Iluka Resources Limited · ASX:ILU
Iluka Resources — Investor Day (November 2011)
71 slides from Iluka Resources's investor day presentation, Nov 18, 2011
Slide 1: Iluka Resources Mineral Sands Briefing Session
Iluka Resources Mineral Sands Briefing Session Sydney & Melbourne, 17-18 November 2011
Slide 2: Disclaimer and Important Notes
Disclaimer and Important Notes Disclaimer The purpose of this presentation is to provide general information about Iluka Resources Limited (Iluka). This presentation does not involve or imply a recommendation or a statement of opinion in respect of whether to buy, sell or hold securities in Iluka. T
Slide 3: Forward Looking Statements
Disclaimer and Important Notes 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 expenditure and ca
Slide 4: Competent Person's Statement
Disclaimer and Important Notes Competent Person’s Statement The information in this presentation that relates to Exploration Results, Mineral Resources or Ore Reserves is based on information compiled by Greg Jones and Chris Lee who are Members of the Australasian Institute of Mining and Metallurgy.
Slide 5: Presentation Structure
Presentation Structure 1 Introduction and Scope of Presentation David Robb, Managing Director 2 Mineral Sands Market – Structure, Supply/Demand and Inducement Alan Tate, Chief Financial Officer 3 Iluka‟s Enhanced Production Options Peter Benjamin, General Manager, Enhanced Production Project Victor
Slide 6: Introduction and Scope of Presentation
1 Introduction and Scope of Presentation David Robb, Managing Director 6
Slide 7: Key Components of Iluka's Physical and Financial Flexibility
Key Components of Iluka‟s Physical and Financial Flexibility • New, higher margin and more integrated production base established • High capital expenditure period over • Leadership role in influencing industry dynamics • Idled production capacity • Encouraging product and technical development resu
Slide 8: Mineral Sands Market Characteristics
Mineral Sands Market Characteristics • Favourable medium to longer term supply/demand characteristics of zircon and high grade TiO 2 • Both of Iluka‟s main markets facing supply pressures • Few high quality, capital efficient, quick response options projects at early feasibility rather than commitme
Slide 9: Mineral Sands Market Conditions
Mineral Sands Market Conditions • Many customers have experienced improved profitability in 2011 despite raw material price increases • Customers concerned about risks to that position – via demand reduction (e.g. thrifting) or supply increase • Implications globally of a crisis of confidence regard
Slide 10: Key Physical Parameters 2012 – 2014
Key Physical Parameters 2012 – 2014 2011 2012-2014 2010 Actual Guidance 2012-2014 Commentary average p.a. (July) Production (kt) Sales level dependent on market conditions and inventory position. Zircon 413 ~550 ~550 2012 production expected to be lower (~20%) than 3 year average Rutile 250 ~275 ~28
Slide 11: Key Financial Parameters 2012 – 2014
Key Financial Parameters 2012 – 2014 2011 2012-2014 2010 Actual Guidance 2012-2014 Commentary average p.a. (July) Cash Costs $m Production Costs 544 ~620 ~780 Higher total reflecting higher production, expected cost inflation and reactivation of 3rd SR kiln in 2013. Actual cash costs of sales in any
Slide 12: Iluka's Production Approach
Iluka‟s Production Approach Alignment with objective: create and deliver value for shareholders Financial metrics - IRR, payback period, unit costs/margins, ROC, NPV and Market approach – assessment of implications for supply/demand under various scenarios Options available: Extend economic life of
Slide 13: Key Takeaways and Caveats
Key Takeaways and Caveats • Iluka‟s production options are extensive over 30 opportunities identified as basis of current evaluation from the EPP more than 10 opportunities to be subject to detailed evaluation • Further work on technical, regulatory and other delivery risk factors required integrate
Slide 14: Mineral Sands Market – Structure, Supply/Demand and Inducement
2 Mineral Sands Market – Structure, Supply/Demand and Inducement Alan Tate, Chief Financial Officer 14
Slide 15: Overview of Zircon and High Grade Titanium Sectors
Overview of Zircon and High Grade Titanium Sectors 15
Slide 16: Mineral Sands - Principal Product Streams
Mineral Sands - Principal Product Streams Global Mineral Sands Market Sales (Mt) Titanium Feedstocks 2009 = 5.3Mt, 2010 = 6.4Mt 100% 100% 100% Rutile (95% TiO2) 90%90% 90% Synthetic Rutile (SR) (90-95% TiO2) 80%80% 80% Upgraded Chloride Slag (UGS) (95% TiO2) 70%70% 70% Chloride market Chloride Slag
Slide 17: Zircon Industry Structure and Participants
Zircon Industry Structure and Participants Major Producers (2010) Major Producing Countries (2010) 1.4 Mt Other Others 20% 22% Iluka Kenmare Indonesia Australia 32% 2% 3% 41% India USA 2% 7% BeMaX 4% Rio Tinto South Africa Exxaro 18% 29% 17% Indonesia 3% • 3 largest participants account for ~ 70% of
Slide 18: Zircon - Usage and Consumption by Region
Zircon - Usage and Consumption by Region End Use Segments (2010) Consumption by Region (2010) 2000 – 2010 Average Annual Growth Rest of World North America 8% 8% Other, 4% -6% Zirconia and Zirconium 11% Chemicals, 18% Europe Foundry, 10% -2% 24% China Refractories, 43% 1% 1% Table ware 13% 9% Sanita
Slide 19: Tile Consumption - Dominated by Developing Economies
Tile Consumption - Dominated by Developing Economies 5.0% Global GDP Growth Rate (Real) Top Tile Consumers (CAGR per annum) 2010 Total = 9.4 billion sqm tile 4.5% Oceania 4.0% 0% 23% Other Europe Africa 5% 6% 3.5% 5% 5% 3.0% EU 9% Other North 10% 2.5% Vietnam America Asia 2.0% 4% 65% Indonesia Centr
Slide 20: Zircon Demand - Linked to GDP Growth and Urbanisation
Zircon Demand - Linked to GDP Growth and Urbanisation China Zircon Consumption (kt) “The goal of the Chinese regulators is for China to become a moderately prosperous country by 2020. Its goal is to achieve a 2,500 $US10,000 per capita GDP by the year 2020…Urbanization rate will reach 51.5% by 2015”
Slide 21: Zircon Demand
Zircon Demand Asia Pacific (Excl China & Japan) Rest of the World Real GDP Growth Real GDP Growth China zircon consumption trends (previous slide) indicate possible zircon growth of ~9% 2010 – 2020 CAGR GDP Growth of 6.1% 2010 – 2020 CAGR GDP Growth of 2.8% expected expected Zircon Demand Growth Sce
Slide 22: Titanium Feedstock Demand - Usage and Regions of Purchase
Titanium Feedstock Demand - Usage and Regions of Purchase End Use Segments Pigment End Use 2000 – 2010 Pigment End Use by Region Average Annual Growth Food & Specialities & pharma Other, 4% Other, 6% 9% Fibres 1% Metal, 4% 10% 2% Inks 3% North America China 18% Paper 22% 9% Central & South Sulphate
Slide 23: Titanium Dioxide Industry Structure and Participants
Titanium Dioxide Industry Structure and Participants Total TiO2 Feedstock Chloride Feedstock Chloride & Sulphate (3.4 Mt) (6.4 Mt) Kenmare Iluka 3% Others • 3 largest chloride feedstock producers > 70% Others 13% India 12% Iluka 22% 23% 4% BeMaX • High grade feedstocks - 3 largest producers Kenmare
Slide 24: Iluka's Market Position in High Grade (80%+) Feedstocks
Iluka‟s Market Position in High Grade (80%+) Feedstocks Waste Production at Different Pigment Feedstock Blends Iluka’s Market Share in 2010 (Reduced waste generation as feedstock blend increases) Increasing value in use for pigment plants Waste Generation Index (95% =100) 1000 900 Rutile (95% 800 33
Slide 25: Feedstock Mix for Chloride Pigment Plants
Feedstock Mix for Chloride Pigment Plants Feedstock Mix for Major Pigment Producers 2010 100% • Pivotal role of high grade titanium feedstocks 90% • Pigment plants are large and sophisticated, where operational efficiency is highly dependent on 80% specifications of feedstock blends 70% • Iluka supp
Slide 26: Pigment Demand Intensity - Linked to GDP growth
Pigment Demand Intensity - Linked to GDP growth Kgs per Capita TiO2 Feedstocks: Intensity of Use 7.0 USA 6.0 5.0 4.0 Europe 3.0 2.0 1.0 China 0.0 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 GDP per Capita (US$; real 1990 terms; at PPP) Europe (1993-2010) China (1993-2010) USA (1993-2010) • Dev
Slide 27: Chloride Pigment - End Demand Influenced by Developing Economies
Chloride Pigment - End Demand Influenced by Developing Economies Global Chloride Pigment Production North American Pigment Exports ~50% of North America‟s Belgium Note: Belgium is only used as Others 24% Asia-Pacific production is exported an intermediate hub to finish 27% 19% TiO2 from where it is
Slide 28: Supply/Demand and Inducement
Supply/Demand and Inducement 28
Slide 29: Global Zircon Demand Scenarios
Global Zircon Demand Scenarios ktpa Demand Scenarios 3,000 High: China 9%, Other Asia-Pacific (excl Japan) 6%, ROW 3%, 7% CAGR(2010 -'20) • Three possible demand scenarios illustrated Base: China 8%, Other Asia-Pacific (excl Japan) 5%, ROW 1%, 5% CAGR(2010 -'20) • Difficult to envisage a demand scen
Slide 30: Zircon Supply Inducement - Potential Supply
Zircon Supply Inducement - Potential Supply Announced and mooted projects included in inducement evaluation Potential Project Country Current Stage of Evaluation Birzulivske Ukraine In construction Grand Cote Senegal Feasibility/near commitment Total Announced/Estimated Production by Stage of Evalua
Slide 31: Zircon Supply/Demand - Assuming Projects Induced
Zircon Supply/Demand - Assuming Projects Induced Zircon Supply and Demand (including induced projects) ‘000 tonnes Zircon 3,000 '000 tonnes Zircon 3,000 • Persistent supply shortage likely in base 2,500 2,500 demand case 2,000 2,000 • Only under low case demand scenario (3% pa demand) would the mark
Slide 32: Indicative Zircon Inducement Pricing
Indicative Zircon Inducement Pricing • Iluka‟s analysis of prospective projects shows that Inducement Price Required to fill Supply Shortage in 2016 sustained higher pricing required to rationally induce new supply US$ Inducement Price Theoretical Required • To meet a 5% CAGR demand by 2016 an 3,500
Slide 33: High Grade Titanium Dioxide Supply/Demand
High Grade Titanium Dioxide Supply/Demand '000 TiO2 units 6,000 ‘000 TiO2 units 6,000 6,000 5,000 • High grade feedstocks expected to remain in tight or short supply into the foreseeable future 5,000 5,000 • New high grade feedstock sources will in most 4,000 instances require large capital outlays
Slide 34: Summary Comments
Summary Comments • China urbanisation and GDP per capita growth expected to underpin zircon demand notwithstanding potential periods of market softness • Other developing economies provide further demand growth potential • Zircon pricing supported in the medium term due to structural supply issues •
Slide 35: Iluka's Enhanced Production Options
3 Iluka‟s Enhanced Production Options Peter Benjamin, General Manager, Enhanced Production Project Victor Hugo, General Manager Product & Technical Development Steve Wickham, General Manager, Australian Operations 35
Slide 36: Enhanced Production Project (EPP)
Enhanced Production Project (EPP) • Prime objective to evaluate internal mineral sands development opportunities • Rank and choose optimum project development and production profiles • Methodology based on higher long term pricing expectations overlayed by utilisation or expansion of existing infras
Slide 37: Production Potential Options
Production Potential Options Material Type (Mt HM) JORC 2010* Relationship between EPP Potential Production and JORC Mineral Ore Reserves* 27 Resources and Ore Reserves HM Mt Production Potential 64 120 Mineral Resources* 114 - expansion of existing production 100 - new deposits 114 80 - sequencing
Slide 38: Production Potential
Production Potential Old Aurelian Options in Potential Hickory Springs (US) (US) Mineralisation Eneabba Nepean Atacama Typhoon deposits (MB) (EB) (EB) Options in Mineral Resources2 West Old BEFN Tripitaka Balranald Hickory (MB) (EB) (MB) (US) Tutunup Cataby Yarloop (WA) (WA) (WA) Jacinth- Options in
Slide 39: Enhanced Production Project – Sample Scenarios
Enhanced Production Project – Sample Scenarios • Market Driven – maintain and/or target zircon and rutile market share based on Iluka‟s current long term market analysis – target zircon and rutile production to meet potentially lower demand curves • Production Driven – target zircon and rutile produ
Slide 40: Ore Reserve Increases Announced
Ore Reserve Increases Announced • Ore Reserve for Jacinth-Ambrosia* is 6.82 Mt HM, a net increase of Jacinth-Ambrosia, 0.42 Mt HM or 7% from 6.40 Mt HM Eucla Basin South Australia Refer ASX Release dated 16 November 2011 • Ore Reserve for Cataby is 7.45 Mt HM, an increase of 1.82 Mt HM Cataby Perth
Slide 41: Jacinth-Ambrosia Ore Reserve Changes, Project to Date
Jacinth-Ambrosia Ore Reserve Changes, Project to Date 41 Refer ASX release dated 16 November 2011 and other ASX releases and investor presentations on www.iluka.com
Slide 42: Zircon Production Scenarios
Zircon Production Scenarios Kt Zircon Production Potential* 800 700 600 500 400 300 200 100 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021+ Zircon Production Potential Zircon Flat 550kt • Potential to increase production in response to demand growth, or • Potential to extend current production
Slide 43: Rutile Production Scenarios
Rutile Production Scenarios • Potential to increase production in response to demand growth, or • Potential to extend current production levels significantly • No account of enhancements due to utilisation of starting period inventories, Mineral Resources or Ore Reserves acquisition, exploration suc
Slide 44: Implications for Ilmenite Production and Kiln Operation
Implications for Ilmenite Production and Kiln Operation • Subject to the economics of zircon/rutile expansion options, Iluka has the potential to produce sufficient ilmenite to support 4 kiln operation • Additional chloride ilmenite available for expansion of upgrading capacity and sulphate ilmenite
Slide 45: Product & Technical Development
Victor Hugo, General Manager, Product & Technical Development 45
Slide 46: Repositioned Ilmenites used in the Becher Process
Repositioned Ilmenites used in the Becher Process •1 Production of lower grade Chloride SR (SR85) from Murray Basin Ilmenite •2 Use of finer grained ilmenites in Premium Grade or SREP SR •3 Production of Acid Soluble SR from Murray Basin Ilmenite Low TiO2 High TiO2 Ilmenite Bubble Size = Contained I
Slide 47: Synthetic Rutile Developments
Synthetic Rutile Developments • Utilise idle synthetic rutile capacity (SR1) using Murray Basin ilmenite • Based on plant trials conducted during 2010 and 2011 • The matrix of development opportunities is shown on following slide • Products chosen will depend on: highest cash margin capital requirem
Slide 48: TiO2 Product Development
TiO2 Product Development Use waste or low value feedstock to utilise spare SR kiln capacity for value creation with minimum capital expenditure Developing products with different coal types Coal 1 Hamilton LG Chloride Chloride SR3 or SR1 Coal 2 PDC Ilmenite SR (85% TiO2) Market Coal 1 Murray Basin L
Slide 49: Steve Wickham, General Manager, Australian Operations
Steve Wickham, General Manager, Australian Operations 49
Slide 50: Murray Basin Mining
Murray Basin Mining Kulwin Heavy Mineral Douglas Re-Optimisation Concentrate (HMC) Production 60,000 50,000 HMC tonnes 40,000 Zone 18 30,000 Interburden Zone 19 20,000 10,000 0 0 0 1 1 0 0 1 1 0 1 0 1 0 0 0 0 1 0 1 0 1 b-1 r-1 b-1 r-1 y -1 y -1 l-1 l-1 n-1 n-1 t-1 n-1 n-1 p -1 v -1 c -1 p -1 r-1 r-1
Slide 51: Hamilton Mineral Processing Plant
Hamilton Mineral Processing Plant 100 HMC Feed Rate Rutile Production 90 800 80 700 70 600 Tonnes Per Hour 60 500 Tonnes Per Day 50 400 40 300 30 200 20 100 Monthly Roling Average 10 Monthly Rolling Average - 0 0 1 1 9 10 0 0 11 1 9 0 1 -0 -1 -1 -1 -1 -1 -1 -1 -0 -1 -1 - n- n- ec eb pr ec eb pr ct u
Slide 52: Jacinth-Ambrosia Mine (J-A)
Jacinth - Ambrosia Mine (J-A) Jacinth-Ambrosia Mining Method 180 HMC Production 160 140 HMC Tonnes Per Hour 120 100 80 60 40 HMC tph 20 HMC tph design - 9 0 0 1 0 1 0 1 0 1 0 1 -0 -1 -1 -1 l-1 l-1 -1 -1 1 1 -1 -1 n- n- ov ov ar ar ep ep ay ay Ju Ju Ja Ja M M N N M M S S 100% Concentrator Month Run T
Slide 53: Narngulu Mineral Separation Plant
Narngulu Mineral Separation Plant 1200 Premium Zircon Production 100% Zircon Recovery 95% 1000 90% 85% 800 Zircon Tonnes Per Day 80% 600 75% 70% 400 65% 60% 200 300ktpa Rate Monthly Rolling Avg. Monthly Rolling Avg. 55% 0 50% 0 1 0 10 11 1 1 0 1 10 11 11 10 10 10 11 11 0 1 10 l-1 l-1 r-1 r-1 -1 -1 -
Slide 54: Synthetic Rutile Production, Western Australia
Synthetic Rutile Production, Western Australia South West SR2 Kiln Performance Kiln Campaigns 1600 850 Ilmenite Feed Kiln Utilisation Kiln tpoh Days 400 kt 100% 45 250 750 1400 SR Kt 650 1200 350 kt 90% 40 200 Total Days 550 SR Kt 1000 300 kt 80% 35 150 450 800 350 250 kt 70% 30 100 600 250 610 670
Slide 55: Western Australia Mining
Western Australia Mining Tutunup South Mine • Commissioned 14 days ahead of schedule on 9 June 2011 • First HMC processed at North Capel for SR2 Kiln on 20 June 2011 • Project completed 3% under budget Tutunup South Mine Eneabba Mine Restart • On track for commissioning late Q4 2011. • Ilmenite avai
Slide 56: Operational Capability, Flexibility and Adaptability
Operational Capability, Flexibility and Adaptability • 480 Iluka leaders have attended 5 day leadership programme since 2009 • Current Operational team managed the 2009 re-engineering of WA, commissioning of Murray Basin 2 and J-A • Strong project management capabilities • SR and mineral separation
Slide 57: Production Flexibility Example: Hamilton MSP Capacity
Production Flexibility Example: Hamilton MSP Capacity Cross section of Jacinth mine for illustration purpose Hamilton MSP Capacity 800 700 Rutile capacity 600 J-A Supplemental feed 500 Kt pa 400 300 Move to a single MB 200 concentrator Balranald move 100 0 2011 2012 2013 2014 2015 2016 2017 2018 201
Slide 58: Australian Operations Well Placed to Deliver
Australian Operations Well Placed to Deliver JA Mine Jacinth-Ambrosia Mine • Continued consistent production and unit cost performance • Implement opportunities created by: Product & Technical Development Enhanced Production Project and • Ability to adapt production to changes in market demand JA Mi
Slide 59: Concluding Remarks
Concluding Remarks David Robb 59
Slide 60: Iluka's Enhanced Production Potential
Iluka‟s Enhanced Production Potential • Iluka‟s production options are extensive over 30 opportunities identified as basis of current evaluation from the EPP more than 10 opportunities to be subject to detailed evaluation • Further work on technical, regulatory and other delivery risk factors requir
Slide 61: Potential Cash Cost and Cash Margin Implications
Potential Cash Cost and Cash Margin Implications • Cash cost and margin implications not yet determined with sufficient level of confidence for disclosure purposes • Cash cost determination subject to detailed technical and economic assessment by project • Initial indications are that cash costs for
Slide 62: Indicative Capital Expenditure
Indicative Capital Expenditure 2012 – 2016 indicative average p.a. Total capital expenditure estimate (includes Corporate Plan & Enhanced ~$250m Production Potential options) This capital estimate relates to production options outlined on slides 42 - 43 Potential capital expenditure estimates, while
Slide 63: Iluka Resourcing and Execution Considerations
Iluka Resourcing and Execution Considerations • Multiple project development options to be run in parallel • Adherence to prime objective and focus on key financial parameters • Challenges for internal resourcing and skills base in key areas: experienced operational and technical personnel project m
Slide 64: Iluka's Evolution - Current and Prospective Phases
Iluka‟s Evolution - Current and Prospective Phases 2011 - New Iluka • Zircon and high grade titanium dioxide markets tight • Substantial zircon and TiO2 price increases • Higher margins and stronger free cash flows • Global uncertainties, volatile markets, but medium term industry dynamics favourabl
Slide 65: Iluka Resources Limited
Iluka Resources Limited For further information, contact: Robert Porter General Manager Investor Relations robert.porter@iluka.com +61 3 9600 0807 / +61 (0) 407 391 829 www.iluka.com
Slide 66: Explanatory Comments for Slide 27
Explanatory Comments for Slide 27 • A major proportion of US pigment is exported to developing economies • China is ~95% import dependent for chloride pigment • China‟s chloride: sulphate pigment consumption is ~1:3 • Chloride pigment utilised in China for automobile coatings, white goods and other
Slide 67: Zircon Supply Inducement – Comments Related to Slides 29 - 32
Zircon Supply Inducement – Comments Related to Slides 29 - 32 Evaluation of Potential Supply – Explanatory Comments • Iluka undertakes inducement analysis of all known potential new mineral sands projects (concept to feasibility stage) • This analysis includes all identified “projects” whether at fe
Slide 68: Appendix 1 Mineral Resource and Ore Reserve Statement
Appendix 1 Iluka Resources Limited Mineral Resource and Ore Reserve Statement as at 31 December 2010 68
Slide 69: Ore Reserves at December 2010
Ore Reserves at December 2010 ILUKA ORE RESERVE BREAKDOWN BY COUNTRY, REGION AND JORC CATEGORY AT DECEMBER 31 2010 Summary of Ore Reserves ( 1 ,2 ,3 ) for Iluka HM Assemblage ( 4 ) Ore In Situ HM HM Ilmenite Zircon Rutile Change Ore Reserve Country Region Tonnes Tonnes Grade Grade Grade Grade HM Ton
Slide 70: Mineral Resources at December 2010
Mineral Resources at December 2010 ILUKA MINERAL RESOURCE BREAKDOWN BY COUNTRY, REGION AND JORC CATEGORY AT DECEMBER 31 2010 Summary of Mineral Resources ( 1 ,2 ,3 ) for Iluka HM Assemblage ( 4 ) Mineral Material In Situ HM HM Ilmenite Zircon Rutile Change Country Region Resource Tonnes Tonnes Grade
Slide 71: Ore Reserves Mined and Adjusted at December 2010
Ore Reserves Mined and Adjusted at December 2010 ILUKA ORE RESERVES MINED AND ADJUSTED BY COUNTRY AND REGION AT DECEMBER 31 2010 Summary of Ore Reserve Depletion(1) In Situ In Situ In Situ In Situ In Situ HM Tonnes HM Tonnes HM Tonnes(2) HM Tonnes HM Tonnes(3) Country Region Category Millions Millio