Iluka Resources Limited · ASX:ILU
Iluka Resources — H1 2014 Earnings Presentation
48 slides from Iluka Resources's earnings presentation, Aug 22, 2014
Slide 1: Iluka Resources Limited 2014 Half Year Results
Iluka Resources Limited 2014 Half Year Results 2014 Half Year Results David Robb, Managing Director David Robb,Chief Alan Tate, Managing Director Financial Officer Alan Tate, Chief Financial Officer 22 August 2014 22 August 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: Iluka Approach
Iluka Approach • Focus on shareholder returns through the cycle • Flex asset operation in line with market demand • Continue market development through the cycle • Maintain strong balance sheet • Preserve/advance mineral sands growth opportunities • Continue to evaluate/pursue corporate growth oppor
Slide 4: Iluka Executive Team
Iluka Executive Team DAVID ROBB Managing Director STEVE WICKHAM MATTHEW BLACKWELL DOUG WARDEN ALAN TATE CHRIS COBB CAMERON WILSON Chief Operating Head of Marketing, Head of Resource Chief Financial Officer Head of Alliances, and Head of Strategy Chief Legal Counsel Officer, Mineral Sands Development
Slide 5: Structure
Structure Business Market Performance Conditions 1H Financials Industry Context and Industry Dynamics Iluka’s Supplementary Focus Slides 5
Slide 6: Business Performance 1H Financials
Business Performance 1H Financials 6
Slide 7: 2014 Half Year – Key Features
2014 Half Year – Key Features • Flexibility, unit costs, capex, FCF, balance sheet, sustainability • Earnings reflect low product pricing • Free cash flow $63.9 million • 6 cents dividend per share fully franked • Net debt / net debt + equity (gearing ratio) reduced to 9.2% • Cash costs of productio
Slide 8: Main Features of 1H 2014 versus 1H 2013
Main Features of 1H 2014 versus 1H 2013 Mineral Sands Sales Volumes Z/R/SR sales down 3.5% , higher rutile and SR sales offset by lower zircon sales Mineral Sands Revenue 10.1% - lower sales volumes and lower prices Cash Costs of Production 0.6% to $200.7 million - reduction in total cash cost
Slide 9: Sustainability
Sustainability Lost Time Injury Frequency Rate (LTIFR) Total Recordable Injury Frequency Rate (TRIFR) 16.0 15.1 • Safety performance 14.0 improvement 12.0 10.5 maintained 10.0 • Strong safety culture, Frequency Rate 8.0 despite business 4.6 reconfiguration 6.0 4.5 4.0 3.1 1.9 2.0 0.6 0.3 0.0 2011 20
Slide 10: Interim Dividend
Interim Dividend • 6 cents interim dividend fully franked payable 3 October 2014 • Equals 40% of 1H free cash flow • Cumulative 72% free cash flow pay out ratio since end 2010 Capital Management Distribution Metrics FCF NPAT First half 2014 pay out ratio (%) 40 214 Cumulative dividend payout ratio (
Slide 11: Summary Group Results
Summary Group Results 1H 2014 $m 1H 2014 2H 2013 1H 2013 vs 1H 2013 % change Mineral sands revenue 343.2 381.4 381.7 (10.1) Mineral sands EBITDA 107.9 112.4 136.6 (21.0) Mining Area C royalty 38.0 42.7 45.4 (16.3) Group EBITDA 125.6 135.0 160.2 (21.6) Group EBITDA margin % 32.9 31.8 37.5 (12.2) Depr
Slide 12: Mining Area C Royalty
Mining Area C Royalty 1H 2014 versus 1H 2013 1H 2014 vs 1H 2013 1H 2014 1H 2013 % change Sales volumes mdmt 25.9 26.6 (2.6) Implied price A$/t 114.3 125.1 (8.6) Net Royalty income $m 37.0 41.4 (11.1) Annual capacity payments $m 1.0 4.0 (75) Iluka EBIT $m 38.0 45.4 (16.3) (mdmt = million dry metric t
Slide 13: Net Profit after Tax
Net Profit after Tax 1H 2014 versus 1H 2013 EBITDA decreased $34 million to $126 million $m 40 Group EBITDA margin 33% 34 30 20 7 12 24 10 5 (2) 11 0 (7) (10) 34 (14) (20) (30) (62) (2) (40) (16) (50) 30 June 2013 Price Volume Mix FX Ilmenite Unit costs Restructure Min Sand MAC D&A Tax 30 June 2014
Slide 14: Net Debt Movement
Net Debt Movement 1H 2014 1H 2014 free cash inflow $64 million FX and $m Opening net Purchase of amortised Closing net debt Operating Metalysis Other share borrowing debt 30 June 31 Dec 2013 cash flow MAC royalty Exploration Interest Tax Capex shares purchases Dividends costs 2014 0 (40) 41 (9) (7)
Slide 15: Balance Sheet
Balance Sheet A$m Gearing % 1000 35 800 28 600 21 400 14 200 7 0 0 1H 09 2H 09 1H 10 2H 10 1H 11 2H 11 1H 12 2H 12 1H 13 2H 13 1H 14 -200 -7 Total facilities Net debt (cash) Gearing • Gearing of 9.2% (30 June 2014) • Available debt facilities increased by $50 million in the half • Total facilities A
Slide 16: Market Conditions
ILUKA Business = : sf Market Performance 1H Financials Conditions Industry Context and Industry Dynamics Supplementary Slides 16
Slide 17: Market Conditions – Zircon
Market Conditions – Zircon 2013 Market Characteristics 1H 2014 Demand • Cyclical low • Variable demand: • Demand variable across countries and end – countries and end segments continued segments – Nth America and China most robust • Impact of substitution, modernisation and thrifting – Europe demand
Slide 18: China Zircon Imports
China Zircon Imports • Year-to-date China zircon imports in line with previous years. 18
Slide 19: Lead Indicators – China Housing
Lead Indicators – China Housing • Floor space completions up year-on-year (although down on the previous month) • Completions, and more importantly sales data, are lead indicators for tile and zircon demand (fit out normally occurs with sale and occupancy) YoY Change Monthly Floor Space Completed sq
Slide 20: Lead Indicators – China Production
• • 10 15 20 25 -25 -20 -15 -10 0 5 -5 Index Jan-07 Apr-07 -20% -10% 0% 10% 20% 30% 40% 50% Jul-07 Jan-07 (%) Oct-07 Apr-07 Jul-07 Jan-08 Annual Growth Oct-07 Apr-08 Jan-08 Jul-08 Apr-08 Oct-08 Jul-08 Jan-09 Oct-08 Jan-09 Apr-09 Apr-09 Jul-09 Jul-09 Oct-09 Series1 Oct-09 Jan-10 Jan-10 Apr-10 Apr-10
Slide 21: Lead Indicators – USA
• • 95 100 105 Index Jan-07 May… Sep-… Jan-08 May… Sep-… Jan-09 May… Sep-… Jan-10 May… Sep-… 40 60 80 20 0 100 120 Jan-07 Jan-11 Index Apr-07 May… Jul-07 Oct-07 Sep-… Jan-08 US OECD Leading Indicator * Jan-12 Apr-08 Jul-08 May… Oct-08 Sep-… Lead Indicators - USA Jan-09 Jan-13 Apr-09 Jul-09 May… Oct-
Slide 22: Market Conditions – Titanium Dioxide
Market Conditions – Titanium Dioxide 2013 Market Characteristics 1H 2014 Demand • Demand below historic trend • Demand recovering, particularly high grade feedstocks – pigment production the main end demand for • Favourable Nth hemisphere paint demand high grade ores • Recent Western pigment produce
Slide 23: Lead Indicators – USA Housing
Lead Indicators – USA Housing • US property indicators remain positive y-o-y, supporting the sector’s cyclical upturn • July data: housing starts increased by 15.7% in July while permits issued rose ~8% (indicating strong starts in coming months) YoY Change (%) YoY change US New Homes Started Season
Slide 24: Industry Context and Industry Dynamics
Industry Context and Industry Dynamics 24
Slide 25: Industry Context and Dynamics
Industry Context and Dynamics Higher prices VHM Grade / Medium to longer Maturing ore Rise of China – required to Assemblage term supply bodies / fresh sulphate and incentivise decline challenge capital required chloride pigment supply? • Global decline in • Limited known high • Major players • Natu
Slide 26: Industry is Changing
Industry is Changing • Pigment – ownership, geography, technology shifts – China factor • Feedstock – quality diminishing, pipeline emptying, risk increasing – supply cost and availability challenge • Zircon – assemblage decline, tile manufacturing transformations – intensity of use additive to dema
Slide 27: Industry Grade and Assemblage Challenges
Industry Grade and Assemblage Challenges Mineral assemblage in resources RZ Assemblage HM Grade 5.0% 15% Trash 13% Sulphate Ilmenite Chloride Ilmenite 4.0% 12% Rutile (and other high grade TiO ) 2 Zircon Combined RZ in HM (RHS) 3.0% 9% 9% 6% • Trash component in Heavy Mineral grade increasing 2.0% 6
Slide 28: Iluka's Focus
ILUKA Business id Market Performance : ; 1H Financials Conditions Industry Context and Industry Dynamics lluka’s if Supplementary Focus = Slides 28
Slide 29: Areas of Focus
Areas of Focus NEW RESOURCES AND RESOURCE TO RESERVE CONVERSION Exploration Innovation and Technology Market Development • Internal expertise • Production efficiencies / recoveries / • Market representation product quality • Consistent expenditure ~ $20m p.a. • Facilitate potential demand drivers •
Slide 30: Areas of Focus
Areas of Focus • Maintain multiple options • Five internal mineral sands projects at advanced evaluation • Two at earlier stage evaluation (Tapira, Sri Lanka) • Focus on capital efficiency / returns e.g. kiln reactivation • Timeframe for all options dependent on: – timely and satisfactory completion
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) Definitive Feasibility Study Balranald Murray Basin, NSW • High grade rutile, zircon and ilmenite •
Slide 32: Tapira, Brazil
Tapira, Brazil • Tapira complex – host to large volumes of titanium bearing minerals – ~ 6 x 8 kms; area of ~ 35 square kms – In-situ and stockpiled materials1 • Vale and Iluka teams formed under Phase 1 • Phase 1 evaluation involves – geological, technical evaluation – market assessment – pilot pla
Slide 33: Sri Lanka
Sri Lanka Puttalam Project • Large scaleable sulphate ilmenite deposits • 56 million tonnes of in situ HM Mineral Resource1 – HM grade 8.2% – ilmenite 67%, zircon 3%, rutile 4% of HM assemblage • Discussions with Government to determine legislative framework: – mineral policy – legal and investment
Slide 34: Metalysis
Metalysis • Iluka payment of $18.6 million for 18.3% equity • Completion of Commercial Framework Agreement • Metalysis hired new process engineers and metallurgists – drive scale-up of proposed UK based reference plant • Joint collaboration on feedstock development research – focusing on synthetic a
Slide 35: Iluka Approach
Iluka Approach • Focus on shareholder returns through the cycle • Flex asset operation in line with market demand • Continue market development through the cycle • Maintain strong balance sheet • Preserve/advance mineral sands growth opportunities • Continue to evaluate/pursue corporate growth oppor
Slide 36: Supplementary Slides
ILUKA Business id Market Performance : ; 1H Financials Conditions Industry Context and Industry Dynamics Supplementary Slides 36
Slide 37: 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 38: Production Volumes
Production Volumes kt 1H 2014 1H 2013 % change Zircon 174.0 118.5 46.8 Rutile 78.1 60.6 28.9 Synthetic rutile - 59.0 n/a Total Z/R/SR production 252.1 238.1 5.9 Ilmenite – saleable and upgradeable 226.8 333.9 (32.1) Total production volume 478.9 572.0 (16.3) HMC produced 676.3 880.4 (23.2) HMC proce
Slide 39: Sales Volumes
Sales Volumes kt 1H 2014 1H 2013 % change Zircon 146.3 210.9 (30.6) Rutile 95.5 56.3 69.6 Synthetic rutile 35.3 20.0 76.5 Total Z/R/SR 277.1 287.2 (3.5) Ilmenite 221.8 147.0 50.9 Total sales volumes 498.9 434.2 14.9 39
Slide 40: Mineral Sands Results
Mineral Sands Results $m 1H 2014 1H 2013 % change Mineral sands revenue 343.2 381.7 (10.1) Australia EBITDA 121.4 146.1 (17.0) United States EBITDA 9.8 15.1 (35.1) Exploration and other EBITDA (23.3) (24.6) (5.3) Total mineral sands EBITDA 107.9 136.6 (21.0) Depreciation and amortisation (94.1) (98.
Slide 41: Unit Cash Costs and Revenue/tonne
Unit Cash Costs and Revenue/tonne 1H 2014 1H 2013 % change Total Z/R/SR production kt 252.1 238.1 5.9 Ilmenite – saleable and upgradeable kt 226.8 333.9 (32.1) Total production kt 478.9 572.0 (16.3) Total cash costs of production $m 200.7 201.9 (0.6) Unit cash costs per tonne of Z/R/SR produced1 $/t
Slide 42: Cash Flow and Net Debt
Cash Flow and Net Debt 1H 2014 $m 1H 2014 1H 2013 2H 2013 vs 1H 2013 % change Opening debt (206.6) (95.9) (197.0) (115.4) Operating cash flow 101.9 92.4 31.6 10.3 MAC royalty 40.9 36.1 46.6 13.3 Exploration (8.6) (9.8) (13.3) (12.2) Interest (net) (6.8) (6.6) (7.1) 3.0 Tax (16.9) (124.0) (16.1) (86.
Slide 43: Inventory
Inventory $m 900 800 700 600 $25.8m 500 400 300 200 $45.9m 100 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 Work in Progress Finished Goods • Finished goods inventory drawn down $25.8m due to zircon sales above production • Work in progress and other inve
Slide 44: Capital and Exploration Expenditure (cash)
Capital and Exploration Expenditure (cash) $m 1H 2014 1H 2013 % change Capital expenditure 23.6 31.5 (25.1) Metalysis 18.6 - n/a Exploration 8.6 9.8 (12.2) Total 50.8 41.3 23.0 44
Slide 45: Summary Group Operations
Summary Group Operations 1H 2014 1H 2013 % change Production volumes Zircon kt 174.0 118.5 46.8 Rutile kt 78.1 60.6 28.9 Synthetic rutile kt - 59.0 n/a Total Z/R/SR production kt 252.1 238.1 5.9 Ilmenite kt 226.8 333.9 (32.1) HMC produced kt 676.3 880.4 (23.2) HMC processed kt 480.2 534.8 (10.2) Uni
Slide 46: Australian Operations
Australian Operations 1H 2014 1H 2013 % change Production volumes Zircon kt 158.3 100.2 58.0 Rutile kt 78.1 60.6 28.9 Synthetic rutile kt - 59.0 (100.0) Total Z/R/SR production kt 236.4 219.8 7.6 Ilmenite kt 167.7 241.3 (30.5) Total production kt 404.1 461.1 (12.4) HMC produced kt 564.0 716.7 (21.3)
Slide 47: US Operations
US Operations 1H 2014 1H 2013 % change Production volumes Zircon kt 15.7 18.3 (14.2) Ilmenite kt 59.1 92.6 (36.2) Total production kt 74.8 110.9 (32.6) HMC produced kt 112.3 163.7 (31.4) HMC processed kt 111.1 142.9 (22.3) Unit cash cost of production $/t 434 297 (46.1) Mineral sands revenue $m 50.1
Slide 48: Iluka Resources Limited 2014 Half Year Results
Iluka Resources Limited For more information contact: 2014 Half Year Results Dr Robert Porter, General Manager Investor Relations robert.porter@iluka.com +61 3 9225 David 5008Managing Robb, / +61 (0) 407Director 391 829 Alan Tate, Chief Financial Officer www.iluka.com 22 August 2014