Iluka Resources Limited · ASX:ILU
Iluka Resources — FY2008 Earnings Presentation
53 slides from Iluka Resources's earnings presentation, Feb 19, 2009
Slide 1: 2008 Full Year Results
For personal use only 2008 Full Year Results Iluka Resources Limited David Robb Managing Director Alan Tate Chief Financial Officer Victor Hugo General Manager, Sales & Marketing 19 February 2009
Slide 2: Disclaimer – Forward Looking Statements
For personal use only Disclaimer – Forward Looking Statements This presentation contains forward-looking statements that are subject to risk factors associated with exploring for, developing, mining, processing and sale of minerals. Forward-looking statements include those containing such words as a
Slide 3: David Robb
For personal use only David Robb 3
Slide 4: Positioned to Deliver
Positioned to Deliver For personal use only • “Transition” over • Mineral sands performance improving • Strong balance sheet ¾ main debt maturity > 4 years ¾ peak debt in 09 expected to be serviced comfortably ¾ capital management options emerging • Projects on track – time and budget • Favorable me
Slide 5: 2008 Highlights
2008 Highlights For personal use only • NPAT of $61.7 million (ex significant items) • Reported NPAT of $77.5 million (inc significant Items) ¾ asset revaluations - $5.5 million net ¾ tax benefit - $10.3 million • Strong 2nd half mineral sands EBITDA of $166.3 million ¾ + 197% versus 1H08 ¾ + 58% ve
Slide 6: Financial Results
For personal use only Financial Results Alan Tate 6
Slide 7: Main Features of Full Year Results
Main Features of Full Year Results For personal use only Comparison with 2007 Mineral Sands Sales Volumes × 1.1% - strong demand, inventory draw down, lower production volumes USD Product Pricing × Higher TiO2, marginally lower full year average zircon prices Currency Ø Higher average USD spot rate
Slide 8: Group Results
For personal use only Group Results $m 2007 2008 % change Revenue (pre hedging) 863.9 1,018.1 17.8 Mineral Sands EBITDA 230.6 222.3 (3.6) Depreciation and Amortisation (144.5) (161.3) (11.6) Mineral Sands EBIT (pre Significant Items) 86.1 61.0 (29.1) Net Interest and Financing Costs (58.7) (35.7) 39
Slide 9: Net Profit After Tax 2008 vs 2007
Net Profit After Tax For personal use only 2008 vs 2007 A$M 120 89.0 100 (5.3) (11.5) 15.8 77.5 80 14.9 19.1 61.7 60 51.1 11.9 40 25.8 20.0 20 (42.9) (93.2) (17.2) 0 NPAT 07 Price Hedge Vol & Mix Cash D&A Inventory MAC Other Tax & int Exchange Narama Before Signif NPAT 08 Cost Signif 9
Slide 10: Mineral Sands Results
Mineral Sands Results For personal use only Before Significant Items $m 2007 2008 % change Revenue (pre hedging) 863.9 1,018.1 17.8 EBITDA Western Australia 134.4 103.8 (22.8) Murray Basin 36.6 64.3 75.7 Virginia 26.7 32.5 21.7 Florida/Georgia 5.4 2.7 (50.0) CRL 37.7 35.9 (4.8) Non Operating Regions
Slide 11: Cash Costs of Final Products Produced
For personal use only Cash Costs of Final Products Produced 2007 2008 % change Z/R/SR1 Production tonnes 1,256,461 1,119,190 (10.9) Saleable Ilmenite tonnes 836,009 788,241 (5.7) Final Product Produced 2,092,470 1,907,431 (8.8) Total Cash Cost ($m) 650.3 656.0 0.9 Cash Cost / Tonne of Final Product2
Slide 12: Mining Area C Royalty
For personal use only Mining Area C Royalty 2007 2008 % change Annual Production to 30 June 2008 MDMT 23.9 29.3 22.6 Sales volume MDMT 23.2 36.8 58.6 Royalty Income $m 17.9 50.8 183.8 Capacity Payments $m 2.0 6.0 200.0 Iluka EBIT A$m 19.5 56.4 189.2 Note: D&A for Mining Area C pproximately $0.4m per
Slide 13: Non Current Assets Year End Valuation Changes
Non Current Assets For personal use only Year End Valuation Changes Carrying Value $m South West Mid West Murray Basin Total Before Adjustments 231.9 252.8 596.1 1,080.8 Reversal of 2006 impairment charge 45.6 - - 45.6 Reversal of 2005 Impairment of processing assets - 9.5 - 9.5 Write off of fair va
Slide 14: 2008 Cash Flow and Net Debt
For personal use only 2008 Cash Flow and Net Debt $m 2007 2008 % change Opening Net Debt (596.5) (598.1) (0.3) Operating Cash Flow 163.2 223.0 36.6 MAC, Coal Compensation and Other 34.4 52.8 53.5 Exploration (18.5) (20.9) (13.0) Net Interest (43.9) (25.9) 41.0 Tax (39.7) 4.1 N/A Payments for Propert
Slide 15: Debt Profile & Balance Sheet Capacity
For personal use only Debt Profile & Balance Sheet Capacity $A m % 800 70 700 60 598 600 50 500 350-450 44.3 40 400 30 300 <30 216 20 200 17.4 100 10 0 0 2007 2008 2009f 2010f 2011f 2012f Net Debt Total Debt Facilities Gearing Notes: net debt / net debt + equity Illustrative example only, subject to
Slide 16: Mineral Sands Market
For personal use only Mineral Sands Market Victor Hugo 16
Slide 17: 2009 Sales & Pricing Outlook
2009 Sales & Pricing Outlook For personal use only as at 18 Feb 2009 Average Broker TZMI 2008 Pricing 2009 Forecast Iluka Prices Contracted US$/t US$/t Relative to Broker Average Zircon 750 850 Higher Rutile 500 525 Higher Synthetic Rutile 425 452 Higher Notes: Data relates to contracted volumes to
Slide 18: Positive Market Dynamics
Positive Market Dynamics For personal use only • Long term demand growth linked to global GDP • Overlain by growth from BRIC economies • China is largest consumer of zircon ~32% of global market • China will be largest consumer of TiO2 within a decade • New supply constrained by funding constraints,
Slide 19: Iluka's Market Focus
Iluka’s Market Focus For personal use only • Supply decisions which protect margins and returns • Focus on high grade TiO2 feedstocks • Establishment of China office in 2008 • Zircon sales in China increased by almost 100% in 2008 • Rebalanced sales weighting by region • Broadened delivery logistics
Slide 20: TiO2 Market Conditions
TiO2 Market Conditions For personal use only • Demand for Iluka products held up through December 2008 • Slow down in end use demand (construction, automotive) in 4Q08 • Softening of TiO2 demand for pigment across all markets • Pigment and Ti-metal plant slowdowns but minimal closures • Where availa
Slide 21: Zircon Market Conditions
For personal use only Zircon Market Conditions • 2008 global zircon production lower than demand • 2009 production expected to be lower than 2008 • Historically, the biggest one year falls in zircon demand have been: ¾ 100,000 tonnes in 1990 (mass substitution in refractories) ¾ 50,000 tonnes in 199
Slide 22: Iluka's Current Position
Iluka’s Current Position For personal use only • Uncertainty everywhere, but..… ¾ starting year with low inventory levels for rutile, SR and zircon ¾ geographically advantaged to compete in Asian growth markets • TiO2 customers adjusting to lower near term demand but….. ¾ over 70% of rutile and SR c
Slide 23: David Robb
For personal use only David Robb 23
Slide 24: Iluka's Transition Years Complete
For personal use only Iluka’s Transition Years Complete • Strengthened business planning & evaluation capabilities ¾ Integrated 5 year regional and group plans ¾ Improved analytical and risk management capabilities ¾ Price forecasting, supply/demand & industry competitiveness studies ¾ Return on cap
Slide 25: Iluka's Transition Years Complete
For personal use only Iluka’s Transition Years Complete • Capital expenditure ¾ Capex cuts in 2007 budget (~$100 m) ¾ Lower capex actual vs estimates – 07 & 08 ¾ Group approach to asset utilisation – e.g. J-A/Narngulu integration ¾ Capital efficient project execution – e.g. reuse of US concentrator
Slide 26: Iluka's Transition Years Complete
For personal use only Iluka’s Transition Years Complete • Leadership role ¾ Capital efficient development of pivotal new supply sources ¾ Strong RZ sales growth targeted ¾ J-A and MB production replacing increasingly challenged WA production ¾ Preparedness to attempt to balance supply and demand: ¾
Slide 27: Murray Basin Stage 2 Project Update
Murray Basin Stage 2 For personal use only Project Update • Development on schedule to achieve 1st production in 2Q09 • All major regulatory approvals received • Site works commenced in December 2008 • Overburden removal commenced in January • Mining Unit Plant testing underway, transportation to si
Slide 28: Jacinth-Ambrosia Project Update
Jacinth-Ambrosia For personal use only Project Update • Major regulatory approvals received to commence site and civil work • Operations MARP for mining and processing expected Q2 2009 • Most key contracts awarded • Construction of pipeline from bore field 60% completed • Airstrip operating • Test p
Slide 29: Shareholder Value Delivery
Shareholder Value Delivery Emerging Characteristics For personal use only • Both new projects operating within 18 months • Higher margin [revenue:cash cost (R:CC)] operations • Significantly lower group capital appetite post 2009 ¾ residual Jacinth Ambrosia (“J-A”) spend in 2010 ¾ sustaining capex e
Slide 30: Production by Geography
Production by Geography For personal use only Total Z/R/SR Production Volumes 2008 2011 - 2013f WA – Synthetic Rutile WA – Zircon & Rutile USA & CRL Murray Basin Jacinth-Ambrosia 1.1 million tonnes ~1.3 million tonnes Production estimates for 2011 – 2013 only. Actual production will be dependent on
Slide 31: Production by Product
Production by Product For personal use only Z/R/SR Production Volumes 2008 2011 - 2013f Zircon Rutile Synthetic Rutile Historically, zircon prices have averaged 1.2 times rutile prices 6 times chloride ilmenite prices 1.1 million tonnes ~1.3 million tonnes Production estimates for 2011 – 2013 only.
Slide 32: Margin Improvement - Revenue:Cash Cost
Margin Improvement - Revenue:Cash Cost For personal use only Iluka Group Revenue to Cash Cost Ratio ~40% increase in R:CC 100% 2008 2009f 2010f 2011 - 2013f Note: Assumes constant product prices and constant A$/US$. Reflects margin improvement as production shifts to MB and J-A 32
Slide 33: 2009 Priorities
For personal use only 2009 Priorities • Navigating global economic crisis • Maintaining flexibility – e.g. J-A start up profile options • Marketing outcomes – sales volume and timing, prices • Project delivery – MB2 commissioning 2Q, J-A remaining on track • Unit cash costs of production • Industry
Slide 34: Supplementary Slides
For personal use only Supplementary Slides 34
Slide 35: Zircon Production Share 2008
For personal use only Zircon Production Share 2008 Iluka (1) 34% Exxaro (2) 15% Rio Tinto (3) 9% BHP Billiton 9% Bemax 4% DuPont 3% Tiwest JV 2% Other 24% Source: Iluka supply estimates (1) Includes 100% of CRL output which Iluka markets on CRL’s behalf (2) Exxaro has a 50% interest in the Tiwest JV
Slide 36: Iluka's Zircon Sales Destinations
For personal use only Iluka’s Zircon Sales Destinations 2008 2007 2006 China 34% 25% 16% Europe 32% 33% 47% Asia 16% 19% 14% N. America 15% 21% 20% Australia 2% 2% 3% Other 1% 0% 0% 2008 Source: Iluka 36
Slide 37: Titanium Dioxide Production Share
Titanium Dioxide Production Share For personal use only 2008 TiO2 equivalent units Rio Tinto (1) 22% Iluka (2) 18% BHP Billiton 7% Exxaro (3) 6% Bemax 4% Tinfos 3% DuPont 2% Tiwest JV 1% Other 37% Source: Iluka supply estimate (1) QIT plus 50% of the output from RBM (2) Includes 100% of CRL output w
Slide 38: 2008 Group Results
For personal use only 2008 Group Results $m 2007 2008 % change Revenue (pre hedging) 863.9 1,018.1 17.8 EBITDA Mineral Sands 230.6 222.3 (3.6) Hedging 34.0 (29.6) N/A Mining Area C 19.5 56.4 189.2 Other Earnings 3.6 13.7 280.6 Corporate, Other and debtor revaluation (19.5) (25.7) (31.8) Total EBITDA
Slide 39: Capital and Exploration Expenditure
For personal use only Capital and Exploration Expenditure A$m 2007 2008 % change Capital Expenditure Major Projects 1 25.5 193.7 659.6 Sustaining & Other 86.1 58.9 (31.6) Total 111.6 252.6 126.3 Exploration 18.5 20.8 12.4 Total 130.1 273.4 110.1 1 Murray Basin Stage 2; Jacinth-Ambrosia; Brink • 2009
Slide 40: Capital Expenditure (Cash)
For personal use only Capital Expenditure (Cash) $m 2007 2008 % change Western Australia 67.2 38.1 (43.3) Murray Basin 17.6 21.9 24.4 Virginia 6.1 16.3 167.2 CRL 7.0 6.8 (2.9) Murray Basin Stage 2 7.4 56.2 659.5 Eucla Basin (Jacinth-Ambrosia) 9.3 56.5 507.5 Other 3.6 2.6 (27.8) Total 118.2 198.4 67.
Slide 41: Exploration Expenditure
For personal use only Exploration Expenditure $m 2007 2008 % change Gross Expenditure Western Australia 5.5 4.7 (14.5) Murray Basin 3.8 4.6 21.1 Eucla Basin 3.9 6.0 53.8 United States 2.4 0.0 N/A Other 2.8 5.5 96.4 Total Gross Expenditure 18.5 20.8 12.4 Exploration Expenditure Written Off or Capital
Slide 42: 2008 Production
For personal use only 2008 Production ('000 tonnes) 2007 2008 % change Zircon 513.8 437.8 (14.8) Rutile 216.1 214.1 (0.9) Synthetic Rutile 526.6 467.2 (11.3) Leucoxene/Hyti 25.6 16.9 (34.0) Ilmenite 1,634.2 1,429.3 (12.5) 42
Slide 43: Western Australian – Financials
For personal use only Western Australian – Financials 2007 2008 % change Sales Revenue (pre-hedging) $m 548.7 587.3 7.0 Other revenue $m 10.6 3.2 (69.8) Total Cash Production Costs $m (436.9) (411.5) 6.2 Depreciation & Amortisation $m (91.3) (103.3) (13.1) Inventory Movements $m 40.3 (45.5) N/A Cost
Slide 44: Western Australia - Key Operational Parameters
Western Australia - Key Operational For personal use only Parameters 2007 2008 % change Production (kt) Zircon 244.5 188.0 (23.1) Rutile 77.2 73.8 (4.4) Synthetic Rutile 526.6 467.2 (11.3) Ilmenite 1,234.2 988.1 (19.9) Cash Production Costs $m 436.9 411.5 6.2 Cash Production Cost Breakdown 2008 Area
Slide 45: Murray Basin – Financials
For personal use only Murray Basin – Financials 2007 2008 % change Sales Revenue $m 87.1 199.9 129.5 Total Cash Production Costs $m (65.3) (89.9) (37.6) Depreciation & Amortisation $m (25.3) (28.3) (11.8) Inventory Movements $m 19.4 (35.4) N/A Cost of Goods Sold $m (45.9) (125.3) (172.9) 1 Other Cos
Slide 46: Murray Basin - Key Operational Parameters
For personal use only Murray Basin - Key Operational Parameters 2007 2008 % change Production (kt) Zircon 128.3 112.7 (12.2) Rutile 59.3 66.3 11.8 Cash Production Costs $m (65.3) (89.9) (37.6) Cash Production Cost Breakdown 2008 Area % of Total Cash Costs Mining 30 Concentrating 34 Separation 29 Ove
Slide 47: Murray Basin Stage 2 Physical Resource Differentials
Murray Basin Stage 2 For personal use only Physical Resource Differentials HM Grade % Zircon % Rutile % Mining to date 2006 Douglas 16.2 25.8 6.9 1H 2007 Douglas 18.0 16.0 7.8 2H 2007 Douglas 16.2 15.0 8.1 1H 2008 13.2 10.0 8.1 2H 2008 15.0 13.4 9.4 Planned mining 2009 Douglas 16.9 12.5 7.9 2009 Kul
Slide 48: Virginia – Financials
For personal use only Virginia – Financials 2007 2008 % change Sales Revenue $m 94.9 95.4 0.5 Total Cash Production Costs $m (59.0) (65.9) (11.7) Depreciation & Amortisation $m (13.1) (13.3) (1.5) Inventory Movements $m (6.1) 4.2 N/A 1 Cost of Goods Sold $m (65.1) (61.7) (5.2) 2 Other Costs $m (3.1)
Slide 49: Virginia - Key Operational Parameters
For personal use only Virginia - Key Operational Parameters 2007 2008 % change Production (kt) Zircon 63.5 70.7 11.3 Ilmenite 225.5 239.1 6.0 Cash Production Costs $m (59.0) (65.9) (11.7) Cash Production Cost Breakdown 2008 Area % of Total Cash Costs Mining 34 Concentrating 25 Separation 30 Overhead
Slide 50: CRL – Financials
For personal use only CRL – Financials 2007 2008 % change Sales revenue (pre hedging) $m 117.2 123.3 5.2 Total Cash Production Costs $m (78.7) (79.5) (1.0) Depreciation & Amortisation $m (14.6) (16.1) (10.3) Inventory Movements $m 4.9 (2.1) N/A 1 Cost of Goods Sold $m (73.8) (81.6) (10.6) 2 Other Co
Slide 51: CRL - Key Operational Parameters
For personal use only CRL - Key Operational Parameters 2007 2008 % change Production (kt) Zircon 60.6 52.6 (13.2) Rutile 79.5 74.0 (6.9) Ilmenite 174.4 202.5 16.1 Cash Production Costs $m (78.7) (79.5) (1.0) Cash Production Cost Breakdown 2008 Area % of Total Cash Costs Mining & Concentrating 59 Sep
Slide 52: Currency Hedging Arrangements Inclusive of CRL
For personal use only Currency Hedging Arrangements Inclusive of CRL Face Value Average Average Period Instrument Type US$m Cap2 Floor Rate January – December 2009 Collar options1 176.0 0.8500 0.8072 - Forward FX 236.3 - - 0.8403 Contracts2 January – December 2010 Forward FX Contracts 178.9 - - 0.83
Slide 53: 2008 Full Year Results
For personal use only 2008 Full Year Results Iluka Resources Limited For further information, visit Iluka’s website www.iluka.com