentation delivered by previous blasting contractor Poor fragmentation resulted in elevated wear and tear on equipment and consequent high maintenance costs and poor productivity Contract has remained a challenge in recent months Revised pricing negotiated and run rate should improve Nkomati Nickel 13

14 Benga (Mozambique) update 14 Contract continues its satisfactory performance Mine is now at full production of around 1.9 million tonnes per month Future logistics constraints to export high volumes of coal remain a concern Tyre management is proving to be a challenge due to shortages Tata Steel’s 35% ownership of concession ensures sustainability of demand Plant hire activities gathering momentum

15 Industrial relations is a key operational and strategic risk Marikana has changed the labour relations landscape Labour unrest in the Rustenburg region mainly affected underground mining operations Initiatives implemented have improved labour relations and interaction with unions MCC has “weathered” the unrest storm No illegal or legal strikes Cost increases due to negotiations and industry concessions Labour relations climate 15

16 Excess equipment on balance sheet Fleet optimisation and availability improvement exercise has identified excess equipment: R80m held for sale R50m spare drilling capacity R115m incorrect sizing Optimisation of approximately R150m required Contract renewals will correct this 16

17 Capital expenditure outlook Expansion capex decreased from R931m in FY2011 to R477m in FY2012 Benga project capex R645m in FY2011 and R450m in FY2012 Limited expansion capex forecast in FY2013 Replacement capex in FY2013 expected to be below R500m Excess equipment extracted from optimisation exercise will be used as replacement 17

18 Availability Equipment availability is measured according to how many hours a specific item of equipment actually was mechanically available to work per shift i.e. the % of time mechanically able to work per shift Poor levels of availability often lead to poor utilisation as equipment work in teams Poor availability addressed: Increased maintenance spend Increased focus on preventative maintenance Clarification of reporting lines – technical managers assigned for specific products Monthly engineering meetings – focus on availability, costs etc. Increased artisan headcount Increased Midrand workshop capacity Introduced Service Level Agreements with major suppliers Introduced monthly site, production and plant, meetings contributing to improved conditions to increase availability (Site Severity Audits) 18

19 Fleet utilisation Utilisation is measured according to how many hours a specific item of equipment actually “worked” as a % of the available hours it could have worked i.e. was mechanically able to work Utilisation rates have increased in the past two reporting periods Factors impacting utilisation: Contract negotiations Inclement weather Equipment replacement cycle lag Project transitions Bad scheduling practices Bad mining practices e.g. excessive tramming Operator availability 19

20 Addressing under utilisation Daily continuous focus on monitoring cubic metres moved per hour of all “major movers” Comparisons to benchmarks Improve training through innovative technology Utilisation targets to include moving average analysis to ensure a focus on continuous improvement Production incentives Reduce expansion capital expenditure Tender for additional projects with existing equipment Supervisor training and exposure 20

21 Plant Hire overview 10-15% of divisional revenues Current markets: Infrastructure development Government and parastatals Construction and Mining Branches in Windhoek, Namibia and in Tete, Mozambique performing stronger than branches in RSA Domestic construction market remains depressed, little signs of life Africa opportunities continue to hold promise 21

22 Training and development There is normally a shortage of suitably skilled workers in communities surrounding mine sites Technical training: MCC operates its own formal technical training academy in Benoni, Gauteng The academy is fully accredited by industry training bodies Offers the following trades: Earthmoving Boilermaker Auto Electrical Operator training: Advanced simulator technologies increases operator skills in a short period of time The Centre is fully accredited by: Construction SETA (NQF Level 3); Services SETA (NQF Level 4), MQA (Evaluations and assessments) and the Independent Examinations Board (ABET Level 4) The Centre includes moderators and assessors International Award: The Centre received the international award from Immersive Technologies for “Best Results in Operator Simulator Training” – this Centre competed against 23 countries with results assessed for a total of 240 000 operators 22

23 ERP Project Implementation SAP ERP system selected Go live date: 4 March 2013 Advantages: Enhanced functionality Production monitoring Equipment life cycle monitoring Detailed cost analysis Management Reporting & variance analysis 23

24 Commodity outlook MCC does not take direct commodity risk, however, increases are being linked to commodity price recovery Targeting other commodity opportunities to diversify commodity and country risk i.e. copper, iron ore and Africa 24

25 Priorities Business model requires at least a 14% operating margin to achieve 20% targeted ROE Operating margin negatively impacted by: low plant utilisation high planned preventative maintenance expenses new contract start-up costs staff costs Cost control: Labour costs have increased due to SAFCEC determination Correction of normal working hour Union demands i.e. Medical aid, bonuses, etc Efficiency improvements Utilisation drive Improved maintenance / availability drive SAP implementation – project on track Order book – increased scope on existing contracts 25

26 QUESTIONS? 26


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