Iluka Resources Limited · ASX:ILU
Iluka Resources — Investor Presentation (November 2010)
69 slides from Iluka Resources's investor presentation, November 2010
Slide 1: Iluka Resources Limited Company and Mineral Sands Sector Overview
Iluka Resources Limited Company and Mineral Sands Sector Overview November / December 2010 1
Slide 2: Disclaimer – Forward Looking Statements
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 anticipate, estimates,
Slide 3: Contents
Contents Section 1 Iluka Overview and Investment Proposition Section 2 Industry Overview Section 3 Supply / Demand - Market Conditions Appendix 1st Half Financial 2010 Results Summary 3
Slide 4: 1. Iluka Overview and Investment Proposition
1. Iluka Overview and Investment Proposition 4
Slide 5: Iluka Resources Overview and Investment Proposition
Iluka Resources Overview and Investment Proposition Market capitalisation ~A$3.2 billion (418.7 million shares on issue) Industry Sector Materials (minerals sands exploration, project development, operations and marketing; iron ore royalty deriving from BHP Billiton’s Mining Area C, Western Australi
Slide 6: Shareholder Alignment
Shareholder Alignment Consistent internal articulation of objective: creation and delivery of shareholder value Key internal focus: profitability; sustainability and growth Financial performance and incentives linked to shareholder value creation - return on capital the internal proxy for return on
Slide 7: Iluka Investment Proposition
Iluka Investment Proposition Confluence of Positive Factors 1. Transition to high quality long life production operations 2. Higher margin zircon and rutile production over the next 3 years+ 3. Positive pricing dynamic playing out in both main product suites 4. Growing contribution from low risk Min
Slide 8: Iluka's Evolution
Iluka’s Evolution Following Appointment of David Robb as CEO in late 2006 2007 - Alignment • Performance management objectives aligned to shareholder objectives • Short and long term incentives aligned to shareholder value creation • Integrated business planning and decision making processes 2008 -
Slide 9: Iluka's Evolution
Iluka’s Evolution Current and Prospective Phase 2010 - Recovery • Demand recovery – continued global volatility likely • End of major project capex outflows • Project ramp up in 1H and sustained performance at target in 2H • Zircon prices increase ~30% • Uncontracted titanium dioxide products sell >
Slide 10: Iluka Physical and Financial Trends
Iluka Physical and Financial Trends 2011-2013 vs 2006-2008 Physical Trends 2006 - 2008 2011 – 2013f % change from average p.a. average p.a. 2006-2008 Production (kt) Zircon 410 500 22 Rutile 125 250 100 Synthetic Rutile 500 290 (42) Total 1,035 1,040 While indicative and subject to change, Iluka exp
Slide 11: Iluka Physical and Financial Trends
Iluka Physical and Financial Trends 2011-2013 vs 2006-2008 Financial Trends 2006 - 2008 2011 - 2013 average p.a. average p.a. Cash prod costs ($m) 585 510 Non cash costs 127 175 (D&A) Operating cash flow ($m) 120 ↑ Net debt ($m) 468 ↓ Gearing (x) 35.9 ↓ While indicative and subject to change, Iluka
Slide 12: Iluka Capital Expenditure, Cash Flow and Debt Profile
Iluka Capital Expenditure, Cash Flow and Debt Profile 2011- 2006 2007 2008 2009 2010 2013 (average) Capital Expenditure 156 111 198 520 ~100 È A$m Operating Cash Flow1 110 59 230 102 Ç Ç Net Debt 594 602 216 382 È È Gearing (net debt / debt+equity) 45.3 44.5 17.4 25.9 È È % Ç Increase versus 2006 -
Slide 13: Portfolio Characteristics
Portfolio Characteristics Improved Margin Structure from Two Main Assets • Murray Basin and Jacinth-Ambrosia will contribute most of Iluka’s production from 2011 - 80-90% of zircon and rutile production • Higher cash margin structure than historical assets Indicative Asset Characteristics Jacinth-Am
Slide 14: Competitive Revenue:Cash Cost Position
Competitive Revenue:Cash Cost Position Industry Revenue to Cash Cost Ratio* 2011 -2013 First Quartile Second Quartile Third Quartile Fourth Quartile Ambrosia Jacinth- Murray Basin Iluka Other Iluka US Iluka WA Iluka Avg 2011-13 = 1.8 Ratio Iluka Avg 2006-08 = 1.3 0 25 50 75 100 % TiO2 + Zr (kt) • Re
Slide 15: Jacinth-Ambrosia
Jacinth-Ambrosia Capable of Supplying ~25% of Global Zircon Demand 15 Source: Iluka
Slide 16: Jacinth-Ambrosia, South Australia
Jacinth-Ambrosia, South Australia Name plate production reached July 2010 16
Slide 17: Murray Basin Stage 2, Victoria
Murray Basin Stage 2, Victoria Major Rutile and Zircon Production Province 17
Slide 18: Murray Basin Stage 2, Victoria
Murray Basin Stage 2, Victoria Long Life Rutile and Associated Zircon Production 18
Slide 19: Mining Area C Iron Ore Royalty
Mining Area C Iron Ore Royalty In-perpetuity Tier 1 Iron Ore Exposure Background Outlook • Mining Area C (MAC) covers a part of BHP • BHP has stated intentions to increase total iron ore output from WA BIlliton’s iron ore mining operations in WA’s to 350Mtpa past 2015. MAC production at end of 2000
Slide 20: MAC Cost Curve Position
MAC Cost Curve Position Seaborne Iron Ore Fines Cost Curve 2010 (Business Cost USc/dmtu) MAC • CRU regards MAC as one of the world’s lowest cost iron ore mine operations located near multiple infrastructure operations and with a large resource base 20 Source: CRU Report – April 2010
Slide 21: 2. Industry Overview
ILUKA 2. Industry Overview 21
Slide 22: Key Characteristics of the Mineral Sands Market
Key Characteristics of the Mineral Sands Market Overview of Principal Product Streams 2008 Global Mineral Sands Market * Sales (Mt) Titanium Feedstocks, 2008 = 6.0Mt (2009 = 5.2Mt) Rutile (95% TiO2) Synthetic Rutile (SR) (90-96% TiO2) Upgraded Chloride Slag (UGS) (95% TiO2) Chloride Ilmenite and Leu
Slide 23: Main Product Usages and Applications
Main Product Usages and Applications Predominant End Consumer Applications - 2008 Zircon Titanium 2000-08 2000-08 Average Annual Growth Average Annual Growth Other, 5% (8%) 11% Zirconia & 14% Chemicals, 11% 18% Refractories, 0% 11% Foundry, 11% 0% 2% Ceramics, 55% 4% Main Attributes: Main Attributes
Slide 24: Industry Structure and Participants
Industry Structure and Participants Relative Industry and Geography Supply Consolidation - 2008 Zircon Titanium Including: Including: Indonesia, 6% China, 12% China, 5% Norway, 7% Vietnam, 3% Ukraine, 7% India, 2% India, 4% Major Producers Vietnam, 4% Major Producing Countries 24 Source: TZMI and Il
Slide 25: Iluka Customer Structure
Iluka Customer Structure Consolidated Titanium, More Fragmented Zircon Zircon Titanium Iluka Customer • Zircon flour millers (ceramics), 60% • Pigment producers, 90% Industries • Casting material manufacturers • Titanium sponge producers,5% (refractories and foundry), 18% • Welding rod manufacturers
Slide 26: Key Characteristics of the Mineral Sands Market
Key Characteristics of the Mineral Sands Market Overview of Principal Product Streams Global Mineral Sands Market Characteristics Zircon Titanium Size of market (2008) 1.2Mt 6.0Mt Historical demand Sulphate 4.1% p.a. Slag and Ilmenite (50-80% TiO2) 3.0% p.a. growth, 2000-08 Major markets China (40%)
Slide 27: Zircon Demand
Zircon Demand End Use Demand and Regional Tile Consumption / Production 27 Source: Iluka, TZMI and Ceramic World Review
Slide 28: Tile Consumption
Tile Consumption Developing Economies Constitute Major Demand Source: Ceramic World Review Source: IMF • China, Brazil, India, Iran and Indonesia consume over half of the world’s tiles • Zircon intensity of use in these economies remains well below developed economies • These economies were relative
Slide 29: China and India
China and India Exemplars of Developing Economy Demand Pigment and GDP per Capita (1980 - 2009) Tiles and GDP per Capita (1997^ - 2008) Pigment (kg) / capita Tile sqm / capita 0.9 2.5 India China India China 0.8 2008 GEC impact 2 0.7 2009 0.6 1.5 0.5 1997 0.4 1 0.3 0.2 0.5 2009 2008 0.1 1980 2002 0
Slide 30: Titanium Dioxide
Titanium Dioxide End Use Demand Titanium Market Segments ~6,050kt (2008) Other, 6% Metal, 4% Pigment, 90% Source: Iluka and TZMI 30
Slide 31: Titanium Dioxide Demand
Titanium Dioxide Demand Rio’s Mid Cycle View – Similar Characteristics Apply to Zircon Demand 2007 Population Infrastructure distribution in bands of Urbanisation income levels** Based Growth Average Wealth per capita in PPP terms Inflection Point for growth phase Typically mid to late cycle demand
Slide 32: 3. Supply / Demand – Market Conditions
3. Supply / Demand – Market Conditions 32
Slide 33: Zircon Demand
Zircon Demand Overview • Historically zircon demand dominated by European ceramics industry • Key trend in zircon market over last 20 years is the emergence of China and other developing countries – China now accounts for ~40% of zircon demand, up from 3% in 1990 – in 2008 China produced ~40% of glo
Slide 34: Global Zircon Demand
Global Zircon Demand Underpinned by Developing Economy Demand Global Zircon Demand Scenarios (1990 - 2020) Demand Scenarios • Based on modest Chinese demand growth from 2011 of 6% p.a. (~ one third of recent levels) and flat rest of world (RoW) demand, global demand growth equates to ~3% (equal to 1
Slide 35: Zircon Supply and Demand Scenarios
Zircon Supply and Demand Scenarios kt 2500 Iluka JA Existing Produc ers • Assuming China demand growth of 8% and RoW 0%, Low Demand (China 6% and ROW 0% ) 2000 results in a 2010-2020 CAGR of 4% Base Demand (China 8%, RO W 0%, 4% CAGR) - should this demand scenario occur an additional 50- 60kt of new
Slide 36: Indicative Zircon Long Term Supply Curve
Indicative Zircon Long Term Supply Curve Higher Prices Required to Rationally Induce Greenfield Projects • Iluka analysis of prospective projects shows that significant industry price rises needed to induce new supply • This chart illustrates potential production from new or mooted projects and the
Slide 37: Industry Zircon:TiO2 Ratio
Industry Zircon:TiO2 Ratio Despite Advent of Jacinth-Ambrosia, Industry Z:TiO2 Ratio Remains Stable mt of TiO2 or Zircon Ratio t Zircon/t TiO2 7.0 0.35 TiO2 Historical Supply Zircon Historical Supply 6.0 0.3 Zircon/TiO2 Ratio All 5.0 Feedstock Producers 0.25 (including J-A) 4.0 0.2 3.0 0.15 Zircon/T
Slide 38: Zircon Substitution Risk
Zircon Substitution Risk • Zircon typically = represents a low percentage of final products’ pricing Overview • Few substitutes provide equivalent value in use • Lack of availability a potential cause of reduction in some lower value applications of zircon • Glazed and Porcellanato tiles (80% of glo
Slide 39: Zircon Market Summary
Zircon Market Summary • Market demand exceeded zircon supply in 2010 • Strong China and emerging economy demand expected to increase deficit over coming years • Paucity of material new supply at a stage of advanced evaluation / funding • Material price increases required to induce new supply − even
Slide 40: Titanium Demand Overview
Titanium Demand Overview • Pigment is largest end use market of titanium feedstocks • Historically, pigment per capita demand increases with living standards, measured by GDP per capita • Impact of China has accelerated global pigment demand growth – China 2nd largest global pigment market • China h
Slide 41: Titanium Demand: Pigment Demand Forecasts
Titanium Demand Pigment Demand Forecasts Global GDP per Capita and Pigment per Capita Global Pigment Demand Pigment (kg) / Capita Pigment kt 1.2 8000 7000 1.0 6000 0.8 2020 2012-20 5000 2010 3.5% CAGR 0.6 4000 2008 2009 0.4 3000 1980-08 2000 0.2 1980-2009 2010-2020 3.1% CAGR 1000 0.0 0 0 2000 4000 6
Slide 42: Pigment Demand by Region, 1980 to 2009
Pigment Demand by Region, 1980 to 2009 Developing countries pigment use growing with GDP Pigment (kg) / person 5 North America 4 3 1980 Europe 2009 2 Japan 1 China Global India Asia 0 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 Real GDP / Capita (US$) • Developing countrie
Slide 43: Chloride Titanium Supply and Demand
Chloride Titanium Supply and Demand Demand 2012-20 3.2% CAGR • Pigment producers typically require blend of feedstocks • Higher titanium feedstocks (e.g. rutile and synthetic rutile) typically provide greater production efficiencies, less waste • Substitutability between products not straightforward
Slide 44: Titanium Market Summary
Titanium Market Summary • Titanium feedstock demand and supply factors more complex - influenced by raw material feedstock requirements of pigment plants - supply availability of specific products globally • Iluka has idled synthetic rutile capacity given inadequate returns • Most upgrading capacity
Slide 45: Current Market Conditions: Zircon
Current Market Conditions Zircon • Strong recovery in demand from Q4 2009 • China consumption above pre GFC levels • US market remains buoyant – esp. foundry sector • Additional China milling capacity installed in 2010 • Some plants idled due to no feedstock • Tight market conditions expected to con
Slide 46: Zircon Pricing and Contractual Arrangements
Current Market Conditions Zircon Pricing and Contractual Arrangements • Zircon volume arrangements essentially on a “spot” basis • No contractual arrangements in excess of 3 months • Logistics chain (ex warehouse, small lot) developed to cater for China market • Warehouses operating already in Europ
Slide 47: Zircon Pricing and Contractual Arrangements
Current Market Conditions Zircon Pricing and Contractual Arrangements • Average zircon price reflects quality differentials • Price to exit 2010 at greater than US$1000/t FOB • Continued tight supply conditions expected • Further upward price momentum in to 2011 • Internet Online Sales site now auct
Slide 48: Physical Iluka Sales Flows – September YTD
Physical Iluka Sales Flows – September YTD Importance of China and Developing Economies Europe Z – 90kt R – 47kt SR – 70kt China Z – 131kt R – 3kt SR – -kt Americas Mdl. East Asia Z – 57kt Z – 8kt Z – 44kt R – 71kt R – 1kt R – 28kt SR – 52kt SR – 16kt SR – 116kt 48 Notes: Data based on sales to Sept
Slide 49: Enhanced Logistics and Market Supply Arrangements
Enhanced Logistics and Market Supply Arrangements Warehouse and Small Lot Distribution Facilities Antwerp, Belgium Qingdao, China Zircon - Zircon Premium Premium Castellon, Spain Zircon Premium Shanghai, China Zircon Premium Rutile Wilmington, Delaware Zircon Premium Xiamen, China 49 Zircon Premium
Slide 50: Current Market Conditions: Titanium Dioxide
Current Market Conditions Titanium Dioxide • High grade feedstock market tight in 2H 2010 • Anticipated it will remain so going into 2011 • Idled Iluka kiln capacity is impacting high grade feedstock availability • 2010 saw disruption of production from Eastern Europe • Iluka in 2010 still had produ
Slide 51: Synthetic Rutile (SR) Strategy
Synthetic Rutile (SR) Strategy • 2 of 4 kilns idled over 2008 / 2009, reducing SR capacity by ~300k tonnes • Inadequate EBIT returns led to decision to idle • Iluka indicated intention to idle SR3 (Mid West, WA) from mid 2010 • Higher spot product prices have enabled the kiln to run to end of 2010 •
Slide 52: End of Cap and Collar Contractual Arrangements
Emerging Market Conditions End of Cap and Collar Contractual Arrangements • Most of Iluka’s legacy titanium contracts have had “cap and collar” pricing • Volume commitments with pricing increases / decreases constrained • Increases linked to CPI or low percentage increases – typically low single dig
Slide 53: Approach to Titanium Dioxide Contracting
Approach to Titanium Dioxide Contracting • Iluka has insufficient feedstock to meet all its customers requirements in 2011 • Major customers have been offered a proportion of their requirements • Volume commitments on all products in 2011 to be for a maximum of 1 year • Iluka does not intend to cont
Slide 54: Warehouse Alternative - Internet Sales and Auction Site
Warehouse Alternative - Internet Sales and Auction Site Key Terms • Purchase or auction site as required • Minimum purchase 26mt, a full container load • Product bagged in 2mt Bulk Bags • Payment terms are L/C or T/T • No requirement to accept any offer Easily adapted to other products • Now offerin
Slide 55: China Zircon Market
China Zircon Market China Zircon Segments 2009 Other 7% China ~ 40% of global zircon sand consumption Ceramics ~ 43% of world Zirconia & Chemicals ZrO2 / Chemicals ~ 65% of world 29% Ceramics Casting ~ 17% of world 55% Refractory ~ 13% of world Other ~ 50% of world Foundry/Casting 5% Refractory 4% T
Slide 56: China Zircon Market
China Zircon Market • Over 70% of zircon sales are direct between Iluka and end users • Customer Profile - some large SOEs - mostly small to medium sized private enterprises • Sales Options - bulk bags ex China warehouse (4 strategically located warehouses) - bulk shipments direct to nominated port
Slide 57: China Zircon Market
China Zircon Market Over 90% of zircon consumed in China is imported Monthly China Import Comparison tonnes 600,000 500,000 400,000 300,000 200,000 100,000 - Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 07 Cum 08 Cum 09 Cum 10 Cum Total Chinese Zircon Consumption: 2007 − 390kt 2008 − 410kt 2009 −
Slide 58: China Zircon Market: Iluka Zircon Sales to China
China Zircon Market Iluka Zircon Sales to China % of Iluka Sales mt 200000 60% 180000 160000 50% 140000 40% 120000 During Q3, 2010 Iluka YTD 100000 30% 2010 sales exceeded FY 2009 80000 60000 20% 40000 10% 20000 0 0% 2004 2005 2006 2007 2008 2009 China % China Sales Iluka sales in China reached 180k
Slide 59: China Titanium Minerals Market
China Titanium Minerals Market China TiO2 Segments 2009 China ~ 24% of global titanium feedstock consumption (in TiO2 units) W elding and Other 11% Pigment ~ 20% of world Ti Metal 14% Ti Sponge ~ 30% of world Welding / Other ~ 40% of world Current Est. Annual Iluka Sales to China Pigment 75% Ilmenit
Slide 60: China Titanium Minerals Market: Pigment
China Titanium Minerals Market: Pigment Chinese Pigment Demand '000 tonnes 1200 1000 Pigment production and consumption likely to resume sharp 800 upward trend in coming years 600 Major producers predicting 2010 Chinese consumption to far exceed 1Mt – perhaps even as much as 1.5Mt 400 200 0 2000 200
Slide 61: China Titanium Minerals Market: Outlook
China Titanium Minerals Market: Outlook • Chinese production in all sectors to grow rapidly based on solid domestic demand growth and increasing acceptance in foreign markets • Solid growth opportunities for Iluka high value feedstock in: - chloride pigment - new generation titanium sponge - flux co
Slide 62: Mineral Sands Price Relativities
Mineral Sands Price Relativities Historical Prices to 2009 US$ / tonne 1000 Zircon SR Chloride Ilmenite Rutile 800 600 400 200 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 62 Source: TZMI
Slide 63: For further information, contact: Dr Robert Porter
For further information, contact: Dr Robert Porter General Manager, Investor Relations + 61 3 9225 5481; + 61 (0) 407 391 829 robert.porter@iluka.com www.iluka.com 63
Slide 64: Appendix - 1st Half Financial 2010 Results Summary
Appendix - 1st Half Financial 2010 Results Summary 64
Slide 65: 1st Half Overview – June 2010
1st Half Overview – 30 June 2010 • Demand recovery across zircon and high grade titanium dioxide products • Significantly improved EBITDA • Reported earnings better than initial 2010 expectation • New operations ramped up; but 1st half impacted by residual issues - sales contribution from lower marg
Slide 66: Group Results
Group Results $m 1H 2009 1H 2010 % change Mineral Sands Revenue (pre hedging) 194.8 378.6 94.4 EBITDA 59.6 115.4 93.6 Depreciation and Amortisation (83.5) (101.5) (21.6) EBIT (23.9) 13.9 158.2 Net Interest and Financing Costs (8.4) (25.6) (204.8) Significant non-cash items (67.6) - N/A Profit / (Los
Slide 67: Mineral Sands Results
Mineral Sands Results $m 1H 2009 1H 2010 % change Mineral Sands Revenue (pre hedging) 194.8 378.6 94.4 EBITDA Eucla / Perth Basins 41.8 46.2 10.5 Murray Basin 17.7 39.0 120.3 US Operations 14.2 20.2 42.3 Exploration and Other (7.4) (10.1) (36.5) Total Mineral Sands EBITDA (pre hedging) 66.3 95.3 43.
Slide 68: Mining Area C Royalty
Mining Area C Royalty 1H 2009 1H 2010 % change Annual Production to 30 June MDMT 37.8 42.5 12.4 Sales Volume to 30 June MDMT 19.5 20.4 4.6 Royalty Income $m 23.9 30.7 28.5 Capacity Payments $m 8.0 5.0 (37.5) Iluka EBIT $m 31.7 35.5 12.0 Comments • Higher iron ore sales volumes • Average AUD realised
Slide 69: 1st Half 2010 Cash Flow and Net Debt
1st Half 2010 Cash Flow and Net Debt $m 1H 2009 FY 2009 1H 2010 % change pcp Opening Net Debt (215.7) (215.7) (382.1) (77.1) Operating Cash Flow (94.4) 83.8 42.6 N/A MAC Royalty 28.2 55.2 19.8 (29.8) Other 0.4 2.1 1.3 225.0 Exploration (10.2) (20.0) (7.6) 25.5 Net Interest (6.0) (12.5) (12.3) (105.0
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