Copper Products

Corporate Presentation
1
Disclaimer
This presentation may contain certain forward-looking statements and information relating to Paranapanema S.A. (the
“Company”) that reflect the current views and/or expectations of the Company and its management with respect to its
performance, business and future events. Forward-looking statements include, without limitation, any statement that may
predict, forecast, indicate or imply future results, performance or achievements, and may contain words and/or any other
phrases of similar meaning. Such statements are subject to a number of risks, uncertainties and assumptions. We caution you
that a number of important factors could cause actual results to differ materially from the plans, objectives, expectations,
estimates and intentions expressed in this presentation.
In no event, neither the Company nor any of its subsidiaries, affiliates, directors, officers, agents or employees shall be liable
before any third party (including investors) for any investment or business decision made or action taken in reliance on the
information and statements contained in this presentation or for any consequential, special or similar damages.
This presentation and all its contents are proprietary information and may not be reproduced or otherwise disseminated in
whole or in part without the prior written consent of the Company. The information contained in this presentation is subject to
change from time to time without notice and the Company is under no obligation to keep you advised of such changes
2
Agenda
1
PMAM at a glance
4
2
Company Overview
5 6
3
Business Model
Financials
Copper Sector
3
Agenda
1
PMAM at a glance
4
2
Company Overview
5 6
3
Business Model
Financials
Copper Sector
4
PMAM at a glance
Positioning overview
Sole Brazilian smelter and refiner, with strong positioning in the value chain
Copper flowchart
PMAM’s Presence
MINING
DOWNSTREAM
SMELTING & REFINING
(Products)
Gold
Silver
Copper Ore
(1.0% copper)
Copper
Concentrate
(~28% copper)
Scrap
Blister
(~98% copper)
Anode
(~99.5% copper)
Cathode
(~99.9% copper)
Byproducts
(H2SO4, anodic
slime and slag)
Primary Copper
~280 kt
Semi-Finished
Market
(rods, wires, tubes,
bars, laminates, etc.)
(finished
products)
Copper Products
~180 kt
Cathodes Sales
~100 kt
 Sole Brazilian cathode
producer
PMAM is present
 Largest Brazilian supplier of
copper rods and wires
 3 processing plants for
refined copper and scrap
5
PMAM at a glance
Business segments and operations
Diversification between products and markets protects margins
Segments Breakdown (% of 2Q15 Revenues)
Operations
Primary Copper & Copper Products
~2,000
employees
By-products
(B2B products)
BRAZIL
PERU
Copper Products
Copper
Concentrate
Primary Copper
13%
Very low
associated cost
(refining - cathodes)
63% 12%
30%
37%
88%
Copper Products
CHILE
32%
2Q15
100% of refined
copper in Brazil
Products and Brazilian Market Share (2014)*
Copper Products
B2B and B2C
(semi-finished and
finished products)
Bars
15% Share
68%
57%
Domestic Market
Cathode
53% Share
Export Market
Different types of
sectors and clients
Rolled
30% Share
*Source: Company, Sindicel and CRU
Rods and Wires
42% Share
Tubes
46% Share
6
PMAM at a glance
Recent organizational emphasizes corporate governance
New management has shifted focus to increase ROIC
Timeline
1961 Paranapanema
was established
Shareholding Structure
Focused on Non-ferrous metals
Became largest Brazilian Copper producer
Capacity Expansion and Technology
upgrade by 2012
Listed on BM&FBovespa’s Novo Mercado
Individuals
Paranapanema 2018 Project (PMA-2018)
Recovery begins in 2013
Re-defined business model:
Returns on added capacity
24%
11%
Locals
1971 IPO
Key Operations
Mining & Construction
12%
Foreign
11%
17%
6%
7%
12%
Change in management:
Managing-by-the-penny
Management alignment:
Variable compensation
Long-term gains and better processes legacy
7
PMAM at a glance
PMA 2018: long term plan to sustain profitability and stabilize results
ROIC-centered management reflected in share price
Maximizing productivity
on existing assets
Meritocracy
Increase ROIC
metrics
Cultural
Reshape
Process
Growing above
market average
Adding selected new
opportunities surrounding
existing assets
8
PMAM at a glance
PMA 2018 KPIs: a guidance to recovery
Cathode Production (Kt)
Working Capital (# days)
151
257
238
2013
2014
280
290
124
2016E
2018E
2013
Transformation Cost and SG&A (R$/t)
2014
140
2016E
120
2018E
Capex (R$ Million) and as % of Depreciation
120%
114%
100%
615
2013
Note: E = expected
57%
2,072
2,047
1,840
124
1,748
144
120
69
554
2014
515
2016E
489
2018E
2013
2014
2016E
2018E
9
PMAM at a glance
Enhancements achieved so far
Priority
OPERATING
EXCELLENCE
HUMAN
CAPITAL
OTHER
Impact
Results
Cost control
Transformation cost/t: Reduced by 5% (2014x2013)
SG&A: Reduced by 17% (2014x2013)
Cast & Roll ramp-up
From 40% to 68% capacity utilization
Capex
Reduced by 65% (R$69MM – vs. ‘14 budget)
Board of Directors
Audit Council
Committees
70% replaced, Independent Chairman
40% replaced
Monthly operational cycle
Headcount
C level change
-15% (2014 x 2013)
65% (1/3 downsized / 50% replaced)
Long term planning
5 year business plan – PMA 2018
10
PMAM at a glance
Financials
Gross Profit and Gross Margin
8,5%
6,9%
9,4%
Free Cash Flow 1
EBITDAa and EBITDAa Margin
10,3%
8,8%
9,1%
397
9,0%
6,7%
7,4%
168
152
84
5,2%
105
75
1Q14
123
125
109
80
0,4%
5
2Q14
3Q14
4Q14
Gross Profit
1Q15
2Q15
4
1Q14
2Q14
3Q14
Adjusted EBITDA
4Q14
Adjusted EBITDA Margin
80
74
-108
-6,6%
-9,3%
Net Profit
1Q14
2Q14
3Q14
4Q14
4Q14
1Q15
2Q15
Peers – EBITDA Margin (%)2
Locals exposed to Metallurgy
14.4
6,1%
-72
3Q14
-450
14.0
-73
-97
2Q14
2Q15
Accumulated Profit/Losses
-15
1Q14
1Q15
32
6,1%
-1,3%
-29
0,4%
10,6%
131
109
73
57
Gross Margin
Net Profit and Net Margin
120
1Q15
Net Margin
9.6
Smelters
-169
5.2
-234
2.0
0.5
-303
2Q15
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
Jiangxi
Aurubis
PMA
MagnesitaUsiminas Ferbasa
1 Free
2
(R$MMe%)
Cash Flow: operating cash flow - capex
Plain 2014 EBITDA Margin, Bloomberg data
11
PMAM at a glance
Financials: strong balance sheet and efficient working capital usage
Cash & Debt (R$ Million)
Net Debt/LTM EBITDAa
1.048
988
1.079
1.127
2,5x
659
2,2x
1,6x
1,5x
1,5x
1.995
1.165
1.590
1.333
1.246
1,0x
0,8x
868
506
257
2Q14
3Q14
511
285
4Q14
Gross Debt
1Q15
Net Debt
2Q15
2Q14
3Q14
4Q14
1Q15
2Q15
Working Capital (R$ Million)
Cash = ~2 years of amortization
304
Cash
1Q14
Cash
Maturity Schedule (R$ Million)
1,079
4Q13
70
42
1,590
783
665
174
999
2015
2016
2017
2018
2019
Gross Debt
2Q14
381
348
326
3Q14
4Q14
1Q15
2Q15
12
PMAM at a glance
Sector overview: copper market outlook
Global copper imbalance to sustain high TC/RCs that together with efficient risk management should continue to
benefit margins
Global Copper Production and Primary Demand (Mt)1
TC/RCs (US$/t and R$/t) 2 – Quoted Benchmark
40
Possible Projects
35
US$/t
Probable Projects
30
R$/t
1,824
Highly Probable Projects
25
Base Case Production Capability
20
Primary Demand
1,199
15
447
10
519
5
0
1992
1997
2002
2007
2012
2017
2022
2027
Smelters: Industry Bottleneck (Mt) 1
16
15
16 15
17
18
16
19
16
17
838
688
254
310
352
388
2010
2011
2012
2013
510
2014
610
2015 YTD
Metal Premium (US$/t) – Cathode3
19
21
18
19
Exports Premium
Domestic Premium
2010
2011
2012
2013
Concentrate Production
2014
2015E
2016E
Smelter Production
2010
2011
2012
2013
2014
1
Source: Wood Mackenzie March 2015
= Treatment Charge/Refining Charge (discount miners give to smelters to transform concentrate in refined copper)
3 Bloomberg, Company data
2TC/RC
13
PMAM at a glance
High substitution cost restraining increase in smelting capacity
Smelting capacity demands large investments, not to mention working capital. Therefore, additional
capacity is unlikely at current TC/RCs levels
Comparable smelter valuations
First Quantum Sentinel Smelter
Jinchuan Copper (phase 1)
Freeport / PT Aneka Tambang
(estimate)
Country
Capacity (Kt)
Costs (US$ M)
Cost/t
Zambia
300
690
2,300
China
400
2,000
5,000
Indonesia
300
2,200
7,333
1,630
4,878
Market Cap (US$ M)*
416
Cost/t
1,486
Average (in US$)
Paranapanema
Source: Macquarie Research
*PMAM3 share price of R$3.94 and US$/R$ rate of 3.02 as of May 11, 2015
Country
Brazil
Capacity (Kt)
280
14
PMAM at a glance
Comparable companies
Smelters with similar operation to Paranapanema are the correct peers to be compared with
EBITDA Margin (%) – Smelters/Refiners
Net Margin (%)
5.2
2.6
2.0
0.9
0.4
0.5
Jiangxi
Aurubis
PMA
EV/EBITDA 2015
Jiangxi
Aurubis
PMA
P/E 2015
13.2
29.0
8.2
5.8
14.4
5.9
Jiangxi
Aurubis
Source: Bloomberg. 2014 figures and multiples updated as of May 11, 2015
PMA
Jiangxi
Aurubis
PMA
15
PMAM at a glance
YTD share price performance (+5%*)
PMA
Source: Bloomberg
* Until August 3, 2015
Aurubis
Vale
Gerdau
Usiminas
Magnesita
Fesa
Ibov
Copper
jul-15
jun-15
mai-15
abr-15
mar-15
fev-15
jan-15
dez-14
nov-14
out-14
set-14
ago-14
jul-14
jun-14
mai-14
mai-14
abr-14
mar-14
jan-14
jan-14
(Base 100)
CSN
16
PMAM at a glance
Key investment highlights
1
2
3
4
5
6
7
Establishing a culture of cost and asset efficiency
ROIC driving decision-making process
Strict capital usage policy
Risk management minimizing results volatility
Sustainable results maximizing shareholders’ returns
17
Agenda
1
PMAM at a glance
4
2
Company Overview
5 6
3
Business Model
Financials
Copper Sector
18
Company Overview
History marked by several restructurings and poor risk management
Current focus is to maximize capacity utilization, reduce costs and improve risk management seeking sustainable
and improved results
1960 – 1999
 Concentration in non-ferrous (largest copper producer in Brazil)
 Financial (2005), corporate and fiscal restructuring (2009)
 Private capital increase (2008)
2000 - 2010
2012
2013
2015 - 2018
 Sale of non core assets
 Dias d’Ávila (BA) capacity expansion
 Entrance to Novo Mercado (BM&FBOVESPA)
 Launch of new tubes plant in Utinga
 Change of CEO (commodity sector professional)
 New risk management policy
 Processes reengineering
 60% of the leadership is replaced
 PMA 2018 Project
Operational Efficiency + Risk Management = Sustainable
Results
Stable results and
growth
2014
Transition to copper
refiner
2011
 Investment plan for expansion and modernization – R$702 million
 Organizational restructuring
 Construction of tubes plant in Utinga (Santo André – SP)
PMA contractor and
miner
 Constitution in 1961 – heavy construction
 IPO in 1971
 Pension funds take over the control (1996)
19
Company Overview
Business segments and installed capacity
Dias d’Ávila
Dias d’Ávila
Rods: 220 kt
Wires: 80 kt
Utinga
and Serra
Cathodes: 280 kt
Tubes: 35 kt
Laminates: 26 kt
Dias d’Ávila
Co-products
(7%)
Copper Products
(59%)
Primary Copper
(34%)
Business Segments*
H2SO4
Bars: 12 kt
Fittings: 4 kt
Gold
Silver
Sulphuric Acid: 560 kt
*Numbers refer to installed capacity and percentages refer to share of 2014 Net Revenues
Anodic Slime: 540 t
Slag: 396 kt
20
Company Overview
Business segments and competition overview
Copper Products
Primary Copper
(smelting
and refining)
Semi-Finished
Copper Products
Co-Products
Finished
Semi-Finished
Finished
Products
Anodic Slime
Cathodes
Competitors
Domestic:
- Ibrame
- Prysmian
Sulphuric
Acid
Iron
Silicate
Domestic:
- Galvani
- Vale
Foreign:
Foreign:
- Codelco (Chile)
- Aurubis (Germany)
- ILO (Peru)
- Glencore (UK/Switzerland)
- Aurubis (Germany)
- Antofagasta (Chile)
- Glencore (UK/Switzerland)
Copper Rod
Laminates
Industrial Tubes
Bars and Profiles
Tubes
Connections
Wires
Drawn Bare Wire
Domestic:
- Termomecânica
- Cecil
- Ibrame
- Plasinco
Domestic:
- Termomecânica
Foreign:
- Nacobre and IUSA (Mexico)
- Ceper and Indeco (Peru)
- Nexans (Canada)
- Aurubis (Germany)
Foreign:
- Aurubis (Germany)
21
Company Overview
Revenue breakdown per segment
Segment diversification and strong positioning reduces impacts from markets fluctuations
2014 Revenue Per Segment and Markets
Revenue Per Sector
By-products
(B2B products)
8%
Very low
associated cost
35% 65%
Primary Copper
44%
34%
22%
Eletroelectronics
Others
Fertilizer
12%
Cooling 2%
3%
Mecanic and
5%
Metallurgy
Energy 6%
(refining - cathodes)
32%
7%
Re-sale
7%
27%
Enamelled
Civil
Construction
56%
Exports Per Region
Copper Products
B2B and B2C (semifinished and finished
products)
78%
100% of refined
copper in Brazil
58%
Others
UK
USA
Japan
10%
3%
4%
International
Trading
Companies
9%
49%
27%
Argentina
Different types of
sectors and clients
Domestic Market
Export Market
22
Company Overview
Well located facilities: smart logistics and arbitrage between domestic and
export sales
Production Facilities and Raw Materials Supply
Production Timing
1 month
10
Days
Production plants
(Third-party raw materials)
Casting
10
Days
Utinga – Santo André
(SP)
Production of copper and
brass bars, wires,
laminates, tubes and
bronze
Copper concentrate
Refining
22
days
Chile
Main supplier
of copper
concentrate
Serra – (ES)
Production of copper and
bronze fittings for civil
construction
Electrolysis
10
Days
Peru
Supplier of
copper
concentrate
Estimated time between
purchasing concentrate and
delivering products
Lamination
10
Days
Dias D’Ávila – (BA)
Smelting and refining of
primary copper, cathodes,
rods, drawn wire and byproducts
Stretching
Distribution center
Copper Concentrate
Origin


Paranapanema has 3 processing plants and one distribution center

Imported copper concentrate arrives at Aratú Port (Bahia), 24 km distant from
the plant


Estimated 62% market share in scrap origination all over Brazil
Proximity between facilities and main customers (South and Southeast
regions, country’s highest GDPs) is a strategic advantage
Sulfuric acid sales (by-product) within a 50km radius
Total cycle: 90 days
23
Agenda
1
PMAM at a glance
4
2
Company Overview
5 6
3
Business Model
Financials
Copper Sector
24
Business Model
Premium management and cost control aligned with efficient risk
management
USD
Metal Revenues
Risk Management
 Mitigate FX and commodity volatility
impact on results
— Hedge of metal exposure
— Strict dollar-denominated cash flow
hedge
 Well structured governance, policies and
controls
*CT: transformation cost
USD
Risk
Management
EBT
EBITDA
Financial
+ D&A
CT* +
SG&A
- R$ 5 bi
- R$ 4 bi
Metal Cost
Total Revenues
USD
BRL
TC/RC +
Premiums +
By-products
USD
Premium Management
 TC/RC
 Optimization of premium matrix
 Price premiums denominated in US
dollars
 Premiums not linked to LME quotes
 Arbitrage between products to maximize
premiums
Costs Control






Implementation of Zero Base Budgeting
Leveraging on improved technologies
Processes/plants consolidation
Increasing operational leverage
More efficient funding structure
Transformation costs mostly in Reais
(95%)
25
Business Model
Market risks and hedge strategies highlights
Market Risk
Hedge Strategy
Hedge efficiency = low
volatility in margins
15,0%
10,0%
5,0%
0,0%
-5,0%
-10,0%
-15,0%
1Q13
2Q13
3Q13
Gross Margin
4Q13
1Q14
Avg. USD Change
2Q14
3Q14
4Q14
2014 exposure in:
USD
Copper
Zinc
Lead
Tin
Gold
Silver
USD M impact in Gross Profit
Robust market risk governance structure with risk policy
defined by the Board of Directors and overseen by a Risk
Committee on a weekly basis

Risk strategy seeks to minimize or eliminate items with no
control such as metal prices and FX rates, so management
can focus on improving transformation and logistic costs,
premiums, volume mix and SG&A expenses
PMA’s market risk policy does not allow speculative
positions, and established segregation of duties to ensure
accuracy of metal and FX rate exposures
10% movement in asset value (USD M impact)
43
1
neutral
neutral
neutral
neutral
neutral
44

PMA hedges its exposures against movements of metal prices,
foreign exchange, and interest rates

Hedge instruments comprises derivatives (swaps and NDFs)
and/or financial assets and liabilities (Debt, Payables,
Receivables). PMA does not operate directly in any Mercantile
Exchange and is not affected by daily margin calls

Metal exposure daily VaR is USD 250,000 (copper price
variation) and FX Net Exposure is covered between 70-100%
for up to 12 months forward

Differently from other soft commodity players, PMA keeps
metal cost floating through swap transaction and fixes the
cost when inventory is sold
Avg. LME Change


2014 Net EBIT Sensitivity
26
Business Model – Copper Market Standards
Metal hedging to neutralize metal prices volatility
Copper market uses a Quotation Period (QP) of the LME as a price reference + Premium to define the
settlement price of a transaction
Purchase Flow (Cu Concentrate)
Mine
Negotiation
Shipping
date
QP Settle
date
Financing
Sales Flow (Primary and Copper Products)
• PMA buys copper with TC/RC discount [TC/RC]
over LME with M+3 QP
• E.g.: M+3 LME – US$ 500/t TC/RC
Sales
Negotiation
• Mine ships the Cu Concentrate with temporary
LME – TC/RC with QP of M+3
• E.g.: US$ 6.000/t - US$ 500/t
• Result = The price to be paid is the average LME of
the 3rd month from shipping date less TC/RC.
• E.g. US$ 6500/t – 500/t = US$ 6000/t
• PMA finance the purchase of the copper (in USD)
with fixed QP using Letter of Credit / Forfait.
• Commercial team agrees pricing calculation
with customer
• E.g.: (LME QP + Premium)*USD rate + Interest
(to cover payment terms)
• QP in sales are usually past prices (E.g. S-1 or
average LME of last week).
• The USD portion of the price is converted into
Invoicing date
BRL upon invoicing using the agreed PTAX
Receivables
• Domestic sales are collected in BRL
• Exports has M+1/+2 QPs and are collected in
USD.
Total Result: + ∆ Copper + TC/RC + Premium - ∆ Copper
=
+ TC/RC + Premium
27
Business Model
Metal hedge to neutralize metal prices volatility
Results of copper metal hedging are reclassified from finance revenue/expenses to inventory, adjusting
the historical metal cost to market value

PMA hedges its volume exposure with SWAPs (NDFs), selling inventory with fixed QP in the nearby and buying copper in the
future with open QP

Metal fair value hedge accounting program allows inventory Mark-to-market (MtM), which monthly variations on LME should be
offset by variations on the derivative side

Within the month sales (and QP confirmation) the derivative volume is liquidated with the same sales volume

Using QP derivatives, PMA brings sales QP to LME month average, whilst inventory and its monthly variation are also marked-tomarket using LME monthly average. In this way, both LMEs for sales and cost are under the same LME QP neutralizing its effect
28
Business Model
Cash flow hedging and hedge accounting to avoid FX rates volatility
USD Long
USD Short
95% of PMA’s
revenue are in USD 90% of PMA’s debt USD Net
and suppliers are in PMA’s uses NDFs to
(around USD 1.3
bi/year)
USD
hedge USD net
exposure
(around USD 0.9
Net Exposure:
- PMA’s has a risk
management team
responsible for monitoring
USD exposure.
- Exposure is covered
between 70-100% for up to
12 months forward
bi/year)
Accounting
Hedge accounting: the result of USD hedging instruments is classified
as Other Comprehensive Income under Shareholder’s Equity account.
When the hedge is closed, the result is recognized in P&L.
29
Business Model
Equity story: copper fixed income
Operational efficiency and higher ROIC will position PMA as a dividend play
Capacity utilization +
costs reduction

Relevant market
share in a region
with protected
premiums

Focus in
operational and
commercial
efficiency
Discipline in capital
usage

Reduce capital
applied to
business,
especially
inventories

Risk
management
Increasing Margins
and ROIC
Metal and cash
flow hedges
strongly
reducing
volatility on
results
30
Agenda
1
PMAM at a glance
4
2
Company Overview
5 6
3
Business Model
Financials
Copper Sector
31
Financials
Production, Sales and Revenues
Sustainable trend already clear, despite production and sales impacted by domestic environment and
production stoppages
Production Volume
Sales Volume*
Net Revenues
(K t)
(K t)
(R$ M)
330
366
305
5,549
246
4,026
244
2012
2013
2014
 Production stoppages during 1H14
(maintenance)
4,734
267
2012
2013
2014
 Better commercial arbitrage opportunity
between products and markets than in 2013
2012
2013
2014
 Lower sales volume and LME quote in 2014
impacted Revenues
 5% recovery in production volume during 2H14
* Sales volume net of intra-operating eliminations
32
Financials
COGS and Gross Profit
Efforts to reduce Transformation Cost resulted in Gross Margin gain, despite decrease in Net Revenues
COGS
Gross Profit and Gross Margin
(R$ M)
(R$ M)
5,154
584
8.1%
-5%
3,842
7.1%
450,0
4,350
553
480
08%
400,0
07%
350,0
06%
300,0
05%
4.6%
250,0
4,570
04%
200,0
3,798
3,361
395
384
150,0
100,0
02%
01%
184
50,0
00%
,0
2012
2013
Metal Cost
2014
Transformation Cost
 Transformation cost down 5% even considering 2014 inflation
03%
-01%
2012
2013
Gross Profit
2014
Gross Margin
 Margin gain: higher operating efficiency and Transformation Cost
reduction
33
Financials
Adjusted EBITDA and Net Profit
Operating efficiency, costs reduction and hedge accounting are reflected in EBITDA and Net Profit
Adjusted EBITDA
Net Profit
(R$ M)
(R$ M)
124
7.6%
20x higher
6.0%
6
2012
3.1%
2013
2014
358
332
125
2012
2013
EBITDA
 Recurring EBITDA Margin gain
2014
(206)
EBITDA Margin
 20 times growth
 2015: Accumulated Losses could be fully compensated
34
Financials
Expenses and Financial Result
Efforts in reducing expenses and risk management policy contributed to results recovery
Recurring Expenses
Financial Result
(R$ M)
(R$ M)
-15%
168
22
143
138
2012
2013
2014
(71)
(163)
2012
2013
2014
 Efforts in expenses review resulted in 15% decrease in recurring
expenses
 Hedge Accounting adoption already presented relevant effect in 2014
 Zero Base Budgeting will allow further reductions
35
Financials
Improving Balance Sheet and Free Cash Flow
Cash & Debt (R$ M)
1.048
988
1.079
1.127
Free Cash Flow (R$ M)
604
659
1.995
1.333
1.246
1.165
1.590
2012
2013
2014
868
506
257
2Q14
3Q14
511
285
4Q14
Gross Debt
1Q15
Net Debt
2Q15
Cash
-482
Debt Maturity Schedule (R$ M)
Net Debt/LTM Adjusted EBITDA
Cash = ~2 years of amortization
304
1,079
-261
70
42
1,590
2,5x
2,2x
1,6x
174
1,5x
999
1,5x
1,0x
0,8x
Cash
2015
2016
2017
2018
2019
Gross Debt
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
36
Agenda
1
PMAM at a glance
4
2
Company Overview
5 6
3
Business Model
Financials
Copper Sector
37
Copper Sector
Copper is the base of society’s infrastructure and is present everywhere
Copper’s benefits extend beyond mechanical characteristics:
Corrosion
Resistant,
Machinable &
Formable
Essential to the health of plants, animal and humans.
Deficiencies, as well as excesses, can be detrimental to
health
-
Antimicrobial Properties: copper and copper
alloy products can be used to eliminate
pathogens and reduce the spread of diseases
-
Excellent
Conductor &
Heat
Transferer
Malleable
& Ductile
-
Copper Key Physical Properties
Recycling: copper is one of the
most recycled off all metals.
Virtually all products made from
copper can be recycled and
recycled copper loses none of its
chemical or physical properties
Energy Efficiency: copper can
improve the efficiency of energy
production and distribution systems
38
Copper Sector
Copper is widely used in all sectors
Civil Construction
Automotive Sector
Naval Construction
Electric
vehicles,
brake pads,
radiators
and heat
diffusors
Tubes and
accessories, gas
heating, bars,
switch, sockets,
electric energy
wires and
cables
Industry
Coppernickel alloys
to prevent
corrosion
Eletroelectronics
Water and gas
tubes, electronic
connectors, heat
diffusors, electric
engines and cables
Dressing, Decoration and Specialties
Copper alloys used in
buttons, zipper, buckle,
jewelry, surgical
instruments and
military applications
Circuits,
wires and
connectors
Telecommunications
Energy
Wires and
connectors
Wires and energy
cables, solar panels,
wind turbine and
ethanol production
39
Copper Sector
Global GDP drives copper demand
Global economy with sustainable growth in coming years will support copper demand
Global GDP Growth (%)
4.1
3.4
3.3
3.3
3.5
China GDP Growth (%)
4.0
4.0
3.7
7.7
7.7
7.4
7.1
Brazil GDP Growth (%)
2.9
6.8
6.6
6.4
2.7
2.5
6.3
3.1
2.2
1.4
1.0
0.3
2012
2013
2014
2015E 2016E 2017E 2018E 2019E
2012
2013
2014
2015E 2016E 2017E 2018E 2019E
2012
2013
2014
2015E 2016E 2017E 2018E 2019E
Despite Chinese deceleration, growth rates are still very high, while Brazil presents a high potential
growing market
Source: IMF
40
Copper Sector
Production , refining and consumption drive copper price
Concentrate Production (Mt)
16.2
16.8
1.4
1.5
14.8
2011
15.2
2012
18.1
1.6
16.5
2013
RoW
18.7
19.5
1.7
1.7
17.0
2014
China
17.7
2015E
Smelter Production (Mt)
Refined Consumption (Mt)
20.5
1.8
15.4
15.6
16.3
17.5
18.3
22.6
23.3
20.6
21.8
9.9
10.7
9.2
10.3
8.2
19.3
19.6
19.6
7.8
4.3
4.7
5.3
6.0
7.1
7.7
11.1
10.9
11.0
11.4
11.2
11.6
11.8
11.4
11.4
11.9
12.3
12.6
2011
2012
2013
2014
2015E
2016E
2011
2012
2013
2014
2015E
2016E
18.7
2016E
RoW
China
RoW
China

China is the most important player accounting for 44% of global consumption

China also holds a disproportionate amount of global stocks

Strong growth of copper mining supply in 2013/2014 puts award pressure leading to higher TC/RC (large discount to
smelters)

Expected growth in refined consumption will surpass growth in production, supporting higher premiums

Refined copper prices to come under downward pressure over the next few years
Source: WoodMackenzie, December 2014
41
Copper Sector
Recent drop in copper prices caused by macro scenario and oil prices
Improving economic
sentiment and declining
LME stocks boost prices
7.500
LME US$/t
7.000
6.500
Sharp
price fall
leads to
scrap
vacuum
6.000
5.500
Generally positive macroindicators and falling
stocks supports prices
SRB buying
Weak manufacturing
data and credit issues
in China
Quingdao
warehouse
fraud
uncovered
Prices slides
as global
growth fears
escalate as oil
price tumbles
Strong USD
pressuring
commodities
5.000
Source: WoodMackenzie, LME
42
Copper Sector
Sustainable global copper consumption growth
Refined Consumption by Region
Total Consumption by Industry Sector
45
35
40
30
35
million tonnes
million tones
25
20
15
10
30
25
20
15
10
5
5
0
0
2000
2005
2010
North America
2015E
Europe
2020E
China
2025E
Other Asia
2030E
2035E
Row
2000
2005
Construction
By Market Sector
By First Use
2010
2015E
Electrical Network
Source: WoodMackenzie, December 2014
Transport
12%
Industrial
Machinery
11%
Transport
2030E
2035E
Consumer & general
By Property
Signal
transfer
4%
Construction
30%
Aesthetics/
malleable
28%
Billet
13%
Wire rod
74%
2025E
Industrial Machinery
Cake/Slab
13%
Consumer &
general
28%
2020E
Electrical
Network
19%
Electrical
conductivity
59%
Heat
transfer
9%
43
Copper Sector
China still is the main driver of global copper consumption
Global (kt)
2020 - 2035
1.5% growth p.a.
35000
30000
20000
1990 - 1999
3% growth p.a.
1960 - 1969
4.7% growth p.a.
15000
Global refined copper demand still driven by China
(44% of global demand in 2013 – expected 48% in
2020, a 7% CAGR)

Main drivers:
— Global GDP growth
— Emerging markets growth
— Infrastructure and consumer goods sectors
— Use of new technologies
2010 - 2019
3% growth p.a.
1980 - 1989
1.8% growth p.a.
25000

10000
5000
2000 - 2009
1.5% growth p.a.
1970 - 1979
3.4% growth p.a.
0
1960
1970
1980
1990
2000
2010
2020
2030
China (kt)
Brazil (kt)
2020 - 2035
2% growth p.a.
18000
2010 - 2019
5.7% growth p.a.
16000
1970 - 1979
8% growth p.a.
14000
6000
1980 - 1989
-3% contraction p.a.
600
500
400
1980 - 1989
5.9% growth p.a.
1960 - 1969
3.5% growth p.a.
1990 - 1999
9.2% growth p.a.
1960 - 1969
8.7% growth p.a.
300
200
4000
2000
0
1960
2010 - 2019
2.2% growth p.a.
700
10000
8000
2020 - 2035
2.4% growth p.a.
800
1990 - 1999
9.6% growth p.a.
12000
900
2000 - 2009
15% growth p.a.
1970
1980
Source: WoodMackenzie, December 2014
1990
2000
2010
2020
2030
100
0
1960
1970 - 1979
13.1% growth p.a.
1970
1980
1990
2000 - 2009
-0.5% contraction p.a.
2000
2010
2020
2030
44
Copper Sector
Refined copper imbalance continues to benefit smelters
Consumption to outpace production in next years, supporting current premium levels
Global Refined Production (Mt)
19.7
20.2
20.8
2011
2012
2013
Source: WoodMackenzie, December 2014
22.1
2014
23.0
2015E
Global Refined Consumption (Mt)
24.0
2016E
24.3
2017E
23.3
23.9
24.4
22.6
2015E
2016E
2017E
2018E
24.4
2018E
19.6
19.6
2011
2012
20.6
2013
21.8
2014
45
Copper Sector
TC/RC and Premiums at historical highs support smelters growth
perspectives
High copper concentrate inventories led to TC/RC growth in recent years together with tightness in
physical market contributing to higher premiums
TC/RC (US$/t and R$/t)*
US$/t
Metal Premium (Cathode)
R$/t
1,824
Exports Premium
1,199
838
688
447




519
254
310
352
388
2010
2011
2012
2013
510
2014
2015 YTD
Treatment Charge & Refining Charge is a deduction from
the payable copper
Theoretically what it takes to convert a tone of
concentrates into metal but is a market
driven/negotiated commercial term
Charged by a smelter to a mine
Realized TC is negotiated annually each year
 Revenue for a smelter and cost to a mine
*Considering 30% Cu concentrate
Source: Company and Bloomberg
Domestic Premium
610
2009



2010
2011
2012
2013
2014
Metal Premium is charged by a metal producer to its
customer
Theoretically to cover the cost (transportation,
warehousing, financing, alloying and marketing costs) of
shipping metal to a customer but is a market
driven/negotiated commercial term
Premiums are set once a year
 Revenue for a refiner and cost to a consumer
46
Copper Sector
Regional imbalance creates interesting export opportunities
Cathode deficit in China and other regions create exports opportunities, also benefited by USD
appreciation
Global Cathode Demand per Region - Mt
+0.6
0.7
-0.4
-0.6
2.3
3.6
Demand
-0.4
0.7
Surplus
Deficit
13.6
-2.9
+2.7
0.6
0.2
+1.1
0.1
+0.4
2014e demand: 21.8 million t
2014e output: 22.1 million t
Source: WoodMackenzie, December 2014
47
Copper Sector
Brazilian copper industry follows the global path, despite consumption
affected by economic slowdown
Concentrate Production (Kt)
356
Smelter Production (Kt)
280
377
442
395
453
474
419
175
221
2012
452
212
269
2011
280
257
238
294
214
Refined Consumption (Kt)
2013
2014
2015E
2016E
2011
2012
2013
2014
2015E

Refined consumption still expected to increase despite economic slowdown

Copper consumption growth in Brazil is supported by:
2016E
2011
2012
2013
2014
2015E
2016E
— recovery in domestic industrial production (end of “Port War”)
— growth in primary consumption and Real Estate sectors
— investments in ground transportation, electricity and infrastructure

Paranapanema is the only Brazilian smelter with 100% refined copper domestic production
Source: WoodMackenzie, December 2014
48
Investor Relations
IR Contacts:
[email protected]
+55 11 2199-7914/7945/7845
http://ri.paranapanema.com.br
Access our website for more information and download the modeling guide
49