Iluka Resources Limited · ASX:ILU
Iluka Resources — FY2014 Earnings Presentation
57 slides from Iluka Resources's earnings presentation, Feb 17, 2015
Slide 1: Iluka Resources Limited 2014 Full Year Results
Iluka Resources Limited 2014 Full Year Results David Robb, Managing Director Alan Tate, Chief Financial Officer 17 February 2015
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: Results - Key Features
Results - Key Features Market Conditions Areas of Focus Business Characteristics
Slide 4: 2014 Key Features
2014 Key Features • Net loss of $62.5 million – non-cash adjustment of A$86.5 million (after tax) – related to wind down of US operations • Free cash flow generation of $196 million1 • 2014 dividends of 19 cents, fully franked (2013: 9.0 cents) – 40% payout of free cash flow • Disciplined cash cost
Slide 5: 2014 Key Features
2014 Key Features • Zircon - variable demand across markets • Titanium dioxide feedstocks – clear indications of recovery • Solid margins maintained (Group EBITDA margin 32.5%) – reduction in high grade titanium dioxide prices, but mainly in 1H – stable zircon prices • Operations managed in line wit
Slide 6: Safety and Environmental Performance
Safety and Environmental Performance Total Recordable Injury Frequency Rate (TRIFR) Lost Time Injury Frequency Rate (LTIFR) 16 15.1 14 12 10.5 10 Frequency Rate 8 6 4.6 3.6 4 3.1 1.9 2 0.9 0.3 0 2011 2012 2013 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 • 76%
Slide 7: Main Features of Full Year Results
Main Features of Full Year Results Versus 2013 Mineral Sands Sales Volumes ! Z/R/SR sales up 5.4% Mineral Sands Revenue " 5.0% - higher sales volumes offset by lower TiO2 prices Cash Production Costs 1.5% to $381.9 million vs $376.1 million in 2013 Unit Cost of Goods Sold " $862/tonne of Z/R/SR vs $
Slide 8: Iluka Dividend Payments
Iluka Dividend Payments • 13 cents final dividend, fully franked payable 31 March 2015 • 19 cents for full year, fully franked • 40% of FY FCF • Cumulative 68% free cash flow payout ratio since end of 2010 – $597 million returned to shareholders, 146 cents per share Distribution Metrics FCF NPAT Ful
Slide 9: Summary Group Results
Summary Group Results 2013 vs 2014 $m 2014 2013 2012 % change Mineral sands revenue 724.9 763.1 1,069.8 (5.0) Mineral sands EBITDA 238.6 249.0 726.0 (4.2) Mining Area C royalty income 66.8 88.3 72.7 (24.3) Group EBITDA 257.0 295.2 748.8 (13.0) Group EBITDA margin % 32.5 34.7 65.5 (2.2) Depreciation
Slide 10: Mining Area C Royalty
Mining Area C Royalty 2014 2013 % change Annual production to 30 June mdmt 51.7 50.5 2.4 Sales volumes mdmt 53.4 52.5 1.7 Implied price A$/t 98.7 128.5 (23.2) Royalty income $m 65.8 84.3 (21.9) Annual capacity payments $m 1.0 4.0 (75.0) Iluka EBIT $m 66.4 87.9 (24.5) (mdmt = million dry metric tonne
Slide 11: Net Profit after Tax
Net Profit after Tax EBITDA decreased $38 million to $257 million $m Group EBITDA margin 32.5% 50 25 19 30 (0) (22) 0 (63) (7) 29 (10) (25) (42) 8 (50) 50 18 (9) (1) (75) 5 (12) (100) (118) (125) (150) 2013 Price Volume Mix FX Ilm & Oth Unit costs Restructure Min Sand MAC Corp D&A Impairment / Inter
Slide 12: Net Debt Movement 2014
Net Debt Movement 2014 $m 2014 free cash inflow $196 million % 160 15 75 11.6% 120 12 (22) 9 80 (13) 255 3.9% 6 40 (28) 3 (48) 0 0 (19) (5) -3 (40) -6 (42) (5) (59) (80) -9 (120) -12 -15 (160) -18 (200) -21 (240) (207) -24 Opening net Operating MAC royalty Exploration Interest Tax Capex Metalysis Sh
Slide 13: Unit Cash Cost Trend
Unit Cash Cost Trend Cash Production Costs and Unit Cash Costs Z/R/SR 2011 2012 2013 2014 Mineral sands EBITDA/revenue margin % 60.3 67.9 32.6 32.9 • Total Z/R/SR production increased 13.5% year-on-year • Total cash production costs marginally higher - $381.9 million (2013: $376.1 million) • Lower Z
Slide 14: Production Reflects Market Conditions
Production Reflects Market Conditions • Total Z/R/SR production 535 thousand tonnes (lower than “high cycle” levels) • Total sales Z/R/SR increased 5% to 616 thousand tonnes • Higher Z/R/SR production expected in 2015 – rutile supply may be constrained – subject to reactivation of SR kiln Iluka is n
Slide 15: Inventory
Inventory $m 900 FY Movement 800 700 " 600 $68.3m 500 400 300 200 ! $83.4m 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 Dec-14 Work in Progress Finished Goods • Finished goods inventory drawn down $68.3 million due to R/SR inventory draw down • Work in pr
Slide 16: Balance Sheet Strength
Balance Sheet Strength • Gearing of 3.9% (31 December 2014) • Total facilities A$850 million + US$20 million US Private Placement (USPP) - A$175 million matures April 2017 - A$675 million matures April 2019 - US$20 million USPP matures June 2015 • Net debt at 31 December 2014 of A$59 million 16
Slide 17: Market Conditions
Results - Key Features Market Conditions Areas of Focus Business Characteristics
Slide 18: Market Conditions - Zircon
Market Conditions - Zircon Demand • Varying demand across regions – China and the US markets most robust – weak demand in Europe, Middle East and India – decision to step away from some potential European volumes during the year • Stable demand overall - similar to 2013 levels • Some softening in th
Slide 19: China Zircon Imports
China Zircon Imports Zircon Equivalent Imports - 2014 Notes: Includes concentrates / tailings converted to zircon-sand equivalent • 2014 zircon imports of ~647kt • In line with the 2011-2013 average 19
Slide 20: Zircon
Zircon • Progressive quarterly sales volumes increases through 2014 • Some mix variability - more standard grade sales in second half • Premium zircon price and weighted average received price stable • December 2014 / January 2015 represent highest level of zircon sales since 2011 / 2012 Zircon Sale
Slide 21: Market Conditions - Zircon
Market Conditions - Zircon Outlook • Gradual demand recovery, dependent on global economic conditions • ‘Balanced’ market due to production restraint, and capacity limits • China, North American demand expected to remain firm • Recovery in Asia, India markets expected • Europe demand dependent on ex
Slide 22: Market Conditions - Titanium Dioxide
Market Conditions - Titanium Dioxide Demand - high grade feedstocks • Main underpinnings: – pigment inventories drawn down to ‘normal’ levels – chloride pigment producer capacity utilisation rates increased • Positive engagement with pigment customers for supply arrangements – evident in SR kiln rea
Slide 23: Market Conditions - Titanium Dioxide
Market Conditions - Titanium Dioxide Supply • Industry supply restraint contributed to draw down of global feedstock inventories • Limited new supply of high grade titanium dioxide feedstocks, new project shortfalls 23
Slide 24: High Grade Titanium Dioxide
High Grade Titanium Dioxide • Iluka weighted average price outcomes1 in 2H reflected: – mix factors – higher HyTi sales (90 per cent titanium dioxide content) – specific customer product requirements • Build of rutile-rich HMC inventory in Murray Basin: – cessation of WRP mining, first quarter 2015
Slide 25: Market Conditions - Titanium Dioxide
Market Conditions - Titanium Dioxide Outlook • 2015 demand trend influenced by lead into northern hemisphere summer painting season • Recovery trends in niche markets • Rutile supply may be constrained – Iluka supplying from concentrate draw down • ‘Legacy’ industry contracts expected to have ended
Slide 26: Areas of Focus
Results - Key Features Market Conditions Areas of Focus Business Characteristics
Slide 27: Areas of Focus
Areas of Focus FINANCIAL FOCUS Growth Options / Focus Areas Marketing and Projects Exploration Innovation and Other Growth Market Development Mineral Sands Mineral Sands / Other Technology Options Commodities Potential Acquisitions, Mergers and Joint Ventures Which demonstrate financial and strategi
Slide 28: Market Development
Market Development • Continued focus on improving customer service • Expanding global market presence and logistics flexibility – 3 new points of representation in 2014 – 9 marketing offices globally • Product development - 8 new products launched • All products in 2014 delivered to defined specific
Slide 29: Market Development – Customer Focus
Market Development – Customer Focus • Dedicated zircon and titanium dioxide sales teams • Recruited experts from industry – milling, tile design, pigment • Multilingual sales and support team – 10 nationalities and 17 languages • Analysts dedicated to understanding industry and customer trends IMTI
Slide 30: Internal Production Options
Internal Production Options • Range of potential production sources at different stages of life or evaluation • Utilisation of existing infrastructure in most cases – basin longevity • Phasing dependent on DFS outcomes, economics and market conditions BASIN DEPOSIT YEAR 1 2 3 4 5 6 7 8 9 10 11 12 13
Slide 31: Project Development: Balranald, Murray Basin
Project Development Balranald, Murray Basin • High grade / rich assemblage • Material source of global supply, especially rutile – ~ 170 ktpa rutile – ~ 130 ktpa zircon – ~ 700 ktpa ilmenite (including synthetic rutile feed source) • Technical challenges defined and being addressed through DFS – wat
Slide 32: Project Development: Cataby, Western Australia
Project Development Cataby, Western Australia • High quality chloride ilmenite (suitable synthetic rutile feed source) – ~ 350 ktpa ilmenite – ~ 50 ktpa zircon – ~ 30 ktpa rutile • DFS effectively complete; pre-execute planning underway • Start date flexibility • Current technical and financial anal
Slide 33: Project Development: Eucla Basin Satellite Deposits
Project Development Eucla Basin Satellite Deposits • Large chloride ilmenite deposits • Significant associated zircon production stream • Estimated 10+ year economic life • Close proximity to Jacinth-Ambrosia infrastructure • Further development drilling of resource and metallurgical work • Pre-feas
Slide 34: Project Development: Puttalam, Sri Lanka
Project Development Puttalam, Sri Lanka • Large, long life, scaleable sulphate ilmenite deposit • High HM grade for style of deposit • JORC compliant resource • Homogenous, minimal overburden – hydraulic mining an option • Scoping study to commence in 2015 • Focus on new government engagement 34
Slide 35: Capital Expenditure
Capital Expenditure Relates to ~$250m average p.a. sustaining and growth capital expenditure, which is both an historical average and expectation for the company’s corporate planning cycle. • Capital expenditure of $66.9 million in 2014 related to major projects and Metalysis • Some Plan years > $25
Slide 36: Exploration
Exploration New Resources and Resource to Reserve Conversion • Capitalise on internal geological and exploration expertise • Consistent investment through cycle ~ $20 million p.a. • Predominantly greenfield • Increasing international focus – specific countries in Americas, Central Asia and Europe •
Slide 37: Innovation and Technology
Innovation and Technology • Production efficiencies / recoveries / product quality / product development • High grade sulphate pigment feed source – encouraging progress and further trials • Non conventional resource conversion focus • Metalysis Metallic Fe on surface of – support through IPO proces
Slide 38: Tapira, Brazil
Tapira, Brazil • Joint venture with Vale S.A. • Large un-utilised mineralisation – existing phosphate mine • Titanium dioxide ore (anatase, ilmenite), rare earth elements, magnetite • Phase 1 of Agreement - 2015 - geological, technical evaluations, market assessment and pilot plant design - subseque
Slide 39: Tapira, Brazil
Tapira, Brazil • Two Exploration Targets1 – in situ material ~1 – 1.5 billion tonnes with est TiO2 content of 12 - 15% – stockpiled material ~70 – 100 million tonnes with 12 - 15% TiO2 • Iluka has potential to gain 49% interest bearing Titanium and REO bearing unitunit Cautionary Statement: The pote
Slide 40: Metalysis, UK
Metalysis, UK • Iluka equity holding of 18.3% – right to increase up to 24.9% in event of IPO • Technology capable of revolutionising metals processing • Iluka shareholder value creation potential: – commercialisation – significant re-rating – right of first offer over titanium powder production lic
Slide 41: Metalysis, UK
Y Metalysis, UK Lua Conventional process (Ti — Kroll process) Bm Bie? Wt By Metalysis process et « wa oe s¢ Metalysis spherical J Ti powder Ti powder 41
Slide 42: Business Characteristics
Results - Key Features Market Conditions Areas of Focus Business Characteristics
Slide 43: 2014 and 2015 Asset Utilisation
2014 and 2015 Asset Utilisation 2014 20151 Murray Basin Mining (WRP) 100% utilisation Mine idled March Concentrate continues to be processed Hamilton MSP ~80% utilisation ~70% utilisation Jacinth-Ambrosia Mining Full utilisation – concentrate build Full utilisation Narngulu MSP ~50% utilisation ~50%
Slide 44: 2015 - Business Characteristics
2015 - Business Characteristics • Z/R production higher than 2014 • Z/R sales may exceed 2015 production and 2014 Z/R sales • Potential SR 2 production and sales • Lower unit cash costs • Potential FX and oil price benefits • Inventory stabilisation / draw down • Moderate organic capital expenditure
Slide 45: 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 • Preserve/advance mineral sands growth opportunities • Maintain a strong balance sheet • Continue to evaluate/pursue corporate growth opp
Slide 46: Supplementary Slides
Y ILUKA - : yr ZL P -\ ——— Supplementary Slides \\ae s\ : 5 _ =. — =~
Slide 47: 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 & Other1 Sands
Slide 48: Cash Flow and Net Debt: 2014 vs 2013
Cash Flow and Net Debt: 2014 vs 2013 $m 1H 2014 2H 2014 2014 2013 % change Opening net (debt) cash (206.6) (155.2) (206.6) (95.9) 115.4 Operating cash flow1 101.9 152.9 254.8 124.0 105.5 MAC royalty 40.9 34.3 75.2 82.7 (9.1) Exploration (8.6) (13.5) (22.1) (23.1) 4.3 Interest (net) (6.8) (6.0) (12.8
Slide 49: Production Volumes
Production Volumes kt 2014 2013 % change Zircon 357.6 285.1 25.4 Rutile 177.2 127.0 39.5 Synthetic rutile - 59.0 n/a Total Z/R/SR production 534.8 471.1 13.5 Ilmenite 365.4 584.5 (37.5) Total production volume 900.2 1,055.6 (14.7) HMC produced 1,305.0 1,538.3 (15.2) HMC processed 968.0 1,044.2 (7.3)
Slide 50: Sales Volumes
Sales Volumes kt 2014 2013 % change Zircon 352.2 370.2 (4.9) Rutile 182.0 168.0 8.3 Synthetic rutile 82.0 46.2 77.5 Total Z/R/SR 616.2 584.4 5.4 Ilmenite 316.6 337.5 (6.2) Total sales volumes 932.8 921.9 1.2 50
Slide 51: Mineral Sands Results: 2014 versus 2013
Mineral Sands Results: 2014 versus 2013 $m 1H 2014 2H 2014 2014 2013 % change Mineral sands revenue 343.2 381.7 724.9 763.1 (5.0) Australia EBITDA 121.4 169.3 290.7 274.6 5.9 United States EBITDA 9.8 (8.4) 1.4 30.2 (95.4) Resource Development and (23.3) (30.2) (53.5) (55.8) 4.1 other EBITDA Total mi
Slide 52: Unit Cash Costs and Revenue/tonne
Unit Cash Costs and Revenue/tonne 2014 versus 2013 2014 2013 % change Total Z/R/SR production kt 534.8 471.1 13.5 Ilmenite – saleable and upgradeable kt 365.4 584.5 (37.5) Total production kt 900.2 1,055.6 (14.7) Total cash costs of production $m 381.9 376.1 1.5 Unit cash costs per tonne of Z/R/SR p
Slide 53: Capital and Exploration Expenditure (cash)
Capital and Exploration Expenditure (cash) $m 2014 2013 % change Capital expenditure 48.3 52.5 (8.0) Metalysis 18.6 - n/a Exploration 22.1 23.1 (4.3) Total 89.0 75.6 (6.9) 53
Slide 54: Australian Operations
Australian Operations 2014 2013 % change Production volumes Zircon kt 332.5 245.5 35.4 Rutile kt 177.2 127.0 39.5 Synthetic rutile kt - 59.0 n/a Total Z/R/SR production kt 509.7 431.5 18.1 Ilmenite kt 270.6 394.9 (31.5) Total production kt 780.3 826.4 (5.6) HMC produced kt 1,135.0 1,223.5 (7.2) HMC
Slide 55: US Operations
US Operations 2014 2013 % change Production volumes Zircon kt 25.1 39.6 (36.6) Ilmenite kt 94.8 189.6 (50.0) Total production kt 119.9 229.2 (47.7) HMC produced kt 170.0 314.8 (46.0) HMC processed kt 172.0 307.8 (44.1) Unit cash cost of production $/t 510 308 (65.6) Mineral sands revenue $m 84.3 86.
Slide 56: Industry Context and Dynamics
Industry Context and Dynamics Outlook characterised by positive demand fundamentals Urbanisation trends Increasing consumption levels Increasing array of applications Medium to longer Higher prices Rise of China – VHM Grade / Maturing ore bodies / term supply required to sulphate and chloride Assemb
Slide 57: 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