Iluka Resources Limited · ASX:ILU
Iluka Resources — FY2019 Earnings Presentation
46 slides from Iluka Resources's earnings presentation, Feb 20, 2020
Slide 1: Iluka Resources Limited 2019 Full Year Results Presentation
1 Iluka Resources Limited 2019 Full Year Results Presentation Tom O’Leary, Managing Director Adele Stratton, Chief Financial Officer
Slide 2: Disclaimer – Forward Looking Statements
Disclaimer – Forward Looking Statements 2 This presentation has been prepared by Iluka Resources Limited (Iluka). By accessing this presentation you acknowledge that you have read and understood the following statement. This document provides an indicative outlook for the Iluka business in the 2020
Slide 3: Table of contents
Table of contents 3 # Section Page Summary of FY19 results 4 1 Outcome of corporate and capital structure review 6 2 Mineral sands markets 12 3 Financial management 18 4 Operations and projects 26 5 Outlook 36 Appendix: Supplementary financial information 41
Slide 4: Iluka's commitment to sustainability
Iluka’s commitment to sustainability 4 Iluka Group TRIFR down to 2.9 in 2019 (3.5 in 2018) and ongoing commitment to sustainability Iluka’s Sustainability Approach Female Key Pillars representation 2.9 • Health and Safety Group TRIFR 2019 • People (2018: 3.5) 33% 38% • Social Performance Exec. Mgt.
Slide 5: Summary of FY19 results: Key Features
Summary of FY19 results 5 Key Features • Underlying Group EBITDA of $616 million, up 3% (2018: $600 million) • Underlying net profit after tax of $279 million (2018: $301 million) Financial results • Reported net loss after tax of $300 million, impacted by $414 million write-down of Sierra Rutile as
Slide 6: Outcome of corporate and capital structure review
Outcome of corporate and capital structure review Source: Google maps – Imagery 2020 CNES / Airbus Maxar Technologies, Imagery CNES / Airbus, Landsat / Copernicus, Maxar Technologies, Map data 2020
Slide 7: Outcome of corporate and capital structure review
Outcome of corporate and capital structure review 7 Iluka’s corporate and capital structure review has concluded that a demerger of Iluka’s royalty business is the optimal structure to deliver sustainable value. Upon demerger, the MAC Royalty would be the cornerstone asset for Australia’s leading AS
Slide 8: Overview of Iluka's two distinct businesses
Overview of Iluka’s two distinct businesses 8 Iluka’s two principal businesses have distinct business characteristics, risk-return profiles and require different and tailored growth strategies. Consequently, a demerger is expected to unlock the full potential of both businesses over time. Mineral Sa
Slide 9: Introduction to RoyaltyCo
Introduction to RoyaltyCo 9 RoyaltyCo’s vision is to be Australia’s leading resources royalty company, providing shareholders with a cash flow generative and low operational risk investment vehicle with strong growth potential RoyaltyCo overview MAC Royalty is RoyaltyCo’s cornerstone asset • Upon su
Slide 10: MAC Royalty growth profile and revenue potential
MAC Royalty growth profile and revenue potential 10 Considerable growth to underlying Mining Area C production over coming years - MAC Royalty earnings are determined based on sales volumes, iron ore pricing, the ratio of lump to fines, the premium lump attracts over fines and the USD:AUD exchange r
Slide 11: Demerger mechanics and next steps
Demerger mechanics and next steps 11 Today’s announcement is an important milestone for the future of Iluka and RoyaltyCo. Iluka will continue to work through key structuring considerations and will provide additional information about the demerger including the transaction timetable at its AGM in A
Slide 12: Mineral Sands Markets
Mineral Sands Markets
Slide 13: Zircon Overview
Zircon Overview 13 Business and consumer confidence in the zircon market continued to be affected by a subdued outlook for global economic growth Iluka zircon sales volumes Result (2019) • Full year zircon sales of 274kt (2018: 379kt) – in line with guidance Concentrate Premium • Full year zircon pr
Slide 14: Zircon Markets
Zircon Markets 14 Iluka’s FY19 zircon sales were 274kt (2018: 379kt), with 89kt achieved in Q4. Total sales for the year were in line with guidance. Iluka sales by destination 121 kt 97 kt 84 kt • Soft demand in ceramics and continued downstream stock drawdown was evident China • Orders from foundry
Slide 15: High Grade Titanium Feedstock Overview
High Grade Titanium Feedstock Overview 15 Market conditions remain positive for high grade titanium feedstocks with Iluka’s sales constrained by production in 2019. Iluka secured take-or-pay offtake agreement with Kronos, providing further revenue certainty. Iluka sales volumes by destination Iluka
Slide 16: High Grade Titanium Feedstock Markets
High Grade Titanium Feedstock Markets 16 Full year sales of high-grade titanium dioxide feedstocks of rutile and synthetic rutile were 407kt Iluka sales by destination 54 kt 45 kt • US pigment market held up well in 2019, due to strong economic conditions and consumer confidence Americas • Evidence
Slide 17: High Grade Titanium Feedstock – Offtake Agreements
High Grade Titanium Feedstock – Offtake Agreements 17 A significant proportion of Iluka’s high grade feedstock production – 70% in 2020 – now underpinned by longer term take-or-pay agreements High Grade Titanium Sales, Production Outlook and Take-or-Pay Contracts kt • Take-or-pay contracts deliver r
Slide 18: Financial management
Financial management Sierra Rutile, Sierra Leone
Slide 19: Solid Underlying Result
Solid Underlying Result 19 Over the past two years Iluka has delivered two of its best results in the company’s history Underlying Group EBITDA $616 million, up Mineral Sands Revenue $1,193 million, 3% from 2018 down 4% from 2018 $ million Mineral Sands Revenue $ million Underlying Group EBITDA 1400
Slide 20: Key Financial Metrics
Key Financial Metrics 20 Units 2019 2018 % change Z/R/SR production kt 702.4 731.7 (4.0) ▼ Z/R/SR sales kt 680.8 827.1 (17.7) ▼ Mineral sands revenue $m 1,193.1 1,244.1 (4.1) ▼ Mineral sands EBITDA $m 530.9 544.5 (2.5) ▼ Underlying Group EBITDA1 $m 616.0 600.1 2.6 ▲ Profit (loss) for the period (NPA
Slide 21: Underlying NPAT
Underlying NPAT 21 Iluka reported underlying NPAT of $279 million in 2019 Key movements in 2019 Underlying NPAT reconciliation • Lower mineral sands sales volumes offset by higher average prices $ million • Improved average AUD of 69.5c (2018: 74.8c) 500 • Higher cost of goods sold due: 450 ‒ to the
Slide 22: Cash Flow
Cash Flow 22 Iluka reported $140 million of free cash flow in 2019 with strong operating cash flow generated from mineral sands operations and MAC royalty income and investment of $198 million in capital projects Cash flow movements 2019 free cash flow $140 million $ million 600 Key cash flow driver
Slide 23: Inventory
Inventory 23 As at 31 December 2019, Iluka’s inventory balance of $425 million sits within normal working capital levels Inventory balance movements • Iluka’s inventory provides flexibility to release product as market conditions improve • Zircon finished goods inventory is higher due to subdued 201
Slide 24: Balance Sheet
Balance Sheet 24 Iluka has a strong balance sheet with $43 million net cash position (as at 31 Dec 2019), and debt facilities of $519 million Key movements Net Debt, Gearing and Funding Headroom • Net cash position of $43 million as at December 2019 $m Gearing % Total facilities available Net debt (
Slide 25: Dividend
Dividend 25 Iluka has declared a final fully franked dividend of 8 cents per share. Dividend payment • 8 cents per share final dividend fully franked • Full year dividend 13 cents per share (8 cps final + 5 cps interim) – 40% of full year free cash flow – consistent with stated dividend framework –
Slide 26: Operations and projects
Operations and projects Cataby, Western Australia
Slide 27: Projects Delivered
Projects Delivered Key Features 27 In 2019, Iluka successfully delivered five projects across the portfolio including the commissioning and ramp-up of Cataby and expansion projects at Sierra Leone and SR2 kiln major maintenance outage Total 2019 Capital Expenditure of $198 million Cataby, Gangama La
Slide 28: Production Summary
Production Summary 28 Portfolio of producing assets, configured to deliver value through the production of high quality mineral sands products Australia Product (kt) Operation 2019 2018 % Jacinth-Ambrosia / Mid West 260.2 312.0 (16.6) • Mining moved from the Jacinth North deposit to the Ambrosia dep
Slide 29: Production Costs
Production Costs 29 Increase in production costs due to operational challenges at Sierra Rutile, however revenue per tonne increased 17% to $1,654/tonne Production, Unit Costs and Unit Revenue kt and $/tonne • Higher unit cash costs of production in 2019 due to: 1,800 Total Z/R/SR production (kt) −
Slide 30: Jacinth-Ambrosia
Jacinth-Ambrosia 30 In 2019 the move to the Ambrosia deposit was completed on schedule and under budget Historical Production and Unit Cost • Mining and concentrating activities ongoing as planned kt Zircon Rutile (HYTI 90) $/tonne • Improved grades and recoveries in-line with historical levels 400
Slide 31: Cataby
Cataby 31 Ramp-up completed and full feed maintained to sustain synthetic rutile production at SR2 kiln • $270 million development, delivered on schedule and on budget Cataby Rougher Head Feed kt ‒ re-use of refurbished equipment required re-configuration 800 Improving throughput as Cataby • Full fe
Slide 32: Sierra Rutile
Sierra Rutile 32 Improvement initiatives implemented, focus on efficiency • Operational challenges in 2019 impacting runtime and throughput Mining Unit Ore Feed and Rutile Production • Improvement initiatives implemented throughout year Ore feed kt Rutile kt Gangama Lanti Dry 3,000 50 ‒ expert maint
Slide 33: Mineral Sands Operational Outlook
Mineral Sands Operational Outlook 33 Cataby / South West Jacinth-Ambrosia / Mid West Sierra Leone Cataby commissioned and near nameplate capacity Mining moved to Ambrosia deposit Lanti and Gangama expansions completed Kiln refurbished for next 4 year campaign Four mining units operational 2020 Produ
Slide 34: Overview of Growth Projects
Overview of Growth Projects 34 Key Features Iluka is progressing initiatives across its growth projects to extend and expand its existing asset base Atacama, Wimmera, Eneabba Mineral Sands Recovery, South Australia Victoria Western Australia Satellite deposit located 5km from JA operation Significan
Slide 35: Growth Pipeline Summary
Growth Pipeline Summary 35 ASSESS SELECT DEVELOP EXECUTE OPERATE Region Mineral Resource1 Preliminary Feasibility Definitive Feasibility Scoping Study Project execution Operate and maximise Study Study 361Mt @ 4.8% HM for Jacinth- Eucla Basin Atacama 17.4Mt In Situ HM Ambrosia 195Mt @ 17.2% HM for M
Slide 36: Outlook
Outlook Sierra Rutile, Sierra Leone
Slide 37: Outlook for 2020 – Group
Outlook for 2020 – Group 37 Key Parameters 2018 2019 20201 Comments Annual production Zircon kt 349 322 2802 Includes ~35kt of ZIC. Higher production outlook from Sierra Rutile Rutile3 kt 163 184 230 and full year of operations at Cataby Synthetic Rutile kt 220 196 225 Full year of kiln operation To
Slide 38: Outlook for 2020 – Group
Outlook for 2020 – Group 38 Key Parameters 2018 2019 20201, 2 Comments Cash costs ($m) Increased costs associated with full year of Cataby Cash costs of production (Z/R/SR) 444 529 580 operations, Ambrosia and full year of synthetic rutile kiln operation Ilmenite concentrate and by-product costs 11
Slide 39: Outlook for 2020 – Sierra Rutile
Outlook for 2020 – Sierra Rutile 39 Key Parameters 2018 2019 20201 Comments Annual production Outlook reflects full year of expanded operations and Rutile kt 122 137 170 implementation of operational improvements Zircon kt 11 9 5 ZIC shipment Total Z/R kt 133 146 175 Ilmenite kt 54 59 70 Annual unit
Slide 40: Outlook for 2020 – Summary
Outlook for 2020 – Summary 40 • Q1 zircon sales are typically a seasonal low • The impact on zircon demand of COVID-19 and macroeconomic factors remain uncertain Market outlook • Tight conditions expected to continue in high grade titanium feedstocks • Potential for recovery in zircon market hastene
Slide 41: Appendix: Supplementary financial information
Appendix: Supplementary financial information Eneabba, Western Australia
Slide 42: Supplementary Information
Supplementary Information 42 Production and Sales Volumes, Revenue and Cash Costs 2019 2018 % change Production Zircon kt 322.1 348.6 (7.6) Rutile kt 184.1 163.2 12.8 Synthetic rutile kt 196.2 219.9 (10.8) Total Z/R/SR production kt 702.4 731.7 (4.0) Ilmenite – saleable and upgradeable kt 318.6 395.
Slide 43: Supplementary Information
Supplementary Information 43 Weighted Average Received Prices H1 H2 Full year Full year US$/tonne FOB 2019 2019 2018 2019 Zircon Premium and Standard 1,522 1,446 1,351 1,487 Zircon 1,465 1,299 1,321 1,380 (all products including zircon in concentrate) 1 Rutile 1,108 1,167 952 1,142 (excluding HYTI)2
Slide 44: Supplementary Information
Supplementary Information 44 Summary Group Results $ million 2019 2018 % change Mineral sands revenue 1,193.1 1,244.1 (4.3) Mineral sands EBITDA 530.9 544.5 (2.5) Mining Area C royalty EBITDA 85.1 55.6 53.1 Underlying group EBITDA 616.0 600.1 2.6 Underlying group EBITDA margin % 51.6 48.2 7.1 Deprec
Slide 45: Supplementary Information
Supplementary Information 45 Income Statement Analysis A$ million 2019 2018 % change Z/R/SR revenue 1,128.7 1,179.0 (4.3) Ilmenite and other revenue 64.4 65.1 (1.1) Mineral Sands Revenue 1,193.1 1,244.1 (4.1) Cash costs of production (539.6) (455.1) 18.6 Inventory movement - cash 63.4 (68.5) n/a Res
Slide 46: Supplementary Information
Supplementary Information Reconciliation of non-IFRS financial information to profit before tax 2019 Mineral 2019 JA/MW C/SW Idle SRL Expl & Oth MAC Corp Group sands Mineral sands revenue 482.7 414.2 38.6 257.6 - 1,193.1 - - 1,193.1 AASB 15 freight revenue 19.8 7.4 3.3 8.1 - 38.6 - - 38.6 Expenses (