MAGONTEC LIMITED — Investor Presentation 2016

Sep 1, 2016

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Magontec GmbH recycling facility, Bottrop, NRW, Germany
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Investor Presentation 2016 Interim Results

Magontec Limited (MGL) September 2016

DISCLAIMER

This Presentation has been prepared by Magontec Limited (ABN 30 147 131 977) (Magontec or the Company). This Presentation contains summary information about Magontec and its activities current as at the date of this Presentation. The information in this Presentation is of a general background nature and does not purport to be complete or to comprise all the information that a shareholder or potential investor in Magontec may require in order to determine whether to deal in Magontec shares. It should be read in conjunction with Magontec’s other periodic and continuous disclosure announcements lodged with the Australian Securities Exchange (ASX), which are available at www.asx.com.au. This document is not a prospectus or a product disclosure statement under the Corporations Act (Cth) 2001 (Corporations Act) and has not been lodged with the Australian Securities and Investments Commission (ASIC).

Not investment or financial product advice

This Presentation is for information purposes only and is not financial product or investment advice or a recommendation to acquire Magontec shares and has been prepared without taking into account the objectives, financial situation or needs of individuals. Before making an investment decision, prospective investors should consider the appropriateness of the information having regard to their own objectives, financial situation and needs and seek financial, legal and taxation advice appropriate to their jurisdiction. Magontec is not licensed to provide financial product advice in respect of Magontec shares. Cooling off rights do not apply to the acquisition of Magontec shares.

Financial data

All dollar values are in Australian dollars (A$) unless stated otherwise and financial data is presented within the financial year to the end of 30 June 2016 unless stated otherwise. Any pro forma historical financial information included in this Presentation does not purport to be in compliance with Article 11 of Regulation S-X of the rules and regulations of the US Securities and Exchange Commission.

Past performance

Past performance information given in this Presentation is given for illustrative purposes only and should not be relied upon as (and is not) an indication of future performance.

Future performance

This Presentation contains certain “forward-looking statements”. The words “expect”, “should”, “could”, “may”, “will, “predict”, “plan”, “scenario”, “forecasts”, “anticipates”, “outlook” and other similar expressions are intended to identify forward-looking statements. Indications of, and guidance on, future earnings and financial position and performance are also forward-looking statements. Where the Company expresses or implies an expectation or belief as to future events or results, such expectation or belief is expressed in good faith and believed to have a reasonable basis. Forward-looking statements, opinions and estimates provided in this Presentation are based on assumptions and contingencies which are subject to change without notice, as are statements about market and industry trends, which are based on interpretations of current market conditions. Such forward-looking statements including projections, guidance on future earnings and estimates are provided as a general guide only and should not be relied upon as an indication or guarantee of future performance. There can be no assurance that actual outcomes will not differ materially from these forward-looking statements, and there are risks associated with the Company and the industry (including those set out below) which may affect the accuracy of the forward-looking statements. The Company does not undertake any obligation to release publicly any revisions to any forward looking statement to reflect events or circumstances after the date of this presentation, or to reflect the occurrence of unanticipated events, except as may be required under applicable securities laws.

Investment Risk and other risks

Investment in Magontec shares is subject to investment and other known and unknown risks, some of which are beyond the control of Magontec Limited, including risk factors associated with the industry in which Magontec operates and risks specific to Magontec, such as: construction, development and operational risk associated with the Golmud Plant, fluctuations in magnesium alloy prices and exchange rates, risks associated with operating in China, financing risks, market price and demand risk and other risks generally relating to security investments.

Not an offer

This document may not be released or distributed in the United States. This Presentation does not constitute an offer to sell, or the solicitation of an offer to buy, any securities in the United States. Securities in the Company have not been, and will not be, registered under the U.S. Securities Act of 1933 or the securities laws of any state or other jurisdiction of the United States, and may not be offered or sold in the United States unless the securities are registered under the Securities Act or pursuant to an exemption from, or in a transaction not subject to, registration.

To the maximum extent permitted by law, Magontec and its respective advisers and affiliates, directors, officers and employees:

• make no representation or warranty, express or implied, as to the accuracy, reliability or completeness of information in the Presentation; and

• exclude and disclaim all liability, for any expenses, losses, damages or costs incurred by you as a result of your participation in the proposed offering and the information in this

• Presentation being inaccurate or incomplete in any way for any reason, whether by negligence of otherwise.

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1

First Half – 30 June 2016

First Half 2016 - Review

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2

First Half – 30 June 2016

Revenue & Volume

Volume

(‘000 mt)

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19.6mt 19.3mt 19.8mt 20.3mt 18.7mt
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• Volume -5.5% and revenue -2% on previous corresponding period

• PRC primary Mg alloy (revenue -18%)

• Focus on profitable customers

• Closure of Chinese recycling plant

Revenue

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(A$m)
$61.1 $67.9 $66.9 $66.4 $68.1 $71.7 $66.4
1H13 2H13 1H14 2H14 1H15 2H15 1H16
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• Managing credit risk in China

• Management of working capital

• Currency & price movements

• Primary alloy market experiencing strong price competition

• Revenues and volumes to grow again from 2017 as Magontec Qinghai comes on line

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First Half – 30 June 2016

Pure magnesium price chart Magnesium v Aluminium - 1 January 2010 to 15 August 2016

• Pure Mg broken 4-year down trend (reflects broader metals market)

• Price volatility largely neutral for MGL

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•
¥19,500 Global demand volumes continue to grow
8-9% pa
•
PRC Mg alloy (die cast) export volumes
¥17,500 +12% in 1H16 versus PCP
¥15,500
¥13,500
¥11,500
Al Ingot 99.7% China RMB Mg 99.9% China RMB
¥9,500
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• Global demand volumes continue to grow 8-9% pa

• PRC Mg alloy (die cast) export volumes +12% in 1H16 versus PCP

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4

First Half – 30 June 2016

Gross Profit & Gross Profit Margin

A$m

Gross Profit	improvements across the	improvements across the
business
Product	1H16	1H15
PRC	8.1%	5.9%
Europe	11.6%	10.0%

		Gross Profit improvements across the business	Gross Profit improvements across the business
$5.0 $3.4 $4.3 $4.2 $5.9 $7.0 $7.4 8.2% 5.1% 6.4% 6.3% 8.7% 9.8% 11.2% 1H13 2H13 1H14 2H14 1H15 2H15 1H16
		Product 1H16	1H15
		PRC 8.1%	5.9%
		Europe 11.6%	10.0%
	• Anode volume growth and produc improvements in Asia & EU • Production cost advantages emer Romania • Primary Mg alloy conversion costs continue to improve • Specialist alloy remains low volum • German recycling volumes under pressure

• Anode volume growth and productivity improvements in Asia & EU

• Production cost advantages emerging in Romania

• Primary Mg alloy conversion costs continue to improve

• Specialist alloy remains low volume

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First Half – 30 June 2016

General & Administration (costs not included in Gross Profit)

$4.78 $4.60 $5.25 $4.95 $5.59 $6.15 $5.69 1H13 2H13 1H14 2H14 1H15 2H15 1H16 A$m	G & A costs stable
	Product 1H16 1H15
	Travel accommodation etc $375.2 $383.6
	R&D $134.0 $198.8
	Promotional activity $29.4 $20.3
	Information technology $151.3 $165.6
	Personnel $3,269.9 $3,221.6
	Office expenses $210.2 $132.0
	Corporate & other $1,519.0 $1,472.8
	G & A costs pressures • Increase in sales & marketing staff • Increase in technical staff/R&D costs • Carrying costs of Qinghai pre-production

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First Half – 30 June 2016

Cash Flow from Underlying Operations

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A$m
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A$4.8 million cash flow from underlying
operations over the last 12 months
$2.40 $2.40
•
Excludes movements in working capital
•
$1.20 $1.20 Support additional funding for future
(Qinghai) working capital requirements
•
Positive impact flowing through to bank
covenants and borrowing terms
•
Provides funding for other ‘value-add’
($0.60)
projects
1H14 2H14 1H15 2H15 1H16
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7

First Half – 30 June 2016

EBIT & EBIT Margin

(Underlying EBIT - excluding unrealised foreign exchange effects)

EBIT margins are also improving

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2.23%
1.29%
0.42% 0.39%
-0.29%
-0.67%
A$m
$0.26 -2.33% $0.27 $0.93 $1.48
($1.58) ($0.20) ($0.44)
1H13 2H13 1H14 2H14 1H15 2H15 1H16
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• Anode market share growing in EU, Asia & N America

• Continuing to build sales and marketing support for all businesses

• Romania recycling volumes now stabilised at higher levels

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8

First Half – 30 June 2016

Profit & Loss

EBITDA Depreciation & amortisation EBIT Interest expense Profit Before Tax Income tax expense	1H16 1H15 % Change $ Change $1,917,174 $1,212,842 58% + $704,332 ($863,419) ($809,447) 7% ($53,972) $1,053,755 $403,394 161% + $650,361 ($622,224) ($648,066) -4% $25,842 $431,531 ($244,671) -276% + $676,202 ($350,758) ($182,863) 92% − ($167,895) $80,773 ($427,534) -119% + $508,307 $508,603 ($565,676) -190% + $1,074,279 $385,000 $174,000 $893,603 ($391,676) -338% + $1,285,279 Compared with the previous corresponding period • On-going improvements in operating efficiency • Tax expense rising in line with regional profits • NPAT and EBITDA up sharply • Unrealised FX = major negative impact • Underlying NPAT +$1.29 million on PCP OUTLOOK • Automation initiatives for anodes • Specialist alloys volume growth in PRC • Qinghai production – 2017
Net Profit After tax
NPAT excluding unrealised FX
- Add back non cash items (equity issue & bad debt)
UNDERLYING NPAT

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9

MGL – Overview

Magontec Limited – Overview

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10

MGL – Overview

Magnesium alloy production

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Raw material Inputs Production of Mg alloy ingots
Pure Mg
Mg scrap
40 – 70%
scrap
Die cast manufacturer (customer)
Powertool
Automotive
End user industries
Electronics
Other
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MGL – Overview

Mg anode production (+ electronic)

Raw material Inputs

Magontec Mg anode cast / extrusion process

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Mg alloy /
Mg scrap
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Global water heater industry
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MGL – Overview

Magontec manufacturing, marketing and technical services located close to supply sources and customers

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Tokyo
Annual Magnesium Alloy Production Capacity
59,000 mt
25,000 mt
22,000 mt
Primary Mg alloy Primary Mg alloy Global recycling
(2016) (with Qinghai)
Melbourne
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13

MGL – Overview

China – The World’s principal source of magnesium metal

Pure Mg annual global production ~ 850ktpa of which Mg alloy for die casting applications is about 260ktpa

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Iron &
Steel
15%
Other
18%
Israel China
RoW Automotive 26% Die
Russia 84%
USA 16% Other 5% Casting
31%
Brazil
Aluminium
Alloying
36%
13,000 mt
Magontec is a major exporter
Chinese Mg alloy export
of Mg alloy from China
11,000 mt volumes rising year on year Chg
9,000 mt 2016 62,055 +8%
7,000 mt
2015 114,941 +8%
5,000 mt
2014 106,461 +4%
3,000 mt
2013 101,951
1,000 mt (1/2 year annualised )
(FY15)
MAGONTEC LIMITED
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14

MGL – Overview

The Qinghai project will make Magontec the World’s largest supplier of electrolytic Mg alloy

Global primary Mg alloy sales 260k mtpa in 2015 (est)

Global annual primary Mg alloy sales – post Qinghai commencement (est)

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RoW
234,500 mt
Magontec RoW
25,500 mt Magontec
59,000 mt
Pidgeon
Electrolytic
84% + Pidgeon Process
from China Largely Pidgeon Process
from China
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15

MGL – Overview

Magnesium Alloy Recycling in Europe

• Recycling critical for wider Mg acceptance / adoption

• Magontec is the largest magnesium recycler in Europe by capacity & volume

Magontec European Volumes

2015 European Recycling Market Shares (est)

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15,000 Recycled Magnesium Alloy Primary Magnesium
10,000
5,000
Magontec
40%
-
FY 2012 FY 2013 FY 2014 FY 2015
Metric tonnes
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16

MGL – Overview

A strong strategic position

Only global magnesium alloy producer with

• Own Chinese primary Mg alloy manufacturing base

• Own Mg alloy recycling facilities in Europe & Asia

• Global logistics and sales capabilities

• Comprehensive Mg alloy product portfolio

• Active commitment to Research & Development

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From commencement of Qinghai Project (2016)

• Exclusive Mg alloy production from electrolytic smelter

• World’s lowest CO² footprint Mg metal

• Long-term price offering for volume customers

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MGL – Overview

Magnesium industry – key drivers

1. Global auto volumes (87m in 2015)

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25
8%
7% 7%
5% 5% 5%
20
3%
15
10
-10%
5
22.1 17.4 14.2 4.9
0
China USA W Europe Japan
Volumes Growth (2015) Growth (2016 est)
Million autos pa
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Positive outlook for global automotive volumes

• Chinese automotive growth remains robust

• US economic recovery sustained and growth steady

• Europe a little weaker

• Global growth estimated at 4% in FY16 (2% FY15)

2. Adoption of light weighting Mg applications

Application Alloy* Weight save Impact - Progress**	Application Alloy* Weight save Impact - Progress**	Application Alloy* Weight save Impact - Progress**	Application Alloy* Weight save Impact - Progress**	Application Alloy* Weight save Impact - Progress**
Porsche	Valve cover, timing chain	AE44	45%	2nd generation commencing
Audi	6-speed transmission housing	AE44-2	31%	1st generation in production
German co	Small engine components	AE44-2	-	3 year project ending, supply from 2017/18
Chinese co	Mobile phone application	AE45	30%	Production commences 2016

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• MGL patented Mg alloys

18

Magontec Qinghai

Qinghai Salt Lake Magnesium Project

• 100,000 mtpa capacity electrolytic magnesium smelter

• Environmental project

Magontec Qinghai cast house

• 56,000 mtpa Mg alloy supply agreement

• Exclusive Mg alloy manufacturer

• Off-take Price Agreement

• 10 + 10 year option lease

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Dehydration units Reduction
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Cast house
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19

Magontec Qinghai

Magontec Qinghai - the lowest CO2 Mg alloy ever produced

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45
40
35
30 incl. use incl. credits for use
of SF6 of waste gas
w/o credit for
25
CO2 uptake
incl.credits for
20 by-products
15 incl.credits for
by-products
10
5
0
Golmud 2015 Israel 2011 Norway 1997 Pidgeon process, Pidgeon process, Pidgeon process, RIMA process,
China 2011 China 2008 China 2004 Brazil 2012
electrolysis thermal reduction
Magontec Qinghai
kg CO2eq / kg Mg
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• German Aerospace Institute of Vehicle Concepts survey on CO2 emissions from magnesium smelters around the World

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20

Magontec Qinghai

Magontec Qinghai Project

• 3 Magontec casting lines installed by June 2016 (44k mtpa capacity)

• 4[th] casting line in 4Q 2016

Magnesium alloy casting lines 2, 3 & 4

Alloying furnaces

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21
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Magontec Qinghai

Qinghai project – QSLM assets & commissioning progress

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Brine purification, dehydration unit #1 and reduction cell house completed

Reduction cell house

• Brine purifications and electrolytic cell house now hot commissioned

• Dehydration unit #1 hot commissioning underway

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Dehydration units

December 2015

July 2016

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22

Magontec Qinghai

Magontec Qinghai – Magontec assets

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Phase A completed and commissioned, full installation by end November

• Phase A hot commissioning now completed.

• Phase B ingot casting lines and cooling devices installed

• Phase B stacking and packaging lines installation by mid-September

• Phase C ingot casting lines and cooling devices installation by mid-September

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23

Thank you for your time

MAGONTEC Group MAGONTEC MAGONTEC GmbH MAGONTEC Xian Co., Ltd Head Office, Sydney Industriestraße 61 No. 40, Feng Cheng 3 Road, Suite 1.03 46a Macleay St 46240 Bottrop Xian Economic and Technological Potts Point Sydney NSW 2011 Germany Development Zone AUSTRALIA Xian, China, Post code: 710021 Tel +61 2 8005 4109 Tel +49 (0) 20 41 / 99 07-0 Tel. +86 29 / 86 52 68 78 Fax +61 2 9252 8960 Fax +49 (0) 20 41 / 99 07 99 Fax +86 29 / 86 52 37 22 corporate@magontec.com europe@magontec.com china@magontec.com www.magontec.com www.magontec.com www.magontec.com

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