Iluka Resources Limited · ASX:ILU
Iluka Resources — Merger or Acquisition (September 2020)
42 slides from Iluka Resources's merger presentation, Sep 10, 2020
Slide 1: Deterra Royalties Demerger Briefing
Deterra Royalties Demerger Briefing 10 September 2020 Julian Andrews Chief Executive Officer
Slide 2: Important notices and disclaimer
Important notices and disclaimer This presentation has been prepared by Iluka Resources Limited (Iluka). By accessing this presentation you acknowledge that you have read and understood the following statement. This presentation contains s ummary informa tion about Iluka, Deterra Royalties Limited (
Slide 3: Contents
Contents 1 Demerger Overview 5 2 Introduction to Deterra Royalties 9 3 MAC Royalty: The Cornerstone Asset 14 4 Growth Opportunities: Organic 16 4 Growth Opportunities: Investment 19 5 Dividend Policy 23 6 Conclusion: Investment Highlights 25 Appendices A Royalty Industry 28 B Deterra Royalties Backg
Slide 4: Key Management
Key Management 4 Iluka Resources Deterra Royalties Tom O’Leary Adele Stratton Julian Andrews Brendan Ryan Chief Executive Officer Chief Financial Officer Chief Executive Officer Chief Financial Officer
Slide 5: Demerger Overview
Subsection 1. Demerger Title Description Overview 5.
Slide 6: Demerger Overview
Demerger Overview 6 Demerger will result in two separate ASX-listed businesses – Iluka will continue to be a global leader in the mineral sands industry while Deterra Royalties will be the largest ASX-listed resources focused royalty company Overview Post-demerger Structure • The demerger will resul
Slide 7: Demerger Rationale
Demerger Rationale 7 Iluka’s Mineral Sands business and Royalty business are two fundamentally different businesses, consequently a demerger has the potential to unlock shareholder value over time Mineral Sands Business Royalty Business Business A leading pure play mineral sands company globally Aus
Slide 8: Key dates
Key dates 8 Subject to a shareholder vote on 16 October 2020, Deterra Royalties will commence trading on the ASX as a separately listed entity on 23 October 2020 on a deferred settlement basis Event Date Last time and date for determining eligibility to vote at the Extraordinary General Meeting 4.00
Slide 9: Introduction to Deterra Royalties
Subsection 2. Introduction to Title Description Deterra Royalties Source: BHP 9.
Slide 10: Experienced Board and Senior Management
Experienced Board and Senior Management Board and senior management reflects a diverse range of expertise across the global resources sector Board Member Biography Executive Member Biography Jenny Seabrook • Over 30 years experience across capital markets, mergers Julian Andrews • Extensive experien
Slide 11: A structurally advantaged business model
A structurally advantaged business model Listed royalty companies provide investors with exposure to the value created through the discovery, extraction and sale of natural resources, typically without full exposure to some of the key operating risks of mining businesses The royalty business model R
Slide 12: A new investment vehicle in the Australian resources sector
A new investment vehicle in the Australian resources sector Deterra Royalties’ business model is simple and structurally advantaged relative to other forms of investment in resources • Business model is simple with initially one Deterra Business Model primary source of revenue Revenue royalties port
Slide 13: High margin business with strong earnings
High margin business with strong earnings Deterra Royalties is a high margin business with revenue driven by the MAC Royalty, which is linked to iron ore prices, sales volumes from the MAC Royalty Area and the AUD:USD exchange rate MAC Royalty revenue and pro-forma EBITDA margin (A$ million; %)1 Pro
Slide 14: MAC Royalty: The Cornerstone Asset
Subsection 3. MAC Royalty Title Description The Cornerstone Asset Source: BHP 14.
Slide 15: MAC Royalty Overview
MAC Royalty Overview Ownership of the MAC Royalty gives Deterra Royalties exposure to one of the premier iron ore mines globally as measured by scale, cost position, credibility of the operator and remaining asset life • Operated by BHP, world’s largest diversified mining company, ASX-listed Mining
Slide 16: Growth Opportunities: Organic
Subsection 4. Growth Title Description Opportunities: Organic 16.
Slide 17: Near term organic growth driven by South Flank
Near term organic growth driven by South Flank MAC iron ore sales volumes are expected to more than double by 2023 due to BHP’s South Flank expansion, which is now over 76% complete Mining Area C sales volumes (million dmt)1,2 • 145 million wmtpa (139 million dmtpa) iron ore production rate from MAC
Slide 18: Multiple future growth options at Mining Area C
Multiple future growth options at Mining Area C Current MAC operations expected to continue until ~2050 with two potential mining areas identified by BHP in its long-term plan, Tandanya and Mudlark, likely to fall at least partially within the Royalty Area extending the potential royalty cash flows
Slide 19: Growth Opportunities: Investment
Subsection 4. Growth Title Description Opportunities: Investment 19.
Slide 20: Growth strategy focused on value accretive investment
Growth strategy focused on value accretive investment Deterra Royalties will seek to build a portfolio of royalty interests focusing on earnings growth and diversification by making complementary and value accretive investments Key objectives of this strategy are to achieve: • Multiple sources of ea
Slide 21: Unique position as only listed Australian royalty investment company of scale
Unique position as only listed Australian royalty investment company of scale Deterra Royalties’ growth parameters Deterra Royalties’ competitive advantage In evaluating opportunities within these parameters, Deterra Royalties will focus Types of Focus on revenue or sales based royalties on opportun
Slide 22: Strong capacity to fund growth through the conservative use of debt and equity
Strong capacity to fund growth through the conservative use of debt and equity Deterra Royalties has been set up with low debt, providing it with significant debt funding capacity in order to pursue value accretive growth Low debt at inception Pro-forma net debt A$14.2 million provides significant d
Slide 23: Dividend Policy
Subsection 5. Dividend Title PolicyDescription 23.
Slide 24: Attractive dividends expected to flow from ownership of long life MAC Royalty
Attractive dividends expected to flow from ownership of long life MAC Royalty Low debt and a scaleable corporate structure are designed to support the flow of dividends to shareholders • Dividend policy to pay out 100% of Illustrative EBIT Sensitivity (A$ million, real) assuming MAC sales of 139 mil
Slide 25: Conclusion: Investment Highlights
Subsection 6. Conclusion: Title Description Investment Highlights Source: BHP 25.
Slide 26: Royalty sector companies trade at premium multiples
Royalty sector companies trade at premium multiples Large royalty companies tend to trade on higher multiples relative to large mining companies given the attractive operating model and exposure to the commodity outlook and growth Attractive valuation compared to large Multiples Comparison – Largest
Slide 27: Key drivers of success
Key drivers of success Deterra Royalties will initially focus on maximising earnings and dividends to shareholders from Mining Area C and will look to execute a disciplined growth strategy that builds a portfolio of royalties over time Maximise value from existing portfolio Execute disciplined growt
Slide 28: Appendix A: Royalty Industry
Subsection Appendix A: Title Description Royalty Industry 28.
Slide 29: Evolution of the royalty industry
Evolution of the royalty industry The listed resources royalty industry has grown significantly over the last decade given its appeal to investors relative to other resources investments and an attractive form of financing for mining projects Growing business model1,2 Track record of delivering supe
Slide 30: Listed royalty companies
Listed royalty companies The listed resources royalty business model is well-established in North America. However there are no pure-play non-precious royalty companies of similar scale and quality to Deterra Royalties Market cap Approximate Select peers1 (US$bn) Listing # of royalties Commodity foc
Slide 31: Appendix B: Deterra Royalties Background Information
Appendix B: Subsection Title Description Deterra Royalties Background Information 31.
Slide 32: History of Mining Area C
History of Mining Area C Mining Area C has a long history dating back to when the Mount Goldsworthy JV was created in 1962. South Flank expansion drives decision to review the Mining area C’s position within Iluka portfolio 1962 1994 2018 2019 Establishment of Mount Goldsworthy JV Creation of the MA
Slide 33: Map of Mining Area C
Map of Mining Area C Mining Area C Royalty Area1 • Mining Area C is located in WA ~90km north west of Newman Township in the Pilbara region • The MAC Royalty area is the area of mining area ‘C’ as defined under the Iron Ore (Mount Goldsworthy) Agreement Act and principally relates to the Mining Area
Slide 34: Portfolio of royalties
Portfolio of royalties Deterra Royalties holds five other royalties (in addition to the MAC Royalty) as part of its existing portfolio Deterra Royalties Project 1 Counterparty Location Commodity Status Royalty Key Terms Revenue (2019) Yoongarillup Mineral Sands Mine Doral Mineral Sands Pty 2% of rev
Slide 35: Appendix C: Supporting Financial Information
Appendix C: Subsection Title Description Supporting Financial Information 35.
Slide 36: Prudent capital structure to support business strategy
Prudent capital structure to support business strategy Deterra Royalties has been established with a conservative capital structure to provide it with the financial flexibility to pursue value accretive growth Capital Structure Balance Sheet Pro-forma capital structure (as at 30 June 2020) A$ millio
Slide 37: Appendix D: Background to Iron Ore Markets
Appendix D: Subsection Title Description Background to Iron Ore Markets 37.
Slide 38: Iron ore market outlook – Demand
Iron ore market outlook – Demand Demand commentary Global seaborne iron ore demand CAGR • Global seaborne iron ore demand has more than tripled over the past two decades Mt 1600 1.2% ‒ Demand has been primarily driven by China’s rapidly growing steel production ‒ China represents 71% of internationa
Slide 39: Iron ore market outlook – Supply
Iron ore market outlook – Supply Supply commentary Global seaborne iron ore supply • Seaborne iron ore supply is heavily concentrated with the top four major producers Mt CAGR representing approximately 70% and two countries contributing 80% of supply: 1800 1.3% Supply by producer (2019) Supply by c
Slide 40: Appendix E: Key Risks
Appendix E: Subsection TitleRisks Key Description 40.
Slide 41: Key risks associated with an investment in Deterra Royalties
Key risks associated with an investment in Deterra Royalties Some of the key risks associated with an investment in Deterra include: • Fluctuations in commodity prices (particularly, iron ore) and foreign exchange rates • Political events • Exposure to sales volumes • Changing expectations with resp
Slide 42: Deterra Royalties
eC Deterra ROYALTIES
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