Iluka Resources Limited · ASX:ILU
Iluka Resources — Investor Day (October 2019)
73 slides from Iluka Resources's investor day presentation, Oct 31, 2019
Slide 1: Iluka Resources Limited Investor Briefing
1 Iluka Resources Limited Investor Briefing 31 October 2019
Slide 2: Disclaimer and Compliance Statement
Disclaimer and Compliance Statement 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 2019 fina
Slide 3: Investor Briefing – Thursday 31 October
Investor Briefing – Thursday 31 October 3 1. Introduction Tom O’Leary 2. Zircon Market Christian Barbier 3. Titanium Market Christian Barbier 4. Mineral Sands Operations Adele Stratton 5. Sierra Rutile Operations Rob Hattingh 6. Projects Matthew Blackwell 7. Environment, Social, Governance Sarah Hod
Slide 4: Speakers
Speakers 4 Key Features Tom O’Leary Adele Stratton Matthew Blackwell Rob Hattingh Christian Barbier Sarah Hodgson Melissa Roberts Managing Director CFO Head of Major CEO, Sierra Rutile Head of Marketing General Manager, General Manager, and CEO Projects, Engineering People & Investor Relations & & I
Slide 5: Global Assets and Portfolio
Global Assets and Portfolio 5 60 years experience in mineral sands exploration, project development, mining, processing and marketing AMSTERDAM LONDON ANTWERP NEWCASTLE NULES CINCINNATI CASTELLON VIRGINIA RALEIGH QINGDAO ZHENJIANG SHANGHAI XIAMEN GUJARAT SIERRA LEONE PUTTALAM PORT KLANG SINGAPORE OP
Slide 6: Deliver Sustainable Value
Deliver Sustainable Value 6 Key Features Strong Market Quality Mineral Sands Project Pipeline Fundamentals Assets Mineral sands demand linked to Australia and Sierra Leone operations Sustaining and growth projects in urbanisation, rising living standards, Product mix weighted to premium Australia an
Slide 7: Mineral Sands Markets
Mineral Sands Markets Christian Barbier, Head of Marketing Geraldton, Western Australia
Slide 8: Global Mineral Sands Industry Production
Global Mineral Sands Industry Production 8 Mineral Sands Mineral Sands Mineral Sands Iluka Revenue by Volume by Volume by Value by Value as Mined as Finished Product as Finished Product (2018 ~AU$1.2bn) (2018 ~8.5mt) (2018 ~8.5mt) (2018 ~US$5.7bn)* Rutile Rutile Rutile Chloride ilmenite Chloride ilm
Slide 9: Zircon Market
Zircon Market
Slide 10: Global Zircon Producers
Global Zircon Producers 10 Global Zircon Producers Global Zircon Production by Region (2018 Total Production ~1.2mt) (2018 Total Production ~1.2mt) Other Indonesia 9% 4% China Others Iluka 6% 28% 28% Australia 40% Other Africa 13% TiZir 5% Kenmare 4% Tronox/Cristal 19% Rio Tinto South Africa 16% 28%
Slide 11: Zircon Applications
Zircon Applications 11 Zircon is opaque (white) and water, chemical, heat and abrasion resistant Ceramics Chemicals, Fused Zirconia Refractory and Foundry and Specialty Uses 2018 global demand 20% Key drivers of demand 50% Short term 30% • Construction industry • Industrial activity Tiles, sanitary
Slide 12: Sustainable Pricing Model
Sustainable Pricing Model 12 Iluka’s Zircon Reference Price and Received Price Zircon Reference Price Reference price of US$1,580/t US$/t extended to March 2020 Iluka introduced Zircon Reference Price in 2015 1800 • Zircon Reference Price is based on a 2 tonne bag of Zircon 1600 Premium, DAT, ex-Chi
Slide 13: Tile Market Overview
Tile Market Overview 13 Major Tile Manufacturing Countries, 2018 Major Tile Categories Egypt North Other Polished Porcelain (Unglazed) (~20% of tiles) Full body unglazed tile America Iran A high density, wear resistant and water impervious Zircon contained in main Indonesia (vitreous) tile body typi
Slide 14: Emerging Tile Trends and Zircon Content Implications
Emerging Tile Trends and Zircon Content Implications 14 Innovation in ceramics form and design is New tile trends have broadly positive leading expansion in applications implications for zircon content All plants globally transitioned to digital printing and use zircon in engobe and glaze enforcing
Slide 15: Thrifting and Substitution
Thrifting and Substitution 15 Zircon Consumption and Price Recent History ~250kt demand loss due to modernization, thrifting and substitution Global demand 2012 vs 2019: Nominal Price US$/t kt 2,500 Effect of 2008 Global 1500 Differing market dynamics Financial Crisis Demand Price Iluka believes the
Slide 16: Global Zircon Concentrate Supply
Global Zircon Concentrate Supply 16 China zircon concentrate imports China zircon concentrate imports by source, kt 2019 year to date August (zircon equivalent) 50 Kenya Other Senegal 40 Pakistan Australia Madagascar 30 Sierra Leone Monthly average 23kt 20kt = 20kt 18kt 20 U.S.A 10 0 Iluka accounts
Slide 17: Kalimantan Zircon Sand Industry Overview
Kalimantan Zircon Sand Industry Overview 17 Dayak miners • Zircon sand production is generally premium grade • Concentrate sourced from artisanal Dayak miners using basic mining technique • Miners sell zircon-gold concentrate to brokers/traders or direct to processors • In situ ore grades 0.2-0.3% z
Slide 18: Indonesian Zircon Exports
Indonesian Zircon Exports 18 • Current monthly export ~70ktpa annualised (plus ~20ktpa used in domestic tile industry) Gold price US$/oz • Factors influencing inducement price: 1,600 ‒ zircon and gold prices and rupiah exchange rate 1,400 ‒ palm oil plantation wages ‒ cost of production 1,200 • Anec
Slide 19: Zircon Market Outlook
Zircon Market Outlook 19 Key Features Global Zircon Supply and Demand Outlook – Existing Operations1 kt Illustrative Short term demand softness … 1500 Demand CAGRs 2019-23 Demand CAGR TZMI 2.7% • Business confidence affected by trade tensions and 2013-19 ~1.6% @ 1.5% CAGR global economic uncertainty
Slide 20: Titanium Market
Titanium Market
Slide 21: Titanium Dioxide Applications
Titanium Dioxide Applications 21 Titanium pigment is opaque (white), UV resistant and inert. Titanium metal has high strength to weight ratio and is corrosion resistant. Titanium Pigment Titanium Metal Welding (flux) 2018 global demand Key drivers of demand 5% Short Term 90% 5% • Construction indust
Slide 22: Global Titanium Dioxide Producers
Global Titanium Dioxide Producers 22 Global Titanium Feedstock Global Titanium Feedstock By Major Producers By Country (2018 Total Production ~7.4mt) (2018 Total Production ~7.4mt) Others 17% Other 25% China China 31% 31% Base 4% TiZir 6% India 5% Iluka 6% Mozambique 5% Kenmare 7% Canada Australia R
Slide 23: Market Position Strongest in Very High Grade
Market Position Strongest in Very High Grade 23 Total TiO2 Feedstock Chloride Feedstock High Grade Chloride Very High Grade Chloride Chloride & Sulphate (80%+ TiO2) Feedstocks (90%+ TiO2) Feedstocks (2018 ~7.4 mt) (2018 ~3.4 mt) (2018 ~2.5 mt) (2018 ~1.3 mt) Others Others 14% Others Rio Tinto Others
Slide 24: High Grade Titanium Feedstock Advantage
High Grade Titanium Feedstock Advantage 24 Key Features Iluka’s high grade titanium products have high ‘value in use’ • Chloride pigment plants typically run on blends • Natural rutile and synthetic rutile advantages in feedstock blend • Very high grade feedstocks raise yield, utilisation Indicative
Slide 25: High Grade Feedstock Pricing Based on Value in Use
High Grade Feedstock Pricing Based on Value in Use 25 Titanium feedstocks by titanium grade Used in Chloride Feedstock TiO2 % Origin or Sulfate pigment process Iluka’s Pricing Approach Ilmenite 48% - 62% Naturally occurring Both • Iluka uses an extensive data base and relative economic value Leucoxe
Slide 26: High Grade Titanium Pricing Dynamics
High Grade Titanium Pricing Dynamics 26 Key Features Positive short and longer term dynamics for high grade titanium prices • Value stabilisation strategy implemented by some pigment producers • Longer term high grade feedstock supply tightness • Pigment versus rutile relative price still supports r
Slide 27: Titanium Pigment Industry Summary
Titanium Pigment Industry Summary 27 Two production technologies Major chloride pigment producers 2018 global production = 6.3mt 2018 global chloride production = 3.0mt Sulfate pigment Chloride pigment Others Lomon Billions 3.3mt 3.0mt 3% 3% Other Venator 5% North 7% Europe America 10% 21% INEOS 8%
Slide 28: China Pigment Market Outlook
China Pigment Market Outlook 28 1. China’s pigment increasingly competes with western producers Global Pigment Production Segmentation Western Producers Competitive Market High barrier to entry, compete on price, quality, service Price Emerging Producers Emerging and developed producers, Lower quali
Slide 29: Pigment Market Outlook
Pigment Market Outlook 29 Recent Global Pigment Price Cycles Analysis Iluka’s Iluka’s Pigment Pigment Demand Demand Model Model Long Term Pigment Demand Linked to Industrial Production Demand recovery + capacity utilization Key economic indicators input Industry consultant TiPMC shows link of pigmen
Slide 30: Mineral Sands Operations
Mineral Sands Operations Adele Stratton, CFO Cataby, Western Australia
Slide 31: Operating Configuration
Operating Configuration 31 JACINTH AMBROSIA 1 mining unit Major zircon mine 1,300tph ore mining unit capacity NARNGULU Mineral separation plant Processes Jacinth-Ambrosia and Cataby material SIERRA LEONE Acquired in 2016 Major rutile mine 4 mining units Mineral separation plant capacity ~175ktpa rut
Slide 32: Cataby Path to Development
Cataby Path to Development 32 Development highlights • 1970s deposit discovered • 12 months to develop from greenfields site • 2003-2012 many scenarios considered for development • Reuse of equipment from previous Iluka operations, including • 2013 Board approved feasibility study concentrator from
Slide 33: Cataby Commissioning and Ramp Up
Cataby Commissioning and Ramp Up 33 Cataby 2019 Rougher Head Feed production – Actual to September and forecast Q4 Performance to Date kt • Factors impacting commissioning and ramp up: 800 ‒ condition and re-use of refurbished equipment 700 ‒ some re-configuration needed 600 ‒ training 80+ mostly ne
Slide 34: Cataby
Cataby 34 Operations Summary • Large chloride ilmenite rich deposit, 150km north of Perth • Ilmenite feeds synthetic rutile kiln at Capel, Western Australia • Synthetic rutile offtake contracts underpin financial returns Cataby Ore Reserves, as at December 2018 • Significant zircon and rutile produc
Slide 35: SR2 Major Maintenance Outage
SR2 Major Maintenance Outage 35 • $35 million expenditure • Works included: ‒ full kiln refractory reline ‒ new rotary cooler shell ‒ new quench tower ‒ other maintenance tasks only able to be undertaken when plant offline • 600+ individual tasks and 400+ people on site • Completed on budget and ahe
Slide 36: Jacinth - Ambrosia
Jacinth - Ambrosia 36 Operations Summary • Discovered in 2004, mining commenced 2010 • Iluka’s major source of zircon production Eucla Basin Ore Reserves, as at December 2018 • 1,300tph ore mobile mining unit HM Assemblage • 1,000tph rougher head feed concentrator Ore In situ HM • Heavy mineral conc
Slide 37: Ambrosia
Ambrosia 37 Ambrosia site works, June 2019 Ambrosia Mine Move Project Highlights • Mine move previously planned for 2022 Delivered ahead of schedule • Accelerated to 2019 to smooth zircon production and under budget • Expect to sustain similar production levels in early First HMC produced 2 months a
Slide 38: Sierra Rutile Operations
Sierra Rutile Operations Rob Hattingh, Sierra Rutile CEO Sierra Rutile, Sierra Leone
Slide 39: Sierra Rutile Overview
Sierra Rutile Overview 39 Operations 39 • Began operations 1967 and acquired by Iluka December 2016 • World’s largest rutile mine Employs ~2,600 people • Large, long life operations (up to 5 years remaining at current mining area, 15-20 years at Sembehun) 98% of whom are Sierra Leonean • Two dry min
Slide 40: Sierra Rutile Operations
Sierra Rutile Operations 40 Overlooking discharge ramp at Gangama Mine Area 1 Reserves, as at December 2018 Assemblage1 Ore Ore Reserve Tonnes Ilmenite Rutile Deposit Category mt % Zircon % % Gangama Proved 5.5 0.8 0.3 1.9 Probable 20.7 0.9 0.2 1.4 Lanti Proved 2.2 - - 1.3 Probable 0.9 - - 1.7 Gbeni
Slide 41: Sierra Rutile Operations – Lanti & Gangama
Sierra Rutile Operations – Lanti & Gangama 41 In-pit mining unit at Lanti (DM1) Repurposed concentrator (DM4) DM2:1 and DM2:2 Concentrators at Gangama Lanti Gangama DM1 DM4 DM2:1 DM2:2 Previously truck and Dry mining shovel, converted to in-pit In-pit mining Truck and shovel Truck and shovel method
Slide 42: Sierra Rutile Operations – Operational Challenges
Sierra Rutile Operations – Operational Challenges 42 Lanti In Pit Mining Unit Improvements Background • At time of Sierra Rutile acquisition, conversion of Lanti from truck and shovel operation to in- pit mining was identified as improvement opportunity to raise throughput and reduce costs Broad ope
Slide 43: Sierra Rutile – Health, Education, Rehabilitation
Sierra Rutile – Health, Education, Rehabilitation 43 Mobimbi Clinic Education Raffia Palm Rehabilitation • Clinic treats ~2,800 cases per month with access • 56 scholarships awarded to students within the five • Raffia palm is highly valued for its contribution to the provided to employees and their
Slide 44: Sierra Leone – Fiscal Regime
Sierra Leone – Fiscal Regime 44 Sierra Rutile Agreement (Ratification) Act 2002 • Act of Parliament setting out agreed regulatory and fiscal US$31m tax paid in 2018 regime applicable to Sierra Rutile Limited 6% of government domestic revenue; • Contains clauses aimed at providing a stable fiscal reg
Slide 45: Sierra Leone – Partnership with IFC
Sierra Leone – Partnership with IFC 45 IFC Partnership International Finance Corporation (IFC) • Partnership with Sierra Rutile commenced June 2019 • IFC is a sister organisation of the World Bank • IFC have invested US$20 million for 3.57% stake in Sierra Rutile • IFC mobilises funding for private
Slide 46: Projects
Projects Matthew Blackwell, Head of Major Projects, Engineering & Innovation Ambrosia, South Australia
Slide 47: 2019 Projects Delivered
2019 Projects Delivered 47 Key Features 2019 project spend across the group has been less than planned Cataby, Gangama Lanti Expansion, Ambrosia Mine SR2 Kiln Major Western Australia Expansion, Sierra Leone Move, Maintenance Sierra Leone South Australia Outage, Western Australia • $270m capex budget
Slide 48: Pipeline of Growth Projects
Pipeline of Growth Projects 48 Key Features Atacama, Wimmera, Eneabba Mineral Sands South Australia Victoria Recovery, Western Australia Satellite deposit to existing J-A operation Zircon and rare earth project Other Zr Pre-feasibility study progressing Potential to add material zircon Pre-feasibili
Slide 49: Eneabba Mineral Sands Recovery Project
Eneabba Mineral Sands Recovery Project 49 Project Overview • Extraction, processing and sale of monazite rich stockpile Phase 1 • ~98% recoveries expected, monazite and zircon concentrate product in line with assemblage • Construction commenced, commissioning and first sales expected H1 2020 • Offta
Slide 50: Wimmera Project
Wimmera Project 50 Rare Earth Elements Project Overview • Conventional open pit mine, focus on WIM100 deposit WIM100 contains high value elements, including neodymium, dysprosium, praseodymium and terbium. • Mine life of WIM100 ~20 years Key end use applications of these elements is in • Innovative
Slide 51: Balranald Field Trial
Balranald Field Trial 51 Project Overview • Large, deep, high grade rutile-rich deposit with significant zircon and ilmenite T3 Field Trial • To prove underground mining and backfilling technology as a system Mineral Resource Summary • Approved by Board in August 2019, trial costs of ~$40m Assemblag
Slide 52: Atacama Project
Atacama Project 52 Project Overview • Satellite deposit adjacent to Iluka’s existing operation at Jacinth-Ambrosia • Approximately 5km from the Ambrosia deposit Mineral Resources, Eucla Basin • Potential to add material zircon production from 2022 and utilise existing infrastructure Work Program • P
Slide 53: Sembehun Project Update
Sembehun Project Update Key Features 53 Sembehun Study Focus Areas Mining Method: engaging vendors and consultants to test • Re-scoping development options underway alternative mining techniques used elsewhere in Africa • Options considered both fit for purpose and optimises risk-return relationship
Slide 54: Environment, Social, Governance
Environment, Social, Governance Sarah Hodgson, General Manager People and Sustainability
Slide 55: Sustainability is central to everything we do
Sustainability is central to everything we do 55 Key Pillars • Health and Safety • People 3.7 TRIFR $980K • Social Performance No fatalities or permanent Social investment 2018 • Environmental Stewardship disabling injuries • Economic Responsibility and Governance Approach • Continued progression to
Slide 56: Diversity and Inclusion
Diversity and Inclusion 56 Attract and retain the best people to build and maintain a diverse and high achieving workforce that reflects the local communities in which the company operates • Australia: 24% female and 7% Aboriginal workforce participation • Sierra Leone: 8% female workforce participa
Slide 57: Positive Rehabilitation and Closure Outcomes
Positive Rehabilitation and Closure Outcomes 57 Land management and rehabilitation are a major focus and significant part of operational activities. Iluka has a strong track record over several decades of leading environmental and socially responsible practices. Focus on progressive rehabilitation d
Slide 58: Responsible Tailings Management
Responsible Tailings Management 58 Iluka operates active Tailings Storage Facilities at Jacinth and Cataby (Australia) and Sierra Leone. • All facilities are constructed to final embankment height or using downstream method. Leading practice in Tailings Management are: • Australian National Committe
Slide 59: Climate Change Approach
Climate Change Approach 59 Iluka supports the Paris Agreement objectives and IPCC assessment Core elements of TCFD Recommendations of climate change science, and is committed to align with the Task Force on Climate-related Financial Disclosures (TFCD) GOVERNANCE recommendations over a 3 year period.
Slide 60: Capital Management
Capital Management Tom O’Leary, Managing Director
Slide 61: Balance Sheet
Balance Sheet 61 Net Debt, Gearing and Funding Headroom Multi Option Facility Agreement (MOFA) • Net debt as at September 2019 $89 million • Completed refinancing of MOFA in July ‒ 6.9% gearing ratio* • Total facilities reduced to $519 million • Significant funding headroom remains ‒ reflecting medi
Slide 62: Dividend Framework
Dividend Framework 62 • Dividend framework remains unchanged Dividend Framework: • Strong track record of distributing returns to shareholders • pay a minimum 40% of free cash flow not required for investing or balance sheet activity • Framework retains flexibility to deliver on projects needed • di
Slide 63: Mining Area C
Mining Area C Tom O’Leary, Managing Director
Slide 64: Corporate and Capital Structure Review
Corporate and Capital Structure Review 64 • Formal review commenced to determine most appropriate corporate and capital structure of two principal businesses – Mineral Sands and Mining Area C royalty • Work commenced in September 2019 • Review to consider: ‒ Iluka’s corporate and capital structure ‒
Slide 65: Mining Area C Royalty
Mining Area C Royalty 65 The Royalty Terms The MAC Royalty provides an uncapped option on future • Royalty over “all ore mined from discoveries and developments made within the MAC area time to to time from M(ining) A(rea) C” • Royalty terms: ‒ 1.232% of Australian MAC Royalty Area denominated reven
Slide 66: MAC Royalty Area – Current Operations
MAC Royalty Area – Current Operations 66 ~$850m H1 2019 H1 2018 % change EBITDA Sales volumes MDMT 27.8 27.3 1.8 Since North Flank commenced Implied price A$/t 120.2 83.9 43.2 operations in October 2003 Net Royalty income $m 41.2 28.2 42.6 Annual capacity payments $m - 1.0 n/a $41m Iluka EBITDA $m 4
Slide 67: MAC Royalty Area – New Operations Under Development
MAC Royalty Area – New Operations Under Development 67 South Flank Development Indicative Royalty Sales Volumes with South Flank Development • Approved by BHP Board June 2018 • ~145mtpa (WMT) from combined MAC hub First South Flank production targeted • Quality ore – contributing to increase in BHP’
Slide 68: MAC Royalty Area – Future Potential
MAC Royalty Area – Future Potential 68 Two potential future operations identified by BHP in its long-term BHP’s current operations at North Flank plan, Tandanya and Mudlark, are likely to fall at least partially and South Flank are expected to within the Royalty Area continue until ~2050: “First ore
Slide 69: Concluding Remarks
Concluding Remarks Tom O’Leary, Managing Director Move to Ambrosia, South Australia
Slide 70: Operational Configuration to Deliver Sustainable Value
Operational Configuration to Deliver Sustainable Value 70 Key Features Projects Executed in 2019 to Sustain Value Cataby, SR2 Kiln Major Ambrosia Mine Gangama Lanti Western Maintenance Move, South Expansion, Expansion, Australia Outage, Australia Sierra Leone Sierra Leone Western Australia Operation
Slide 71: Deliver Sustainable Value
Deliver Sustainable Value 71 Key Features Strong Market Quality Mineral Sands Project Pipeline Fundamentals Assets Mineral sands demand linked to Australia and Sierra Leone operations Sustaining and growth projects in urbanisation, rising living standards, Product mix weighted to premium Australia a
Slide 72: Q and A session
Q and A session
Slide 73: For more information contact
For more information contact: Melissa Roberts General Manager – Investor Relations and Commercial Mineral Sands Operations investor.relations@iluka.com +61 (0) 450 398 431