Iluka Resources Limited · ASX:ILU
Iluka Resources — Bank of America Merrill Lynch Global Metals, Mining and Steel Conference 2016
31 slides from Iluka Resources's conference presentation, May 2016
Slide 1: Iluka Resources Limited
Iluka Resources Limited Bank of America Merrill Lynch Global Metals, Mining and Steel Conference David Robb, Managing Director and CEO, Iluka Resources Limited (ASX: ILU) Florida, May 2016
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: Mineral Sands – Part of Everyday Life
Mineral Sands – Part of Everyday Life Roof/building/ Home/office Bathroom/ Kitchen/ Automotive Sporting goods/ Healthcare/ Aircraft/ construction lifestyle utilities recreation medicine industry 3
Slide 4: Zircon Applications
Zircon Applications Zirconia, Zirconium Chemicals Ceramics Refractory and Foundry and Metal ~50% of demand ~30% of demand ~20% of demand Zircon has many unique properties Zircon is opaque, water, chemical and Zircon is heat resistant and non-reactive Uses include fibre optics, abrasion resistant Use
Slide 5: Titanium Applications
Titanium Applications Pigment Titanium Metal Welding (flux) ~90% of demand ~6% of demand ~4% of demand Nanomaterials Growing market Titanium metal has high strength to Titanium dioxide pigment is opaque weight ratio and is corrosion resistant. Uses include solar cells, water (white), UV resistant an
Slide 6: Iluka Resources Limited
Iluka Resources Limited Objective – to create and deliver value for shareholders • ~A$2.4 bn market capitalisation; 6th ranked Australian resource company • Leading position in mineral sands industry ‒ largest producer of zircon – market share ~35% ‒ significant high grade titanium dioxide feedstock
Slide 7: Sustainable Development
Sustainable Development Land Rehabilitation Jacinth-Ambrosia • Stable LTIFR, increase in TRIFR – minor injuries/first aid – additional focus • Strong safety culture/performance evidenced by exemplary synthetic rutile kiln restart • Excellent land rehabilitation progress – 3rd consecutive year of net
Slide 8: Capital Management Discipline
Capital Management Discipline • Iluka’s approach: – maintain a strong balance sheet • Iluka’s distribution framework: – pay a minimum 40% of FCF not required for investing or balance sheet activity – distribute maximum practicable level of available franking credits • Balance sheet 2015 year end: –
Slide 9: Capital Management Trend
Capital Management Trend • Shareholder focused capital management approach evident since 2007 • 2010 - 2015 cash returned to shareholders >2X cash retained ($715m vs $340m) • Balance sheet strength enhanced in 2015 – additional facilities, longer tenor • Significant funding headroom – ability to act
Slide 10: Balanced Apportionment of 2015 Cash Flow
Balanced Apportionment of 2015 Cash Flow 2015 Operating Cash Flow Usage ($m) Innovation & Technology $28.0 Debt Reduction $75.5 Exploration $27.7 Tapira $2.7 Investment Free Cash Flow $125m $155m Capex $62.3 Fully Franked Dividends $79.5 Metalysis $4.1 Net cash inflow from operating activities in th
Slide 11: Mineral Sands Value Chain
Mineral Sands Value Chain CAPITAL DISCIPLINE RESOURCE MINING AND MINERAL SANDS SUSTAINABLE CUSTOMER MINERAL SANDS AND BALANCE SHEET DEVELOPMENT PROCESSING PROJECTS/GROWTH DEVELOPMENT FOCUS – PART OF MANAGEMENT OPTIONS EVERYDAY LIFE Focus on return on capital Resource identification, Integrated
Slide 12: Integrated and Flexible Operations
Integrated and Flexible Operations 12
Slide 13: Historical Production and Sales
Historical Production and Sales Historical Zircon Production and Sales Historical Rutile and Synthetic rutile Production and Sales 2011 - 2015 2011 - 2015 Cumulative zircon production 1,976kt Cumulative rutile and synthetic rutile production 1,700kt Cumulative zircon sales 1,797kt Cumulative rutile
Slide 14: Unit Costs and Unit Revenue – 2016 Trend
Unit Costs and Unit Revenue – 2016 Trend Production, Revenue per tonne Sold and Unit Cash Costs / COGS $1136/t $1030/t $862/t $780/t $668/t $558/t • 2016 trend - lower cash costs of production; lower unit cash costs • COGS should inform modeling - refer Iluka’s Key Physical and Financial Parameters
Slide 15: Iluka – Growth Focus
Iluka – Growth Focus FINANCIAL FOCUS GROWTH FOCUS AREAS Marketing and Projects Exploration Innovation and Other Market Development Mineral Sands Mineral Sands / Technology Options - Direct sales - Internal options Other Commodities - resource - Metalysis, Tapira arrangements advanced commercialisati
Slide 16: Industry Supply Considerations
Industry Supply Considerations • Short term factors – inventory and surplus upgrading capacity in hands of major producers – fresh capital (~$1.6 billion) required to sustain production – cash flow and balance sheet stress for several industry players • Supply forecasts should allow for: – assemblag
Slide 17: Global Grade and Assemblage Challenges
Global Grade and Assemblage Challenges HM Grade Mineral assemblage in resources RZ Assemblage 5.0% 15% 13% Trash Sulphate Ilmenite 4.0% 12% Chloride Ilmenite Rutile (and other high grade TiO2) 3.0% 9% 9% Zircon Combined RZ in HM (RHS) 6% 2.0% 6% • Trash component in Heavy Mineral grade increasing •
Slide 18: Industry Re-investment Activity
Industry Re-investment Activity Source: TZMI, S&P Capital IQ, company announcements • Iluka estimates ~US$1.6b to be spent on major projects during the next few years to sustain production – this estimate excludes maintenance capital – relates to major existing producers, not potential new players 1
Slide 19: Zircon Supply Outlook
Zircon Supply Outlook Source: Iluka * Zircon production from 2016 onwards excludes any finished goods inventory held at 31 December 2015, but includes zircon processed from concentrate stockpiles held by Iluka at the end of 2015. • Zircon from existing producers declining due to depletion and declin
Slide 20: Industry Technology Waves
Industry Technology Waves 20
Slide 21: Hub and Spoke Distribution
Hub and Spoke Distribution 21
Slide 22: Commitment to Internal Project Development
Commitment to Internal Project Development Balranald, Murray Basin, Victoria/NSW Cataby, Western Australia Eucla Basin, South Australia Aurelian Springs/Hickory, United States Puttalam, Sri Lanka 22
Slide 23: Exploration
Exploration • Well funded, consistent exploration programme ~$20 million per annum • Gated approach to exploration progress and expenditure • Mineral sands exploration in Australia − testing new concepts in mature basins • Increasing international activity − Sri Lanka, Kazakhstan, Brazil, US, Denmar
Slide 24: Innovation and Technology
Innovation and Technology • Means to address resource challenges – current and future • Network of site based process specialists supported by central technology group • Dedicated Metallurgical Test Facility (MTF): − mimics mineral sands value chain − supports development of new technologies • Suppo
Slide 25: Metalysis, UK
Metalysis, UK • Iluka equity holding of 28% • Potential to revolutionise metal powder production: – cost-effective and simple – transformational products • Iluka shareholder value potential: – large position in valuable company (IPO) – titanium feedstock supply and customisation – increased global d
Slide 26: Business Characteristics - 2016
Business Characteristics - 2016 • Continued investment in exploration, technology, marketing, people • First half, significant investment in innovative mining and processing solutions • Cataby project execute planning and Balranald project FS Stage 1 completion • Physical and financial parameters (F
Slide 27: Market Conditions – Zircon
Market Conditions – Zircon • January/February sales in line with expectations • Low zircon buying in March for price-related reasons – rumoured 2Q price reduction by a major supplier • Iluka ASX Release 7 April – Zircon Reference Price reduced by ~10% to ~US$950/tonne1 • European zircon demand firme
Slide 28: Market Conditions – High Grade TiO2
Market Conditions – High Grade TiO2 • Demand for TiO2 pigment (largest market for feedstocks) improved since end of 2015 – series of price increases for pigment announced • Earlier R/SR supply requested by some customers • Additional TiO2 sales secured above contracted volumes • Demand improvement,
Slide 29: Investment Considerations – Near Term
Investment Considerations – Near Term • Sound financial position at “low point” of cycle – reasonable margins, +ve cash flow, balance sheet strength • Disciplined capital allocation and flexible investment timing • Lower operating costs • Value realisable from inventory • Counter-cyclical opportunit
Slide 30: Investment Proposition – Medium Term
Investment Proposition – Medium Term CREATE AND DELIVER VALUE FOR SHAREHOLDERS SHAREHOLDER FOCUS Iluka is focussed on shareholder returns through the cycle FAVOURABLE MINERAL SANDS Favourable medium term demand dynamics vs DEMAND VS SUPPLY challenging investment and supply outlook Integrated mining
Slide 31: Iluka Resources Limited
Iluka Resources Limited For more information contact: Dr Robert Porter, General Manager Investor Relations robert.porter@iluka.com +61 (0)3 9225 5008 / +61 (0) 407 391 829 www.iluka.com