Iluka Resources Limited · ASX:ILU
Iluka Resources — Investor Presentation (April 2011)
48 slides from Iluka Resources's investor presentation, Apr 20, 2011
Slide 1: Company and Mineral Sands Sector Overview
Iluka Resources Limited Company and Mineral Sands Sector Overview Australian Shareholders’ Association South Australian Branch Adelaide 20 April 2011 Dr Robert Porter General Manager, Investor Relations 1
Slide 2: Disclaimer – Forward Looking Statements
Disclaimer – Forward Looking Statements This presentation contains forward-looking statements that are subject to risk factors associated with exploring for, developing, mining, processing and sale of minerals. Forward-looking statements include those containing such words as anticipate, estimates,
Slide 3: Contents
Contents Iluka Overview and Investment Proposition Iluka’s Evolution Improving Financial Results & Market Re-rating Favourable Market Dynamics 3
Slide 4: 1. Iluka Overview and Investment Proposition
1. Iluka Overview and Investment Proposition 4
Slide 5: Iluka Resources: Overview and Investment Proposition
Iluka Resources Overview and Investment Proposition Market capitalisation ~A$5.5 billion (418.7 million shares on issue) Industry Sector Materials (minerals sands exploration, project development, operations and marketing; iron ore royalty deriving from BHP Billiton’s Mining Area C, Western Australi
Slide 6: Shareholder Alignment
Shareholder Alignment Objective: creation and delivery of shareholder value Key internal focus: profitability; sustainability; and growth Financial performance and incentives linked to shareholder value creation - return on capital the internal proxy for return on equity Short term incentives - link
Slide 7: Iluka Investment Proposition
Iluka Investment Proposition Confluence of Positive Factors 1. Transition to high quality long life production operations 2. Higher margin zircon and rutile production over the next 3 years+ 3. Positive pricing dynamic playing out in both main product suites 4. Growing contribution from low risk Min
Slide 8: Key Characteristics of the Mineral Sands Market
Key Characteristics of the Mineral Sands Market Overview of Principal Product Streams Global Mineral Sands Market * Sales (Mt) Titanium Feedstocks, 2008 = 6.0Mt (2009 = 5.2Mt) Rutile (95% TiO2) Synthetic Rutile (SR) (90-96% TiO2) Upgraded Chloride Slag (UGS) (95% TiO2) Chloride Ilmenite and Leucoxen
Slide 9: Zircon: Attributes and Applications
Zircon: Attributes and Applications Opacity (whiteness) high refractive index (zircon refracts and reflects OPACIFIER IN CERAMICS white light well) floor & wall tiles | sanitary ware Resistant table ware water, chemical and abrasion resistance of glazes due to hardness of zircon Temperature stable l
Slide 10: Titanium Dioxide: Attributes and Applications
Titanium Dioxide: Attributes and Applications Opaque, white and bright high refractive index (refracts & reflects white light) PIGMENT UV protection paints & coatings | plastics | paper absorbs UV light energy (transfers to heat) – prevents fading, peeling, cracking Non toxic / inert safe for use in
Slide 11: Industry Structure and Participants
Industry Structure and Participants Relative Industry and Geography Supply Consolidation Zircon Titanium Including: Including: Indonesia, 6% China, 12% China, 5% Norway, 7% Vietnam, 3% Ukraine, 7% India, 2% India, 4% Major Producers Vietnam, 4% Major Producing Countries 11 Source: TZMI and Iluka
Slide 12: Iluka Customer Structure
Iluka Customer Structure Consolidated Titanium, More Fragmented Zircon Zircon Titanium Iluka Customer • Zircon flour millers (ceramics), 60% • Pigment producers, 90% Industries • Casting material manufacturers • Titanium sponge producers,5% (refractories and foundry), 18% • Welding rod manufacturers
Slide 13: 2. Iluka's Evolution
ILUKA 2. lluka’s Evolution 13
Slide 14: Iluka's Evolution
Iluka’s Evolution Following Appointment of David Robb as CEO in late 2006 2007 - Alignment • Performance management objectives aligned to shareholder objectives • Short and long term incentives aligned to shareholder value creation • Integrated business planning and decision making processes 2008 -
Slide 15: Iluka's Evolution: Current and Prospective Phases
Iluka’s Evolution Current and Prospective Phases 2010 - Recovery • Demand recovery – continued global volatility likely • End of major project capex outflows • Project ramp up in 1H and sustained performance at target in 2H • Zircon prices increase ~30% • Uncontracted titanium dioxide products sell
Slide 16: Iluka's Operations
Iluka’s Operations Murray Basin, Victoria / NSW Darwin • major rutile and zircon production province • mineral separation plant - Hamilton • economic life to 2023+ Northern Territory Eucla Basin, South Australia Queensland • globally significant zircon production source Western • mine life10 years+
Slide 17: Competitive Revenue:Cash Cost Position
Competitive Revenue:Cash Cost Position Industry Revenue to Cash Cost Ratio* 2011 -2013 First Quartile Second Quartile Third Quartile Fourth Quartile Ambrosia Jacinth- Murray Basin Iluka Other Iluka US Iluka WA Iluka Avg 2011-13 = 1.8 Ratio Iluka Avg 2006-08 = 1.3 0 25 50 75 100 % TiO2 + Zr (kt) • Re
Slide 18: Jacinth-Ambrosia
Jacinth-Ambrosia Capable of Supplying ~25% of Global Zircon Demand 18 Source: Iluka
Slide 19: Jacinth-Ambrosia, South Australia
Jacinth-Ambrosia, South Australia Name plate production reached July 2010 19
Slide 20: Murray Basin Stage 2, Victoria
Murray Basin Stage 2, Victoria Major Rutile and Zircon Production Province 20
Slide 21: Murray Basin Stage 2, Victoria
Murray Basin Stage 2, Victoria Long Life Rutile and Associated Zircon Production 21
Slide 22: Mining Area C Iron Ore Royalty
Mining Area C Iron Ore Royalty In-perpetuity Tier 1 Iron Ore Exposure Background Outlook • Mining Area C (MAC) covers a part of BHP • BHP has stated intentions to increase total iron ore output from WA BIlliton’s iron ore mining operations in WA’s to 240-250 by 2015, with expansion capacity to >300m
Slide 23: 3. Improving Financial Results
3. Improving Financial Results 23
Slide 24: EBITDA 2010 versus 2009
EBITDA 2010 versus 2009 ILUKA GROUP EBITDA 2010 vs 2009 A$m 400 26.5 25.7 350 16.2 53.1 (28.2) 300 (50.8) 304.7 115.6 250 200 47.0 150 100 99.6 50 0 2009 EBITDA Sales volumes Sales mix Sales price Unit cost Restructure Other MAC FX 2010 EBITDA reduction 24
Slide 25: Net Profit After Tax 2010 versus 2009
Net Profit After Tax 2010 versus 2009 ILUKA GROUP NPAT 2010 vs 2009 A$m 18.6 100 11.3 37.1 18.0 47.3 (29.7) 50 (19.7) (19.8) 80.9 (22.9) 36.1 (35.6) 0 2009 Sales mix Sales D&A MAC FX CRL costs 32.9 -50 (82.4) -100 2009 Sales Sales Sales Unit cost Restructure D&A Other MAC Tax & FX Significant CRL 20
Slide 26: Mining Area C Royalty
Mining Area C Royalty 2010 vs 2009 2010 2009 % change Annual Production to 30 Jun MDMT 42.5 37.8 12.4 Sales Volume to 31 Dec MDMT 43.2 40.3 7.2 Royalty Income $m 71.3 42.6 67.4 Capacity Payments $m 5.0 8.0 (37.5) Iluka EBIT $m 75.9 50.2 51.2 • Higher iron ore sales volumes • Average AUD realised pri
Slide 27: Mineral Sands Operating Cash Flow
Mineral Sands Operating Cash Flow $m 200 • Stronger operating cash flow - up 89.1% 163.6 150 • 1st half 2010 operating cash flow reflects: 119.7 - increase in J-A concentrate stocks 100 - increased debtors (shipment timing) 86.5 • 2nd half 2010 operating cash flow reflects: 50 43.9 - increased Z and
Slide 28: Net Debt Movement
Net Debt Movement ILUKA GROUP NET DEBT - 2010 A$m 400 382.1 350 (9.8) (35.7) 300 (81.5) 9.0 8.8 312.6 250 (29.4) (1.5) 200 163.6 (17.9) 150 63.9 100 50 0 Opening net Operating MAC royalty Exploration Interest Tax Capex Capex Asset sales Share FX on debt Closing net debt cash flow (J-A&MB2) (other) p
Slide 29: Share Price Performance
Share Price Performance Jan 2008 – Apr 2011 % 340 290 240 190 140 90 40 Jan 08 May 08 Oct 08 Feb 09 Jul 09 Dec 09 Apr 10 Sep 10 Jan 11 Iluka ASX 200 Materials 29 2008 = 100
Slide 30: Share Price Performance
Share Price Performance Jan 2010 – Apr 2011 430 % 380 330 280 230 180 130 80 Jan 10 Apr 10 Jul 10 Oct 10 Dec 10 Apr 11 Iluka ASX 200 Materials 30 2010 = 100
Slide 31: 4. Favourable Market Dynamics
4. Favourable Market Dynamics 31
Slide 32: Iluka Sales – Zircon
Iluka Sales – Zircon Zircon Sales kt 500 400 300 200 100 0 2008 1H 2009 2H 2009 2009 1H 2010 2H 2010 2010 2008 2009 2010 As ia (ex. China) China Europe Am ericas Other • Sales back to 2008 levels • China above 2008 levels - 47% of Iluka’s 2010 sales • Recovery in Europe and North America • Customer
Slide 33: Zircon Market Conditions
Zircon Market Conditions • Strong recovery in demand in all main markets • Global consumption estimated at 1.3 million tonnes - unmet demand • China imports running at above pre GEC levels - estimated 2010 imports of ~595k tonnes • Since Q2, Iluka unable to satisfy customers’ full demand - allocatin
Slide 34: Zircon Price and Supply Trends
Zircon Price and Supply Trends • Iluka actions: - 3 price increases in 2010 – year end exit price above US$1,000/tonne (FOB) - 1 January price increase of ~20%; 1 April price increase ~20% • Market deficit will moderate but tight conditions expected to persist for some years • 2011 likely to be impa
Slide 35: Warehouse Alternative - Internet Sales and Auction Site
Warehouse Alternative - Internet Sales and Auction Site Key Terms • Purchase or auction site as required • Minimum purchase 26mt, a full container load • Product bagged in 2mt Bulk Bags • Payment terms are L/C or T/T • No requirement to accept any offer Easily adapted to other products • Now offerin
Slide 36: Iluka Sales – Rutile and Synthetic Rutile
Iluka Sales – Rutile and Synthetic Rutile Rutile and Synthetic Rutile Sales kt 700 600 500 400 300 200 100 0 2008 1H 2009 2H 2009 2009 1H 2010 2H 2010 2010 2008 2009 2010 As ia (ex. China China Europe Am ericas Other • Strong recovery in North American pigment demand • Minimal sales of high grade ti
Slide 37: High Grade Titanium Dioxide: Market Dynamics
High Grade Titanium Dioxide Market Dynamics • Demand recovery for high grade titanium dioxide feedstocks • Most chloride pigment producers restored operations to full or near full capacity - demand for high grade feedstocks as replacement for lower grade feedstocks - hence increased demand for rutil
Slide 38: High Grade Titanium Dioxide: Trends
High Grade Titanium Dioxide Trends • 2011 1st year of unconstrained contract price negotiations - small proportion of SR volume still affected by residual “cap and collar” contract - unable to fully meet all customer requirements - rutile and SR pricing set for 6 months period only - volume arrangem
Slide 39: Zircon Demand
Zircon Demand End Use Demand and Regional Tile Consumption / Production 39 Source: Iluka, TZMI and Ceramic World Review
Slide 40: Tile Consumption
Tile Consumption Developing Economies Constitute Major Demand Source: Ceramic World Review Source: IMF • China, Brazil, India, Iran and Indonesia consume over half of the world’s tiles • Zircon intensity of use in these economies remains well below developed economies • These economies were relative
Slide 41: Titanium Dioxide End Use Demand
Titanium Dioxide End Use Demand Titanium Market Segments ~6,050kt (2008) Other, 6% Metal, 4% Pigment, 90% Source: Iluka and TZMI 41
Slide 42: Pigment Demand by Region, 1980 to 2009
Pigment Demand by Region, 1980 to 2009 Developing countries pigment use growing with GDP Pigment (kg) / person 5 North America 4 3 1980 Europe 2009 2 Japan 1 China Global India Asia 0 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 Real GDP / Capita (US$) • Developing countrie
Slide 43: 2011 Areas of Focus
2011 Areas of Focus • Operate the business safely and in a sustainable manner • Maximise high margin production from existing operations • Determine best means to cost-effectively increase production • Support pricing momentum as market conditions allow • Invest in product and technical development
Slide 44: For further information, contact: Dr Robert Porter
For further information, contact: Dr Robert Porter General Manager, Investor Relations + 61 3 9600 0807; + 61 (0) 407 391 829 [email protected] www.iluka.com 44
Slide 45: Key Physical & Financial Parameters
Key Physical & Financial Parameters 2011 Financial Trends 2010 2011 2012 Commentary Guidance Cash Costs A$m Production costs 544 ~540 Expected to be lower, but dependent on mine move and kiln operation, and cost inflation Z/R/SR unit costs 538 ~560 Expected to be lower, dependent on production cost
Slide 46: Key Physical & Financial Parameters
Key Physical & Financial Parameters 2011 Physical Trends 2010 2011 2012 Commentary Guidance Production (kt) Zircon 413 ~500 Expected to be ~500kt 1 Rutile 250 ~250 Expected lower production (~200kt) due to transition to new deposits at WRP, following completion of mining at Douglas and Echo in early
Slide 47: Main Product Usages and Applications
Main Product Usages and Applications Predominant End Consumer Applications - 2008 Zircon Titanium 2000-08 2000-08 Average Annual Growth Average Annual Growth Other, 5% (8%) 11% Zirconia & 14% Chemicals, 11% 18% Refractories, 0% 11% Foundry, 11% 0% 2% Ceramics, 55% 4% Main Attributes: Main Attributes
Slide 48: Mineral Sands Price Relativities
Mineral Sands Price Relativities Historical Prices to 2009 US$ / tonne 1000 Zircon SR Chloride Ilmenite Rutile 800 600 400 200 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 48 Source: TZMI