Iluka Resources Limited · ASX:ILU
Iluka Resources — H1 2016 Earnings Presentation
46 slides from Iluka Resources's earnings presentation, Aug 25, 2016
Slide 1: Iluka Resources Limited 2016 Half Year Results
Iluka Resources Limited 2016 Half Year Results David Robb, Managing Director Doug Warden, Chief Financial Officer and Head of Strategy and Planning Matthew Blackwell, Head of Marketing, Mineral Sands 25 August 2016
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: Key Features
Key Features • Net loss after tax of $20.9 million – lower Mining Area C receipts – higher 1st half resource development expenditure as planned – lower USD prices (mainly zircon); sales mix (higher SR and ZIC component in sales) - offset by: lower unit cost of goods sold; higher volume; and favourab
Slide 4: Sustainability
Sustainability Frequency Rate 12 10.5 Total Recordable Injury Frequency Rate (TRIFR) Lost Time Injury Frequency Rate (LTIFR) 10 8 6.7 6 4.6 3.6 4 2.9 1.9 2 0.9 0.6 1.0 0.3 0 2012 2014 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 • Redoubling of safety focus has halted TRIFR increas
Slide 5: Key Features 1H 2016 versus 1H 2015
Key Features 1H 2016 versus 1H 2015 Z/R/SR Sales Volumes 14.7% - higher SR sales relative to 1H 2015 reflecting a full half of kiln operation (restarted March 2015) Mineral Sands Sales Volumes 23.3% - reflects lower ilmenite sales , including ilmenite volumes diverted to SR kiln feed Mineral San
Slide 6: Business Characteristics – 2016
Business Characteristics – 2016 (As disclosed 19 February) Consistent with February observations: • Iluka well placed for current global circumstances – strong balance sheet, good margins, value realisable from inventory • Bias to act counter-cyclically and deploy capital now • 2016 expectations: –
Slide 7: 2016 Key Physical & Financial Parameters
2016 Key Physical & Financial Parameters (As disclosed 19 February) Full Year 2016 1H 2016 Guidance Commentary and Status Update Guidance Actual Z/R/SR production kt ~660 334.4 lluka expects aggregate Z/R/SR sales may exceed aggregate Z/R/SR production. This remains on track with sales expected to Z
Slide 8: Summary Group Results
Summary Group Results 1H 2016 $m 1H 2016 2H 2015 1H 2015 vs 1H 2015 % change Mineral sands revenue 338.4 470.2 349.6 (3.2) Mineral sands EBITDA 43.6 156.2 114.4 (61.9) Mining Area C royalty 20.8 22.2 39.0 (46.7) Group EBITDA 38.6 148.1 127.2 (69.7) Group EBITDA margin % 10.7 30.1 32.7 (37.3) Depreci
Slide 9: Interim Dividend
Interim Dividend • 3 cents interim dividend fully franked payable 6 October 2016 • Cumulative 72 per cent of free cash flow paid in dividends since dividends recommenced at end 2010 Distribution Metrics 1H 2016 free cash flow pay out ratio (%) n/a 2010 – 30 June 2016 cumulative dividend payout ratio
Slide 10: Net Loss after Tax
Net Loss after Tax 1H 2016 versus 1H 2015 $m 40 30 20 38 1 20 10 54 18 (21) 0 (29) (10) 12 (2) (20) (22) 5 3 (44) (18) - (30) (2) (1) (40) 30 June Price Volume Mix FX Ilm & Unit Restruct Min Sand MAC Corp Metalysis Interest Unwind Tax 30 June 2015 Oth COGS & idle Other associate & other 2016 10
Slide 11: Factors Influencing Net Loss After Tax
Factors Influencing Net Loss After Tax 1H 2016 versus 1H 2015 Net loss after tax of $20.9 million (1H 2015: $20.4 million profit) • Mining Area C receipts $18.2 million lower – iron ore price lower and nil capacity payments (1H 2015: $3.0 million capacity payment) – 1H 2015 renegotiation one off pay
Slide 12: Z/R/SR Unit Margin
Z/R/SR Unit Margin 1H 2016 vs 1H 2015 1H 2016 1H 2015 % change Unit Revenue A$/t Z/R/SR 1,015 1,130 (10.2) Unit Cost of Goods Sold A$/t Z/R/SR 717 821 (12.7) Gross Profit A$/t Z/R/SR 298 309 (3.6) Gross Margin % 29 27 • Reduction in unit revenue more than offset by reduction in unit cost of goods so
Slide 13: Mineral Sands Earnings
Mineral Sands Earnings $m 1H 2016 1H 2015 $ change Mineral sands revenue 338.4 349.6 (11.2) Cost of Goods Sold (226.9) (226.5) (0.3) Gross Profit 111.5 123.1 (11.5) Restructure and idle capacity charges (26.8) (27.4) 0.6 Rehabilitation and holding costs for closed sites (1.6) (1.1) (0.5) Government
Slide 14: Strong Cost Performance
Strong Cost Performance Supports continued investment in future projects Production, Revenue per tonne Sold and Unit Cash Costs kt A$/tonne 1,600 1600 1,400 1400 1,200 1200 $1,015/t 1,000 1000 800 $717/t 800 600 600 $402/t 400 400 200 200 - 0 2011 2012 2013 2014 2015 1H 2016 Synthetic rutile Product
Slide 15: Free Cash Flow Movement
Free Cash Flow Movement 1H 2016 v 1H 2015 A$m 60 39 40 1H 2016 free cash outflow $50.6 million 20 0 -20 -40 1 9 19 4 -60 1 ( 51 ) 1 (8) ( 108 ) -80 (8) -100 1H 15 Operating Expl MAC Interest Capex Metalysis Tax Treasury Asset 1H 16 FCF CF shares sales FCF • Reduction in operating cash flow of $108 m
Slide 16: Net Debt Movement
Net Debt Movement 1H 2016 $m 25 1H 2016 free cash outflow $50.6 million 6 18 0 (11) (15) (5) (10) (25) (17) 1 (50) (12) (75) (100) (125) (79) (124) (150) Opening net Operating cash MAC royalty Exploration Interest Tax Capex Purchase of Asset sales 2015 final Closing net debt cash flow Metalysis divi
Slide 17: Balance Sheet
Balance Sheet Net Debt, Gearing and Funding Headroom $m Gearing % 1000 35 Total facilities Net debt (cash) Gearing 800 28 600 21 400 14 200 7 0 0 -200 -7 1H 10 2H 10 1H 11 2H 11 1H 12 2H 12 1H 13 2H 13 1H 14 2H 14 1H 15 2H 15 1H 16 • Modest debt drawdown – net debt (as at 30 June 2016) of $124.1 mil
Slide 18: Inventory
Inventory $m Total Inventory 900 800 700 600 $13.3m 500 400 300 200 100 $43.3m 0 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Work in Progress Finished Goods • Total inventory reduced by $56.6 million to $755.2 million (31 Dec 20
Slide 19: Mining Area C Royalty
Mining Area C Royalty 1H 2016 versus 1H 2015 1H 2016 vs 1H 2015 1H 2016 1H 2015 % change Sales volumes mdmt 25.4 27.5 (7.6) Implied price A$/t 67.3 74.8 (10.2) Net Royalty income $m 21.0 25.6 (17.6) Annual capacity payments1 $m - 3.0 n/a Agreement modification one-off receipt1 $m - 10.4 n/a Iluka EB
Slide 20: Zircon Market
Zircon Market • Zircon sales in line with first half 2015 ‒ 154.5 kt in 1H 2016 (1H 2015: 153.4 kt) ‒ sales typically second half weighted Americas EMEAI China Asia (Europe, Middle East, Africa, India) 108 kt 95 kt 76 kt 49 kt 39 kt 37 kt 30 kt 25 kt 15 kt 10 kt 13 kt 5 kt 1H 2015 2H 2015 1H 2016 1H
Slide 21: Zircon Market
Zircon Market • Overall weighted average zircon price impacted by combination of factors – decline in Q1 prices – higher proportion of standard grade sales (40 per cent 1H 2016: 27 per cent full year 2015) – premium grade sales accounted for 47 per cent (compared with 60 per cent full year 2015) – h
Slide 22: High Grade Feedstock Market
High Grade Feedstock Market • Rutile and synthetic rutile sales 32% higher than 1H 2015 ‒ 161.9 kt in 1H 2016 (1H 2015: 122.5 kt) ‒ Higher SR volumes with full half of kiln operation relative to 1H 2015 (restart March 2015) ‒ Majority of high grade feedstocks contracted in 2016 (price/volume) Americ
Slide 23: High Grade Feedstock Market
High Grade Feedstock Market • Confirmed signs of market recovery in chloride pigment market – pigment end use demand growth – more favourable industry production settings; evidence of pigment price traction – restocking activities (estimate 18 days supply pulled out of supply chain in 2015) – severa
Slide 24: Iluka Investment Portfolio
Iluka Investment Portfolio EXPLORATION RESOURCE TO RESERVE • Innovative mining and processing solutions BROWNFIELDS • Address production, marketability and CATABY PRODUCTION environmental challenges GREENFIELDS ~$20m p.a.1 Ch.Ilm ~380ktpa Capex ~ $250 -$ 275m4 (or SR ~200ktpa) HIGH GRADE ORE PRODUCT
Slide 25: Sierra Rutile Limited Acquisition
Sierra Rutile Limited Acquisition • All cash consideration of £215 million (A$380 million) plus ~A$80 million debt – board of SRL has provided unanimous recommendation – requires simple majority of more than 50 per cent of shares presented and voted at general meeting – institutional shareholder sup
Slide 26: Strategic Rationale and Financial Merit
Strategic Rationale and Financial Merit Strategic Rationale Financial Merit • Major producer of rutile globally • Attractive risk/return profile across range of scenarios • Strong operating history, established customer relationships in an industry Iluka knows well • Expected to be EPS accretive in
Slide 27: Sierra Rutile - Physical & Financial Parameters
1 Sierra Rutile - Physical & Financial Parameters 2016 Iluka Commentary 2014 2015 (SRL Guidance) 2017-2019 Total production costs expected to average ~US$80 – 90m p.a. Production Cash Costs (total)2 Post Sembuhun (~2020), cash costs expected to be 73 77 68-763 (US$m) ~US$115-125m. Refer capex requir
Slide 28: Sierra Rutile - Operational Improvements
Sierra Rutile - Operational Improvements Mining and mine processing • Mine reserve re-optimisation – initial Iluka reserve booking expected to be lower than SRL figures based on Iluka modifying factors – ore grade HM recovery expected to be higher – lower reserves expected to be replaced through res
Slide 29: Mineral Sands Projects - Cataby
Mineral Sands Projects - Cataby • Definitive feasibility study complete, with all regulatory approvals • Pre-execute activities undertaken to further optimise and de-risk project • Conventional mine development with re-use of existing Iluka wet concentrator • Ilmenite sufficient to supply SR2 and/or
Slide 30: Mineral Sands Projects - Balranald
Mineral Sands Projects - Balranald • Balranald - large, deep, high grade rutile-rich deposit, Murray Basin, NSW • Industry significant source of ilmenite and zircon • Definitive feasibility study based on conventional mining method complete – detailed work on mining with truck and shovel and /or con
Slide 31: Metalysis Update
Metalysis Update Iluka Shareholding • Additional investment of ~$20 million (as announced 18 February 2016) • Iluka recognised its share of Metalysis’ losses for the period of $1.4 million since equity accounting commenced from 18 February 2016 • Equity interest (on final payment) will be ~28.6 per
Slide 32: Metalysis Update
Metalysis Update Technology Development • Major powder development contracts progressing to schedule, e.g. – GKN (world’s biggest metal powder producer) – Safran (major producer of aircraft landing gear and aerostructures) – major global automotive manufacturers • SR, pigment based Ti 6/4 and Titani
Slide 33: Outlook - 2H 2016
Outlook - 2H 2016 • Sales expected to be 2H weighted • Free cash flow expected to be 2H weighted • Lower unit cash costs – trend expected to continue • Transition to new CEO • Completion of SRL acquisition – integration activities and focus on early operational improvements • Further progress on Bal
Slide 34: Supplementary Slides
Supplementary Slides
Slide 35: Reconciliation of Non-IFRS Financial Information to Profit (Loss) before Tax
Reconciliation of Non-IFRS Financial Information to Profit (Loss) 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(
Slide 36: Production Volumes
Production Volumes kt 1H 2016 1H 2015 % change Zircon 175.5 163.3 7.5 Rutile 56.7 56.2 0.9 Synthetic rutile 102.2 57.4 78.0 Total Z/R/SR production 334.4 276.9 20.8 Ilmenite 164.1 195.1 (15.9) Total production volume 498.5 472.0 5.6 Heavy mineral concentrate produced 244 632 (61.4) Heavy mineral con
Slide 37: Sales Volumes
Sales Volumes kt 1H 2016 1H 2015 % change Zircon 154.5 153.4 0.7 Rutile 57.4 59.1 (2.9) Synthetic rutile 104.5 63.4 64.8 Total Z/R/SR 316.4 275.9 14.7 Ilmenite 17.7 159.5 (88.9) Total sales volumes 334.1 435.4 (23.3) 37
Slide 38: Mineral Sands Results
Mineral Sands Results $m 1H 2016 1H 2015 % change Mineral sands revenue 338.4 349.6 (3.2) Australia EBITDA 115.1 148.7 (22.6) United States EBITDA (17.1) (6.2) (175.8) Resource development and other EBITDA (54.4) (28.1) (93.6) Total mineral sands EBITDA 43.6 114.4 (61.9) Depreciation and amortisatio
Slide 39: Unit Cash Costs and Revenue per tonne
Unit Cash Costs and Revenue per tonne 1H 2016 1H 2015 % change Total Z/R/SR production kt 334.4 276.9 20.8 Ilmenite kt 164.1 195.1 (15.9) Total production kt 498.5 472.0 5.6 Total cash costs of production $m 140.7 175.5 19.8 Unit cash costs per tonne of Z/R/SR produced1 $/t 402 616 34.7 Cost of good
Slide 40: Cost of Goods Sold
Cost of Goods Sold The analysis below provides a reconciliation of Iluka's 1H 2016 Mineral Sands EBIT based on the following different methodologies: • Method 1 - COGS derived from cash cost of production + D&A +/- inventory movement • Method 2 - COGS derived from unit COGS x sales volumes This anal
Slide 41: Cash Flow and Net Debt
Cash Flow and Net Debt 1H 2016 $m 1H 2016 1H 2015 2H 2015 vs 1H 2015 % change Opening debt 6.0 (59.0) (80.2) n/a Operating cash flow (15.5) 92.1 130.1 n/a MAC royalty 18.3 26.7 37.3 (31.5) Exploration (10.7) (11.5) (16.2) 7.0 Interest (net) (4.9) (5.6) (4.9) 12.5 Tax (10.3) (14.3) (4.2) 28.0 Capital
Slide 42: Capital and Exploration Expenditure (cash)
Capital and Exploration Expenditure (cash) $m 1H 2016 1H 2015 % change Capital expenditure 16.7 35.5 53.0 Metalysis 12.1 4.1 (195.1) Exploration 11.3 11.5 1.7 Total 40.1 51.1 21.5 42
Slide 43: Summary Group Operations
Summary Group Operations 1H 2016 1H 2015 % change Production volumes Zircon kt 175.5 163.3 7.5 Rutile kt 56.7 56.2 0.9 Synthetic rutile kt 102.2 57.4 78.0 Total Z/R/SR production kt 334.4 276.9 20.8 Ilmenite kt 164.1 195.1 (15.9) Heavy mineral concentrate produced kt 244 632 (61.4) Heavy mineral con
Slide 44: Australian Operations
Australian Operations 1H 2016 1H 2015 % change Production volumes Zircon kt 175.5 146.4 19.9 Rutile kt 56.7 56.2 0.9 Synthetic rutile kt 102.2 57.4 78.0 Total Z/R/SR production kt 334.4 260.0 28.6 Ilmenite kt 164.1 128.9 27.3 Total production kt 498.5 388.9 28.2 Heavy mineral concentrate produced kt
Slide 45: US Operations
US Operations 1H 2016 1H 2015 % change Production volumes Zircon kt - 16.9 n/a Ilmenite kt - 66.2 n/a Total production kt - 83.1 n/a Heavy mineral concentrate produced kt - 106 n/a Heavy mineral concentrate processed kt - 113 n/a Unit cash cost of production $/t - 394 n/a Mineral sands revenue $m 9.
Slide 46: Iluka Resources Limited
Iluka Resources Limited For more information contact: Dr Robert Porter, General Manager Investor Relations robert.porter@iluka.com +61 3 9225 5008 / +61 (0) 407 391 829 www.iluka.com 46