Iluka Resources Limited · ASX:ILU
Iluka Resources — H1 2017 Earnings Presentation
38 slides from Iluka Resources's earnings presentation, Aug 16, 2017
Slide 1: 2017 Half Year Results
2017 Half Year Results Tom O’Leary, Managing Director Doug Warden, Chief Financial Officer and Head of Strategy and Planning For personal use only 16 August 2017
Slide 2: Disclaimer – Forward Looking Statements
Disclaimer – Forward Looking Statements For personal use only 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 fu
Slide 3: Safety and Sustainability
Safety and Sustainability For personal use only 2016 Sustainability Report released April 2017 * * excludes Sierra Rutile, which had a TRIFR of 2.5 for the 7 months since acquisition in December 2016 3
Slide 4: First Half 2017 Key Features
First Half 2017 Key Features For personal use only Strengthening market conditions Sales volume growth Zircon / Rutile / Synthetic Rutile sales volumes up 43% Zircon (premium and standard) prices up 7% and rutile prices up 4% on H1 2016 Zircon and rutile price rises Mineral sands revenue up 49% Free
Slide 5: Zircon Market
Zircon Market For personal use only Iluka result Zircon Prices* US$/t • Zircon sales up 28% relative to H1 2016 1,200 • Very active first quarter, against seasonal trend Opening 1 Jan 16 1,000 Pricing • Limited global zircon inventories outside Iluka 800 • Weighted average premium and standard recei
Slide 6: Zircon Market
Zircon Market For personal use only Americas EMEAI China East Asia (Europe, Middle East, Africa, India) (excl. China) 118 kt 122 kt 76 kt 49 kt 49 kt 32 kt 25 kt 25 kt 19 kt 5 kt 9 kt 7 kt H1 2016 H2 2016 H1 2017 H1 2016 H2 2016 H1 2017 H1 2016 H2 2016 H1 2017 H1 2016 H2 2016 H1 2017 Stable demand o
Slide 7: High Grade Feedstock Market
High Grade Feedstock Market For personal use only Iluka result • Rutile and SR sales volumes, excluding Sierra Rutile, are 20% higher than H1 2016 Pigment Rutile US$/t US$/t – including Sierra Rutile (H1 2017: 62kt) sales are up 58% 4,000 3,000 Pricing • Rutile prices up 4% relative to H1 2016 – 40%
Slide 8: High Grade Feedstock Market
High Grade Feedstock Market For personal use only Americas EMEAI Asia (Europe, Middle East, Africa, India) 165 kt 118 kt 106 kt 66 kt 50 kt 27 kt 25 kt 28 kt 11 kt H1 2016 H2 2016 H1 2017 H1 2016 H2 2016 H1 2017 H1 2016 H2 2016 H1 2017 Americas demand steady with H1 2016. Sales to European customers
Slide 9: Financial Management
Financial Management Doug Warden, CFO and Head of Strategy & Planning For personal use only Jacinth-Ambrosia, South Australia
Slide 10: Key Financial Metrics
Key Financial Metrics H1 2017 versus H1 2016 For personal use only Units H1 2017 H1 2016 Change Z/R/SR Production kt 453.1 334.4 +35% Z/R/SR Sales kt 453.8 316.4 +43% Mineral sands revenue $m 503.6 338.4 +49% Underlying mineral sands EBITDA1 $m 123.5 41.9 +195% MAC EBITDA $m 31.1 20.8 +50% Underlyin
Slide 11: Underlying Group EBITDA
Underlying Group EBITDA H1 2017 versus H1 2016 For personal use only $m 180 160 10 2 61 10 29 140 (3) 120 (8) ( 20 ) (7) 100 17 80 155 60 40 63 20 0 30 June 2016 Price Vol Mix FX Ilm & Unit Idle Res Dev and MAC Corp 30 June 2017 Oth COGS (Cash) Other Min Sand • Improved revenue (price and volume) •
Slide 12: Further Inventory Draw Down
Further Inventory Draw Down For personal use only Total Inventory $m 1000 800 600 400 $29m 200 $87m 0 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Finished Goods Work in Progress* • Planned inventory reduction to pr
Slide 13: Net Debt Reduction
Net Debt Reduction H1 2017 For personal use only $m 600 H1 2017 free cash flow $180 million 500 506 400 25 6 1 300 6 9 (1) (194) 305 (22) (31) 200 100 0 Opening net Operating - cash MAC royalty - Exploration - Interest - Tax - Capex - Asset-sales Exchange - Amortisation - of Closing net debt debt fl
Slide 14: Balance Sheet Capacity
Balance Sheet Capacity For personal use only Net Debt, Gearing and Funding Headroom $m Gearing % 1050 35 • Sierra Rutile acquisition cost of $469 million funded by debt in December 2016 900 30 750 25 • Strong free cash flow of $180 million (H1 2016: negative $51 million) used to strengthen 600 20 ba
Slide 15: Interim Dividend
Interim Dividend For personal use only • 6 cents interim dividend fully franked payable 27 September 2017 • Represents 14% of H1 free cash flow, reflecting: – elevated near term capital expenditure in 2017/2018 associated with Cataby and the Sierra Rutile expansions – a desire to strengthen the bala
Slide 16: Cost Focus Maintained
Cost Focus Maintained For personal use only Production, Unit Costs and Unit Revenue • Increase in unit cost of production reflects inclusion of higher Sierra Rutile operations cost structure kt and A$/tonne ‒ operational improvements and expansions 1,600 expected to reduce Sierra Rutile costs • Sign
Slide 17: Sierra Rutile Cash Cost Performance
Sierra Rutile Cash Cost Performance For personal use only Sierra Rutile Production and Unit Cash Costs US$/t kt 700 16 680 12 660 640 8 620 600 4 580 560 - Jan Feb Mar Apr May Jun Z/R production Cumulative cash costs of production (US$/t) • Improving unit cash cost of production over H1 driven by im
Slide 18: Mining Area C Royalty
Mining Area C Royalty For personal use only • Iluka holds a royalty over iron ore produced from H1 H1 specific tenements of BHP Billiton’s Mining Area C 2017 2016 % change (MAC) mine in Western Australia Sales volumes mdmt 27.0 25.4 6% Implied price A$/t 93.8 67.3 39% • Royalty EBITDA increased by 5
Slide 19: Operations and Projects
Operations and Projects For personal use only Jacinth-Ambrosia, South Australia
Slide 20: Operations Update
Operations Update For personal use only • Total Z/R/SR production up 35% to 453kt − Australian operations up 9% to 364kt − 82kt of Z/R from Sierra Rutile Australian Operations • Tutunup South mine continued to produce feed for SR kiln (North Capel) − mining expected to complete in Q1 2018 − processi
Slide 21: Jacinth-Ambrosia (J-A) Restart
Jacinth-Ambrosia (J-A) Restart For personal use only • Mining and concentrating suspended at J-A in April 2016 for 18-24 months • Iluka announced on 21 June 2017 that HMC production will recommence from December 2017 • Restart decision reflects: – continued tightening zircon market – substantial dra
Slide 22: Sierra Rutile - Operational Improvements
Sierra Rutile - Operational Improvements For personal use only • Rutile production up 21% in Q2 2017 relative to Q1 2017, reflecting: – higher throughput and runtime at Lanti and Gangama dry mines – processing of stockpiles - to be completed by year end – higher recoveries from adjusted concentrator
Slide 23: Sierra Rutile – Expansion Projects
Sierra Rutile – Expansion Projects For personal use only Lanti dry and Gangama mine expansions Sierra Rutile deposits Project to double the capacity of both Lanti dry and Gangama mines to 1,000 tonnes per hour Preferred method of development selected Detailed engineering and construction planning un
Slide 24: Cataby Project - Overview
Cataby Project - Overview For personal use only Project Overview • Located 150km north of Perth, Western Australia • Estimated life of ~8.5 years • Sustains ~200 ktpa of synthetic rutile (SR) production for at least 8.5 yrs • Average annual production (ktpa, thousand tonnes per annum): – ~370 ktpa c
Slide 25: Cataby Project - Update
Cataby Project - Update For personal use only Latest Developments • Capital expenditure for the 6 months to 30 June 2017 of $11 million • Encouraged by off-take discussions • Up to an additional $30-35 million expected to be spent by end of 2017 in order to maintain schedule, subject to satisfactory
Slide 26: Balranald Project
Balranald Project For personal use only Project Overview • Large, deep, high grade rutile-rich deposit • Industry significant source of rutile, ilmenite and zircon • Definitive feasibility study based on conventional mining method completed • Progressing separate DFS using unconventional, undergroun
Slide 27: Summary & Outlook
Summary & Outlook For personal use only Jacinth-Ambrosia, South Australia Jacinth-Ambrosia, South Australia
Slide 28: Iluka’s Approach
Iluka’s Approach For personal use only Create and deliver value for shareholders Flex assets in Preserve and Act counter Disciplined line with market advance growth cyclically where capital allocation conditions opportunities appropriate Operational settings reflect Cataby project execute ready Sier
Slide 29: 2017 Guidance Update
2017 Guidance Update For personal use only Updated Guidance Guidance Unit Jan 17 Aug 17 Production Zircon kt 275 310 Rutile kt 240 280 Synthetic rutile kt 205 205 Total Z/R/SR kt 720 795 Cash costs of production (excl. ilmenite and by-products) 1 A$m 330 360 Restructure, idle capacity, rehabilitatio
Slide 30: 2017 Sierra Rutile Guidance Update
2017 Sierra Rutile Guidance Update For personal use only Updated Guidance Guidance Unit Jan 172 H1 17 Actual Aug 17 Production Rutile kt 150 79.0 155 Zircon kt - 2.9 4 Total Z/R kt 150 81.9 159 Ilmenite kt 40 26.6 45 Cash costs of production1 US$m 94 50.4 97 Other cash costs1 US$m 7 5.4 10 Total Cas
Slide 31: Outlook – Second Half 2017
Outlook – Second Half 2017 For personal use only • J-A restart in December 2017 • Cataby development decision • Sales evenly weighted across H1 and H2 • Zircon Reference Price increased 13% for Q3 • Rutile price increase of US$70-100/t in H2 on uncontracted rutile volumes • Improving product markets
Slide 32: Supplementary Information
Supplementary Information For personal use only Jacinth-Ambrosia, South Australia
Slide 33: Production and Sales Volumes
Production and Sales Volumes For personal use only H1 H1 2017 2016 % change Sales (kt) Zircon 197.4 154.5 27.8 Rutile 118.4 57.4 106.3 Synthetic rutile 138.0 104.5 32.1 Total Z/R/SR sales 453.8 316.4 43.4 Ilmenite - saleable 95.1 17.7 437.3 Total sales volumes 548.9 334.1 64.3 . Z/R/SR revenue ($m)
Slide 34: Weighted Average Received Prices
Weighted Average Received Prices For personal use only H1 H2 H1 2016 2016 2017 US$/tonne FOB Zircon Premium and Standard 812 808 871 Zircon 787 760 850 (all products, including zircon-in-concentrate)1 Rutile 712 719 741 (includes all rutile products, including HyTi)2 Synthetic rutile Refer Note 3 Re
Slide 35: Summary Group Results
Summary Group Results For personal use only $m H1 2017 H2 2016 H1 2016 Mineral sands revenue 503.6 387.9 338.4 Mineral sands EBITDA 123.5 61.1 41.9 Mining Area C royalty 31.1 26.7 20.8 Underlying Group EBITDA* 154.6 87.8 62.7 Underlying Group EBITDA margin % 30.7 22.6 18.5 Depreciation and amortisat
Slide 36: Income Statement
Income Statement For personal use only H1 H1 $ million 2017 2016 % change Z/R/SR revenue 470.0 321.1 46.4 Ilmenite and other revenue 33.6 17.3 94.2 Mineral sands revenue 503.6 338.4 48.8 Cash costs of production (200.1) (140.7) (42.2) Inventory movement - cash costs of production (78.6) (30.4) (158.
Slide 37: Reconciliation of Non-IFRS Financial Information to Profit before Tax
Reconciliation of Non-IFRS Financial Information to Profit before Tax For personal use only Exploration Mineral Aus US SRL & Other Sands MAC Corp Group Mineral Sands Revenue 413.9 22.8 66.9 503.6 503.6 Mineral Sands Expenses (251.2) (27.0) (59.3) (19.9) (357.4) (357.4) Mining Area C 31.1 31.1 FX 0.5
Slide 38: For more information contact
For personal use only For more information contact: Adele Stratton, General Manager Finance, Investor Relations and Corporate Affairs adele.stratton@iluka.com +61 8 9360 4631 / +61 (0) 415 999 005 www.iluka.com Synthetic rutile kiln, Western Australia