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Project Compass + New StarThe Race to Win ThyssenKrupp’s $3.7 Billion Steel Production Facility

Bob HessCushman & Wakefield Global Business Consulting

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Topics

Introduction to Cushman & Wakefield Global Consulting

Project Compass + New Star strategy and specifications

Project evolution, site selection methodologies and results

Continue with ThyssenKrupp further Insights from: Mr. Ernst Bernsdorf, Senior Vice President, ThyssenKrupp Stainless Kai Mahnke, Vice President, ThyssenKrupp Steel USA

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$1.5 billion revenues in 2006

12,000+ employees worldwide

World’s largest privately-held real estate services firm.

Clients

Cushman & Wakefield Overview

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Engineering

BusinessStrategy& Goals

GlobalRegional

Local

MarketAccess and

FDI

Trading &Supplier

Dynamics

SupplyChain

Strategy

FinancialAnalysis

Business CaseSupport

TransportationPlanning

NetworkModeling &Simulation

Port Strategies& Feasibility

• Workforce• Business Climate• Op. Costs & Risk

Site Selection

Implementation

BuildingConstruction

Real Estate InfrastructureStrategy Execution

ManufacturingFacility Design

ContractorVendor

SelectionEnvironmental& Permitting

ExpertMaterialHandling

Technology

SiteConstructability& Due Diligence

BuildingDeveloper

orContractor

Real EstateStrategy &

Transaction

Consulting Operations

Cushman & Wakefield Global Supply Chain Services

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Project Compass Strategy and Specifications

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Project CSABrazil

New carbon slab production for NAFTA and EU

Markets

Project HerkulesGermany

Increased carbon steel production / processing

for German market

Project CompassMobile, Alabama

Carbon steel processing and stainless steel

production

Project Compass is integral to ThyssenKrupp’s global strategy to grow NAFTA market share and improve cost positions.

Strategic Importance of Compass

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Project Compass Specifications: Redefining ‘HUGE’

Facility: $3.7 billion; 3,600 acres; 7 million SF under roof

Annual steel production for two segments: Carbon: Processing / coating 4.1 million metric tons flat carbon steel Stainless: 1 metric ton melt shop; then coiled and rolled

Employment : 2,700+ employees; 75% semi- or highly skilled

Utilities: Electric: 10+ GVA Short Circuit Capacity; two 230-kV trans. lines; 300 MW

service; 107,000 MWH/month Natural gas: 1.2 million MCF per month Water supply: 10 million gallons per day

Transportation / Access Rail -- unit trains; Barge -- accessible (and reliable) inland waterway; Port -- accessible for slab unloading; Highways – heavy duty!

We began the project wondering: “Will ANY site meet these specs?”

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OR

Top Priority: Supply Chain Efficiency

Origins:Brazil/Other

Slabs: 4.1 MMT via Panamax

Ship

Unload Slabs to

Port (Mill) Barge

Unload Barge at

Mill

Load Slabs to

River Barge

Outbound Supply Chain

Inbound Supply Chain: Alabama

Coil

Stocking Point or

CustomerRail Barge Truck

OR

Inbound Supply Chain: Louisiana

Logistics costs comprise 50% of Project Compass’ annual costs.

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Leading and Managing the Experience

Unique aspects and key challenges of Project Compass/New Star: Accelerate…accelerate….accelerate (to accept slabs from Brazil)…deadlines; Diverse subject matter and large teams (market access, logistics, labor,

financials, site development, permit applications); Over 100 team members on project – numerous sub-teams around value chain of

project with different leadership/management styles and needs. High profile, with political and PR issues from day 1 – internal and external

communication plans were key to success; Time difference / travel / 7 x 24 expectations (no sleep, no vacations, no

mercy!); Magnitude – normal measures, methods, inquiries, models, etc. don’t

necessarily apply This was the “mother load” project that no one could respond to with off-the-shelf

information; Coaching states, utilities, chambers, railroads, ports, politicians, and other

stakeholders to “think unconventionally” and to make the investments to compete; and

Team motivation, skillsets, and project expansion.

…all worth it for a once in a lifetime project!

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Project Evolution and Site Selection Approach

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Search Area

Four factors determined the search area: coastal port(s) for inbound slabs, barge-navigable water ways; anticipated customer concentrations; and business climate.

Inbound Slabs

Inbound Slabs

Customer concentrations

TX

MSAR

OH

TN

IL INPA

OK

MO

LA

VA

SC

NC

WV

GAAL

MD

KY

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1. 2.

3. 4.

Sites evaluated against Critical Success Factors, and classified as Retain, Marginal or Eliminate.

RFI responses received and catalogued.

Request for Information (RFI) and sites issued to search-area states.

Site inspections and community/utilities meetings used to select Preferred Sites.

Identifying and Eliminating Sites

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Port Criteria Channel depth Distance from

open sea Rail service Berth length Storage space Inland river

access Qualified labor Steel

experience

Early Phases: Eliminating Sites and Ports

Site Criteria Electric

infrastructure Size / shape Water and rail

access Natural gas

service Topography,

wetlands, floodplains

Water supply Layout

challenges

Desktop Flaws Analysis

Sites20

eliminated

PortsTerminals

studied

Sites35

eliminated

Ports19

eliminated

Sites67 considered

Ports25 considered

Site Visits

12 sites / 6 ports

The project initially progressed through phases of parallel analysis of candidate sites and ports on both the East and Gulf coasts.

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Port Screening Methodology

Of the 25 ports analyzed for their ability to meet key Compass/New Star requirements, six appeared to present feasible options based on evaluations to date, eventually narrowed to Mobile and New Orleans.

Ports Analyzed Mobile, AL Tampa, FL Brunswick, GA Savannah, GA Burns Harbor, IN Lake Charles, LA Baton Rouge, LA South Louisiana, LA New Orleans, LA Plaquemines, LA Baltimore, MD Gulfport, MS Pascagoula, MS New York, NY Morehead City, NC Cleveland, OH Philadelphia, PA Charleston, SC Corpus Christi, TX Port Lavaca, TX Freeport, TX Houston, TX Beaumont, TX Port Arthur, TX Norfolk, VA

Philadelphia

Norfolk

New Orleans

Mobile

Baltimore

PORTSFeasible (6)

Eliminated (19)

Morehead City

TX

MS

AR

OH

TN

IL INPA

OK

MO

LA

VA

SC

NC

WV

AL

MD

KY

GA

FL

SCALE

equals 250 km

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Critical Location Factors

20-Year Total Costs(one-time and recurring)

50.0%

Quality of Life3.0%

Supply Chain Effectiveness12.5%

Ease of Implementation and Timing

7.5%

Utility Infrastructure

5.0%Skilled LaborAvailability & Quality

12.0%

Site Suitability & Quality

3.0%

Business ClimatePerceptions

7.0%

Throughout the project, candidate locations/sites were evaluated based on their performance against seven Critical Success Factors and their cost profile (20-year net present value).

% denotes decision weight

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Network/Logistics Modeling

Port and Location Strategies

Workforce Profiling and Financial Modeling

Incentive & Real Estate Negotiations

Program Management Oversight

Cushman & Wakefield and ThyssenKrupp developed working teams and methodologies to deploy a holistic business-case approach to identify the optimal location solution for Project Compass.

Site Selection/Due Diligence

Methodologies / Teams Optimal Location Solution

Optimal Solution

Business Case Development

Complete Business Case Evaluation

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2200000Site 9

2-22022-2Site 8

4020200Site 6

622-2022Site 4

8202220Site 3

10202222Site 2

12222222Site 1

00-2022-2Site 12

02-2-2020Site 11

0200-2-22Site 10

22-22000Site 7

4200200Site 5

Total Total ScoreScore

Utility Utility InfrastructureInfrastructure

Labor Labor Availability & Availability &

QualityQualityBusiness Business ClimateClimate

Site Availability Site Availability & Quality& Quality

Ease of Ease of Implementation Implementation

/ Timing/ Timing

Market Access Market Access & &

TransportationTransportation

2200000Site 9

2-22022-2Site 8

4020200Site 6

622-2022Site 4

8202220Site 3

10202222Site 2

12222222Site 1

00-2022-2Site 12

02-2-2020Site 11

0200-2-22Site 10

22-22000Site 7

4200200Site 5

Total Total ScoreScore

Utility Utility InfrastructureInfrastructure

Labor Labor Availability & Availability &

QualityQualityBusiness Business ClimateClimate

Site Availability Site Availability & Quality& Quality

Ease of Ease of Implementation Implementation

/ Timing/ Timing

Market Access Market Access & &

TransportationTransportation

Selecting 3 Finalists from 12 Preferred Sites

In three months of analysis and site visits, the 12 Preferred Sites were narrowed to three Finalists (Arkansas, Louisiana, and Alabama).

Qualitativeconditions ratings

Logistics network

modeling

Multiple executive site and port tours

Iterative business case and IRR

modeling

12 Sites in 7 States…ThyssenKrupp Stainless joins project - a ~$1 billion

expansion!!…

Investment Costs (in billions, US$)

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

Finalists: Further Due Diligence & Incentives

Illustrative examples

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Refined Logistics ModelingGreater site-specificity on modes, carriers, rates, and distribution models

Key Learnings Highest logistics

costs at Osceola, AR site

Louisiana site has the most manufacturing skills, but with premium costs

Construction and permitting challenges exist at all sites, but are manageable

Incentives dialog focused on needs to achieve ‘ready to build’ site

Key Learnings Highest logistics

costs at Osceola, AR site

Louisiana site has the most manufacturing skills, but with premium costs

Construction and permitting challenges exist at all sites, but are manageable

Incentives dialog focused on needs to achieve ‘ready to build’ site

Extensive Due Diligence on Three Finalists

Labor Market AnalysisManufacturing industry presence, market-based wages, and education and training resources

Site Constructability / Permitting AnalysesSite-specific facility design, site prep cost estimation, and site conditions assessments

Incentives NegotiationsIncentives potential assessments, in-person meetings and Requests for Proposal

Extensive financial and logistics modeling, coupled with engineering and site constructability analysis, revealed Alabama and Louisiana sites as superior candidates.

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Tailoring Financial Incentives to the Sites

The final months of activity focused on development-cost estimation, environmental permitting, and problem solving through collaboration between ThyssenKrupp’s and the states’ teams…

… and tailoring incentive programs that could most impact the Project Compass/New Star business case.

Financial Incentives Prioritized based on business case impacts Means to address extraordinary development needs

(piling, grading, utility and transportation infrastructure)

Facility Design and Site Development Costing Site specific facility designs were refined based on

results of on-going site assessments Parallel wetlands, river construction and air permitting

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Final Site Selection Decision

Based on the Critical Success Factors, the sites were objectively rated on 30+ weighted qualitative factors.

The results suggested a near tie based on qualitative factors.

30+ individually weighted factors re: operating conditions, risks, timing, etc.

Unique pros and cons of the sites were nearly balanced.

The good news: Two great sites... The bad news: How do we decide?…

Illustrative examples

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Final Site Selection Decision (continued)

Ultimately, ThyssenKrupp’s internal deliberations on the sites’ merits and their long-term financial business cases yielded the selection of the Mount Vernon, Alabama site. Louisiana Highlights: Superior inbound logistics coupled with larger labor force

and deeper manufacturing presence; yet more extensive infrastructure development and higher anticipated operating costs.

Alabama Highlights: Lower long-term operating costs (e.g., electricity and labor) and less complex site development and infrastructure-improvement scenario.

The final choice between the two sites was a very challenging one for ThyssenKrupp’s leadership and project teams – due in large part to the outstanding efforts of Team Louisiana and Team Alabama.

Intangibles and the performance of economic development teams played a key role in ThyssenKrupp’s decision-making throughout the project.

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…in the end, leadership and commitment