Macquarie University
Master of Applied Finance

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Emissions Trading
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Assignment 2
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Onesteel

Prepared by: Wayne Andrews

Student number: 41712986

September 2011

Subject Number : ECFS905 Lecturer : Julian Turecek Class : Sydney P. T.

Company Selection
Select an ASX200 company that is expected to have a carbon exposure equal to or greater than 2% of EBITDA at a $23/t carbon price.

Question 1
Determine the company’s carbon exposure, including direct (Scope 1) and indirect (Scope 2) emissions and establish that its exposure is greater than 2%.

The following table summarises Onesteel’s actual and estimated for FY10, FY11 and FY12 emissions and imputed carbon cost under the currently proposed Carbon Tax, relative to reported EBITDA.

Table 1 – Implied impact of carbon pricing imputed to 2010 results

| Company Guidance | Fixed Price imputed for comparison | Fiscal year commencing | FY10 | FY10 | FY11 | FY12 | Carbon Price (FY10/11 theoretical) | 23.0 | 23.0 | 23.0 | 23.0 | EITE Assistance Rate | 94.5% | 94.5% | 94.5% | 94.5% | EBIT DA $Mil | 619.0 | 619.0 | 638.0 | 717.6 | Type 1 Emissions | 2.55 | 2.55 | 2.66 | 3.05 | Type 2 Emissions | 1.34 | 1.34 | 1.40 | 1.60 | Total Emissions Type 1 & 2 MtCo2e | 3.89 | 3.89 | 4.06 | 4.65 | Steel Emissions Eligible for EITE | 3.44 | 3.44 | 3.59 | 4.18 | CO2e reductions Whyalla MtCo2e | - | 0.0 | (0.3) | (0.3) | Emissions Savings Whyalla A$mil | - | 0.0 | (6.9) | (6.9) | Gross Emissions Cost Steel | 79.2 | 79.2 | 75.8 | 89.1 | Gross Emissions Cost Other | 10.4 | 10.4 | 10.6 | 10.9 | Gross Cost A$Mil | 89.6 | 89.6 | 86.4 | 100.0 | EITE Assistance (Free Permits Mt) | 3.09 | 3.25 | 3.40 | 3.95 | Value of Permits A$mil | 71.1 | 74.8 | 78.1 | 90.8 | Net Carbon Cost Steel | 8.1 | 4.4 | 8.3 | 9.3 | Net Carbon Cost Other Business Activities | 10.4 | 10.4 | 10.6 | 10.9 | Net Carbon Cost | 18.4 | 14.7 | 18.9 | 20.1 | Gross % impact on EBITDA | 14.5% | 14.5% | 13.5% | 13.9% | Net % Impact on EBITDA | 2.97% | 2.38% | 2.96% | 2.81% |

Emissions data for FY10 are sourced from the company’s FY10 sustainability report. These figures are amended in the adjacent FY10 column to correct an apparent arithmetic overstatement in the company’s calculations. The figures projected for FY11 and 12 are based on the carbon intensity model presented in Exhibit A. The saving line highlighted for Whyalla steel works reflects the fact that during FY10 the Whyalla blast furnace operation was sub-optimal. It is assumed that this saving does not reduce the baseline emissions used to calculate free permits.

The net (after EITE assistance) 2.97% (or 2.38% on my arithmetic) impact imputed on FY10 EBITDA qualifies the company for further examination.
The Steel industry also qualifies for the governments Steel Transformation Program (STP) funding. The industry will receive $300mil over 5 years under this program, of which it is anticipated that Onesteel will receive $29mil per annum, in effect exceeding the net emissions cost to the company. The STP funds are allocated for industry restructuring and as such it is expected that they will have no impact on EBITDA as they will need to be expended rather than banked. In later analysis we assume some positive impact in emissions in later years as a result of new technologies flowing from these investments.

Question 2
Calculate the company’s change in earnings based on the carbon price trajectory outlined by the government. What is the expected change in share price as a result of carbon being priced?

There are a number assumptions required and thus approaches to answering this question. Detailed calculations employed to arrive at an NPV impact for carbon pricing are set out in Exhibit A. The “Base Case” scenario employs the following assumptions;

1. The carbon price following the float in 2016 follows a nominal growth trajectory of 5% per annum. (2.5% real and 2.5% inflation)

2. Assume that the quantity of free permits continues to diminish at 1.3% per annum until 2015 at which point a 10% increase in the permit allocation baseline for “crude steel production” occurs for the 2016 and 2017 fiscal years after which the situation is subject to Productivity Commission review. The base case assumes that the uplift ends in FY17 and the permit allocations continue to decline at 1.3% per annum to FY2021 at which point I have applied a terminal value calculation. The logic here is that assistance would either continue, or a global carbon scheme would emerge that transmits carbon costs through international steel prices.

3. Other than the above, given high trade exposure, no price transmission is assumed.

4. Whyalla BOF is assumed to continue to operate.

5. It is assumed that the STP runs for 5 years, but must be spent on transformation projects and as such STP cash flows are not included in the valuation. It is however assumed that STP investments yield a carbon reduction of 10% from FY16.

On these assumptions, the after tax net profit impact of the carbon tax in 2021, (the year selected to determine the terminal value) is A$21.4m. The calculations employed to arrive at this result are set out in Exhibit A.

The valuations resulting from this analysis are summarised in Table 2 below, along with sensitivities indicating variance around the base case.
Table 2 – Carbon Price NPV and Sensitivity

| 1. Base Case | 2. Carbon +10% from 2016 | 3. Emissions fall 20% (technology) | 4. No assistance post 2017 | Enterprise Valuation Impact | $ mil | $ mil | $ mil | $ mil | NPV of Carbon Cost - Unassisted | (775) | (929) | (638) | (775) | PV Carbon Cash Flow (inc’l EITE) | (164) | (198) | (18) | (623) | PV of STP | 108 | 108 | 108 | 108 | Shares on Issue | 1,343 | 1,343 | 1,343 | 1,343 | Impact Per Share | $ | $ | $ | $ | Full Carbon Cost Unassisted | (0.58) | (0.69) | (0.47) | (0.58) | Value Per Share Impact inc’l EITE | (0.12) | (0.15) | (0.01) | (0.46) | Value per Share STP | 0.08 | 0.08 | 0.08 | 0.08 | Net Valuation Impact inc’l STP | (0.04) | (0.07) | 0.07 | (0.38) |

The most appropriate treatment is to ignore the STP cash flow in valuation as the cash flow would net against restructuring investments. It is noteworthy that the base case impact of $-0.12 per share approximately corresponds to valuation impacts prepared by UBS.

The scenarios set out in columns two through four can be summarised as follows;

2. Base case with nominal carbon price growth of 10% following the float in 2016.
3. Assume a 20% reduction in emissions intensity from FY16 through a step change in technology.
4. Base Case with no assistance post 2017. Also assumes no transmission of carbon costs through international steel prices.

Depending on the treatment of the STP assistance it might be argued (is frequently) that the industry may be over compensated (Scenario 3). It is worth considering that;

1. In a global carbon scheme, which may exist at the time when the savings are made, it is likely that unless the technology giving rise to the saving is proprietary, all market participants will benefit. Saving will be transmitted through end product prices.

2. In a domestic (only) system, there is no certainty that the baseline for permit allocation will remain static in the event of a windfall reduction in carbon emissions.

3. Significant capital investment may be required in excess of STP payments to achieve significant reductions.

Question 3
Imagine you are an analyst for a top sharebroker, write a short 2-3 page broker’s report on what the pricing of carbon will mean for the company, including a recommendation.

Introduction

The following analysis is limited to commentary on the valuation implications for Onesteel under the Australian Governments proposed Carbon Tax. The analysis nonetheless requires an understanding of the other market forces impacting the steel industry.

Company Overview

Onesteel operates six business activities, segment results for which are set out below.
Table 3 – Segment results

| Revenue $m | | EBIT $m | | Assets $m | | | FY11 | | FY10 | | FY11 | | FY10 | | FY11 | | FY10 | | Iron ore | 928 | 14% | 770 | 12% | 524 | 130% | 333 | 79% | 950 | 12% | 817 | 12% | Recycling | 1,088 | 16% | 731 | 12% | 21 | 5% | 8 | 2% | 651 | 8% | 709 | 10% | Manufacturing | 1,045 | 15% | 1,309 | 21% | (188) | -47% | 10 | 2% | 2,595 | 32% | 2,624 | 38% | Mining Consumables | 1,008 | 15% | 599 | 10% | 65 | 16% | 61 | 14% | 2,256 | 28% | 1,159 | 17% | Australian Distribution | 2,409 | 36% | 2,491 | 40% | 3 | 1% | 60 | 14% | 1,485 | 18% | 1,509 | 22% | NZ Distribution | 295 | 4% | 304 | 5% | 20 | 5% | 13 | 3% | 173 | 2% | 175 | 3% | Unallocated | - | 0% | - | 0% | (41) | -10% | (61) | -14% | | 0% | (63) | -1% | Total | 6,773 | 100% | 6,205 | 100% | 404 | 100% | 423 | 100% | 8,110 | 100% | 6,930 | 100% |

The Manufacturing or Steel Business is the primary area of interest both in regard to the company’s current operating challenge and to a carbon pricing impact.

The following cyclic and possibly structural issues are currently impacting the steel industry;

1. Global Oversupply of steel manufacturing capacity, currently running at 82.8% (Cyclic) 2. Consequently lower prices for finished steel products (Cyclic) 3. The appreciation of the Australian Dollar (Structural?) 4. Depressed domestic construction (exc Mining) (Cyclic)

As a consequence of these factors restructuring is occurring in the industry with key competitor Bluescope closing capacity and downsizing 1,000 workers. Onesteel has reduced costs with a reduction in force of 400 workers, which is anticipated to reduce manufacturing costs by $50mil in FY12.

Onesteel Carbon Exposure
From an investment standpoint it is important to distinguish these cyclic and structural changes from any consequential impact of the proposed carbon tax, although this distinction has blurred in the political arena.

Focussing now on Carbon, manufacturing represents only 15% of the company’s (external) revenue, but generates 88% of the Company’s domestic CO2e emissions. Table 4, below summarises the profile of Onesteels’ emissions. Table 4 – FY10 Emissions Intensity | Scope 1 | Scope 2 | Total | Steel | Revenue | Carbon Intensity | | Mt CO2 | Mt CO2 | Mt CO2 | Mt | FY10 | tCO2/t | tCO2/$'m | Onesteel Operations | 2.55 | 1.34 | 3.89 | 2.16 | 6,205 | 1.80 | 0.63 | Whyalla | 2.23 | 0.11 | 2.34 | 0.91 | 1,042 | 2.57 | 2.25 | Sydney Steel Mill | 0.06 | 0.22 | 0.28 | 0.42 | 481 | 0.67 | 0.59 | Laverton | 0.12 | 0.44 | 0.56 | 0.59 | 675 | 0.95 | 0.83 | Waratah | 0.05 | 0.21 | 0.26 | 0.24 | 275 | 1.09 | 0.95 | Other | 0.09 | 0.36 | 0.45 | - | 3,732 | n/a | 0.12 |
Note that emissions intensity for Whyalla were inflated in FY10 due to down time and problems with the blast furnace . 2.3t Co2e is the expected intensity for Whyalla. Also segment results for steel include intercompany revenue which is eliminated in table 3above.

Emissions from business activities other than steel making are relatively insignificant, representing a carbon price exposure at $23/t COe2 of approximately $7.3mil p.a. or 0.6cents per share (after tax) against a 2011 EPS of 17.7c.

Within the Manufacturing Segment, Onesteel operates four plants comprising 3 Electric Arc Furnaces (EAF) and one Blast Oxygen Furnace (BOF) in Whyalla. BOF technology produces direct emissions (Type 1) using coal as both a heat source and in the chemical process used to create carbon steel and consumes electricity (type 2) in the manufacturing process. This process while relatively inefficient in terms of carbon emissions is designed to produce steel from raw inputs. While not state of the art, BOF is the common method of raw steel production.

EAF technology as applied in Australia relies to a large extent on reprocessing scrap and produces indirect emissions (type 2) through the consumption of electricity. Onesteel both self generates (57%) purchases electricity from third parties.

The annual FY11 emissions value for Onesteel based on an imputed carbon price of $23 per tonne for steel is $60.5mil (after tax) or 4.5 cents per share (after tax) prior to any government assistance, relative to reported EPS of 17.7cents.

Steel manufacture qualifies as an Export Exposed Industry and has additionally attracted industry specific restructuring assistance, proposed as follows;

1. Free permits for 94.5% of emissions based on industry averages, diminishing at the rate of 1.3% per annum.

2. Baseline emissions uplifted by 10% in the FY16 and FY17 years (first 2 years of carbon trading)

3. Access to transitional funds under the “Steel Transformation Program” (STP) which amount to approximately $29mil per annum over the FY12-FY16 years. The intention of this program is to support investment in projects that increase the competitiveness of the steel industry in a carbon constrained world. The government’s “Securing a Clean Energy Future” literature states; “Any changes to assistance arrangements that will have a negative effect on business will not occur before the sixth year of the carbon price”

Earnings and Valuation Consequences

The following table summarises the gross and net earnings impact of the proposed carbon price for the first 6 years of operation based on forecast production levels;
Table 5 – Earnings& cash flow impact of Carbon Pricing

| Fixed Price | Projection for traded credits based only 2.5% + 2.5% | Fiscal year commencing | FY13 | FY14 | FY15 | FY16 | FY17 | FY18 | Carbon Price | 23.0 | 24.2 | 25.4 | 26.7 | 28.0 | 29.4 | Gross Cost A$Mil | (100.3) | (105.6) | (111.4) | (101.6) | (107.0) | (112.7) | Value of Permits A$mil | 90.8 | 94.0 | 97.5 | 100.9 | 104.4 | 108.0 | Net Carbon Cost Steel A$m | (9.5) | (11.6) | (13.9) | (0.7) | (2.6) | (4.7) | Net Carbon Cost Other activities A$m | (11.1) | (12.0) | (12.9) | (12.5) | (13.5) | (14.5) | Net Carbon Cost (Before Tax) A$m | (20.7) | (23.6) | (26.8) | (13.2) | (16.1) | (19.2) | After Tax Net Carbon Cost A$m | (14.5) | (16.5) | (18.8) | (9.3) | (11.3) | (13.4) | EPS Impact (cents) | (0.011) | (0.012) | (0.014) | (0.007) | (0.008) | (0.010) | Steel Transformation Plan (STP) A$m | 29.0 | 29.0 | 29.0 | 29.0 | 0.0 | 0.0 | Cash flow per share (Cents) | 0.022 | 0.022 | 0.022 | 0.022 | 0.000 | 0.000 | Net Cash flow per share (Cents) | 0.011 | 0.009 | 0.008 | 0.015 | (0.008) | (0.010) |

In this context the Carbon Tax, while importing a degree of uncertainty to the steel making business, may actually be a positive for the Steel Division. Steel manufacture is a grass root, blue collar industry that is highly sensitive to a Labour government. It is very likely that the steel industry has and will continue to be overcompensated in the Carbon Tax proposals as structural changes brought about by the strength of the Australian dollar are merged in the politics of carbon pricing.

Indeed for as long as Australia prices carbon and until such time as a global carbon price transmits the cost of carbon into global steel prices, one might take the view that the Australian steel industry operates only by the grace of government assistance and is to a degree nationalised and subject to the political wind of the day. Examination of the currently proposed carbon price absent government assistance in Table 6 below supports this thesis, with government support being the principle determinant of value.

The steel business, is already marginal and should support be withdrawn or substantially reduced after 2017 (when assistance is subject to revision), the steel assets would be candidates for asset impairment, in particular with regard to the Whyalla steel works. While impairment is not in itself a cash flow, it does have a headline affect and more importantly impacts gearing ratios and thus debt covenants, which would be problematic given the company’s current moderate level of gearing.

Notwithstanding this gloomy appraisal, based on current known assumptions about the proposed carbon scheme, the (net of EITE) valuation impact of carbon pricing is $164m or 12 cents per share depending on the post 2017 assumptions representing approximately 9% of Onesteel’s market capitalization.

Conclusion

DCF price targets after carbon range from $1.82 to $2.10 and as such carbon pricing alone would not exclude the stock from consideration and indeed excess government assistance may assist the company to respond to the demands of cyclic and possible structural changes in addition to carbon. The counterpoint to this is that Australia’s unilateral Carbon pricing mechanism exposes the company to political whim. To date the politics have favoured shareholders.

Question 4
Imagine you work for the company, prepare a 2-3 page report encapsulating a proposed carbon exposure management strategy, to be presented to the next board meeting.

Situation Analysis

It now appears certain that the “Carbon Tax” as proposed by the coalition of Labour and the Greens will be enacted with effect from July 2013. It is also probable, baring a double dissolution to remove the Greens from the Senate, the tax will survive the current and next parliamentary term.

The structure of the scheme is well documented and covered in the preceding sections and in the public domain.

On public record, Onesteel has indicated only that it anticipates an impact at the EBITDA level of approximately $18.4mil, before a further $29mil for 5 years anticipated under the STP.

The steel manufacturing business is by far the most impacted by the new scheme. This business is already both EBITDA and free cash flow negative at the current point in the business cycle and in all likelihood will be subject to a long term structural alignment brought about by persistent and potentially permanent currency realignment.

The following table projects forward the impact of a carbon scheme based on a relatively benign recovery assumption for the steel business, the governments published carbon price and assistance trajectory. The analysis illustrates that the already marginal manufacturing business would be unviable if subjected to the full impact of a carbon price and may be sufficiently impacted after government assistance to warrant further restructuring measures, which may include closure of the Whyalla blast furnace.
Table 6 – Forecast carbon impact on EBITDA

| Fixed Price imputed for comparison | Fixed Price | Fiscal year commencing | FY10 | FY11 | FY12 | FY13 | FY14 | FY15 | Carbon Price | 23.0 | 23.0 | 23.0 | 23.0 | 24.2 | 25.4 | EITE Assistance Rate | 94.5% | 94.5% | 94.5% | 94.5% | 93.2% | 91.9% | EBITDA After Gross Emissions Cost | | | | | | | Whyalla | (13.0) | (87.9) | (74.8) | (35.3) | (37.5) | (40.0) | Sydney Steel Mill | 12.4 | (22.8) | (13.4) | 3.6 | 3.6 | 3.6 | Laverton (Operating at 72% in FY12) | 13.6 | (34.4) | (36.0) | 1.9 | 1.6 | 1.1 | Waratah | 4.8 | (15.6) | (9.8) | (0.3) | (0.4) | (0.6) | Alta Steel | 0.0 | (8.9) | (5.6) | 0.3 | 0.2 | 0.2 | Possible Efficiency Savings | 0.0 | 6.9 | 6.9 | 6.9 | 7.2 | 7.6 | Value of anticipated permits | 74.8 | 78.1 | 90.8 | 90.8 | 94.0 | 97.5 | Net EBITDA after EITE | 92.6 | (84.6) | (42.0) | 67.9 | 68.7 | 69.4 |

Steel Assets comprise one third of the company’s assets and consideration must be given to possible impairment (in particular for Whyalla), and the consequences in regard to gearing and the company’s debt ratios and covenants if impairment were to occur. At this stage however impairment will depend more on structural changes in the industry than carbon pricing given the level of support being provided.

Carbon Intensity

Although fairly blunt in terms of comparison, the adjacent chart provides a high level, average emissions intensity for global steel making.

The current China 5 year plan targets 2020 emissions intensity for steel of 1.82t-Co2e/t-steel, Japan has a 2010 voluntary target of 1.53t-Co2e/t.

After allowing for operating difficulties specific to 2010, the Whyalla blast furnace appears to approximate the global average intensity. The EAFs range from 0.7- 1.1t-Co2e/t-steel.

Current available technologies for steel making are to a degree limited, although Onesteel has implemented and is pursuing a number of initiatives as follows;

1. Changing operations at the pellet plant with regard to waste gas cleaning (10,000t Co2ep.a.) 2. Electricity generation from Blast Furnace waste gases (current) 3. Dry slag granulation with heat recovery (design and planning stage) 4. Biomass opportunities 5. Co2e reduction technology in power generation (50% self generated) will flow to the EAF plants.

Additional incremental opportunities are set out in Exhibit C sourced from research by the United States Environmental Protection Agency.

Ultimately however, a step change in emissions is likely to come from highly capital intensive plant replacement. Given the capital costs involved and cyclic uncertainty, maximising the value of existing capital assets while new technology is developed seems optimal.

Strategic Options

Government transitional assistance represents an opportunity to pursue partially government funded strategic options. There are multiple scenarios however the following three appear to be most logical and actionable;

1. Stay with Steel in Whyalla.

Pre-requisites;

a. A belief that the global and domestic malaise in steel product prices and volume are cyclical and likely to reverse.

b. The AUD is overvalued and will settle at parity or below in the mid-term with China’s the currency advantage brought about by the artificially weak Yuan diminished as the peg drifts higher toward a free float.

c. A global carbon trading scheme emerges wherein carbon cost is incorporated consistently in prices, or government assistance continues to nullify the impact of a carbon price.

If these pre-requisites were met, the maintenance of the steel business represents a “real option” on a longer term recovery of value. Government assistance should be spent on pursuing energy and carbon efficiency within existing operations including Whyalla. Proposed levels of assistance would not allow a replacement of the Blast Furnace technology, but may assist with the implementation of a range of incremental technologies discussed in the preceding section.

Both the EITE and STP assistance appear to be dependent on a continuation and improvement of steel related activities, although presumably the STP could be directed toward the cost of closing an inefficient plant. In effect the government is financing the real option attached to a cyclic recovery with a partially financed put on the ultimate cost of failure should the recovery not play out. Severance and closure costs may be sourced from the STP.

2. Strategic Exit from Carbon Intensive Blast Furnace Steel Making.

This strategy would be pursued if the requisites for strategy 1 are not satisfied, in which case to the extent possible Whyalla would be phased out in such a way as to maximise government support and restructuring funds, which would be directed towards efficient energy generation and operation of the EAFs. Political sensitivity may also enable Government assistance (STP) to be directed towards repurposing the Whyalla site and infrastructure, to alternate business purposes. 3. Exit the carbon intense, steel business entirely, exporting iron ore and importing and distributing finished steel product.

This scenario would play out in the unlikely event that there is no global emission trading system by the end of the currently proposed Australian system and the Greens obtained sufficient power to eliminate all export exposed industry assistance. Based on the unassisted earnings impact, and absent assistance from the economic cycle, all carbon intensive steel manufacturing would be closed down or sold if a market could be found, with the associated asset values written down accordingly.

Recommended Strategy

Distinguishing the economic cycle and structural changes in the industry from the impact of carbon pricing is difficult and indeed doubly so for government in delivering their message about the proposed carbon tax.

The carbon tax as currently proposed when combined with industry assistance is arguably a net positive for Onesteel, presenting an opportunity to invest in technology to make the Steel business more competitive and less carbon intensive. Onesteel should plan to employ STP funds toward improving Onesteel operations to maintain the option over a cyclic recovery in the industry. This decision is subject to the belief that a recovery is coming and that the industry is not structurally changed in such a way as to be unrecoverable (persistent high AUD/USD exchange rate and lower steel prices).

References

Carbon Disclosure Project 2010 Australia and New Zealand Report, written by PWC Undated.
Retrieved From: https://www.cdproject.net/en-US/Pages/HomePage.aspx on 1st Sept, 2011

Chan. B. (2011). FY11 Results, Australia steel labouring. Merryl Lynch.

Clean Energy Future – Appendix A: Carbon pricing mechanism.
Downloaded From: http://www.cleanenergyfuture.gov.au/ on 14th September 2011.

Deep reductions in the carbon intensity of iron and steel production are possible in the medium term. Published by Carbon Trust.
Downloaded from: http://www.carbontrust.co.uk/policy-legislation/international-carbon-flows/steel/Pages/17.aspx on 13th September 2011.

Emissions Trading With Fixed Price Start Model (undated).
Retrieved from: http://www.climatechange.gov.au/government/initiatives/multi-party-committee/meetings/~/media/publications/committee /emissions-trading-fixed-price-pdf.pdf on 25 August 2011.
Hombu. K. (2009). How Sectoral Approach will work for Advanced Developing countries under the Future Framework- Japan’s Experience in Iron & Steel Sector.
Retrieved From: http://www.ccap.org/docs/fck/file/Japan%20-%20SA%20in%20Japan%27s%20steel%20sector.pdf on 16 September 2011

Moller, A., Lawcock. G. and Morgan, D. Onesteel - Earnings in line. Move to Buy on Valuation. UBS Limited Research. dated 16th August 2011.

Moller, A., Lawcock. G. and Morgan, D. Onesteel - Iron ore expansion plans. UBS Limited Research, dated 23th August 2011.

Moller, A. , Lawcock, G. and Morgan, D. Onesteel Analyst Report - What does the current share price imply for FY12 steel earnings? UBS Limited Research. Dated 7th September 2011.

Onesteel Submission to the COAG Climate Working Group on Climate Change and Water Philip Ridgeway dated 29th July 2008.

Onesteel Annual Report 2010
Downloaded from : http://www.onesteel2010.annual-report.com.au/ on 8th September, 2011

Onesteel 2010 Sustainability Report
Downloaded from : http://onesteel.sustainability-report.com.au/ on 8th September 2011

Onesteel 2011 Full Year Results
Downloaded From: http://www.onesteel.com/images/db_images/news/OST%20-%20Full%20Year%20Results%20-%2016%20August%202011.pdf on 16th September 2011

Scott, T. (2011). One Steel “Nothing Peculiar About it. RBS Australia Limited.

Scott, T. (2011). One Steel - Diversity has its advantages. RBS Australia Limited.

Sheriff. J. (2011). Company Earnings Impact : Australian Carbon Pricing, J.P Morgan Asia Pacific equities research.

Turecek . J. (2011). ECFS: 905. Emmissions Trading course notes Course Notes. September 2011. Macquarie University, Sydney.
Retrieved from: http://www.carbontrust.co.uk/policy-legislation/international-carbon-flows/steel/Pages/17.aspx on 25 August 2011.

Wen. P. (2011). Tough times … the dollar's ascent could result in more job cuts and a loss of steel capacity. Photo: Bloomberg
Retrieved From: http://www.smh.com.au/business/onesteel-calls-for-urgent-rate-cut-20110912-1k60y.html#ixzz1Xn2Tq3tl Retrieved on 13th September 2011.

Wood. T. and Edis. T. (2011). New protectionism under carbon pricing: Case studies of LNG, coal mining and steel sectors. Gratan Institute.
Downloaded From: http://www.grattan.edu.au/pub_page/101_report_energy.html 12 September 2011.

Zappone. C. Strong Dollar Takes its Toll On Jobs. Sydney Morning Herald. 22nd August 2011
Downloaded from: http://www.smh.com.au/business/strong-dollar-takes-its-toll-on-jobs-20110822-1j5lz.html - 22nd August 2011

Exhibit C (1 of 3)

Exhibit C (2 of 3)

Exhibit C (3 of 3)

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[ 2 ]. Note that the timing of cash flows is not certain. For the sake of simplicity credits as assumed to be based emissions for the current fiscal year and paid in that year. In practice credits would accrue based on prior year emissions but emissions cash flows would occur in the subsequent year.
[ 3 ]. Moller, A., Lawcock. G. and Morgan, D. Onesteel - Earnings in line. Move to Buy on Valuation. UBS Limited Research. dated 16th August 2011.
[ 4 ]. Wen. P. (2011). Tough times … the dollar's ascent could result in more job cuts and a loss of steel capacity. Photo: Bloomberg
Retrieved From: http://www.smh.com.au/business/onesteel-calls-for-urgent-rate-cut-20110912-1k60y.html#ixzz1Xn2Tq3tl Retrieved on 13th September 2011.
[ 5 ]. Clean Energy Future – “Appendix A :Carbon pricing mechanism” Downloaded From: http://www.cleanenergyfuture.gov.au/ on 14th September 2011.
[ 6 ]. Moller, A., Lawcock. G. and Morgan, D. Onesteel - Earnings in line. Move to Buy on Valuation. UBS Limited Research. dated 16th August 2011.
[ 7 ]. . Scott, T. (2011). One Steel - Diversity has its advantages. RBS Australia Limited.
[ 8 ]. Sourced from : IEA; BCG Analysis; Carbon Trust Analysis industry interviews
[ 9 ]. Hombu. K. (2009). How Sectoral Approach will work for Advanced Developing countries under the Future Framework- Japan’s Experience in Iron & Steel Sector. Retrieved From: http://www.ccap.org/docs/fck/file/Japan%20-%20SA%20in%20Japan%27s%20steel%20sector.pdf on 16 September 2011