Eramet Group: 2011 Results

Paris, February 16^th 2012

PRESS RELEASE

2011 Results

• Solid results and financial position in 2011
  • Current operating income: €554 million
  • Net income, Group share: €195 million
  • Net cash of over €1.1 billion at end-2011
• Continued development of the Group
  • Industrial capital expenditure up 51% in 2011 to €492 million
  • Expansion of mineral sands activities (zircon and titanium dioxide)

ERAMET's Board of Directors, meeting on February 15^th 2012 under the chairmanship of Patrick BUFFET, approved the financial statements for FY 2011, which will be submitted to the General Shareholders' Meeting of May 15^th 2012.

Patrick BUFFET, Chairman & Chief Executive Officer of ERAMET group, stated: "Our 2011 results were affected in the second half by the deterioration in the economic climate, in particular as a result of the fall in the price of nickel and of manganese. Our current operating income has nevertheless held up well, at €554 million for the full-year.  We hit some major milestones in the implementation of our development plan, which encompasses two key goals:

-      To prepare the future for our existing nickel, manganese and alloys businesses;

-      To transform ERAMET through development in new metals, new technologies and new locations.

We should also be satisfied with the financial strength of the Group, which has not only been able to achieve a high level of capital expenditure, to expand its Research and Development programmes and build a foothold in new metals but also to maintain a net cash of over 1.1 billion euros at end-2011.

The Group took a major step forward in 2011 with the new "Grande Côte" project in Senegal, which should over time turn ERAMET, as a 50/50 partner with the Australian company Mineral Deposits Limited, into one of the global leaders in ilmenite and zircon, markets with strong potential.

In 2012, the deterioration of the economic climate is expected to weigh on developed markets. But demand in emerging markets for our metals is still far from their full potential and our positive medium and long-term view is unchanged.

We will continue to implement our operational improvement programmes, to ramp-up production from recent equipment and to proceed with our on-going investments. Overall industrial capital expenditure will be high, on a par with 2011, assuming the global economic picture stays in line with current forecasts. Finally, we will continue to increase our research and development budgets and to carry out the study and preparation of our transformative projects."

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In 2011, ERAMET group turnover was up slightly at €3.6 billion, primarily on the back of accelerated demand from the aerospace sector and, to a lesser extent, thanks to the sustained level of nickel prices in the first half of 2011.

The Group's current operating income totalled €554 million, as against €739 million in 2010. This evolution was primarily due to a series of external factors: the fall in the price of manganese and higher energy and raw material costs.

Net income, Group share amounted to €195 million, representing €7.42 per share.

Cash flow from operations amounted to €591 million, a level that made possible the financing of high levels of industrial capital expenditure of €492 million (€326 million in 2010). The net cash position remained above €1.1 billion at end-2011.

• A dividend of €2.25/share proposed

The Board of Directors will propose to Shareholders at the General Meeting a dividend of €2.25 per share.

• ERAMET Manganese: sustained profitability despite the fall in the price of manganese

Current operating income at ERAMET Manganese remained strong at €388 million in 2011, compared to €548 million in 2010. This was mainly due to the fall in the price of manganese ore and alloys: CIF China spot prices (source: CRU) for ore fell on average 26% in 2011 compared with 2010 and closed the year at under US$5 per dmtu, while the average price of manganese alloys dropped over 15%.

Global carbon steel production was up 6% in 2011 on 2010, but with a marked slowdown in the second half, acting as a drag on the price of manganese. Global manganese ore supply continued to gradually increase up to the third quarter of 2011, before starting to fall back. Manganese ore inventories in Chinese ports rose up to June, then adjusted gradually to a level close to that at the start of the year.

ERAMET Manganese increased external deliveries of ore by 4.5% over the full-year compared to 2010. Manganese ore production at COMILOG in Gabon was up 7% to     3.4 million tons. COMILOG's major capital expenditure programmes (increasing ore and sinter production capacity to 4 million tons, Moanda industrial complex, modernisation of the Transgabonais railway) continued to move forward.

ERAMET's production of manganese alloys was up slightly (+1%), despite a reduction in Europe in Q4 and the closure of the former Guilin facility, in China, which is preparing the commissioning of the new plant scheduled to take place in the second quarter of 2012. The latter will position ERAMET Manganese in the Chinese refined manganese alloys market, products in which it is currently global leader outside China.

The ERAMET group strengthened its strategic partnership with Gabon in 2011, through the continued increase in the Gabonese Republic's interest in COMILOG, from 26% to 29% in line with the target of 35.4%. 

• ERAMET Nickel: current operating income stable

ERAMET Nickel's current operating income totalled €189 million, on a par with 2010 (€194 million). The stainless steel market saw two mixed halves, with global production sustained in the first half of 2011, and then down in the second half of 2011. Over the full-year, global stainless steel production was up 5%.

Nickel prices were up on average 5% in 2011 on 2010, at US$10.4 per pound, but with two contrasting halves. The coming on stream of new nickel production capacity was generally slower than expected, sustaining nickel prices in the first half of 2011. In the second half, falling demand resulted in a slight surplus in the market and forced down the price of nickel, closing the year at circa US$8 per pound. This level led to a downward adjustment in nickel pig iron production in China.

Metallurgical production at the Doniambo plant, in New Caledonia, rose slightly to over 54,000 tons, despite exceptionally high rainfall during the 1^st half of the year 2011. The Group continued to invest in the modernisation of its mining and metallurgical facilities and in the 2^nd half notably commissioned an ore drying furnace. The study into the best solution to replace the Doniambo electricity plant continued, with a decision expected in 2012.

Nickel deliveries were stable in 2011 compared to 2010. ERAMET Nickel's production costs were notably affected by higher energy costs, as well as operational issues at certain sub-contractors.

STCPI (Société Territoriale Calédonienne de Participation Industrielle) and the ERAMET group jointly agreed to renew for a further period to December 31^st 2012 their shareholders' agreement within Société Le Nickel (SLN). The parties also agreed to continue discussions regarding the adjusting of the shareholders' agreement by December 31^st 2012. The guiding principles would remain unchanged, with adjustments reflecting all industrial, commercial and technological changes arising within SLN and in its environment since the signing of the original agreement. Furthermore, the ERAMET group and SLN renewed their commercial and technical agreements in 2011.

• ERAMET Alloys: investments and developments which prepare the future

ERAMET Alloys' turnover rose sharply in 2011 compared to 2010 (+19%) to €910 million, notably as a result of a sudden surge in the aerospace business (+33%).

Current operating income at ERAMET Alloys totalled €16 million in 2011, reflecting not only the negative effect of raw materials, energy but also non-recurring costs stemming from the implementation of long term programmes.

In light of the need to rapidly increase production to meet customer demand, ERAMET Alloys took measures, some of which temporarily affected performance in 2011: hiring and training of additional staff, increasing inventories,.

In addition, ERAMET Alloys managed the bringing on stream in 2011 of four strategic industrial capital expenditure programmes that will enable it to strengthen its positions in fast-growing materials and technologies that offer greater differentiation: alloy powder metallurgy, vacuum alloy production, titanium forging, aluminium forging.

The teams at ERAMET Alloys also worked on developing strategic partnerships in China and India, which will over time constitute major growth potential for its activities in these two growth markets, as well as possible complements to its current production range.

• Progress in studies and preparation for transformative projects

In 2011, the Group continued working on studies for its transformative projects which will ultimately broaden its activities into new locations, new metals and new technologies, thereby accelerating its growth and its diversification. These projects are generally undertaken as part of long-term partnerships. 

Ø  WEDA BAY NICKEL (Indonesia)

The feasibility study for the first phase of the Weda Bay Nickel project in Indonesia continued in 2011, with an investment decision for the first phase of the project scheduled to be taken in early 2013. Weda Bay Nickel is designed to process locally a world-class nickel oxide resource thanks to a process developed by the ERAMET group. The project's ultimate aim is to achieve production of 65,000 tons per annum. The first phase would involve 35,000 tons. The investment, in December 2011, of the Japanese group Pamco, alongside Mitsubishi Corporation, strengthens the Weda Bay Nickel project, in particular in terms of commercial opportunities.   

Ø  TIZIR (Senegal and Norway): strategic investment in zircon and titanium dioxide

The ERAMET group made a strategic investment in zircon and titanium dioxide in 2011, establishing a 50/50 joint-venture, TIZIR, with the Australian group MINERAL DEPOSITS LIMITED, to jointly develop the major Grande-Côte mineral sands deposit, located in Senegal. In addition, ERAMET's bringing to the joint-venture of its Norwegian plant in Tyssedal, one of the three global specialists in titanium dioxide slag, creates an integrated player enjoying further growth opportunities. The construction of Grande-Côte, involving an investment of some US$520 million is ongoing, with a production expected to start-up at the end of 2013. TIZIR will enjoy a number of competitive advantages in its favourable businesses (substantial price increases were in particular seen in 2011), in which it should become one of the global leaders over time.

Ø  MABOUNIE (Gabon): rare earths, niobium, tantalum

The ERAMET group continued laboratory and pilot testing with the goal of finalizing a special process designed to process the ore from the Mabounié deposit in Gabon, which is 60% owned by its 63.7% subsidiary COMILOG. This deposit contains a major potential resource of rare earths, niobium and tantalum, as well as uranium. Once process development is complete, the ERAMET group is planning to build a pilot plant in Gabon in 2014-2015.

Ø  Lithium 

The Group continues to examine various development avenues in the lithium market and in particular continued laboratory studies on processes to extract and recover lithium.

• Outlook

Against a backdrop of economic uncertainty, nickel and manganese prices started the year below average prices in 2011. These price levels nevertheless seem to have resulted in production adjustments at certain competitors.

The medium and long-term outlook remains positive as regards emerging markets in particular, where demand for the Group's metals and alloys remains well below their full potential.

It is expected that the ERAMET group will continue an industrial capital expenditure programme in 2012 that is on a par with 2011, assuming the global economy continues to perform as currently forecast. In addition, the study or development of major transformative projects and the establishment of programmes to improve competitiveness will be continued.

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WEBCAST OF RESULTS PRESENTATION

The presentation of 2011 results will be available by webcast at 10 am (CET) today in French with simultaneous translation into English. To sign up, click on the link shown on the Group's website: www.eramet.com

ABOUT ERAMET

ERAMET is a leading global producer of:
- alloying metals, particularly manganese and nickel, used to improve the properties of steel,
- high-performance special steels and alloys used in industries such as aerospace, power generation and tooling.
Moreover, ERAMET is studying or developing major projects in new metals with high growth potential, such as mineral sands (titanium dioxide and zircon), lithium, niobium and rare earths, and in recycling.
The Group employs approximately 15,000 people in over 20 countries. ERAMET is part of Euronext Paris Compartment A.

CONTACT

Strategy and Investor Relations Director
Philippe Joly
Tel: +33 (0)1 45 38 42 02

Investor Relations
David Fortin
+ 33 (0) 1 45 38 42 86

For further information: www.eramet.com

APPENDIX

Productions and turnover

*  Ferronickel and matte
** Finished products