Iluka Resources Limited · ASX:ILU
Iluka Resources — FY2012 Earnings Presentation
58 slides from Iluka Resources's earnings presentation, Feb 21, 2013
Slide 1: 2012 Full Year Results
For personal use only 2012 Full Year Results David Robb, Managing Director Alan Tate, Chief Financial Officer 21 February 2013
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: Sustainability – Safety Performance
Sustainability – Safety Performance For personal use only • Further significant improvement in safety performance in 2012, with year-on-year – TRIFR rate declining by 30% – LTIFR rate declining by 32% 3
Slide 4: 2012 Key Features
2012 Key Features For personal use only • Healthy ROC and ROE despite materially lower sales and revenue • 35% lift in revenue/tonne of Z/R/SR in 2012 vs 2011 ($1,991/tonne vs $1,480/tonne) • Production response actions (2012 and 2013) with goals: – conserve cash – draw down finished goods inventory
Slide 5: Main Features of Full Year Results
Main Features of Full Year Results Versus 2011 For personal use only Mineral Sands Sales Volumes Z/R/SR sales down 52.9%; zircon down 58.4%, rutile down 60.3% SR sales down 34.2% Mineral Sands Revenue 30.4% - lower volumes partially offset by higher prices Unit Cash Production Costs $719/tonne
Slide 6: Iluka Dividend Payment
Iluka Dividend Payment For personal use only • 10 cents final dividend fully franked payable 4 April 2013 • 35 cents full year 2012 dividends fully franked • Annual dividend yield of 3.4% (2011: 4.5%) Distribution Metrics FCF Adjusted NPAT FCF (1) Full year pay out ratio (%) 181 147 40 Cumulative di
Slide 7: Dividend History 2010 - 2012: Free Cash Flow and Dividends
Dividend History 2010 - 2012 For personal use only Free Cash Flow and Dividends Declared 600 500 400 300 200 100 0 2010 2011 2012 Free cash flow Adjusted free cash flow* Dividends declared Retained FCF Retained adjusted FCF * Free cash flow adjusted to align cash tax payments with corresponding earn
Slide 8: Dividend History 2010 - 2012: Cumulative Payout Ratio
Dividend History 2010 - 2012 For personal use only Cumulative Dividend Payout Ratio of NPAT & FCF 120% 100% 80% 60% 40% 20% 0% 2010 2011 2012 Payout ratio % FCF - actual Payout ratio % FCF - adjusted* Payout ratio % NPAT * Free cash flow adjusted to align cash tax payments with corresponding earning
Slide 9: Summary Group Results
Summary Group Results For personal use only 2011 vs 2012 $m 2012 2011 2010 % change Mineral sands revenue 1,069.8 1,536.7 874.4 (30.4) Mining Area C royalty 72.7 88.5 76.3 (17.9) Group EBITDA 748.8 979.3 305.1 (23.5) Depreciation and amortisation (203.1) (224.6) (219.0) 9.6 Group EBIT 545.7 790.3 86
Slide 10: Mining Area C Royalty
Mining Area C Royalty For personal use only $m 2012 2011 % change Annual production to 30 June mdmt 44.1 43.1 2.3 Sales volumes to 31 December mdmt 47.4 44.6 6.4 Royalty income $m 69.7 87.5 (20.3) Capacity payments $m 3.0 1.0 200.0 Iluka EBIT $m 72.3 88.1 (17.9) • Iron ore sales volumes up 6.4% • Av
Slide 11: Net Profit after Tax
Net Profit after Tax For personal use only $m 1,400 EBITDA decreased $230.5 million to $748.8 million 1,200 646 1,000 800 600 7 21 542 (625) (22) 400 22 70 363 22 (249) (16) (15) (36) (4) 200 0 2011 Price Volume Mix FX Ilm & oth Unit Min MAC Corp Impair D&A Interest Tax 2012 costs sands reversal oth
Slide 12: Net Cash to Net Debt Movement 2012
Net Cash to Net Debt Movement 2012 For personal use only $m 1,200 1,000 2012 free cash flow $81 million 800 76 600 369 (34) (1) 400 (159) 1 200 (167) (4) 157 0 Opening net Operating cash MAC royalty Exploration Interest Tax Capex Asset sales Share Dividends Closing net cash flow purchases debt (334)
Slide 13: Geographic Revenue Sources
Geographic Revenue Sources For personal use only Iluka Revenue by Region Iluka Revenue by Region 2011 2012 Other Other 1% 1% Americas Americas Europe 21% Europe 22% 25% 30% Asia ex. China 22% China Asia, ex. China 23% 30% China 25% • Global distribution largely unchanged – balanced exposures • Europ
Slide 14: Mineral Sands Market Conditions - 2012
Mineral Sands Market Conditions - 2012 For personal use only • Macro economic, country-specific and inventory destocking factors influenced demand • Coincident cyclical weakness in both zircon and high grade titanium dioxide markets • Demand conditions worse than in 2009 – height of GFC • Weak high
Slide 15: Mineral Sands Market Conditions - 2012 Prices
Mineral Sands Market Conditions - 2012 For personal use only • Prices fell significantly in latter part of year US$/t FOB 2011 1H 2012 2H 2012 Dec-12 2012 Weighted Average Quarter Weighted Average Zircon 1,886 2,490 1,856 1,449 2,080 Rutile 1,174 2,505 2,305 2,094 2,464 Synthetic rutile 878 1,950 1,
Slide 16: Zircon – 2013 Outlook
Zircon – 2013 Outlook For personal use only • Iluka average zircon pricing starting ~ 15 % below Dec-12 quarter levels • Signs of improved demand in China and US, significantly reduced production announced – pre-conditions exist for period of price stability • More favourable demand conditions expec
Slide 17: High Grade TiO2 – 2013 Outlook
High Grade TiO2 – 2013 Outlook For personal use only • Iluka average rutile pricing starting ~30% below Dec-12 quarter levels • Pigment plant utilisation continues at historically low rates – 65% to 75% • Indications pigment inventory draw down is now advanced • Pigment industry commentary suggests
Slide 18: Mineral Sands Cycle Characteristics
Mineral Sands Cycle Characteristics For personal use only “High” cycle point • Ore bodies high-graded • Above trend GDP growth • Assets fully utilised • Strong end use demand • Prices peak • Scarcity fears • Zombie projects return “Mid” cycle • “Normal” mining & processing • Trend GDP growth • Some
Slide 19: Mineral Sands Cycle Characteristics: Historical Sales Volumes
Mineral Sands Cycle Characteristics For personal use only kt Iluka Historical Sales Volumes 1200 900 Zircon Rutile 600 Synthetic Rutile 300 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 • “Low” cycle characteristics in 2009 and 2012 correspond with below-trend global growth and bull-
Slide 20: Capital Management 2010 - 2012
Capital Management 2010 - 2012 For personal use only $m 1,200 230 1,000 (76) (41) 1,239 800 (173) 600 400 14 (427) (35) 200 6 0 Opening net Operating MAC royalty Exploration Interest Tax Capex Asset sales Share Dividends FX Closing net debt 2010 cash flow purchases debt 2012 (451) (200) (96) (400) (
Slide 21: Production Response/Cost Reduction Approach
Production Response/Cost Reduction Approach For personal use only • Planning based on multiple scenarios – range from protracted slump to early bull-whip recovery • Intent to optimise cash flow, maintain conservative gearing during 2013 • Assumed negative free cash flow in first half, positive cash
Slide 22: Production Cuts and Cost Reductions
Production Cuts and Cost Reductions For personal use only • Eneabba mine (Western Australia) to be idled from April 2013 • SR kiln 3 to remain idled until demand recovers, key staff retained • SR kiln 2 to be idled from May until market demand warrants re-start, key staff retained – high grade SR pr
Slide 23: Production Cuts and Cost Reductions
Production Cuts and Cost Reductions For personal use only • Hamilton mineral separation plant operating at 50% utilisation • Woornack, Rownack and Pirro mine output lower • Jacinth-Ambrosia (J-A) return to standard full face mining – following approvals for increased HMC storage on site – reduces un
Slide 24: High Level Production & Financial Implications
High Level Production & Financial Implications For personal use only 2012 Actual 2013 Estimate Zircon production kt 343 ~220 Rutile production kt 220 ~200 Synthetic rutile production kt 248 Cash cost of production $m 583 ~375 Other cash costs $m 133 ~135 Restructure, idle capacity, rehab & 25 ~901 h
Slide 25: Ceramic Demand Linked to Urbanisation
Ceramic Demand Linked to Urbanisation For personal use only Source: Global Insight (2011), BHP (2011), RBS (2012) • By 2025, total China urban residential floor space may be double that of 2010 level • Social housing expected to account for 32% of total floor space completed between 2011 to 2015 25
Slide 26: Ceramic Demand Linked to Urbanisation
Ceramic Demand Linked to Urbanisation For personal use only Top Ten Tile Consumers in 2011 and Urbanisation Urban population (million) Tile Consumption (% change) 300 90% 250 75% 200 60% 150 45% 100 30% 50 15% 0 0% 1. China 2. Brazil 3. India 4. Iran 5. Vietnam 6. 7. Saudi 8. US 9. Russia 10. Mexico
Slide 27: Tile Use - Dominated by Developing Economies
Tile Use - Dominated by Developing Economies For personal use only Tile Use as Floor Covering % of all floor covering 80% 60% 40% 20% 0% World Average China Asia Pacific Western Europe Eastern Europe North America Central and South America Source: Ceramic World Review (2000-11) • Regional tile deman
Slide 28: Pigment Demand Intensity Linked to GDP Growth
Pigment Demand Intensity Linked to GDP Growth For personal use only TiO2 Feedstocks: Intensity of Use Pigment per capita 2002-2011 average 3.5 North 3 America Western Europe 2.5 Indicative S-curve 2 1.5 Japan China 1 (Annual data) 0.5 World 0 India 0 5000(Annual data) 10000 15000 20000 25000 30000 3
Slide 29: Consumption vs Investment Based Growth
Consumption vs Investment Based Growth For personal use only Investment and Consumption shares of GDP China Japan US Korea India Investment / GDP ratio (%) 2011 48 20 16 30 36 Historical peak 48 36 23 38 36 Year of peak 2011 1973 1943 1991 2007 Consumption / GDP ratio (%) 2011 35 60 72 53 57 Histori
Slide 30: Chinese Tile Analysis
Chinese Tile Analysis For personal use only • Tile production estimates range from 6-8.7bn m2 Chinese Tile Production by Province 2011 • Porcelain tiles = 68% of total production • Detailed sector analysis by Iluka over 2 years Others • Collection and analysis of zircon loading in 270 23% Guandong 3
Slide 31: Chinese Tile Analysis
Chinese Tile Analysis For personal use only Zircon loading Zircon Loading of Chinese Tile Samples (grams per sqm) Crystal-jade tiles Source: Iluka New tile types Glazed ceramic tiles Porcelain tiles Tile samples • A large range of zircon content within tile types 31
Slide 32: Chinese Tile Analysis
Chinese Tile Analysis For personal use only Zircon loading Zircon Loading of Chinese Tile Samples – Glazed Ceramic Tiles (grams per sqm) Source: Iluka Province A Province B Province C Tile samples • A large range of zircon content in glazed ceramic tiles between provinces 32
Slide 33: Chinese Tile Analysis
Chinese Tile Analysis For personal use only Zircon loading Zircon Loading of Chinese Tile Samples by Production Date (grams per sqm) (Polished Porcelain) Jan-12 Feb-12 Apr-12 May-12 Jul-12 Sep-12 Oct-12 Dec-12 • No discernible change in zircon loading since 2011 33
Slide 34: Chinese Tile Analysis
Chinese Tile Analysis For personal use only Retail price Zircon Content of Chinese Tiles and Retail Price (USD per sqm) Double-charge porcelain tiles Single-layer porcelain tiles Crystal-jade tiles (Guangdong) Zircon loading (grams per sqm) • It’s all about marketing • Cost pass-through possible 34
Slide 35: 2013 Outlook
2013 Outlook For personal use only • Turning point in mineral sands business cycle near • Assumed negative cash flow in first half, positive cash flow in second half • Tax payments of $125 - $130 million in first half (relating to 2012 earnings) • Restructure costs of $50 million – ~70%/30% 1H/2H we
Slide 36: 2013 Areas of Focus
2013 Areas of Focus For personal use only • Maintain implementation of agreed strategies – “stay on course” • Execute well in terms of market development, new product development • Operate assets in line with market demand • Preserve/advance mineral sands growth opportunities – Balranald, Cataby, Hi
Slide 37: Supplementary Slides
For personal use only Supplementary Slides 37
Slide 38: Reconciliation of Non-IFRS Financial Information to Profit before Tax
Reconciliation of Non-IFRS Financial Information to Profit before Tax For personal use only 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
Slide 39: Summary Group Results
Summary Group Results For personal use only $m 1H 2012 2H 2012 2012 1H 2011 2H 2011 2011 Mineral sands revenue 662.8 407.0 1,069.8 570.2 966.5 1,536.7 Mining Area C royalty 41.6 31.1 72.7 44.3 43.8 88.5 Group EBITDA 505.0 243.8 748.8 319.2 660.1 979.3 Depreciation and amortisation (105.0) (98.1) (20
Slide 40: Group EBITDA
Group EBITDA For personal use only $m 1,800 646.1 1,600 1,400 1,200 979.3 7.0 20.5 1,000 (625.1) (22.0) 22.4 800 748.8 (248.8) (15.8) (14.8) 600 400 200 0 2011 Price Volume Mix FX Ilm & oth Unit costs Min sands MAC Corp 2012 other 40
Slide 41: Production Volumes
Production Volumes For personal use only kt 2012 2011 % change Zircon 343.2 601.5 (42.9) Rutile 220.3 281.3 (21.7) Synthetic rutile 248.3 285.7 (13.1) Total Z/R/SR production 811.8 1,168.5 (30.5) Ilmenite – saleable 385.6 459.7 (16.1) Total saleable production volume 1,197.4 1,628.2 (26.5) Ilmenite
Slide 42: Sales Volumes
Sales Volumes For personal use only kt 2012 2011 % change Zircon 213.8 514.5 (58.4) Rutile 105.5 265.9 (60.3) Synthetic rutile 169.6 257.7 (34.2) Total Z/R/SR 488.9 1,038.1 (52.9) Ilmenite – saleable 443.2 570.9 (22.4) Total sales volumes 932.1 1,609.0 (42.1) 42
Slide 43: Mineral Sands Pricing
Mineral Sands Pricing For personal use only 6 mth to Dec-12 6 mth to 12 mth to 12 mth to Jun-12 Quarter Dec-12 Dec-11 Dec-12 Weighted average pricing US$/t Zircon 2,490 1,449 1,856 1,886 2,080 Rutile 2,505 2,094 2,305 1,174 2,464 Synthetic rutile 1,950 1,463 1,465 878 1,771 Average Z/R/SR price rece
Slide 44: Mineral Sands Results: 2012 versus 2011
Mineral Sands Results: 2012 versus 2011 For personal use only $m 1H 2012 2H 2012 2012 2011 % change Mineral sands revenue 662.8 407.0 1,069.8 1,536.7 (30.4) Australia EBITDA 469.9 236.4 706.3 907.9 (22.2) United States EBITDA 30.4 39.6 70.0 51.9 34.9 Exploration and other EBITDA (20.1) (30.2) (50.3)
Slide 45: Unit Cash Costs & Revenue/tonne
Unit Cash Costs & Revenue/tonne 2012 versus 2011 For personal use only 2012 2011 % change Total Z/R/SR production kt 811.8 1,168.5 (30.5) Ilmenite – saleable kt 385.6 459.7 (16.1) Total saleable production kt 1,197.4 1,628.2 (26.5) Total cash costs of production $m 583.5 628.9 7.2 Unit cash costs pe
Slide 46: Capital and Exploration Expenditure (cash)
Capital and Exploration Expenditure (cash) For personal use only $m 2012 2011 % change Capital expenditure 167.3 142.5 17.4 Exploration 34.4 23.6 45.8 Total 201.7 166.1 21.4 46
Slide 47: Cash Flow & Net Debt: 2012 vs 2011
Cash Flow & Net Debt: 2012 vs 2011 For personal use only $m 1H 2012 2H 2012 2012 2011 % change Opening net (debt) cash 156.7 (117.2) 156.7 (312.6) n.a Operating cash flow 207.2 161.5 368.7 706.2 (47.8) MAC royalty 36.8 39.3 76.1 90.3 (15.7) Exploration (14.9) (19.5) (34.4) (23.6) (45.8) Interest (ne
Slide 48: Sources & Uses of Free Cash Flow 2010 - 2012
Sources & Uses of Free Cash Flow 2010 - 2012 For personal use only $m Gearing (%) 800 25 20 600 15 400 10 200 5 - - (5) (200) (10) (400) (15) (600) (20) (800) (25) 2010 2011 2012 Cash from operations MAC royalty Net debt drawn Tax paid Net capex Share purchases Dividends paid Net debt repaid Net cas
Slide 49: Sources & Uses of Adjusted Free Cash Flow 2010 – 2012
Sources & Uses of Adjusted Free Cash Flow 2010 – 2012 For personal use only $m Gearing (%) 800 25 20 600 15 400 10 200 5 - - (5) (200) (10) (400) (15) (600) (20) (800) (25) 2010 2011 2012 Cash from operations MAC royalty Net debt drawn Tax for year Net capex Share purchases Dividends declared Net de
Slide 50: Free Cash Flow Movement
Free Cash Flow Movement For personal use only $m 650 600 590 550 500 450 400 350 300 (285) 250 10 (53) (14) (11) 200 150 100 18 81 (147) 50 (25) (2) 0 2011 free cash Cash receipts Operating MAC Exploration Interest Tax Capex Asset sales Share 2012 free cash flow payments purchases flow 50
Slide 51: Factors Influencing Free Cash Flow
Factors Influencing Free Cash Flow For personal use only $m 1H 2012 2H 2012 1H 2011 2H 2011 Operating cash flow 207.2 161.5 212.7 493.5 MAC royalty 36.8 39.3 42.8 47.5 Exploration (14.9) (19.5) (8.9) (14.7) Interest (net) 4.2 (4.9) (10.4) (0.5) Tax (156.1) (3.0) (5.0) (7.5) Capital expenditure (122.
Slide 52: Dividend History 2010 - 2012: Net Debt and Gearing
Dividend History 2010 - 2012 For personal use only Net Debt and Gearing 400 40% 300 30% 200 20% 100 10% 0 0% 2010 2011 2012 -100 -10% -200 -20% Net debt - actual Net debt - adjusted Gearing D/(D+E) Adjusted gearing D/(D+E) 52
Slide 53: Demand Increasingly Linked to Consumption
Demand Increasingly Linked to Consumption For personal use only Market penetration of household goods, by country 2007 Source: McKinsey Global Institute (2012) • Discretionary goods purchases accelerate above certain income levels (take-off point) • Take-off point varies for each good • Rising incom
Slide 54: Australian Operations
Australian Operations For personal use only 2012 2011 % change Production volumes Zircon kt 293.8 541.2 (45.7) Rutile kt 220.3 281.3 (21.7) Synthetic rutile 248.3 285.7 (13.1) Ilmenite – saleable kt 183.1 171.6 6.7 Total saleable production kt 945.5 1,279.8 (26.1) Ilmenite – upgradeable to synthetic
Slide 55: Eucla/Perth Basins
Eucla/Perth Basins For personal use only 2012 2011 % change Production volumes Zircon kt 158.2 323.0 (51.0) Rutile kt 50.0 56.4 (11.3) Synthetic rutile 248.3 285.7 (13.1) Ilmenite – saleable kt 86.6 171.6 (49.5) Total saleable production kt 543.1 836.7 (35.1) Ilmenite – upgradeable to synthetic ruti
Slide 56: Murray Basin
Murray Basin For personal use only 2012 2011 % change Production volumes Zircon kt 135.6 218.2 (37.9) Rutile kt 170.3 224.9 (24.3) Ilmenite – saleable kt 96.5 - - Total saleable production kt 402.4 443.1 (9.2) Ilmenite – upgradeable to synthetic rutile kt 72.3 99.5 (27.3) HMC produced kt 384.8 714.2
Slide 57: US Operations
US Operations For personal use only 2012 2011 % change Production volumes Zircon kt 49.4 60.3 (18.1) Ilmenite – saleable kt 202.5 288.1 (29.7) Total saleable production kt 251.9 348.4 (27.7) Ilmenite – upgradeable to synthetic rutile kt 12.2 - n/a HMC produced kt 323.1 437.8 (26.2) Unit cash cost of
Slide 58: Iluka Resources Limited
For personal use only Iluka Resources Limited www.iluka.com For more information, contact: Robert Porter, General Manager Investor Relations robert.porter@iluka.com +61 3 9225 5008 / +61 (0) 407 391 829 58