Iluka Resources Limited · ASX:ILU
Iluka Resources — FY2013 Earnings Presentation
56 slides from Iluka Resources's earnings presentation, Feb 21, 2014
Slide 1: 2013 Full Year Results
2013 Full Year Results David Robb, Managing Director Alan Tate, Chief Financial Officer 21 February 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: 2013 Key Features
Y ILUKA 2013 Key Features
Slide 4: 2013 Key Features
2013 Key Features • Low cycle business conditions – globally uneven zircon demand – pigment industry adjustments flow through to low demand for rutile / synthetic rutile • Significant year-on-year decline in mineral sand prices, particularly TiO2 products • Iluka operations flexed – low capacity uti
Slide 5: 2013 Key Features
2013 Key Features • Cash conservation focus – lower total cash production costs (reduced 36% year-on-year) – low capital expenditure while preserving project development pathways • Non-cash adjustments of $41 million (after tax) – technical success consequence – old equipment now not required in min
Slide 6: Continued Improvement in Safety Performance
Continued Improvement in Safety Performance Total Recordable Injury Frequency Rate (TRIFR) Lost Time Injury Frequency Rate (LTIFR) 16 15.1 14 12 10.5 Frequency Rate 10 8 6 4.6 4 3.1 1.9 2 0.3 0 2011 2012 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 • 63% reduct
Slide 7: Main Features of Full Year Results
Main Features of Full Year Results Versus 2012 Mineral Sands Sales Volumes Z/R/SR sales up 19.5%; zircon up 73.2%, rutile up 59.2%, SR sales down 72.7% Mineral Sands Revenue 28.7% - higher sales volumes offset by lower prices Cash Production Costs 35.5% to $376.1 million vs $583.5 million in 2
Slide 8: Iluka Dividend Payments
Iluka Dividend Payments • 4 cents final dividend fully franked payable 3 April 2014 • Equals 100% of 2H free cash flow • 9 cents full year 2013 dividends fully franked • Cumulative 76% free cash flow payout ratio since end of 2010 Distribution Metrics FCF NPAT Full year pay out ratio (%) n.a. 209 Cu
Slide 9: Summary Group Results
Summary Group Results 2012 vs 2013 $m 2013 2012 2011 % change Mineral sands revenue 763.1 1,069.8 1,536.7 (28.7) Mineral sands EBITDA 249.0 726.0 925.9 (65.7) Mining Area C royalty 88.3 72.7 88.5 21.5 Group EBITDA 295.2 748.8 979.3 (60.6) Group EBITDA margin % 34.7 65.5 60.2 (47.0) Depreciation and
Slide 10: Mining Area C Royalty
Mining Area C Royalty 2013 2012 % change Annual production to 30 June mdmt 50.5 46.9 7.7 Sales volumes mdmt 52.5 47.4 10.8 Royalty income $m 84.3 69.7 20.9 Annual capacity payments $m 4.0 3.0 33.3 Iluka EBIT $m 87.9 72.3 21.6 (mdmt = million dry metric tonnes) • Iron ore sales volumes up 10.8% • Ave
Slide 11: Net Profit after Tax
Net Profit after Tax $m EBITDA decreased $454 million to $295 million 400 Group EBITDA margin 34.7% 363 200 144 18 0 85 (19) 21 25 (37) 5 16 (10) 11 (475) (40) (7) (55) (10) (200) 2012 Price Volume Mix FX Ilm & Oth Unit costs Restructure Min Sand MAC Corp D&A Idle asset Interest Unwind & Tax 2013 &
Slide 12: Net Debt Movement 2013
Net Debt Movement 2013 $m 2013 free cash outflow $28 million 11.8% % 120 83 12 7.8% 9 80 (23) 5.8% (14) 6 40 124 3 0 0 -3 (40) -6 (80) (140) -9 (96) (120) -12 (58) (130) -15 (160) -18 (63) (200) (19) (207) -21 (240) -24 Opening net Operating cash MAC royalty Exploration Interest Tax Capex Dividends
Slide 13: Production Flex – Zircon & High Grade TiO2
Production Flex – Zircon & High Grade TiO2 52% 67% reduction reduction Sales profile - zircon Sales profile (rutile and synthetic rutile) 13
Slide 14: 2013 and 2014 Production Settings
2013 and 2014 Production Settings 2013 2014 1 Murray Basin Mining (WRP) Full utilisation Hamilton MSP ~50% utilisation ~80% utilisation Focus on balancing Jacinth-Ambrosia Mining Full utilisation – unit costs inventory concentrate build position objectives Narngulu MSP ~40% utilisation ~50% utilisat
Slide 15: Cash Conservation Focus
Cash Conservation Focus 40% reduction 63% reduction Relates to ~ $200m to ~$250m average p.a. sustaining and growth capital expenditure, which is both an historical average and expectation for the company’s 2014-2018 corporate planning cycle. The $200m level shown on the chart. 15
Slide 16: Mineral Sands Market Conditions and Iluka's Production Response
Mineral Sands Market Conditions and Iluka’s Production Response 16
Slide 17: Recent Zircon Market Dynamics
Recent Zircon Market Dynamics Demand • China most robust global market (imports in 2013 higher than previous 3 years) • Recent downturn in zircon demand due mainly to weakness in Europe and Asia ex China • Demand consistent with cyclical global economic and industry conditions • Recent Iluka tile su
Slide 18: Recent Titanium Dioxide Market Dynamics
Recent Titanium Dioxide Market Dynamics Pigment demand – main end use for high grade feedstocks • 2011/12 downturn across all regions but Europe largest contributor • Pigment demand cycles consistent with downstream conditions – Europe property, US housing, paint industry revenues • Recovery commenc
Slide 19: Geographical Revenue Sources
Geographical Revenue Sources Iluka Revenue by Region Iluka Revenue by Region 2012 2013 Other Other 1% 1% Americas Americas Europe Europe 18% 21% 25% 21% Asia ex. China 20% China Asia, ex. China 23% 30% China 40% • China zircon market relatively robust • North America zircon demand solid but weaker f
Slide 20: Iluka Product Prices - 2013
Iluka Product Prices - 2013 US$/t FOB 2012 1H 2013 2H 2013 Dec-13 2013 Wt Ave Quarter Wt Ave Zircon 2,080 1,173 1,119 1,083 1,150 Rutile 2,464 1,307 949 910 1,069 Synthetic rutile 1,771 1,200 1,111 1,121 1,150 Notes: The above table provides weighted average received prices for Iluka’s main products
Slide 21: Iluka's Production Focus - 2013
Iluka’s Production Focus - 2013 • Reduce production in line with market demand • Conserve cash (both production costs and capital expenditure) • Target reductions in finished goods inventory • Enhance project development optionality • Maintain capacity to respond rapidly to increased demand 21
Slide 22: Zircon Market Lead Indicators
Zircon Market Lead Indicators Selection of lead indicators Iluka considers. Lead indicator data supplements short, medium and long term demand forecasts by end use application and individual geographical markets, as well as in-country direct market analysis. While indicators are shown with respect t
Slide 23: Zircon Heatmap
Zircon Heatmap 2012 2013 Unit Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 China floor space starts* % yoy 2% (12%) (12%) 0% 3% 9% 15% 33% China purchasing managers index* Index 52 51 49 51 51 51 52 52 China purchasing managers index - new Index 2 0 1 2 3 3 5 6 orders less inventory* China electricity generation (Kwh)*
Slide 24: Titanium Dioxide Market Lead Indicators
Titanium Dioxide Market Lead Indicators US Housing Market Paint Industry Sales Revenue Annual growth Annual growth Akzo Nobel PPG 12% House Prices Remodelling Activity Index 18% 20% Sherwin Williams RPM Valspar 16% 15% 10% 14% 8% 10% 12% 5% 6% 10% 0% 4% 8% -5% 6% 2% 4% -10% 0% -15% 2% -2% 0% -20% Ma
Slide 25: Titanium Heatmap
Titanium Heatmap 2012 2013 Unit Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 China purchasing managers index* Index 52 51 49 51 51 51 52 52 China purchasing managers index - new Index 2 0 1 2 3 3 5 6 orders less inventory* US Harvard remodelling activity leading % 9% 7% 6% 4% 5% 5% 10% 11% indicator US house prices % yo
Slide 26: Iluka Ceramic Tile Analysis
Iluka Ceramic Tile Analysis • Second Iluka proprietary ceramics tile survey • Large survey • Eight important ceramic producing countries, multiple regions within countries • Zircon content of varying types of tiles analysed • Enables comparison of zircon loadings year-on-year • Supplements other ind
Slide 27: Iluka Ceramic Tile Analysis
Iluka Ceramic Tile Analysis • Zircon loadings (grams/m2) in all tile types showed increase year-on-year – some results statistically significant, some not • China samples displayed overall increase in zircon loadings – glazed ceramics, polished porcelain and crystal jade tiles – some signs of reduce
Slide 28: Iluka Ceramic Tile Analysis
Iluka Ceramic Tile Analysis • Trend to “designer” tiles – increasingly digitally printed • Apparent in China and other major tile producing countries • Increased use of digital printing a positive for zircon loadings – significantly greater zircon loading than conventionally decorated tiles – higher
Slide 29: China Ceramics – 2013 Zircon Loading
China Ceramics – 2013 Zircon Loading Combined polished porcelain Crystal jade (also driven by Zircon Loading, grams per sqm Double-charged Single- digital printing) Tiles layer porcelain Glazed ceramic tiles Glazed porcelain and digitally printed tiles Median zircon loading per tile category; data e
Slide 30: Zircon Loading - Digital vs Conventionally Printed Tiles
Zircon Loading - Digital vs Conventionally Printed Tiles Zircon Loadings (Indexed to 100) Mean = 100 Mean = 180 Low Mean High Conventionally Printed 65 100 135 Digitally Printed 140 180 210 Conventionally printed Digitally printed Notes: • This slide charts the distribution of zircon loadings for co
Slide 31: Mineral Sands Project Development
Mineral Sands Project Development Project Location Characteristics Pre-execute Hickory Virginia, USA • Chloride ilmenite with associated zircon • Utilisation of existing mineral separation plant (MSP) • ~ 10 year mine life Definitive Feasibility Study West Balranald Murray Basin, NSW • High grade ru
Slide 32: Iluka's Ore Reserves and Mineral Resources
Iluka’s Ore Reserves and Mineral Resources Ore Reserves In Situ Heavy Mineral Tonnes (millions) Opening Reserves 2013 29.0 Production/Depletions (2.5) New Ore Reserves/Adjustments 0.1 Closing Ore Reserves 26.6 Mineral Resources In Situ Heavy Mineral Tonnes (millions) Opening Resources 2013 122.7 Pro
Slide 33: Iluka's Ore Reserves and Mineral Resources
Iluka’s Ore Reserves and Mineral Resources • 26.6 million tonnes of heavy mineral (HM) Ore Reserves – 8.2% year-on-year reduction – HM grade of 5.6%; assemblage 19% zircon, 6% rutile, 52% ilmenite • Ore Reserve cover ~10 years at 2013 depletion rates • 178.7 million tonnes of HM Mineral Resources –
Slide 34: Executive Aligned to Business Priorities
Executive Aligned to Business Priorities DAVID ROBB BSc, Grad Dip (Personnel Admin), FAIM, FAICE Managing Director BP, Wesfarmers Ltd 2006 DOUG WARDEN STEVE WICKHAM MATTHEW BLACKWELL ALAN TATE CHRIS COBB CAMERON WILSON BCom, CA, MBA, GAICD Assoc Dip, Mech Eng B Eng (Mech), Grad Dip BCom, FCA, FAICD
Slide 35: Metalysis – Strategic Fit
Metalysis – Strategic Fit • Adjacencies with mineral sands business – could transform demand for titanium metal • “Right” stage of technical/commercial development • Ability for Iluka to contribute more than cash – supply of high grade titanium feedstocks – process engineering – project management –
Slide 36: New Investment - Metalysis
New Investment - Metalysis • 18.3% equity interest in Metalysis for $22.5 million • Metalysis has demonstrated an ability to produce titanium powder directly from rutile • Metalysis process has the potential to materially reduce the cost of titanium powder • UK Venture Capital company • Metalysis pr
Slide 37: Key Elements
Key Elements Iluka’s 18.3% interest in Metalysis provides: • One Board seat - with full voting rights - and one observer • A non-exclusive world-wide licence over the Metalysis technology to produce titanium powder • in return for a net revenue royalty on normal commercial terms • Right of first off
Slide 38: Ti Metal Industry – Current 'State of Play'
Ti Metal Industry – Current ‘State of Play’ Titanium metal (Ti metal) has positive attributes: Industrial applications include chemical, shipping, • highest strength-to-weight ratio of any metal desalination, oil and gas, • high level of corrosion resistance power generation, metallurgy and auto ind
Slide 39: Ti Metal Industry – Potential
Ti Metal Industry – Potential • Lower cost Ti metal compete with High Performance Alloys (US$4.5b market) & Duplex stainless steel (US$2.3bn market) – access to a small percentages of these markets would significantly increase the size of the Ti metal industry; • 3D printing: potential market size o
Slide 40: 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 • Preserve/advance mineral sands growth opportunities • Maintain a strong balance sheet • Continue to evaluate/pursue corporate growth o
Slide 41: Supplementary Slides
Y ILUKA Supplementary Slides 41
Slide 42: Reconciliation of Non-IFRS Financial Information to Profit before Tax
Reconciliation of Non-IFRS Financial Information to Profit before Tax 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 Group & Other(1) Sand
Slide 43: Cash Flow & Net Debt: 2013 vs 2012
Cash Flow & Net Debt: 2013 vs 2012 $m 1H 2013 2H 2013 2013 2012 % change Opening net (debt) cash (95.9) (197.0) (95.9) 156.7 n/a Operating cash flow 92.4 31.6 124.0 368.7 (66.4) MAC royalty 36.1 46.6 82.7 76.1 8.7 Exploration (9.8) (13.3) (23.1) (34.4) 32.8 Interest (net) (6.6) (7.1) (13.7) (0.7) 1,
Slide 44: Production Volumes
Production Volumes kt 2013 2012 % change Zircon 285.1 343.2 (16.9) Rutile 127.0 220.3 (42.4) Synthetic rutile 59.0 248.3 (76.2) Total Z/R/SR production 471.1 811.8 (42.0) Ilmenite 584.5 674.1 (13.3) Total production volume 1,055.6 1,485.9 (29.0) HMC produced 1,538.3 1,529.7 0.6 HMC processed 1,044.2
Slide 45: Sales Volumes
Sales Volumes kt 2013 2012 % change Zircon 370.2 213.8 73.2 Rutile 168.0 105.5 59.2 Synthetic rutile 46.2 169.6 72.8 Total Z/R/SR 584.4 488.9 19.5 Ilmenite 337.5 443.2 (23.8) Total sales volumes 921.9 932.1 (1.1) 45
Slide 46: Mineral Sands Results: 2013 versus 2012
Mineral Sands Results: 2013 versus 2012 $m 1H 2013 2H 2013 2013 2012 % change Mineral sands revenue 381.7 381.4 763.1 1,069.8 (28.7) Australia EBITDA 146.1 128.5 274.6 706.3 (61.1) United States EBITDA 15.1 15.0 30.1 70.0 (57.0) Exploration and other EBITDA (24.6) (31.1) (55.7) (50.3) 10.7 Total min
Slide 47: Unit Cash Costs and Revenue/tonne
Unit Cash Costs and Revenue/tonne 2013 versus 2012 2013 2012 % change Total Z/R/SR production kt 471.1 811.8 (42.0) Ilmenite kt 584.5 674.1 (13.3) Total production kt 1,055.6 1,485.9 (29.0) Total cash costs of production $m 376.1 583.5 35.5 Unit cash costs per tonne of Z/R/SR produced(1) $/t 798 719
Slide 48: Capital and Exploration Expenditure (cash)
Capital and Exploration Expenditure (cash) $m 2013 2012 % change Capital expenditure 52.5 167.3 68.6 Exploration 23.1 34.4 32.8 Total 75.6 201.7 62.5 48
Slide 49: Factors Influencing Free Cash Flow
Factors Influencing Free Cash Flow $m 1H 2013 2H 2013 1H 2012 2H 2012 Operating cash flow 92.4 31.6 207.2 161.5 MAC royalty 36.1 46.6 36.8 39.3 Exploration (9.8) (13.3) (14.9) (19.5) Interest (net) (6.6) (7.1) 4.2 (4.9) Tax (124.0) (16.1) (156.1) (3.0) Capital expenditure (31.5) (21.0) (122.5) (44.8
Slide 50: Australian Operations
Australian Operations 2013 2012 % change Production volumes Zircon kt 245.5 293.8 (16.4) Rutile kt 127.0 220.3 (42.4) Synthetic rutile kt 59.0 248.3 (76.2) Total Z/R/SR production kt 431.5 762.4 (43.4) Ilmenite kt 394.9 459.4 (14.0) Total production kt 826.4 1,221.8 (32.4) HMC produced kt 1,223.5 1,
Slide 51: US Operations
US Operations 2013 2012 % change Production volumes Zircon kt 39.6 49.4 (19.8) Ilmenite kt 189.6 202.5 (11.7) Total production kt 229.2 251.9 (13.2) HMC produced kt 314.8 323.1 (2.6) HMC processed kt 307.8 350.6 (12.2) Unit cash cost of production $/t 308 238 (29.4) Mineral sands revenue $m 86.6 111
Slide 52: Eucla/Perth Basins
Eucla/Perth Basins 2013 2012 % change Production volumes Zircon kt 185.7 158.2 17.4 Rutile kt 33.3 50.0 (33.4) Synthetic rutile 59.0 248.3 (76.2) Ilmenite kt 211.2 290.6 (27.3) Total production kt 489.2 747.1 (34.5) HMC produced kt 827.5 821.8 (0.7) HMC processed kt 509.2 673.5 (24.4) Unit cash cost
Slide 53: Murray Basin
Murray Basin 2013 2012 % change Production volumes Zircon kt 59.8 135.6 (55.9) Rutile kt 93.7 170.3 (45.0) Ilmenite kt 183.7 168.8 8.8 Total production kt 337.2 474.7 (29.0) HMC produced kt 396.0 384.8 2.9 HMC processed kt 227.2 444.0 (48.8) Unit cash cost of production – Z/R/SR $/t 865 483 (79.1) M
Slide 54: Indicative Physical and Financial Characteristics
Indicative Physical and Financial Characteristics 2013 2014 Comments Actual Production kt Zircon 285 ~360 Higher planned production & HMC processing Rutile/synthetic rutile 186 ~190 No SR production expected in 2014 Z/R/SR 471 ~550 Cash Production Costs $m 376 ~430 Mainly reflects increased by-produ
Slide 55: Iluka Historical Mineral Sands Sales
Iluka Historical Mineral Sands Sales Iluka Historical Sales Volumes kt 1200 Zircon Rutile Synthetic Rutile 900 600 300 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Sales Volumes 2009 2010 2011 2012 2013 kt Zircon 223 479 515 214 370 Rutile 139 240 266 106 168 Synthetic Rutile 3
Slide 56: Iluka Resources Limited
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 56