Iluka Resources Limited · ASX:ILU
Iluka Resources — H1 2013 Earnings Presentation
40 slides from Iluka Resources's earnings presentation, Aug 21, 2013
Slide 1: 2013 Half Year Results
For personal use only 2013 Half Year Results David Robb, Managing Director Alan Tate, Chief Financial Officer 21 August 2013
Slide 2: Disclaimer – Forward Looking Statements
Disclaimer – Forward Looking Statements For personal use only 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 fu
Slide 3: 2013 Half Year – Key Features
2013 Half Year – Key Features For personal use only • Significant improvement in zircon demand • High grade titanium feedstock market remained unusually subdued • Pigment market recovery pre-conditions emerging • In low cycle period, approach has been consistent with stated intentions: - production
Slide 4: Sustainability
Sustainability For personal use only • Safety performance continued to improve despite major operational changes Frequency Rate 18 16 14 12 10 8 6 4 2 0 May-13 May-11 May-12 Jul-11 Jul-12 Feb-11 Mar-11 Apr-11 Oct-11 Feb-12 Mar-12 Apr-12 Oct-12 Feb-13 Mar-13 Apr-13 Aug-11 Sep-11 Nov-11 Dec-11 Aug-12
Slide 5: Main Features of 1H 2013 versus 1H 2012
Main Features of 1H 2013 versus 1H 2012 For personal use only Mineral Sands Sales Volumes Z/R/SR sales up 4.9% - zircon sales up 141.3% Mineral Sands Revenue 42.4% - higher zircon sales volumes offset by lower rutile and SR volumes and lower prices Cash Costs of Production 35.8% to $201.9 mill
Slide 6: Interim Dividend
Interim Dividend For personal use only • 5 cents final dividend fully franked payable 2 October 2013 Distribution Metrics FCF Adjusted NPAT FCF (1) First half 2013 pay out ratio (%) n/a 29 61 Cumulative dividend payout ratio (2010 – 30 June 2013) (%) 75 75 53 Cumulative retained free cash flow (2010
Slide 7: Dividend History
Dividend History For personal use only Free Cash Flow and Dividends Declared $m $m 600 300 500 250 400 200 300 150 200 100 100 50 0 0 • Retained free cash flow $171m -100 -50 2010 2011 2012 1H2013 Free cash flow Adjusted free cash flow Dividends declared Retained FCF (RHS) • Cumulative free cash flo
Slide 8: Free Cash Flow and Dividends
Free Cash Flow and Dividends For personal use only $m $m 500 500 400 400 300 300 200 200 100 100 0 0 -100 -100 2010 FY H1 11 H2 11 H1 12 H2 12 H1 13 Free cash flow Dividends declared Dividends paid in the period Retained FCF (RHS) 8
Slide 9: Summary Group Results
Summary Group Results For personal use only 1H 2013 $m 1H 2013 2H 2012 1H 2012 vs 2H 2012 % change Mineral sands revenue 381.7 407.0 662.8 (6.2) Mineral sands EBITDA 136.6 245.8 480.2 (44.4) Mining Area C royalty 45.6 30.9 41.8 47.6 Group EBITDA 160.2 243.6 505.5 (34.2) Depreciation and amortisation
Slide 10: Net Profit after Tax
Net Profit after Tax 1H 2013 versus 2H 2012 For personal use only $m EBITDA decreased $84 million to $160 million 100 89 80 60 40 22 34 20 6 8 11 2 7 17 1 (1) 0 15 (5) (20) (108) (30) (40) 2H 2012 Price Volume Mix FX Ilm & Oth Unit Margin Min Sand Restructure MAC Corp D&A Interest Tax 1H 2013 Other
Slide 11: Mining Area C Royalty
Mining Area C Royalty 1H 2013 versus 2H 2012 For personal use only 1H 2013 vs 2H 2012 1H 2013 2H 2012 1H 2012 % change Annual production to 30 June mdmt 51.1 n/a 47.1 n/a Sales volumes mdmt 26.6 23.8 23.6 11.8 Royalty income $m 41.6 30.9 38.8 34.6 Annual capacity payments $m 4.0 n/a 3.0 n/a Iluka EB
Slide 12: Net Debt Movement
Net Debt Movement 1H 2013 For personal use only $m 1H 2013 free cash outflow $45 million 50 36 (10) (7) 92 0 Opening net Operating cash MAC royalty Exploration Interest Tax Capex Asset sales Share Dividends FX Closing net debt flow purchases debt 30 June 31 Dec 2012 2013 (50) (100) (96) (124) 1 (31)
Slide 13: Inventory
Inventory For personal use only $m 900 800 700 600 $20m 500 400 300 200 $58m 100 0 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Work in Progress Finished Goods • Z/R/SR inventory drawn down $20.2m due to zircon sales above production • Other inventory* increased by $58.4
Slide 14: Balance Sheet Strength
Balance Sheet Strength For personal use only $m Gearing % 1000 35 800 28 600 21 400 14 200 7 0 0 -200 -7 1H 09 2H 09 1H 10 2H 10 1H 11 2H 11 1H 12 2H 12 1H 13 Net debt (cash) Gearing Total facilities • Modest gearing • >$600 m of undrawn facilities (maturity April 2017) and cash at 30 June 2013 14
Slide 15: Zircon Market Conditions
Zircon Market Conditions For personal use only • Significant demand recovery in 1H – although not uniform across markets • Improved confidence, price stabilisation, some restocking • Reversal of some substitution and thrifting activity • Iluka 2013 production target increased • Caution warranted re
Slide 16: High Grade Titanium Dioxide Market Conditions
High Grade Titanium Dioxide Market Conditions For personal use only • Unusually subdued 1H high grade demand influenced by: – pigment inventory drawdown targets – historically low pigment plant yields – residual availability of lower priced legacy contract material • Softening of high grade prices (
Slide 17: Growth
Growth For personal use only • Marketing – Wave 2 Jacinth-Ambrosia mine • Exploration paths • Innovation and Technology • Major Projects • Counter cyclical investment and options 17
Slide 18: Marketing – Wave
Marketing – Wave 2 For personal use only • Expansion of local presence - New offices – Middle East and SE Asia • Improved servicing of China market with new regional offices and distribution • Strengthened in-country market/industry analysis • Ease and cost of doing business – 24/7 operation • Enhan
Slide 19: Exploration
Exploration For personal use only • Focus evolution towards greenfields exploration (> 80% expenditure in 2013) • New search spaces in Australia - including tenement farm-ins • Non mineral sands evaluation on existing tenements • Increasing international focus – early reconnaissance, tenement acquis
Slide 20: Sri Lanka
Sri Lanka For personal use only • 4 exploration tenements granted • Agreement to acquire additional tenements – US$5m upfront – additional payments if mined • Discovered by RGC and CRL in 1990s • Largest HM resource in Iluka’s inventory • 46% increase to 2012 Mineral Resources • Resource upgrade pot
Slide 21: Sri Lanka
Sri Lanka For personal use only Subject to feasibility studies and required approvals: • Large, long life and predominantly sulphate ilmenite deposits • Good grade, at surface low cost mining anticipated • Associated zircon and high grade TiO2 • Augments current chloride titanium dioxide resource ba
Slide 22: Innovation and Technology
Innovation and Technology For personal use only • Dedicated resources, well funded activity • Disciplined approach but exciting opportunities • Internal programs plus association with industry and research organisations • Focused approach in areas of: – operational enhancements, including innovative
Slide 23: Major Projects
Major Projects For personal use only • Investing for the future: – Cataby, Western Australia – proceeding to DFS (approved) – Balranald, Murray Basin – proceeding to DFS (approved) – Eucla Basin satellite deposits (Sonoran, Typhoon, Atacama) - PFS scheduled for completion 2014 – Hickory, Virginia –
Slide 24: Mineral Sands Cycle Characteristics
Mineral Sands Cycle Characteristics For personal use only “High” cycle point • Ore bodies high-graded • Above trend GDP growth • Assets fully utilised • Strong end use demand • Prices peak • Scarcity fears • Zombie projects return “Mid” cycle • “Normal” mining & processing • Trend GDP growth • Some
Slide 25: Iluka Approach
Iluka Approach For personal use only • 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 strong balance sheet • Continue to evaluate/pursue
Slide 26: Supplementary Slides
For personal use only Supplementary Slides 26
Slide 27: Reconciliation of Non-IFRS Financial Information to Profit before Tax
Reconciliation of Non-IFRS Financial Information to Profit before Tax For personal use only 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
Slide 28: Cash Flow and Net Debt
Cash Flow and Net Debt For personal use only 1H 2013 $m 1H 2013 1H 2012 2H 2012 vs 1H 2012 % change Opening net (debt) cash (95.9) 156.7 (117.2) (161.2) Operating cash flow 92.4 207.2 161.5 (55.4) MAC royalty 36.1 36.8 39.3 (1.9) Exploration (9.8) (14.9) (19.5) 34.2 Interest (net) (6.6) 4.2 (4.9) (2
Slide 29: Production Volumes
Production Volumes For personal use only kt 1H 2013 1H 2012 % change Zircon 118.5 209.0 (43.3) Rutile 60.6 103.6 (41.5) Synthetic rutile 59.0 131.2 (55.0) Total Z/R/SR production 238.1 443.8 (46.3) Ilmenite – saleable and upgradeable 333.9 362.9 (8.0) Total production volume 572.0 806.7 (29.1) HMC p
Slide 30: Sales Volumes
Sales Volumes For personal use only kt 1H 2013 1H 2012 % change Zircon 210.9 87.4 141.3 Rutile 56.3 85.4 (34.1) Synthetic rutile 20.0 101.1 (80.2) Total Z/R/SR 287.2 273.9 4.9 Ilmenite – saleable 147.0 218.9 (32.8) Total sales volumes 434.2 492.8 (11.9) 30
Slide 31: Mineral Sands Results
Mineral Sands Results For personal use only $m 1H 2013 1H 2012 % change Mineral sands revenue 381.7 662.8 (42.4) Australia EBITDA 146.1 469.9 (68.9) United States EBITDA 15.1 30.4 (50.3) Exploration and other EBITDA (24.6) (20.1) (22.4) Total mineral sands EBITDA 136.6 480.2 (71.6) Depreciation and
Slide 32: Unit Cash Costs and Revenue/tonne
Unit Cash Costs and Revenue/tonne For personal use only 1H 2013 1H 2012 % change Total Z/R/SR production kt 238.1 443.8 (46.3) Ilmenite – saleable and upgradeable kt 333.9 362.9 (8.0) Total production kt 572.0 806.7 (29.1) Total cash costs of production $m 201.9 314.7 35.8 Unit cash costs per tonne
Slide 33: Summary Group Results
Summary Group Results For personal use only 1H 2013 $m 1H 2013 2H 2012 1H 2012 vs 1H 2012 % change Mineral sands revenue 381.7 407.0 662.8 (42.4) Mineral sands EBITDA 136.6 245.8 480.2 (71.6) Mining Area C royalty 45.6 30.9 41.8 9.1 Group EBITDA 160.2 243.6 505.5 (68.3) Depreciation and amortisation
Slide 34: Mining Area C Royalty H 2013 versus H 2012
Mining Area C Royalty 1 H 2013 versus 1 H 2012 For personal use only 1H 2013 1H 2012 % change Annual production 30 June mdmt 51.1 47.1 8.5 Sales volumes mdmt 26.6 23.6 12.9 Royalty income $m 41.6 38.8 7.2 Capacity payments $m 4.0 3.0 33.3 Iluka EBIT $m 45.4 41.6 9.1 (mdmt = million dry metric tonnes
Slide 35: Net Profit after Tax
Net Profit after Tax For personal use only $m EBITDA decreased $345 million to $160 million 300 274 200 100 101 34 4 0 (272) (8) (12) 2 (4) (19) 4 6 (35) (4) (3) (100) 1H 2012 Price Volume Mix FX Ilm & Oth Unit Margin Min Sand Restructure MAC Corp D&A Interest Tax 1H 2013 Other & Idle 35
Slide 36: Inventory Movement – 1H 2013
Inventory Movement – 1H 2013 For personal use only kt 350 300 250 200 150 100 50 - Zircon Rutile/SR Z/R/SR Production Sales • Z/R/SR inventory drawn down $20.2m due to zircon sales above production • Other inventory* increased by $58.4m • Net inventory increase for 1H 2013 of $38.2m * Heavy mineral
Slide 37: Capital and Exploration Expenditure (cash)
Capital and Exploration Expenditure (cash) For personal use only $m 1H 2013 1H 2012 % change Capital expenditure 31.5 122.5 74.3 Exploration 9.8 14.9 34.2 Total 41.3 137.4 69.9 37
Slide 38: Australian Operations
Australian Operations For personal use only 1H 2013 1H 2012 % change Production volumes Zircon kt 100.2 181.4 (44.8) Rutile kt 60.6 103.6 (41.5) Synthetic rutile kt 59.0 131.2 (55.0) Total production – zircon/rutile/SR kt 219.8 416.2 (47.2) Ilmenite – saleable and upgradeable kt 241.3 255.6 (5.6) HM
Slide 39: US Operations
US Operations For personal use only 1H 2013 1H 2012 % change Production volumes Zircon kt 18.3 27.6 (33.7) Ilmenite kt 92.6 107.3 (13.7) Total saleable production kt 110.9 134.9 (17.8) HMC produced kt 163.7 156.1 4.9 Unit cash cost of production – saleable $/t 297 195 (52.2) Mineral sands revenue $m
Slide 40: Iluka Resources Limited
For personal use only 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 40