Iluka Resources Limited · ASX:ILU
Iluka Resources — FY2015 Earnings Presentation
49 slides from Iluka Resources's earnings presentation, Feb 19, 2016
Slide 1: Iluka Resources Limited 2015 Full Year Results
Iluka Resources Limited 2015 Full Year Results David Robb, Managing Director Doug Warden, Chief Financial Officer and Head of Strategy and Planning Matthew Blackwell, Head of Marketing, Minerals Sands 19 February 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: Industry Dynamics
Industry Dynamics • Subdued market demand • Growth exists, but not in all segments/geographies • Industry cash flow and balance sheet pressures – some distressed selling – debt/equity restructuring • New project underperformance • Significant capacity and production reductions • Industry sustaining
Slide 4: 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 5: 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 6: Key Features - 2015
Key Features - 2015 • Production up 29% • Zircon/rutile/synthetic rutile (Z/R/SR) sales volumes up 6% • High grade titanium feedstock sales volumes up 15% • Mineral sands revenue up 13% • Unit revenue per tonne of Z/R/SR sold up 10% • Unit cash cost of production for Z/R/SR, excluding by-products, d
Slide 7: 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 $4.1 Net cash inflow from operating activities in the 201
Slide 8: Sustainable Development
Sustainable Development Land Rehabilitation Jacinth-Ambrosia • Increase in TRIFR – higher occurrence of minor injuries/first aid – redoubled focus • Strong safety culture/performance evidenced by safe synthetic rutile kiln restart • Excellent land rehabilitation progress – 3rd consecutive year of ne
Slide 9: Main Features of Full Year Results
Main Features of Full Year Results Mineral Sands Sales Volumes Z/R/SR sales up 5.6%, higher SR sales offset by lower rutile and zircon sales Mineral Sands Revenue 13.1% - increased A$ revenue per tonne reflecting the lower AUD:USD exchange rate Cash Costs of Production 2.8% to $392.5m – reacti
Slide 10: Efficient Capital Management
Efficient Capital Management • Efficient capital management approach evident since 2007 continued • Balance sheet strength enhanced in 2015 – additional facilities, longer tenor • Cash returned to shareholders • Significant funding headroom – ability to act counter-cyclically 10
Slide 11: Iluka Dividend Payments
Iluka Dividend Payments • 19 cents final dividend fully franked payable 1 April 2016 • Equals 68 per cent of 2015 FY free cash flow • Cumulative 68 per cent of free cash flow since recommencement of dividends at end 2010 • Cumulative 171 cents per share returned to shareholders Distribution Metrics
Slide 12: Free Cash Flow and Dividend Trend
Free Cash Flow and Dividend Trend 12
Slide 13: Net Debt and Gearing Trend
Net Debt and Gearing Trend • 2010 – 2015 debt reduced to nil whilst paying $715 million of dividends • Debt facilities increased from $950 million to $1,010 million during 2015 13
Slide 14: 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 15: Net Debt Movement 2015
Net Debt Movement 2015 $m 2015 free cash inflow $155.0 million 250 64 225 200 (28) 175 (10) 222 (19) 150 125 1 100 (62) (4) (9) 75 50 25 6 (59) (80) 0 (10) (25) (50) (75) Opening net Operating MAC royalty Exploration Interest Tax Capex Purchase of Asset sales Other share Dividends FX and Closing net
Slide 16: Summary Group Results
Summary Group Results 2014 vs 2015 $m 2015 2014 % change Mineral sands revenue 819.8 724.9 13.1 Mineral sands EBITDA 270.6 238.6 13.4 Mining Area C royalty 61.2 66.4 (7.8) Group EBITDA 275.4 257.0 7.2 Group EBITDA margin % 31.2 32.5 (1.3) Depreciation and amortisation (132.0) (191.3) 31.0 Impairment
Slide 17: Mining Area C Royalty
Mining Area C Royalty 2015 versus 2014 2015 2014 2015 2014 % change Sales volumes mdmt 53.5 53.4 0.2 Implied price A$/t 71.6 98.7 (27.4) Net Royalty income $m 48.2 65.8 (26.7) Annual capacity payments1 $m 3.0 1.0 200.0 Agreement modification one-off receipt1 $m 10.4 - n/a Iluka EBIT $m 61.2 66.4 (7.
Slide 18: Net Profit after Tax
Net Profit after Tax 2015 versus 2014 EBITDA increased $18.4 million to $275.4 million $m Group EBITDA margin 31.2 per cent 125 3 100 82 75 (27) 38 2 50 (19) 54 25 8 (30) 122 (5) (4) 0 (25) (63) (50) (75) (100) 12 (56) (10) (125) 2014 Price Volume Mix FX Ilm & Unit Restruct Min Sand MAC Corp Impairm
Slide 19: 2015 Results Relative to Guidance
2015 Results Relative to Guidance Feb 2015 Dec 2015 2015 FY Guidance Update Actual Commentary Z/R/SR production kt 680 no change 690 Higher SR production than budgeted Z/R/SR sales > 2015 production kt - ~645 651 > 2014 total Z/R/SR sales Kt - 651 vs 616 2015 sales > 2014 sales by 6% Total cash prod
Slide 20: Accounting Aspects Impacting 2015 Profit
Accounting Aspects Impacting 2015 Profit • NPAT included $17.7 million post tax non-cash accounting charge for increased rehabilitation provision for closed sites in Australia due to reduced discount rate, as noted in ASX release on 16 December 2015. • Effective 2015 tax rate of 38.2 per cent due to
Slide 21: Unit Costs and Unit Revenue
Unit Costs and Unit Revenue Production, Revenue per tonne Sold and Unit Cash Costs / COGS $1136/t $1030/t $862/t $780/t $668/t $558/t • Unit cash costs of production (excluding by-products) decreased 16.5% to $558/tonne • Cost of goods sold (cash and non cash cost) also trended downwards in 2015 ‒ r
Slide 22: Inventory and Inventory Monetisation
Inventory and Inventory Monetisation $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 m
Slide 23: Zircon Market Update
Zircon Market Update • Total zircon sales flat • 2015: 346 thousand tonnes (2014: 352 thousand tonnes) • 2015 sales 2nd Half weighted per usual seasonal patterns Americas EMEAI China / Asia 2014 vs 2015 Sales Ceramics Zirconium 252 kt 252 kt Chemicals Fused Zirconia Refractories 69 kt 47 kt 53 kt 25
Slide 24: Zircon Market Update
Zircon Market Update REGION • Lost market share to new entrants in face of idling of Virginia operations Americas • Underlying demand down on lower industrial consumption (foundries, oil and gas) Europe / • Weaker Euro continued to benefit European based exporters Middle East / • Demand up on increa
Slide 25: High Grade Feedstocks Market
High Grade Feedstocks Market • Rutile / synthetic rutile sales up • 2015: 305 thousand tonnes (2014: 264 thousand tonnes) • Increased sales of HGO1 in Americas and Asia partially offsetting declines in EMEAI Americas EMEAI Asia/China1 2014 vs 2015 Sector Sales 155 kt Pigment 142 kt 121 kt Welding 20
Slide 26: Titanium Feedstock Market
Titanium Feedstock Market REGION • Fundamentals intact for continued growth in pigment demand Americas • Net increase in low cost capacity expected to increase demand for feedstocks Europe / • Capacity utilisation remains high as some producers maximise fixed-cost absorption Middle East / • Iluka’s
Slide 27: Low Grade Feedstocks
Low Grade Feedstocks Chloride and sulphate ilmenites • Sales down 5 per cent • 2015: 300 thousand tonnes (2014: 317 thousand tonnes) Americas EMEAI China / Asia 2014 vs 2015 Sector Sales Pigment 194 kt 165 kt 151 kt Welding 2015 2014 75 kt 31 kt Ti Sponge / Other 2014 2015 2014 2015 2014 2015 • Sale
Slide 28: Marketing Initiatives
Marketing Initiatives • Zircon Pricing and Payments Framework and Iluka Rewards established, benefits include: – more stable and predictable buying behaviour from customers – enhancement of customer relationships – better line of sight in terms of volumes • Zircon market share held despite new entra
Slide 29: 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 30: Industry Supply Considerations
Industry Supply Considerations • Short term factors – large inventories and surplus capacity in hands of major producers – distressed selling by small number of highly leveraged companies • Supply/demand forecasts need to allow for: – assemblage decline impacting high value components (R/Z) – projec
Slide 31: 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 32: 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 3
Slide 33: Iluka Production Settings
Iluka 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
Slide 34: Business Characteristics - 2016
Business Characteristics - 2016 • Iluka well placed for current global circumstances – strong balance sheet, good margins, value realisable from inventory • Bias to act counter-cyclically and deploy capital now • 2016 expectations: – Z/R/SR sales volumes higher than 2015 and higher than 2016 product
Slide 35: Supplementary Slides
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Slide 36: Reconciliation of Non-IFRS Financial Information to Profit before Tax
Reconciliation of Non-IFRS Financial Information to Profit before Tax Non-IFRS financial measures of Mineral sands EBITDA, Mineral sands EBIT, Group EBITDA and Group EBIT are highlighted in the table below, together with profit before tax. Exploration Mineral $m AUS US MAC Corp Group & Other(1) Sand
Slide 37: Production Volumes
Production Volumes kt 2015 2014 % change Zircon 388.6 357.6 8.7 Rutile 136.5 177.2 (23.0) Synthetic rutile 164.9 - n/a Total Z/R/SR production 690.0 534.8 29.0 Ilmenite – saleable and upgradeable 466.1 365.4 27.6 Total production volume 1,156.1 900.2 28.4 Heavy mineral concentrate produced 1,137 1,3
Slide 38: 2015 Production Highlight – SR Kiln Restart
2015 Production Highlight – SR 2 Kiln Restart • SR2 kiln reactivated March 2015 after concluding suitable commercial arrangements - 11 week refurbish and commissioning campaign ~ $3.5 million - key technical resources retained to support fast track restart - recruitment of ~ 80 additional personnel
Slide 39: Sales Volumes
Sales Volumes kt 2015 2014 % change Zircon 346.2 352.2 (1.7) Rutile 133.6 182.0 (26.6) Synthetic rutile 171.2 82.0 108.8 Total Z/R/SR 651.0 616.2 5.6 Ilmenite 299.8 316.6 (5.3) Total sales volumes 950.8 932.8 1.9 39
Slide 40: Historical Production and Sales
Historical Production and Sales Historical Zircon Production and Sales Historical Rutile and Synthetic rutile Production and Sales 2011 - 2015 2011 - 2015 Cumulative zircon production 1,976kt Cumulative rutile and synthetic rutile production 1,700kt Cumulative zircon sales 1,797kt Cumulative rutile
Slide 41: Mineral Sands Results
Mineral Sands Results $m 2015 2014 % change Mineral sands revenue 819.8 724.9 13.1 Australia EBITDA 376.5 290.7 29.5 United States EBITDA (34.5) 1.4 n/a Exploration and other EBITDA (71.4) (53.5) (33.5) Total mineral sands EBITDA 270.6 238.6 13.4 Depreciation and amortisation (132.0) (191.3) 31.0 Im
Slide 42: Summary Group Operations
Summary Group Operations 2015 2014 % change Production volumes Zircon kt 388.6 357.6 8.7 Rutile kt 136.5 177.2 (23.0) Synthetic rutile kt 164.9 - n/a Total Z/R/SR production kt 690.0 534.8 29.0 Ilmenite kt 466.1 365.4 27.6 Heavy mineral concentrate produced kt 1,137 1,305 (12.9) Heavy mineral concen
Slide 43: Unit Cash Costs and Revenue per tonne
Unit Cash Costs and Revenue per tonne 2015 2014 % change Total Z/R/SR production kt 690.0 534.8 29.0 Ilmenite – saleable and upgradeable kt 466.1 365.4 27.6 Total production kt 1,156.1 900.2 28.4 Total cash costs of production, incl. by-products $m 392.5 381.9 (2.8) Unit cash costs per tonne of Z/R/
Slide 44: Cash Flow and Net Debt
Cash Flow and Net Debt 2015 $m 1H 2015 2H 2015 2015 2014 vs 2014 % change Opening debt (59.0) (80.2) (59.0) (206.6) 71.4 Operating cash flow 92.1 130.1 222.2 254.8 (12.8) MAC royalty 26.7 37.3 64.0 75.2 (14.9) Exploration (11.5) (16.2) (27.7) (22.1) (25.3) Interest (net) (5.6) (4.9) (10.5) (12.8) 18
Slide 45: Capital and Exploration Expenditure (cash)
Capital and Exploration Expenditure (cash) $m 2014 2015 % change Capital expenditure 48.3 62.3 29.0 Metalysis 18.6 4.1 (78.0) Exploration 22.1 27.7 25.3 Total 89.0 94.1 5.7 45
Slide 46: Debt Facilities
Debt Facilities A$ m Iluka Debt Facilities and Maturity Profile 1,200 1,000 800 600 400 200 0 Current Total 2015 2016 2017 2018 2019 2020 MOFA Total Facilities • Significant funding headroom – undrawn facilities of A$955 million as at 31 December 2015 – cash and cash equivalents of A$55 million • To
Slide 47: Australian Operations
Australian Operations 2015 2014 % change Production volumes Zircon kt 351.3 332.5 5.7 Rutile kt 136.5 177.2 (23.0) Synthetic rutile kt 164.9 - n/a Total Z/R/SR production kt 652.7 509.7 28.1 Ilmenite kt 320.9 270.6 18.6 Total production kt 973.6 780.3 24.8 Heavy mineral concentrate produced kt 890 1
Slide 48: US Operations
US Operations 2015 2014 % change Production volumes Zircon kt 37.3 25.1 48.6 Ilmenite kt 145.1 94.8 53.1 Total production kt 182.4 119.9 52.1 Heavy mineral concentrate produced kt 247 170 45.3 Heavy mineral concentrate processed kt 258 172 50.0 Unit cash cost of production $/t 484 510 5.2 Mineral sa
Slide 49: Iluka Resources Limited
Iluka Resources Limited For more information contact: Dr Robert Porter, General Manager Investor Relations robert.porter@iluka.com +61 3 9225 5008 / +61 (0) 407 391 829 www.iluka.com