Iluka Resources Limited · ASX:ILU
Iluka Resources — Investor Presentation (November 2010)
82 slides from Iluka Resources's investor presentation, Nov 9, 2010
Slide 1: Mineral Sands Marketing Briefing Session
For personal use only Iluka Resources Limited Mineral Sands Marketing Briefing Session Sydney 9 November 2010 Melbourne 10 November 2010
Slide 2: Disclaimer – Forward Looking Statements
Disclaimer – Forward Looking Statements For personal use only 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: Structure of Presentation
Structure of Presentation For personal use only 1. Evolution of Iluka’s Sales and Marketing Function - David Robb Managing Director 2. Characteristics of the Mineral Sands Market - Chris Cobb General Manager, Sales and Marketing 3. Iluka’s Market Analysis & Key Market Dynamics - Doug Warden General
Slide 4: Evolution of Iluka's Marketing Function
For personal use only Evolution of Iluka’s Marketing Function David Robb 4
Slide 5: Evolution of Iluka's Sales & Marketing: 2007
Evolution of Iluka’s Sales & Marketing 2007 – Alignment to Shareholder Value Creation Objective For personal use only • Understanding and diagnosis • Integrated portfolio business model - cost and margin position of all production/products reassessed (ROC) - willingness not to run operations if retu
Slide 6: Evolution of Iluka's Sales & Marketing: 2008
Evolution of Iluka’s Sales & Marketing 2008 – Capabilities Built For personal use only • Commitment to new supply sources – Murray Basin Stage 2 & Jacinth-Ambrosia • China market position established - representative office & modified logistics • Iluka prepared to “go-short” on zircon supply - 2nd h
Slide 7: Evolution of Iluka's Sales & Marketing: 2009
Evolution of Iluka’s Sales & Marketing 2009 – Response to the GFC/Positioning for Recovery For personal use only • Global zircon demand reduced by ~25%, high grade titanium dioxide by ~20% • Iluka supply response while keeping new projects on track - WA production capacity decreased ~50%, 32% reduct
Slide 8: Evolution of Iluka's Sales & Marketing: 2010
Evolution of Iluka’s Sales & Marketing 2010 – Recovery & Delivery of New Supply Sources For personal use only • Initial uncertainty re demand recovery/continuing global volatility • Project ramp up and sustained performance in 2nd half • Zircon price increases (April, July, October) - average Iluka
Slide 9: Evolution of Iluka's Sales & Marketing: 2011 and 2012
Evolution of Iluka’s Sales & Marketing For personal use only 2011 – 1st Year of New Iluka • Zircon and high titanium markets expected to remain supply constrained - continued zircon pricing momentum - 1st year of unconstrained high grade titanium dioxide pricing for Iluka • Lower synthetic rutile pr
Slide 10: Zircon Market Conditions
Zircon Market Conditions For personal use only • China and other developing economies drive demand (urbanisation) • Global supply deficit • Material price increases required to rationally induce new supply • Lead times suggest that new supply unlikely to make major contribution until at least 2015 •
Slide 11: Iluka's Zircon Opportunity
Iluka’s Zircon Opportunity For personal use only • Provide zircon price direction for customers • Contribute to improvement in profitability through the value chain • Further price increases possible for ~ five years • Potential to address deficit through increased production, appropriately priced •
Slide 12: High Grade Titanium Market Conditions
High Grade Titanium Market Conditions For personal use only • More complex demand and supply factors than zircon • Iluka is not the “market leader” in titanium dioxide feedstocks • Major cost pressures on Iluka competitor production • Short to medium term supply likely to remain constrained - includ
Slide 13: Iluka's High Grade Titanium Opportunity
Iluka’s High Grade Titanium Opportunity For personal use only • New pricing environment for high grade titanium products from 2011 • More flexible volume and pricing arrangements • Ability to re-activate idled capacity as product prices warrant • Testing of Murray Basin/Jacinth-Ambrosia ilmenite - l
Slide 14: Characteristics of the Mineral Sands Market
For personal use only Characteristics of the Mineral Sands Market Chris Cobb 14
Slide 15: Overview of Principal Product Streams
Key Characteristics of the Mineral Sands Market Overview of Principal Product Streams For personal use only 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) Chl
Slide 16: Global Mineral Sands Market Characteristics
Key Characteristics of the Mineral Sands Market Overview of Principal Product Streams For personal use only Global Mineral Sands Market Characteristics Zircon Titanium Size of market (2008) 1.2mt 6.0mt Sulphate Historical Slag and Ilmenite (50-80% demand TiO2) 4.1% p.a. 3.0% p.a. growth, 2000-08 Maj
Slide 17: Main Product Usages and Applications
Main Product Usages and Applications Predominant End Consumer Applications - 2008 For personal use only 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 Attri
Slide 18: Physical Iluka Sales Flows – September YTD
Physical Iluka Sales Flows – September YTD Importance of China & Developing Economies For personal use only Europe Z – 90kt R – 47kt SR – 70kt China Z – 131kt R – 3kt SR - - Americas Mdl. East Asia Z – 57kt Z – 8kt Z – 44kt R – 71kt R – 1kt R – 28kt SR – 52kt SR – 16kt SR – 116kt 18 Notes: Data base
Slide 19: Enhanced Logistics & Market Supply Arrangements
Enhanced Logistics & Market Supply Arrangements Warehouse and Small Lot Distribution Facilities For personal use only Antwerp, Belgium Qingdao, China Zircon - Zircon Premium Premium Castellon, Spain Zircon Premium Shanghai, China Zircon Premium Rutile Wilmington, Delaware Zircon Premium Xiamen, Chin
Slide 20: Iluka Customer Structure
Iluka Customer Structure Consolidated Titanium, More Fragmented Zircon For personal use only Zircon Titanium Iluka Customer • Zircon flour millers (ceramics), 60% • Pigment producers, 90% Industries • Casting material manufacturers • Titanium sponge producers,5% (refractories and foundry), 18% • Wel
Slide 21: Industry Structure & Participants
Industry Structure & Participants Relative Industry & Geography Supply Consolidation - 2008 For personal use only 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 21 S
Slide 22: Iluka's Market Analysis & Key Market Dynamics
For personal use only Iluka’s Market Analysis & Key Market Dynamics Doug Warden 22
Slide 23: Iluka's Analytical Base
Iluka’s Analytical Base For personal use only Iluka’s analytical base for marketing and planning purposes focuses upon some of the following areas: • Demand analysis - sector; end-applications; regional usage • Customer (pigment feedstock) capacities and titanium feedstock mix requirements • Invento
Slide 24: Zircon Market
For personal use only Zircon Market 24
Slide 25: Zircon Demand Overview
Zircon Demand Overview For personal use only • 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 C
Slide 26: Zircon Demand: End Use & Regional Tile Consumption
Zircon Demand End Use Demand & Regional Tile Consumption/Production For personal use only 26 Source: Iluka, TZMI and Ceramic World Review
Slide 27: Global Zircon Demand Underpinned by Developing Economy Demand
Global Zircon Demand Underpinned by Developing Economy Demand For personal use only 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 equa
Slide 28: Zircon Supply and Demand Scenarios
Zircon Supply and Demand Scenarios For personal use only kt 2500 Iluka JA Existing Produc ers • Assuming China demand growth of 8% & 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 additi
Slide 29: Supply Inducement: Evaluation of Potential Supply
Supply Inducement Evaluation of Potential Supply For personal use only • Potential or mooted new sources of zircon are summarised in the table below. These range from exploration discoveries to projects at some stage of evaluation/feasibility study • With the exception of Iluka’s Jacinth-Ambrosia ex
Slide 30: Supply Inducement: Evaluation of Potential Supply
Supply Inducement Evaluation of Potential Supply For personal use only • Iluka undertakes internal analysis of all known potential new mineral sands projects (concept to feasibility stage). • Project economics are evaluated using publicly available information, industry benchmarking and internal exp
Slide 31: Indicative Zircon Long Term Supply Curve
Indicative Zircon Long Term Supply Curve Higher Prices Required to Rationally Induce Greenfield Projects For personal use only • Iluka analysis of prospective projects shows that significant industry price rises needed to induce new supply • This chart illustrates potential production from new or mo
Slide 32: Zircon Substitution Risk
Zircon Substitution Risk For personal use only • 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 Porcella
Slide 33: Zircon Market Summary
Zircon Market Summary For personal use only • 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 induc
Slide 34: Titanium Dioxide Feedstock Market
For personal use only Titanium Dioxide Feedstock Market 34
Slide 35: Titanium Demand Overview
Titanium Demand Overview For personal use only • 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
Slide 36: Titanium Feedstock Market Segmentation
Titanium Feedstock Market Segmentation For personal use only Titanium Feedstock (TiO2 grade) High Grade Chloride Chloride Ilmenite * Chloride Slag SREP Chloride Feedstocks 91% Slag • Iluka • QMM Rutile/HyTi Chloride Ilmenite Chloride Slag Leucoxene and HyTi • Iluka • Iluka • RBM • Iluka • Bemax • Na
Slide 37: Titanium Dioxide End Use Demand
Titanium Dioxide End Use Demand For personal use only Titanium Market Segments ~6,050kt (2008) Other, 6% Metal, 4% Pigment, 90% Source: Iluka and TZMI 37
Slide 38: Titanium Demand: Pigment Demand Forecasts
Titanium Demand Pigment Demand Forecasts For personal use only 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 10
Slide 39: Pigment Demand by Region, 1980 to 2009
Pigment Demand by Region, 1980 to 2009 Developing countries pigment use growing with GDP For personal use only 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$)
Slide 40: Chloride Titanium Supply & Demand
Chloride Titanium Supply & Demand For personal use only 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
Slide 41: Titanium Market Summary
Titanium Market Summary For personal use only • 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 • M
Slide 42: Current and Evolving Market Conditions
For personal use only Current and Evolving Market Conditions Chris Cobb 42
Slide 43: Current Market Conditions: Zircon
Current Market Conditions Zircon For personal use only • 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 cond
Slide 44: Zircon Pricing and Contractual Arrangements
Current Market Conditions Zircon Pricing and Contractual Arrangements For personal use only • 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 oper
Slide 45: Zircon Pricing and Contractual Arrangements
Current Market Conditions Zircon Pricing and Contractual Arrangements For personal use only • 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 Onli
Slide 46: Current Market Conditions: Titanium Dioxide
Current Market Conditions Titanium Dioxide For personal use only • 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 i
Slide 47: Warehouse alternative - Internet Sales and Auction Site
Warehouse alternative - Internet Sales and Auction Site For personal use only 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
Slide 48: Synthetic Rutile Strategy
Synthetic Rutile Strategy For personal use only • 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 t
Slide 49: Emerging Market Conditions: End of Cap and Collar Contracts
Emerging Market Conditions End of Cap and Collar Contractual Arrangements For personal use only • Most of Iluka’s legacy Ti02 contracts have had “cap and collar” pricing • Volume commitments with pricing increases/decreases constrained • Increases linked to CPI or low percentage increases – typicall
Slide 50: Approach to Titanium Dioxide Contracting
Approach to Titanium Dioxide Contracting For personal use only • 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 d
Slide 51: Approach to Titanium Dioxide Contracting: Welding and Titanium Metal
Approach to Titanium Dioxide Contracting For personal use only Welding Market • Flux core wire electrode market is also strong • Higher prices will also flow through in to this sector • Iluka’s web based sales portal (IOS) one of the outlets for these sales Titanium Metal • Rapidly growing segment o
Slide 52: Summary
Summary For personal use only In summary • Zircon supply extremely tight, indications are it will remain so for immediate future • High grade Ti02 feedstocks now following the same path • Historical constraints of the lower term contract in Ti02, and annual pricing in zircon, are gone 52
Slide 53: China Market
For personal use only China Market Stephen Hay 53
Slide 54: The China Zircon Market
The China Zircon Market For personal use only China Zircon Segments 2009 Other 7% China ~ 40% of global zircon sand consumption Zirconia & Chemicals 29% Ceramics ~ 43% of world Ceramics 55% ZrO2/Chemicals ~ 65% of world Casting ~ 17% of world Foundry/Casting 5% Refractory ~ 13% of world Refractory 4
Slide 55: The China Zircon Market: Consumption Regions
The China Zircon Market For personal use only Major zircon sand consumption regions Developing zircon sand consumption regions Major zircon warehouse locations 55
Slide 56: The China Zircon Market
The China Zircon Market For personal use only • 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
Slide 57: Over 90% of Zircon Consumed in China is Imported
The China Zircon Market For personal use only 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 -
Slide 58: Iluka Zircon Sales to China
The China Zircon Market For personal use only 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 s
Slide 59: Trends and Challenges
The China Zircon Market For personal use only Trends and Challenges • Customer expansions (little aggregation) • Undersupply: customer allocations • Focus on quality • Environmental and worker safety concerns (e.g. power usage, radiation in some zircons) 59
Slide 60: The China Titanium Minerals Market
The China Titanium Minerals Market For personal use only 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 Ti Sponge ~ 30% of world 14% Welding/Other ~ 40% of world Current Est. Annual Iluka Sales to C
Slide 61: The China Titanium Minerals Market: Consumption Regions
The China Titanium Minerals Market For personal use only Major titanium minerals consumption regions 61
Slide 62: The China Titanium Minerals Market
The China Titanium Minerals Market For personal use only • All sales are direct between Iluka and Chinese customers (no distribution contracts) • Customer Profile - Pigment customers are mostly SOEs - Welding customers are mostly private enterprises of varying sizes - Ti metal customers are a mix of
Slide 63: The China Titanium Minerals Market: Pigment
The China Titanium Minerals Market: Pigment For personal use only 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 a
Slide 64: The China Titanium Minerals Market: Outlook
The China Titanium Minerals Market: Outlook For personal use only • 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
Slide 65: China Office
China Office For personal use only The Iluka China Office was established at Shanghai in early 2008 Photo 1 65
Slide 66: Logistics
Logistics For personal use only Iluka storage and distribution facility near Shanghai 66
Slide 67: Conducting Business
Conducting Business For personal use only 67
Slide 68: The China Market: General Comments
The China Market: General Comments For personal use only • Demand in China linked to domestic property and construction sectors • Correlation of mineral sands to Chinese construction activity not strong: - Demand for paint and ceramics in buildings largely post sale of completed structures or units
Slide 69: The China Market: General Comments
The China Market: General Comments For personal use only • Heavy new development in emerging tier 1 and tier 2 cities eg Binhai (Tianjin), Liangjiang (Chongqing) and Chengdu (Sichuan) • Ongoing heavy investment in development of western provinces • Fast-tracking the national high speed rail network
Slide 70: Summary and Q&As
For personal use only Summary and Q&As David Robb 70
Slide 71: Iluka's Marketing Priorities
Iluka’s Marketing Priorities For personal use only • Stay disciplined • Continue to differentiate Iluka in our customers' eyes in relation to - quality products - supply and service efficiency and responsiveness - minimize costs to the benefit of both parties - provide price direction for zircon • E
Slide 72: Iluka's Marketing Priorities
Iluka’s Marketing Priorities For personal use only • Continue to build momentum and market penetration in China - both zircon and high grade titanium dioxide - distribution arrangements in central and western China - technical assistance for high grade feedstocks in pigment manufacturing • Build Ilu
Slide 73: Closing Slide
For personal use only Closing Slide Iluka Resources Limited For further information refer www.iluka.com Contact: Dr Robert Porter, General Manager, Investor Relations robert.porter@iluka.com +61 407391829 Closing Statement
Slide 74: China Market Back Up Slides
For personal use only China Market Back Up Slides 74
Slide 75: The China Zircon Market: Estimated Monthly Sales
The China Zircon Market For personal use only Estimated Monthly Zircon Sales in China Period Av. Sales/month 2008 ~ 40kt H1, 2009 ~ 14kt H2, 2009 ~ 50kt H1, 2010 ~ 55kt • Market turned down sharply at end of 2008 and consumer stocks built rapidly • Consumer stocks fuelled consumption during H1, 2009
Slide 76: China Zircon Imports
The China Zircon Market For personal use only China Zircon Imports '000 tonnes 500 450 400 350 300 250 200 150 100 50 0 2006 2007 2008 2009 2010* Indonesia Australia South Africa Other * 2010 is Jan-Aug only • Australia sourced zircon a major influence in the China market • South African producers t
Slide 77: Global and Chinese Zircon Consumption
The China Zircon Market For personal use only Global and Chinese Zircon Consumption '000 tonnes 1400 45% 1200 40% 35% 1000 30% 800 25% 600 20% 15% 400 10% 200 5% 0 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010* China Rest of World China % of World * 2010 is forecast for full year • China
Slide 78: The China Zircon Market: Other Sectors
The China Zircon Market: Other Sectors For personal use only • Major zircon demand to be fuelled mainly by: - Fused zirconia for ceramic pigments and refractories for manufacture of construction glass (including export markets like India) - Chemical zirconia for wide range of applications including
Slide 79: The China Zircon Market: Ceramics
The China Zircon Market: Ceramics For personal use only Chinese Ceramic Tiles Million sqm 4000 3500 3000 2500 2000 1500 1000 500 0 2003 2004 2005 2006 2007 2008 Production Consumption • Preliminary data for 2009 indicates another significant increases in both production and consumption • 2010 has ag
Slide 80: Iluka China Zircon Market Share
The China Zircon Market For personal use only Iluka China Zircon Market Share 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 2004 2005 2006 2007 2008 2009 Iluka’s zircon market share in China since 2008 has matched or exceeded its global market share 80
Slide 81: The China Titanium Minerals Market: Ti Metal
The China Titanium Minerals Market: Ti Metal For personal use only Chinese Ti Sponge Production tonnes 60000 50000 In 2009 China ~ 30% of global Ti 40000 sponge production 30000 20000 10000 0 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20 • Mostly consumes
Slide 82: The China Titanium Minerals Market: Other
The China Titanium Minerals Market: Other For personal use only • Relatively small segment but China makes up approximately 40% of the world’s consumption in this category • Consists mainly of welding - Flux Cored Wire (requiring high grade feedstock – 25-30kt per year in China) - Welding Rods (requ
Iluka Resources — Investor Presentation (November 2010) on 6ix