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Investor PresentationInvestor Presentation15 May 200815 May 2008
AEL Presentation
• AEL in Context
• Global Explosives Market
• AEL’s Businesses, Services and Products
• Key Strategic Projects
• Summary
AEL Context
In middle of 5-year strategic journeyTraditionally, high capped fuse market share in South AfricaEarly diversification into Africa and more recently into international marketsHave continually been reinvesting in plants and peopleCapped fuse to shocktube market shift underwaySales growth continues despite volume issues in gold and platinum industriesInput cost escalations.Strategy and current investment programme remains relevantThe new R556m ISAP plant (Factory of the Future) remains compelling
Key Business Drivers
Safety and complianceLocal market volume challenges in gold, platinum and coalAfrican footprint expansion and central African growthInternational entries – South East Asia and South AmericaShocktube conversion programme, capacity ramp up and investment gainsMarginsSkills and resourcing
Global Explosives
S.E. S.E. AsiaAsia77%%
North AmericaNorth America2525%%
Latin AmericaLatin America1212%%
Western EuropeWestern Europe5%5%
AfricaAfrica77%%
RussiaRussia55%%
AustraliaAustralia1313%%
ChinaChina1616%%
Other 11Other 11%%(Eastern Europe, Other FSU,N.E. Asia, India)(Eastern Europe, Other FSU,N.E. Asia, India)
S.E. S.E. AsiaAsia77%%
North AmericaNorth America2525%%
Latin AmericaLatin America1212%%
Western EuropeWestern Europe5%5%
RussiaRussia55%%
AustraliaAustralia1313%%
ChinaChina1616%%
Other 11Other 11%%(Eastern Europe, Other FSU,N.E. Asia, India)
3%3% 2%2% 5%5%
12%12%
8%8%
8%8%
4%4%5%5%
5%5%
Global ExplosivesGrowth Estimates ($7b $9.3b)
(Annual volume growth shown + 15% weighted ave. price adjustment)
AfricaAfrica77%%
(Eastern Europe, Other FSU,N.E. Asia, India)
AEL’s Businesses
Narrow Reef
Narrow Reef
S.E. S.E. AsiaAsia77%%
North AmericaNorth America2525%%
Latin AmericaLatin America1212%%
Western EuropeWestern Europe5%5%
RussiaRussia55%%
AustraliaAustralia1313%%
ChinaChina1616%%
South African
AfricaAfrica
South AmericaSouth America
South East AsiaSouth East Asia
Surface & Massive
Surface & Massive
NR
S&M
Africa
Int
AfricaAfrica77%%
Other 11Other 11%%African
International
1% 2% 2% 2% 2% 2% 1% 2%4% 5% 6%
8%
16%
26%
BM
E
SASO
L
ENAE
X
AEL
MA
XAM
AUS
TIN
DYN
O
ORI
CA
Global Competitors
Commodities boomFrom regional player to global player?Sourcing and logisticsCustomer global buyingCost of new capacity
Services and Products
Products & HardwareExplosivesExplosives
Ammonium Nitrate Products.Bulk Emulsions.
Remote Bulk Emulsion Plants.MMU’s - Mobile Manuf. Units
Packaged ExplosivesUnderground Bulk Explosives
Underground Bulk Loaders
Initiating SystemsInitiating Systems
Shocktube SystemsCapped Fuse SystemsElectric SystemsElectronic SystemsGeneral Accessories
Full Services Blasting“Customised Blasting”
Rock on Ground ContractsPrime-Load-Tie & ShootDown the Hole ServiceBlast DesignBlast ConsultingLogistical ServicesProduct Sales
Blasting Expertise and Customer Focus
Main Mining Sectors
GoldPlatinumCoalDiamondsBase Metals
Applications
SurfaceOpen PitQuarrying
Massive Underground
Uphole Blasting Board & Pillar
Narrow Reef
DevelopmentStoping
Other
Shaft SinkingTunnellingDemolition
QuarryingConstruction
2007 Revenue by Market and Application
R' millions R' millions
Market 2 699 PRODUCT 2 699
Narrow Reef 903 Explosives 1 449Gold 343 Ammonium Nitrate 261Platinum 560 Bulk Services 799
Packaged Explosives 389Suface & massive 798Coal 252 Initiating Systems 850Quarry & construction 298 Non-Electronics 715Opencast 248 Electronics 135
Africa & International 865 Services & Other 400
Industrial & Other 133
Ammonia
Business Unit Revenue Spread
Narrow Reef
Suface & massive
Africa & International
0
500
1 000
1 500
2 000
2 500
3 000
2004 2005 2006 2007
Narrow Reef Suface & massive Africa & International Industrial & Other
Ran
d M
illio
ns
The Narrow Reef Business
Gold and platinum volumes below expectations
Market conditions more bullish for the latter part of 2008
Shocktube conversion programme in full swing
Continued focus on supporting customer expansion projects
The Surface and Massive Business
Coal – high demand in both exports and local markets
Platinum – still the only viable material for catalytic converters
Iron ore – large demand driven by Asian markets
Aggregates – continued high local demand in civil construction
The African Business
AFRICA DRIVERS
•5 key hubsGhanaZambiaTanzaniaBotswanaZimbabwe
•Footprint Expansion
•Harnessing Growth
AFRICA DRIVERS
•5 key hubsGhanaZambiaTanzaniaBotswanaZimbabwe
•Footprint Expansion
•Harnessing Growth
S.E. S.E. AsiaAsia44%%
North AmericaNorth America2525%%
Latin AmericaLatin America1212%%
Western EuropeWestern Europe5%5%
AfricaAfrica77%%
RussiaRussia55%%
AustraliaAustralia1313%%
ChinaChina1414%%
Other 11Other 11% %
South America
South East Asia
The International Business
Safety Performance over last 20 years
MonitoringSafetyClosely
MonitoringSafetyClosely
MonitoringSafetyClosely
MonitoringSafetyClosely
AEL 2007 results
Revenue R2 699m (+8.4%); TP R163m (-37.5%)
Margin 6.0% (10.6%)
Volumes in SA surface business grew strongly
Volumes in rest of Africa: pleasing growth, even better potential in ’08
Weaker 2H’07 compared to ’06 in narrow reef
Market share loss and mining volume decline in narrow reef had major negative effect
Fixed costs well controlled, but additional expenses for running old and new plants impacted negatively
Mining Solutions 2006 - 2007
100
150
200
250
300
R 261m:Trading Profit
2006
(R 80m):Narrow Reef
Volume
R 85m:Surface
& Africa Volume
and price
(R 50m):Fixed Cost
Inflation
(R 33m):OperationRamp-up
(R 47m):Depreciation /
Retrenchment /Other
R 28m:DetNet
R 163m:Trading Profit
2007
Margin: AEL Operating Costs: AEL DetNet
Revenue and Trading Profit History
739 767 8591078 1142 1225 1255
1474
19032076 2136
23172492
2700189142
176
235
287
161
74
120 115
150
179
111
274
241
0
1,000
2,000
3,000
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
R m
illio
n
0
100
200
300
400
Sales Trading Profit
ISAP Project - Context
Identified that the market was ready for a significant swing to shocktube
Faced the need for an unprecedented large volume - high speed – high quality shocktube plant, at a step change reduction in unit cost
And significantly safer to operate
Some of the existing plants and technologies were unviable - we wanted a competitive edge for the future
Such a plant did not exist and the technology challenges were significant
ISAP Project
Targeted a capacity of 100m shocktube assemblies per year
Total capital spend of R556m
All capacity commissioned by 4Q’09
Ramp up in 2010
Three Project Stages:Bernice R 77m Detonator capacity installed for 40m detonatorsCharlize R104m Additional 50ml detonators
and the first final assembly unitsDenise R375m Ramp up of all the stages of the plant to 100m
Will open up new business opportunities beyond our local markets
ISAP technologies usable in future AEL shocktube and IS plants locally and abroad
Makes a step change reduction in costs possible
ISAP Update: Capacities
Tube Drawing
Powder Drying
ElementFilling
Detonator Mnfr
Shocktube extrusion
Automated assembly
80 M
40 M
200 M
40 M
20 M
100 M
0 0
Det
onat
or C
apac
ity
Shoc
ktub
e U
nit C
apac
ity
Bernice Charlize Denise
ISAP Project – Ramp Up
Expected shocktube ramp up
0102030405060708090
100
2006 2007 2008 2009 2010
Key parts of project Charlize commissioned
Preparation for field trialing in August and ramp up underway
Expenditure on final phase, project Denise (R375m) including new powder drying system brought forward
Achieved 85% increase in shocktube production in 2007
Targeting similar increase for 2008
Benefits
Expected financial return of projects remains attractive Margin improvement: R 80m paOperating cost savings: R120m pa
Slower ramp up of first phase has not delayed expected completion date
First off-shore shocktube assembly operation being established in SE Asia,commissioning in Q3’08
Reduced market share and mining volumes in narrow reef make transition more difficult, but have not changed fundamentals of the journey
Summary - AEL Overview
Short-term challenges continue
Medium-term outlook for markets is positive
Africa and International expansion a priority
Major modernisation programme will set up AEL’s operations for years to come
AEL will emerge from structural changes in strategically stronger position
Africa and International GrowthAfrica and International Growth15 May 200815 May 2008
International Strategy - ImmediateAfrica-International
Africa outside South AfricaAfrica outside South Africa
International outside AfricaInternational outside Africa
Strategic OptionsAfrica-International
Full Blasting Service…..
• Full presence in country• Staffing• Plant and equipment• Manufacturing
Full Blasting Service…..
• Full presence in country• Staffing• Plant and equipment• Manufacturing
Component Assembly in Country
• Partnership with existing entity• New investment
Component Assembly in Country
• Partnership with existing entity• New investment
Exports of final products
Presence in AfricaAfrica-International
1st Phase
• Extension of SA relationships
• Culture/environment similar
• 5 key hubs: West Africa;East Africa; Central Africa;Botswana & Zimbabwe
1st Phase
• Extension of SA relationships
• Culture/environment similar
• 5 key hubs: West Africa;East Africa; Central Africa;Botswana & Zimbabwe
R1billionR1billionrevenuerevenue
Solid Platform for Growth
African Growth StrategyAfrica-International
R70millionR70millionCapexCapex
Next Phase• New investments…
North Africa & Egypt
• Expand footprint from hub
• New markets in Angola;Mozambique….
Maximise the growth engineof Central Africa
Next Phase• New investments…
North Africa & Egypt
• Expand footprint from hub
• New markets in Angola;Mozambique….
Maximise the growth engineof Central Africa
Central African Growth EngineAfrica-International
R70 millionCapex
R70 millionCapex
161 staff161 staff
Zambian Mining LandscapeAfrica-International
NFCMOPANIMOPANI
J&W
Luanshya Copper Mines
J&W
Luanshya Copper Mines
DRC Mining LandscapeAfrica-International
Frontier
Emulsion Plant - MufuliraAfrica-International
International Focus - Outside AfricaAfrica-International
S.E.AsiaS.E.Asia7%7%
North AmericaNorth America25%25%
Latin AmericaLatin America12%12%
Western EuropeWestern Europe5%5%
AfricaAfrica7%7%
Russia Russia 5%5%
AustraliaAustralia13%13%
ChinaChina16%16%
Other 11%Other 11%(Eastern Europe,(Eastern Europe,
Other FSU, N.E.Asia,Other FSU, N.E.Asia,India)India)
Growing markets …. that fit our offering
Asia PacificAfrica-International
• Indonesia..Jakarta• Full blasting service • Shocktube assembly plant• Staff complement x 10
• Indonesia..Jakarta• Full blasting service • Shocktube assembly plant• Staff complement x 10
1st Phase
Next Phase• Distribution business…• Vietnam; Thailand;
Cambodia• Sourcing from the region.• Larger scale plant for the
region• India; China; Australia
Shocktube Assembly Plant - SubangAfrica-International
Inauguration of Shocktube Plant - SubangAfrica-International
Latin American StrategyAfrica-International
1st Phase
Export of final products
1st Phase
Export of final products
Next Phase
FBS business…East & West
(possibly an acquisition)
Component assembly -Chile & Peru
Next Phase
FBS business…East & West
(possibly an acquisition)
Component assembly -Chile & Peru
Summary – Africa and InternationalAfrica-International
• African capability already on the ground
• South East Asian capability starting to go in and ramp up
• Exciting challenges in new growth markets
• Will capitalise on ISAP’s new competitive shocktube position
• Well positioned for growth
INITIATING SYSTEMS AUTOMATED (ISAP) PLANT… the Factory of the Future
Structure of the Presentation
• Primary Objectives
• Current to Factory of the Future and Products
• The Shocktube Initiating System
• Process Overview
• Capital Expenditure and Timeline
• Competitive Position
Factory of the Future
• Primary objectives
• Convert the market from capped fuse to shocktube
• Improved quality - reliability and precision beyond current world best performance
• Cost base below that of the world’s lowest cost producers
• Improve process and operational safety
• Capacity expansion to suit market requirements
Structure of the Presentation
• Primary Objectives
• Current to Factory of the Future and Products
• A Typical Shocktube Unit
• The Process
• Capital Expenditure and Timeline
• Competitive Position
Journey of the Factory of the Future
FUSE IGNITORCORD (2006)
CURRENTSHOCKTUBE
(2006)
FUTURE (3G)SHOCKTUBE (2010)
• Manual assembly• 100m units/year• Low precision• Low accuracy
• Manual assembly• 15m units/year• Better precision• Better accuracy• Lead drawn element
• Continuous high speed• 80-100m units/year• High precision• High accuracy• Rigid element• Significantly reduced
fixed & variable costs
Existing PlantsISAP
Structure of the Presentation
• Primary Objectives
• Current to Factory of the Future and Products
• The Shocktube Initiating System
• Process Overview
• Capital Expenditure and Timeline
• Competitive Position
Anatomy of Shocktube Unit
SurfaceDetonator(connector)
Downhole Detonator(in the explosive)
Shocktubing(Transmitter)
Two layers of
polymer
Glue
HMX powder
Typical Application of Shocktube
Underground application
4s 4s 4s4s 4s 4s4s 4s 4s
O,2s O,2s O,2s
O,2s O,2s
O,2sO,2s
O,2sO,2s
O,2s O,2s
O,2s
O,2s
O,2s O,2sO,2s
O,2s
Ignite
4s 4s 4s 4s 4s 4s 4s 4s 4s
Typical Application of Shocktube
Surface Mining
• Can stretch a few kilometres
• Large holes with explosives
• Long length shocktube
Structure of the Presentation
• Current to Factory of the Future and Products
• Typical Plant in the Future Factory
• A Typical Shocktube Unit
• The Process
• Capital Expenditure and Timeline
• Competitive Position
Typical Shocktube Units
SurfaceNarrow Reef
Structure of the Presentation
• Primary Objectives
• Current to Factory of the Future and Products
• The Shocktube Initiating System
• Process Overview
• Capital Expenditure and Timeline
• Competitive Position
Overview of the Process
Tube DrawingTube
DrawingPowder Drying
Powder Drying
ElementFilling
ElementFilling
Detonator Mnfr
Detonator Mnfr
Shocktube Extrusion
Shocktube Extrusion
Automated assembly
Automated assembly
ELEMENTS
TUBESPETNPETN
CUPCUP
ELEMENTELEMENT
L AZIDEL AZIDE
CUPS
Modify andExpand Capacity
Modify andExpand Capacity
Brand newProcess
Brand newProcess
World BestPracticeImproved230 M/C
World BestPracticeImproved230 M/C
World BestPracticeImproved219 M/C
World BestPracticeImproved219 M/C
New knownSirlynExtruder
New knownSirlynExtruder
Step Change
Step Change
Overview of the Process
Raw material sieving3 hours
Traditional Pyrotechnicmixing process
Spray drying processWeighing of materials
0.5 hours
Slurry Mixing
Spray Drying
36 kg/hour – Batch size 250 – 300 kg should take 8 hours.
Weighing of materials0.5 hours
Dry mixing3 Hours
Wet mixing1.5 hours
Granulation0.5 hours
Drying15 hours
Sieving1 hour
Sufficient to supply the total manufacturing demand
24.5 Hours/10 Kg
Manufacturing Process of ISAP
ElementsElements
ShocktubeAssembly
ShocktubeAssembly
PETNPETN
LeadAzide
LeadAzide
DelayElementFilling
DelayElementFilling
PowderPowder
DetonatorAssembly
DetonatorAssembly
ShocktubingExtrusion
ShocktubingExtrusion
Box & StorageBox & Storage
Tubes & CupsTubes & Cups
Structure of the Presentation
• Current to Factory of the Future and Products
• Typical Plant in the Future Factory
• The Shocktube Initiating System
• Process Overview
• Capital Expenditure and Timeline
• Competitive Position
Capital Expenditure
• Comprises 3 projects
• Bernice R77m (commissioned)
• Charlize R104m (partially commissioned)
• Denise R375m (long lead items ordered)
Factory of the Future
Total R556mTotal R556mFuture Spend
R'000
0
40,000
80,000
120,000
160,000
200,000
2003 2004 2005 2006 2007 2008 2009 2010
Factory of the Future - Timeline
Started Objective Status EndDate
Bernice 2003 Detonators only 40m FullyCommiss.
2007
Charlize 2005 •Add. 40m Dets•Tubing•Auto Assembly
Part.Commiss.
2008
Denise 2007 •Match market•Complete range•Spray D. Powder•Shrink footprint
Long lead time items ordered
Mech. Inst.End 2009Ramp UpBeg. 2010
Structure of the Presentation
• Primary Objectives
• Current to Factory of the Future and Products
• The Shocktube Initiating System
• Process Overview
• Capital Expenditure
• Competitive Position
Change in Competitive Position
• Lowest cost producer
• Higher quality detonator – Timing/Reliability
• Safer Product and Process – More Robust
• International Markets: Detonators and Assemblies
• Licensable technology – Hardware&Expertise
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