Iluka Resources Limited · ASX:ILU
Iluka Resources — Investor Presentation (April 2016)
26 slides from Iluka Resources's investor presentation, Apr 22, 2016
Slide 1: Iluka Resources Limited Presentation to Shaw & Partners
Iluka Resources Limited Presentation to Shaw & Partners Dr Robert Porter, General Manager Investor Relations 22 April 2016
Slide 2: Disclaimer – Forward Looking Statements
Disclaimer – Forward Looking Statements Forward Looking Statements This presentation contains certain statements which constitute “forward-looking statements”. These statements include, without limitation, estimates of future production and production potential; estimates of future capital expenditu
Slide 3: Objective – create and deliver value for shareholders
Iluka Resources Limited Objective – create and deliver value for shareholders • ~A$2.4 bn market capitalisation; 6th ranked Australian resource company • Leading position in international mineral sands industry ‒ largest producer of zircon – one third market share ‒ significant high grade titanium d
Slide 4: Zircon Applications
Zircon Applications Zirconia, Zirconium Chemicals Ceramics Refractory and Foundry and Metal ~50% of demand ~30% of demand ~20% of demand Zircon has many unique properties Zircon is opaque, water, chemical and Zircon is heat resistant and non-reactive Uses include fibre optics, abrasion resistant Use
Slide 5: Titanium Applications
Titanium Applications Pigment Titanium Metal Welding (flux) ~90% of demand ~6% of demand ~4% of demand Nanomaterials Growing market Titanium metal has high strength to Titanium dioxide pigment is opaque weight ratio and is corrosion resistant. Uses include solar cells, water (white), UV resistant an
Slide 6: Iluka - Areas of Focus
Iluka - Areas of Focus FINANCIAL FOCUS Growth Options / Focus Areas Marketing and Projects Exploration Innovation and Other Growth Market Development Mineral Sands Mineral Sands / Technology Option - Direct sales - Internal options Other Commodities - resource - Metalysis, Tapira arrangements advanc
Slide 7: Iluka Position
Iluka Position • Strong balance sheet (zero debt) • Business running efficiently, safely, sustainably • Year on year production and sales volume growth • Margins stable and healthy, positive cash flow • Costs reducing • Maintaining a balance in use of cash flow between – investing to secure options
Slide 8: 2016 Production Settings
2016 Production Settings 2015 2016 Jacinth-Ambrosia mining 100% utilisation Mining and Concentrating suspended from 16 April South Australia Concentrate to be processed at Hamilton and Narngulu mineral separation plants Murray Basin mining WRP mine idled March at end of commercial life Concentrate c
Slide 9: Jacinth-Ambrosia, Eucla Basin
Jacinth-Ambrosia, Eucla Basin • Mining and concentrating suspended for 18 - 24 months, from 16 April • Improves cash flow and potential positive for zircon market dynamics • Enables finished goods and HMC to be drawn down to “normal” levels • Production/sales capacity unchanged – dependent on market
Slide 10: 2015 Results – Continued Low Cycle
2015 Results – Continued Low Cycle • Revenue of $819 million (previous 4 year average $1,0123 million) • NPAT of $53.5 million (previous 4 year average $215 million NPAT) • Free cash flow generation of $155 million (previous 4 year average $201m) • Mineral Sands EBITDA margin 33% • Net cash of $6 mi
Slide 11: Key Features – Capital Management
Key Features – Capital Management • Iluka’s approach: – maintain a strong balance sheet • Iluka’s distribution framework: – pay a minimum 40% of FCF not required for investing or balance sheet activity – distribute maximum practicable level of available franking credits • Balance sheet 2015 year end
Slide 12: Balance Sheet
Balance Sheet Net Debt, Gearing and Funding Headroom $m Gearing % 1,200 60 1,000 50 800 40 600 30 400 20 200 10 0 0 -200 -10 1H 10 2H 10 1H 11 2H 11 1H 12 2H 12 1H 13 2H 13 1H 14 2H 14 1H 15 2H 15 Total facilities Net debt (cash) Gearing • Balance sheet strength at 31 December 2015 – net cash of $6
Slide 13: Free Cash Flow and Dividend Trend
Free Cash Flow and Dividend Trend 13
Slide 14: Balanced Apportionment of Cash Flow
Balanced Apportionment of Cash Flow 2015 Operating Cash Flow Usage ($m) Innovation & Technology $28.0 Debt Reduction $75.5 Exploration $27.7 Tapira $2.7 Investment Free Cash Flow $125m $155m Capex $62.3 Fully Franked Dividends $79.5 Metalysis $4.1 Net cash inflow from operating activities in the 201
Slide 15: Unit Costs and Unit Revenue – 2016 Trend
Unit Costs and Unit Revenue – 2016 Trend Production, Revenue per tonne Sold and Unit Cash Costs / COGS $1136/t $1030/t $862/t $780/t $668/t $558/t • 2016 trend - lower cash costs of production; lower unit cash costs • COGS should inform modeling - refer Iluka’s Key Physical and Financial Parameters
Slide 16: Inventory Monetisation Potential
Inventory Monetisation Potential $m 900 800 700 600 $43.3m 500 400 300 $41.7m 200 100 0 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Work in Progress Finished Goods • Total inventory at 31 December 2015 of $812 million (2014: $810 milli
Slide 17: Industry Dynamics
Industry Dynamics • Subdued market demand evidence since 2012 • Growth exists, but not in all segments and geographies • Industry cash flow and balance sheet pressures – some distressed selling – debt/equity restructuring • New project underperformance • Industry sustaining capital expenditure requi
Slide 18: Market Conditions – Mineral Sands
Market Conditions – Mineral Sands Year-to-date • 1st Quarter revenue of $102.1 million – lower than March 2015 Quarter of $115.2 million • Lower zircon sales and limited ilmenite sales partially offset by higher rutile/SR sales • Lower revenue – different product mix ands lower average weighted rece
Slide 19: Market Conditions – Zircon
Market Conditions – Zircon Year-to-date • Zircon demand lower in March for price-related reasons • Rumoured price reduction by a major Iluka competitor • Iluka ASX Release 7 April – Zircon Reference Price reduced by ~10% to ~US$950/tonne1 • European zircon demand firmer • Americas demand stable • Il
Slide 20: Market Conditions – High Grade TiO2
Market Conditions – High Grade TiO2 Year-to-date • Majority of Iluka rutile and synthetic rutile contracted for 2016 • Demand for titanium dioxide pigment (largest market for feedstocks) improved since end of 2015 • Increased pigment demand and low inventories – series of price increases for pigment
Slide 21: Industry Supply Considerations
Industry Supply Considerations • Short term factors – inventory and surplus upgrading capacity in hands of major producers – fresh capital (~$1.6 billion) required to sustain production – recent zircon price action by major Iluka competitor – one off? – balance sheet issues for several industry play
Slide 22: Zircon Market Supply Characteristics
Zircon Market Supply Characteristics Source: Iluka * Zircon production from 2016 onwards excludes any finished goods inventory held at 31 December 2015, but includes zircon processed from concentrate stockpiles held by Iluka at the end of 2015. • Zircon from existing producers declining due to deple
Slide 23: Industry Re-investment Activity
Industry Re-investment Activity Source: TZMI, S&P Capital IQ, company announcements • Iluka estimates ~US$1.6b to be spent on major projects during the next few years to sustain production – this estimate excludes maintenance capital – relates to major existing producers, not potential new players 2
Slide 24: Business Characteristics - 2016
Business Characteristics - 2016 • Strong balance sheet, margins, value realisable from inventory • Bias to act counter-cyclically and deploy capital • Evaluation of internal options complete (Cataby) and expected to be concluded (Balranald) • 2016 expectations: – Z/R/SR sales volumes higher than 201
Slide 25: Investment Considerations - Iluka
Investment Considerations - Iluka • Shareholder value creation focus and capital discipline • Relatively favorable industry position and industry structure • Sound financial position at “low point” of cycle; share price reflects low cycle conditions • Demand recovery protracted and remains uncertain
Slide 26: Iluka Resources Limited
Iluka Resources Limited For more information contact: Dr Robert Porter, General Manager Investor Relations [email protected] +61 3 9225 5008 / +61 (0) 407 391 829 www.iluka.com