Attached files
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| 8-K - FORM 8-K - SunCoke Energy, Inc. | d423917d8k.htm |
 Investor
Meetings October 2012
Exhibit 99.1 |
 Safe Harbor
Statement Some of the information included in this presentation contains
“forward-looking statements” (as defined in Section 27A of the
Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as
amended). Such forward-looking statements are based on management’s beliefs
and assumptions and on information currently available. Forward-looking statements
include the information concerning SunCoke’s possible or assumed future results of operations, the planned Master
Limited Partnership, business strategies, financing plans, competitive position, potential
growth opportunities, potential operating performance improvements, the effects of
competition and the effects of future legislation or regulations. Forward-looking
statements include all statements that are not historical facts and may be identified by the
use of forward-looking terminology such as the words “believe,”
“expect,”
“plan,”
“intend,”
“anticipate,”
“estimate,”
“predict,”
“potential,”
“continue,”
“may,”
“will,”
“should”
or the negative of these terms or similar expressions. Forward-looking statements involve
risks, uncertainties and assumptions. Actual results may differ materially from those
expressed in these forward-looking statements. You should not put undue reliance on
any forward-looking statements. In accordance with the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995, SunCoke has included in its filings
with the Securities and Exchange Commission cautionary language identifying important factors (but not necessarily all the
important factors) that could cause actual results to differ materially from those expressed
in any forward-looking statement made by SunCoke. For more information concerning
these factors, see SunCoke's Securities and Exchange Commission filings. All
forward-looking statements included in this presentation are expressly qualified in their
entirety by such cautionary statements. SunCoke does not have any intention or
obligation to update publicly any forward-looking statement (or its associated cautionary
language) whether as a result of new information or future events or after the date of this
presentation, except as required by applicable law.
This presentation includes certain non-GAAP financial measures intended to supplement, not
substitute for, comparable GAAP measures. Reconciliations of non-GAAP financial
measures to GAAP financial measures are provided in the Appendix at the end of the
presentation. Investors are urged to consider carefully the comparable GAAP measures and the reconciliations to those
measures provided in the Appendix, or on our website at www.suncoke.com.
2
Investor Visits - October 2012 |
 About
SunCoke Largest independent producer of
metallurgical coke in the Americas
Coke is an essential ingredient in blast
furnace production of steel
Cokemaking business generates
~85% of Adjusted EBITDA
(1)
5.9 million tons of capacity in six
facilities; 5 in U.S. and 1 in Brazil
2012 U.S. coke production is expected
to be in excess of 4.3 million tons
Coal mining operations represents
~15% of Adjusted EBITDA
(1)
High quality mid-vol. metallurgical coal
reserves in Virginia and West Virginia
2012 coal production expected to be
1.6 million tons
3
(1)
For a definition and reconciliation of Adjusted EBITDA, please see appendix.
Investor Visits - October 2012 |
 Blast Furnaces
and Coke Most efficient blast
furnaces require
800-900 lbs/NTHM
of fuel to produce
a ton of hot metal
4
1 short ton
of hot metal (NTHM)
Coke is a vital material to
Coke is a vital material to
blast furnace steel making
blast furnace steel making
Blast furnaces are the most
Blast furnaces are the most
efficient and proven method
efficient and proven method
of reducing iron oxides
of reducing iron oxides
into liquid iron
into liquid iron
We believe stronger, larger
We believe stronger, larger
coke is becoming more
coke is becoming more
important as blast furnaces
important as blast furnaces
seek to optimize fuel needs
seek to optimize fuel needs
Top Gas
BEST IN CLASS in lbs/ST
Iron
burden
Iron ore/
pellets
Scrap
3100
198
Flux
Limestone
30
Fuel
Coke
600
BEST IN CLASS in lbs/ST
Fuel
Nat Gas
Coal
Up to
80-120
to
120-
180
Up
Investor Visits - October 2012 |
 More than
doubled capacity since 2006 with four new plants
-
Only company to design, build and
operate new greenfield developments
in U.S. in more than a decade
-
Supply about 20% of U.S. and Canada
coke needs
(1)
Secure, long-term take-or-pay
contracts with leading steelmakers
-
Customers include ArcelorMittal, U.S.
Steel and AK Steel
Cokemaking operations are
strategically located in proximity to
customers’
facilities
The Leading Independent Cokemaker
SunCoke
Cokemaking Capacity
(In thousands of tons)
5
(1)
Source: Company estimates
2006
2007
2008
2009
2010
2011
Jewell Coke
(Virginia)
Indiana Harbor
(Indiana)
Haverhill I
(Ohio)
Vitória
(Brazil)
Haverhill II
(Ohio)
Granite City
(Illinois)
Middletown
(Ohio)
2,490
4,190
4,740
5,390
5,390
5,940
Investor Visits - October 2012 |
 SunCoke’s
Heat Recovery Cokemaking Technology
6
Investor Visits - October 2012 Industry leading environmental
signature -
Leverage negative pressure technology
to substantially reduce hazardous emissions -
Convert waste heat into steam
and electrical power
-
Generate about 9 MW of
electric power per 110,000
tons of annual coke production
Meet stringent U.S. EPA
Maximum Achievable Control
Technology standard -
Traditional by-product cokemaking
methods have significant environmental impacts |
 SunCoke’s
Value Proposition Provide an assured supply of coke to steelmakers
Larger, stronger coke for improved blast furnace performance
Demonstrated sustained 15% -
20% turndown capability
High quality coke with cheaper coal blends
-
Burn loss vs. by-product
Capital preservation and lower capacity cost per ton;
particularly relative to greenfield investment
Stringent U.S. regulatory environment
Power prices and reliability versus value of coke oven gas and
by-product "credits"
High Quality
& Reliable
Coke Supply
Turndown
Flexibility
Coal
Flexibility
Capital
Efficiency
& Flexibility
Environment
/Economic
Trade-offs
7
Investor Visits - October 2012 |
 Key Contract
Provisions Customers must take all our production up to a maximum or
pay contract price for amount not taken
-We are obligated to deliver a
minimum quantity of coke annually
Cost of coal is passed-through subject to achieving a
contracted coal-to-coke yield standard
Operating costs are passed-through based on annually
negotiated budget or a fixed budget adjusted for inflation
These costs are passed-through
Take-or-Pay
Fixed Fee
Coal Cost
Operating
Costs
Transportation
& Taxes
8
Investor Visits - October 2012
Represents profit and return on capital
-Fixed fee is fixed for life of
contract |
 Q1 & Q2 2012
Earnings Overview Results driven by strong Coke business
performance
-
Middletown startup has been a success
-
Continued improvement at Indiana Harbor
-
Strong operations at other facilities
Coal action plan progressing
-
Difficult demand/price environment
-
Taking action to reduce high cash
production costs
-
Achieved improved sequential quarter
performance
Strong liquidity position
-
Generated $66 million of free cash flow
(2)
in
first half 2012
-
Cash balance of $190 million and virtually
undrawn revolver of $150 million
(1)
For a definition and reconciliation of Adjusted EBITDA, please see the appendix.
(2)
For a definition and reconciliation of free cash flow, please see the appendix.
9
$0.17
$0.24
$0.32
$0.32
2011
2012
Q1
Q2
Earnings Per Share
(diluted)
$26.6
$55.8
$37.7
$65.5
2011
2012
Q1
Q2
Adjusted EBITDA
(1)
(in millions)
Investor Visits - October 2012 |
 Domestic Coke
Business Summary (Jewell Coke & Other Domestic Coke)
10
(Tons in thousands)
($ in millions, except per ton amounts)
Strong performance driven by Middletown, Indiana Harbor and other operations
Domestic Coke Adjusted EBITDA
(1)
Per Ton
Domestic Coke Production
Investor Visits - October 2012
(1)
For a definition of EBITDA and Adjusted EBITDA/Ton and reconciliations, please see the
appendix. (2) Includes Indiana Harbor contract billing adjustment of $6.0
million, net of NCI, and inventory adjustment of $6.2 million, net of NCI, of
which $3.1 million is attributable to Q3 2011.
(3)
Includes a $2.4 million, net of NCI, charge related to coke inventory reduction and a $1.3
million, net of NCI, lower cost or market adjustment on pad coal inventory
and lower coal-to-coke yields related to the startup at Middletown. |
 Coal Mining
Financial Summary 11
($ in millions, except per ton amounts)
Cash production costs increasing in face of
difficult demand/price environment
-
Pricing up modestly, reflecting strong mid-vol.
pricing/volumes, offset by weak hi-vol. and thermal
pricing/volumes
-
Cash costs up $11/ton, reflecting decreased mix and
higher costs of hi-vol. and thermal production
Coal action plan implemented in Q1 2012
gaining traction
-
Focus on most productive mines to reduce costs
delivered sequential quarter improvement
-
Cash cost per ton at Jewell decreased from
$161 in Q1 2012 to $143 in Q2 2012
-
Jewell reject rates improved from 68% in Q1
2012 to 66% in Q2 2012
-
Expect further cash cost reductions for 2013
Intend to maintain cash neutral position in
2012
-
Reduced capital spending in line with outlook
Coal Mining Adjusted EBITDA
(1)
and Avg. Sales
Price/Ton
(2)
Coal Sales, Production and Purchases
Q2 '11
Q3 '11
Q4 '11
Q1 '12
Q2 '12
Coal Sales
334
371
363
373
365
Coal Producton
340
340
349
375
401
Purchased Coal
24
22
20
19
4
(1)
For a definition and a reconciliation of Adjusted EBITDA, please see the appendix. (2)
Average Sales Price is the weighted average sales price for all coal sales
volumes, including sales to affiliates and sales to Jewell Coke.
(3)
Q4 2011 Adjusted EBITDA inclusive of Black Lung Liability charge of $3.4 million and
OPEB expense allocation of $1.8 million.
Investor Visits - October 2012 |
 12
(1)
For a definition and reconciliation of free cash flow, please see appendix.
First Half 2012 Sources & Uses of Cash
Liquidity position and credit metrics improving;
free cash flow
(1)
was $66 million in first half 2012
($ in millions)
Q4 2011
Cash
Balance
1H 2012
Net Income
Depreciation,
Depletion &
Amortization
Deferred
Taxes
Changes in
Working
Capital
Other
Capital
Expenditures
Cash used in
financing
activities
Q2 2012
Cash
Balance
Investor Visits - October 2012 |
 2012 Adjusted
EBITDA (1)
Outlook
($ in millions)
13
(1)
For a definition of Adjusted EBITDA and reconciliation of Adjusted EBITDA, please see the
appendix. Strong U.S. cokemaking business expected to
drive increase in Adjusted EBITDA
(1)
in 2012
Investor Visits - October 2012 |
 Strategies for
Enhancing Shareholder Value 14
Operational
Excellence
•
Maintain focus on details
and discipline of coke and
coal mining operations
•
Sustain and enhance top
quartile safety
performance and ability to
meet environment
standards
•
Leverage operating know-
how and technology to
continuously improve
yields and operating costs
Grow The Coke
Business
•
U.S. & Canada
•
Continue permitting
efforts for next potential
U.S. facility
•
Explore opportunities to
make strategic
investments in existing
capacity
•
International
•
Execute India entry and
pursue follow-on growth
Strategically Optimize
Assets
•
Coke MLP
•
Execute plan to place a
portion of our
cokemaking assets into
an MLP structure
•
Coal
•
Optimize operations and
investments to enhance
long-term strategic
flexibility
Investor
Visits
-
October
2012 |
 Source:
CRU, The Annual Outlook for Metallurgical Coke 2012. Replace aging coke batteries
operated by integrated steel producers Source: CRU, The Annual Outlook for
Metallurgical Coke 2012 51% of coke capacity is at facilities >30 years old
Integrated
Integrated
Steel
Steel
Producers
Producers
63%
63%
SunCoke
18%
DTE
5%
Other Merchant
Other Merchant
& Foundry
& Foundry
6%
6%
Imports
Imports
8%
8%
U.S. and Canada Opportunity
15
Total 2011 Coke Demand: 19.5 million tons
Average Age
%
of U.S. & Canada
coke production
9
37
27%
24%
SunCoke
U.S. &
Canada
(excl SXC)
30
40 years
40+ years
-
Investor Visits - October 2012 |
 Coke Price
Comparison 16
SunCoke’s coke is competitive on price, quality and reliability, providing us the
opportunity to displace imported coke
Based on July 2012 prices
U.S. and Canada Coke Imports
Representative Delivered Coke Prices -
$/ton
1
Includes approx. $50/ton freight and approx. $40/ton handling loss
for
shipping to Great Lakes region
2
Includes approx. $45/ton freight and approx. $30/ton handling loss
for shipping to Great Lakes region
Imports
SunCoke sales volumes
Chinese Coke Price
SunCoke Coke Price @ Spot Coal Price
Chinese 40% Export Tax Premium (Tariff)
SunCokePrice
-
Contracted
Coal
Price
Differential
Investor Visits - October 2012
Source: World Price (DTC), Coke Market Report, CRU and company estimates |
 Natural Gas in
The Blast Furnace Impact of Low Natural Gas Prices
•
Natural gas cannot completely replace
coke in blast furnace
–
We estimate natural gas and other
injectants can replace up to about 30%
–
The less coke used the more important
the coke’s quality
•
Alternative technologies take time to
implement, require significant capital
commitments and are energy intensive
•
Coke oven gases produced by
integrated steelmakers’
own coke
ovens is less valuable in low cost
natural gas environment, potentially
impacting steelmakers’
future
reinvest/rebuild decisions
Blast Furnace Fuel Pricing
17
Source: CRU, SXC Analysis
US$/MMBtu
Investor Visits - October 2012 |
 Sources: CRU, The Annual Outlook for
Metallurgical Coke 2011, CIA World Factbook.
India Opportunity
•
Committed to
India entry
strategy
–
Discussing
opportunities in
India
–
Targeting
potential entry by
early 2013
18
India
Steel/Coke
Market
Growing Steel
Market
Coke supply
Deficit
Active
Merchant
Market
Electric Power
Deficit
Projected to be 3rd largest
steel market by 2020
Blast furnace to play a critical
role in growth
Importing approximately
2 million tons annually
Coke capacity investment lags
steel investment
3.5 million tons merchant
production or 13% of total
17 active merchant
coke producers
10% -
20% short power
Average wholesale price >$80
mwh (2x U.S. rate)
Investor Visits - October 2012 |
 Master Limited
Partnership Filed S-1 on August 8, 2012
–
Amended S-1 on September 14, 2012
and October 9, 2012
Expected Assets/Structure
–
At closing of offering, MLP expected
to own approximately a 65% interest
in Haverhill and Middletown
–
SXC to own General Partner, incentive
distribution rights and a portion of
the partnership units
Proceeds to SXC
–
Expected uses include paying down
debt, funding expansion and other
general corporate purposes
19
Middletown Operations
Haverhill Operations
Investor Visits - October 2012 |
 Appendix
|
 Definitions
•
Adjusted
EBITDA
represents
earnings
before
interest,
taxes,
depreciation,
depletion
and
amortization
(“EBITDA”)
adjusted
for
sales
discounts
and
the
deduction
of
income
attributable
to
non-controlling
interests
in
our
Indiana
Harbor
cokemaking
operations.
EBITDA
reflects
sales
discounts
included
as
a
reduction
in
sales
and
other
operating
revenue.
The
sales
discounts
represent
the
sharing
with
our
customers
of
a
portion
of
nonconventional
fuels
tax
credits,
which
reduce
our
income
tax
expense.
However,
we
believe
that
our
Adjusted
EBITDA
would
be
inappropriately penalized if these discounts were treated as a reduction of EBITDA since they
represent sharing of a tax benefit which is not included in EBITDA. Accordingly, in
computing Adjusted EBITDA, we have added back these sales discounts. Our Adjusted
EBITDA also reflects the deduction of income attributable to noncontrolling
interest
in
our
Indiana
Harbor
cokemaking
operations.
EBITDA
and
Adjusted
EBITDA
do
not
represent
and
should
not
be
considered
alternatives
to
net
income
or
operating
income
under
United
States
generally
accepted
accounting principles (GAAP) and may not be comparable to other similarly titled measures of
other businesses. Management believes Adjusted EBITDA is an important measure of the
operating performance of the Company’s assets.
•
Adjusted
EBITDA/Ton
represents
Adjusted
EBITDA
divided
by
tons
sold.
•
Free Cash Flow
equals cash from operations less cash used in investing activities less cash distributions to
non- controlling interests. Management believes Free Cash Flow information
enhances an investor’s understanding of a business’
ability to generate cash. Free Cash Flow does not represent and should not be
considered an alternative to net income or cash flows from operating activities as
determined under GAAP and may not be comparable to other similarly titled measures of
other businesses. 21
Investor Visits - October 2012 |
 Reconciliations
22
$ in millions
Adjusted Operating Income
46.6
37.1
80.4
14.9
33.5
24.6
7.4
Net Income (Loss) attributable to Noncontrolling Interest
1.3
(0.3)
(1.7)
(0.5)
3.4
1.6
(6.2)
Subtract: Depreciation Expense
(20.2)
(18.4)
(58.4)
(16.0)
(14.7)
(14.7)
(13.0)
Adjusted EBITDA
65.5
55.8
140.5
31.4
44.8
37.7
26.6
Subtract: Depreciation, depletion and amortization
(20.2)
(18.4)
(58.4)
(16.0)
(14.7)
(14.7)
(13.0)
Subtract: Financing expense, net
(11.8)
(12.0)
(1.4)
(7.1)
(3.3)
4.5
4.5
Subtract: Income Tax
(7.0)
(5.3)
(7.2)
2.9
(5.1)
(1.9)
(3.1)
Subtract: Sales Discount
(3.8)
(3.2)
(12.9)
(3.2)
(3.5)
(3.1)
(3.1)
Add: Net Income attributable to NCI
1.3
(0.3)
(1.7)
(0.5)
3.4
1.6
(6.2)
Net Income
24.0
16.6
58.9
7.5
21.6
24.1
5.7
Reconciliations from Adjusted Operating Income and Adjusted EBITDA to Net Income
FY 2011
Investor Visits - October 2012
Q2 2012
Q1 2012
Q1 2011
Q2 2011
Q3 2011
Q4 2011 |
 Reconciliations
23
$ in millions, except per ton data
Jewell Coke
Other
Domestic
Coke
International
Coke
Jewell Coal
Corporate
Combined
Domestic
Coke
Q2 2012
Adjusted EBITDA
12.5
48.6
0.7
9.3
(5.6)
65.5
61.1
Subtract: Depreciation, depletion and amortization
(1.3)
(13.7)
(0.1)
(4.3)
(0.8)
(20.2)
(15.0)
Add (Subtract): Net (Income) loss attributable
to noncontrolling interests
1.3
1.3
1.3
Adjusted Pre-Tax Operating Income
11.2
36.2
0.6
5.0
(6.4)
46.6
47.4
Adjusted EBITDA
12.5
48.6
0.7
9.3
(5.6)
65.5
61.1
Sales Volume (thousands of tons)
170
892
358
373
1,062
Adjusted EBITDA per Ton
73.5
54.5
2.0
24.9
57.5
Q1 2012
Adjusted EBITDA
15.0
40.1
0.1
7.4
(6.8)
55.8
55.1
Subtract: Depreciation, depletion and amortization
(1.3)
(12.6)
(0.1)
(4.1)
(0.3)
(18.4)
(13.9)
Add (Subtract): Net (Income) loss attributable
to noncontrolling interests
(0.3)
(0.3)
(0.3)
Adjusted Pre-Tax Operating Income
13.7
27.2
-
3.3
(7.1)
37.1
40.9
Adjusted EBITDA
15.0
40.1
0.1
7.4
(6.8)
55.8
55.1
Sales Volume (thousands of tons)
186
892
358
373
1,078
Adjusted EBITDA per Ton
80.6
45.0
0.3
19.8
51.1
Reconciliations from Adjusted EBITDA to Adjusted Pre-Tax Operating Income
Investor Visits - October 2012 |
 Reconciliations
24
$ in millions, except per ton data
Jewell Coke
Other
Domestic
Coke
International
Coke
Jewell Coal
Corporate
Combined
Domestic
Coke
Q4 2011
Adjusted EBITDA
10.6
21.3
10.2
2.5
(13.2)
31.4
31.9
Subtract: Depreciation, depletion and amortization
(1.2)
(10.6)
(0.1)
(3.7)
(0.4)
(16.0)
(11.8)
Add (Subtract): Net (Income) loss attributable
to noncontrolling interests
(0.5)
(0.5)
(0.5)
Adjusted Pre-Tax Operating Income
9.4
10.2
10.1
(1.2)
(13.6)
14.9
19.6
Adjusted EBITDA
10.6
21.3
10.2
2.5
(13.2)
31.4
31.9
Sales Volume (thousands of tons)
166
837
295
363
1,003
Adjusted EBITDA per Ton
63.9
25.4
34.6
6.9
31.8
Q3 2011
Adjusted EBITDA
13.9
34.3
1.7
9.2
(14.3)
44.8
48.2
Subtract: Depreciation, depletion and amortization
(1.2)
(9.9)
-
(3.3)
(0.3)
(14.7)
(11.1)
Add (Subtract): Net (Income) loss attributable
to noncontrolling interests
3.4
3.4
3.4
Adjusted Pre-Tax Operating Income
12.7
27.8
1.7
5.9
(14.6)
33.5
40.5
Adjusted EBITDA
13.9
34.3
1.7
9.2
(14.3)
44.8
48.2
Sales Volume (thousands of tons)
191
777
373
371
968
Adjusted EBITDA per Ton
72.8
44.1
4.6
24.8
49.8
Reconciliations from Adjusted EBITDA to Adjusted Pre-Tax Operating Income
Investor Visits - October 2012 |
 Reconciliations
25
$ in millions, except per ton data
Jewell Coke
Other
Domestic
Coke
International
Coke
Jewell Coal
Corporate
Combined
Domestic
Coke
Q2 2011
Adjusted EBITDA
10.6
25.3
0.8
11.5
(10.5)
37.7
35.9
Subtract: Depreciation, depletion and amortization
(1.4)
(9.6)
(0.1)
(3.2)
(0.4)
(14.7)
(11.0)
Add (Subtract): Net (Income) loss attributable
to noncontrolling interests
1.6
1.6
1.6
Adjusted Pre-Tax Operating Income
9.2
17.3
0.7
8.3
(10.9)
24.6
26.5
Adjusted EBITDA
10.6
25.3
0.8
11.5
(10.5)
37.7
35.9
Sales Volume (thousands of tons)
170
757
412
334
927
Adjusted EBITDA per Ton
62.4
33.4
1.9
34.4
38.7
Q1 2011
Adjusted EBITDA
11.0
8.5
1.0
12.3
(6.2)
26.6
19.5
Subtract: Depreciation, depletion and amortization
(1.1)
(8.6)
-
(2.7)
(0.6)
(13.0)
(9.7)
Add (Subtract): Net (Income) loss attributable
to noncontrolling interests
(6.2)
(6.2)
(6.2)
Adjusted Pre-Tax Operating Income
9.9
(6.3)
1.0
9.6
(6.8)
7.4
3.6
Adjusted EBITDA
11.0
8.5
1.0
12.3
(6.2)
26.6
19.5
Sales Volume (thousands of tons)
175
697
362
386
872
Adjusted EBITDA per Ton
62.9
12.2
2.8
31.9
22.4
Reconciliations from Adjusted EBITDA to Adjusted Pre-Tax Operating Income
Investor Visits - October 2012 |
  (in
millions) 2012E
Low
2012E
High
Net Income
$98
$122
Depreciation, Depletion and Amortization
74
72
Total financing costs, net
48
46
Income tax expense
25
37
EBITDA
$245
$277
Sales discounts
11
10
Noncontrolling interests
(6)
(7)
Adjusted EBITDA
$250
$280
Estimated EBITDA Reconciliation
2012E Net Income to Adjusted EBITDA Reconciliation
26
Investor Visits - October 2012 |
 Free Cash Flow
Reconciliations 2012E Estimated Free Cash Flow Reconciliation
27
(in millions)
1 Half
2012
Cash from operations
$ 86.7
Less cash used for investing activities
(20.7)
Less payments to minority interest
( -
)
Free Cash Flow
$ 66.0
(in millions)
2012
Cash from operations
In excess of
$ 189
Less cash used for investing activities
Approx.
(85)
Less payments to minority interest
Approx.
(4)
Free Cash Flow
In excess of
$ 100
First Half 2012 Free Cash Flow Reconciliation
st
Investor Visits - October 2012 |