Iluka Resources Limited · ASX:ILU
Iluka Resources — Bank of America Merrill Lynch Global Metals, Mining and Steel Conference 2014
37 slides from Iluka Resources's conference presentation, May 2014
Slide 1: Iluka's Approach in a Changing Industry
Iluka’s Approach in a Changing Industry David Robb, Managing Director and CEO, Iluka Resources Limited (ASX: ILU) Bank of America Merrill Lynch Global Metals, Mining and Steel Conference Florida, May 2014
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 Themes
Industry Themes • Demand robust medium/long term • Short term volatility (economies, inventory effects) • Pigment – ownership, geography, technology shifts • Feedstock – quality diminishing, pipeline emptying, risk increasing • Zircon – assemblage decline, tile manufacturing transformations • Techno
Slide 4: Robust Demand Long Term
Robust Demand Long Term Urbanisation Consumption based growth Array of applications ZIRCON ceramics, range of chemical and consumer applications TITANIUM DIOXIDE pigment paint, plastics coatings MINERAL SANDS Mid-to-late cycle demand characteristics; consumption/GDP related 4
Slide 5: Urbanisation
Urbanisation CHINA URBAN RESIDENTIAL TILE USE AS FLOOR CHINA URBAN RESIDENTIAL FLOOR FLOOR SPACE Tile Use asCOVERING Floor Covering SPACE % of all floor Billion covering sqm • Largest demographic 40 80% movement in history 60% • Massive increases in 30 built floor space – 40% equivalent to 85% of 20
Slide 6: Consumption Led Growth
Consumption Led Growth • Developing economies - from investment to consumption based growth • Rising incomes and living standards create an S-curve demand trend • “The next billion consumers” – influential for mineral sands TiO2 or Pigment Feedstocks: Intensity of Use Motor Vehicles Per Capita Kgs p
Slide 7: Increasing Array of Applications
Increasing Array of Applications Zircon Applications Titanium Dioxide Applications Catalytic converters 3D printing applications Nuclear fuel rods Desalination plants Oxygen and pressure sensors Offshore oil and gas components Fibre optics Power plant cooling systems Electrical motherboards and capa
Slide 8: A Volatile World
A Volatile World • Most radical restructuring of global economy since Industrial Revolution • 1 billion Chinese and Indian middle class consumers by 2020 – Equals +$10 trillion GDP • Global turbulence increasing over past 30 years: – >50% of most turbulent quarters in past decade – Intensity > 2X –
Slide 9: Volatile Growth
Volatile Growth Growth % United States • Economic cycles are ‘ normal’ 10 GDP and Industrial Production – last few years particularly volatile 0 1998 2012 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Slide 10: Pigment Industry – Major Producers
Pigment Industry – Major Producers kt.TiO2 Estimated TiO2 Capacity – Major Pigment Producers 1,600 Chloride 1,200 800 400 300 kt 1 - 400 Sulphate 800 1,200 1,600 2,000 Dupont Cristal Kronos Huntsman / Tronox / ISK China Rockwood Exarro Notes: 1 Refer slide 29 for China Government statements re chlor
Slide 11: Mineralogical and Energy Intensity Barriers
Mineralogical and Energy Intensity Barriers Energy scarcity means materials scarcity Mineralogical barrier for elements ≥ 0.1% (mass) earth’s crust Remaining relevant resources of aluminum, iron, silicon, magnesium, titanium, ...... Extremely energy-intensive to extract Source: “Exploring the resour
Slide 12: Grade and Assemblage Challenges Ahead
Grade and Assemblage Challenges Ahead Mineral assemblage in resources RZ Assemblage HM Grade 5.0% 15% Trash 13% Sulphate Ilmenite Chloride Ilmenite 4.0% 12% Rutile (and other high grade TiO2) Zircon 9% Combined RZ in HM (RHS) 3.0% 9% 6% • Trash component in Heavy Mineral grade increasing 2.0% 6% • V
Slide 13: Increasing Supply Chain Risk and Cost
Increasing Supply Chain Risk and Cost TiO2 units produced (2020 Forecast) Norway 5% Canada 9% Ukraine USA 6% China India 15% Sierra Leone 8% Vietnam Sri Lanka Kalimantan Kenya Mozambique South 7% Africa Australia IHS Political / operational risk Insignificant / low 13% 19% Medium High / extreme Afri
Slide 14: Iluka's Approach
Iluka’s Approach • Focus on shareholder returns through the cycle • Flex asset operation in line with market demand • Continue market development through the cycle • Maintain strong balance sheet • Preserve/advance mineral sands growth opportunities • Continue to evaluate/pursue corporate growth opp
Slide 15: Iluka's Approach – Managing the Cycle
Iluka’s Approach – Managing the Cycle • Focus on shareholder returns through the cycle • Flex asset operation in line with market demand • Continue market development through the cycle • Maintain strong balance sheet • Preserve/advance mineral sands growth opportunities • Continue to evaluate/pursue
Slide 16: Managing the Cycle
Managing the Cycle The recent cycle extreme….but an industry in transformation Annual Average Selected Mineral Sands Prices, to end 2013 US$/t Multi-tier markets emerge; 3000 inventory builds as demand Zircon Rutile Synthetic Rutile slower than expected 2500 2000 Long term legacy TiO2 Contracts 1500
Slide 17: Minimal Raw Material Costs in End Products
Minimal Raw Material Costs in End Products tiles Source: Iluka estimates and Ceramics Tile Survey 2013 17
Slide 18: Flex Production in Light of Market Demand
Flex Production in Light of Market Demand • Supply flexibility, not chasing the marginal tonne • Significant production reduction – Iluka and some other industry participants • Iluka maintains rapid reactivation capability 52% 67% reduction reduction Sales profile - zircon Sales profile (rutile and
Slide 19: Cash Conservation Focus
Cash Conservation Focus While preserving growth objectives • Balance unit cash cost efficiencies with inventory objectives • Preserve cash – keep growth options on track 40% reduction 63% reduction Relates to ~ $200m to ~$250m average p.a. sustaining and growth capital expenditure, which is both an
Slide 20: Creating a Strong Balance Sheet
Creating a Strong Balance Sheet Sources and Use of Funds A$m Gearing (%) 600 45 400 30 200 15 - - (200) (15) (400) (30) (600) (45) Ave 2002 - 2007 Ave 2008 - 2010 Ave 2011 - 2013 Cash from operations Disposals Equity issued Tax refund Net debt drawn Tax paid Net capex Share purchases/acquisitions Di
Slide 21: Balance Sheet and Capital Management
Balance Sheet and Capital Management Debt Profile Capital Management Cumulative 76% of Free Cash Returned since 2010 Distribution Metrics FCF NPAT Cumulative dividend payout ratio (2010 -2013) (%) 76 55 Cumulative retained free cash flow (2010 -2013)($m) 172 N/A 21
Slide 22: Iluka Approach – Eyes on the Horizon
Iluka Approach – Eyes on the Horizon • Focus on shareholder returns through the cycle • Flex asset operation in line with market demand • Continue market development through the cycle • Maintain strong balance sheet • Preserve/advance mineral sands growth opportunities • Continue to evaluate/pursue
Slide 23: Market Development
Market Development • Expansion of global offices / logistics – 13 warehouses – 6 marketing offices • Dedicated zircon and TiO2 sales teams • Improving market analysis • Expanded customer base • ‘Long tail’ capability 23
Slide 24: Digital Printing of Ceramics
Digital Printing of Ceramics GLOBAL ADOPTION OF DIGITAL PRINTING CHARACTERISTICS • Global shift – strong growth rate since 2010 – highest penetration in Spain and Italy – but by end-2012, global application only at ~12% – rapid China adoption expected from current low level • Positive for zircon dem
Slide 25: Digital Printing of Ceramics
Digital Printing of Ceramics 25
Slide 26: Zircon Loading in Tiles
Zircon Loading in Tiles Zircon Intensity in Ceramic Tiles Zircon content of digitally printed and non-digitally printed tiles1,2 Mean = 100 Mean = 180 Zircon Loadings (Indexed to 100) Source: TZMI and Ceramic World Review Low Mean High Conventionally Printed 65 100 135 Digitally Printed 140 180 210
Slide 27: Market Development – China Pigment
Market Development – China Pigment • Sichuan is largest pigment producer due to proximity to largest reserves, although high sulfuric acid cost. • Coastal producers (Shandong, Jiangsu, Zhejiang, Shanghai, Guangdong & Liaoning) benefit from lower logistics and access to feedstock imports. Source: CM
Slide 28: Market Development – China Pigment
Market Development – China Pigment Sulphate Pigment Large Installed Base Emergent Chloride Pigment Industry SITUATION SITUATION • Largest pigment producer globally - sulphate • Minimal existing in-country chloride production • Reliant on imported feed stocks ~1/3rd of requirements • China dependent
Slide 29: China Pigment - Chloride Growth Directive
China Pigment - Chloride Growth Directive Chloride Process Projects in China • Jan 2011, MIIT published “Cleaner Production Technology Implementation Scheme for Five Industries Including Titanium Dioxide”, stating: by 2014, it is anticipated that TiO2 production capacity using the chloride process w
Slide 30: Advance Mineral Sands Growth Opportunities
Advance Mineral Sands Growth Opportunities Exploration • International and Australian programme • 50 explorationists, funding available for consistent search • 50 thousand square kilometres of tenements in Australia • International reconnaissance / exploration – 11 countries • Sri Lanka tenement acq
Slide 31: Advance Mineral Sands Growth Opportunities
Advance Mineral Sands Growth Opportunities Internal Mineral Sands Projects – 5 at advanced evaluation 2 in USA Utilisation of 3 in AUSTRALIA existing Utilisation of existing infrastructure infrastructure 31
Slide 32: Innovation and Technology
Innovation and Technology • Industry Level – Zircon Industry Association – Ceramics zircon intensity surveys • Company Level – New processing technologies/capabilities (e.g. ASSR) – New production technologies – Downstream opportunities (such as Metalysis) 32
Slide 33: Evaluate and Pursue Growth Opportunities
Evaluate and Pursue Growth Opportunities Source: Metalysis 33
Slide 34: Metalysis
Metalysis KEY MARKETS – GLOBAL SIGNIFICANCE ILUKA STRATEGIC FIT & BENEFITS Market Size (US$B) 120 • 18.3% equity interest – A$22.5m • Mineral sands adjacencies 110 • “Right” stage of development 100 • Titanium powder directly from rutile • Potentially disruptive technology 12 Other • Potential new d
Slide 35: Industry is Changing
Industry is Changing • Demand robust medium/long term – urbanisation, consumerism, application diversity • Short term volatility (economies, inventory effects) – ‘down’ cycle ending • Pigment – ownership, geography, technology shifts – China factor • Feedstock – quality diminishing, pipeline emptyin
Slide 36: Iluka's Approach
Iluka’s Approach • Focus on shareholder returns through the cycle • Flex asset operation in line with market demand • Continue market development through the cycle • Maintain strong balance sheet • Preserve/advance mineral sands growth opportunities • Continue to evaluate/pursue corporate growth opp
Slide 37: For further information contact: Dr Robert Porter General Manager Investor Relations
I LUKA I NVESTOR RELATI ONS GUI DE (APP) The Iluka Investor Relations Guide (App) for Apple iPad and other table devices provides online and offline access to company infor mation, including the latest news and events. The App can be downloaded from the Apple App Store or Google Play Store by search