Download Iluka Resources Limited Company and Mineral Sands Sector

Iluka Resources Limited
Company and Mineral Sands Sector Overview
November / December 2010
1
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, should, will, expects, plans or similar expressions. It is believed that the expectations reflected
in these statements are reasonable but they may be affected by a range of variables and changes in underlying
assumptions which could cause actual results or trends to differ materially. These include, but are not limited to: price
and currency fluctuations, actual supply versus demand, production results, reserve and resource estimates, loss of
market, industry competition, environmental risks, physical risks, legislative and regulatory developments, economic and
financial market conditions in various countries and regions, political risks, project delay or advancement, approvals and
cost estimates.
Specific Risks & Sensitivities
The information contained in this presentation is subject to, but not exclusively to, the following:
•
Changes in exchange rate assumptions
•
Changes in product pricing assumptions
•
Major changes in mine plans and/or resources
•
Changes in equipment life or capability
•
Emergence of previously underestimated technical challenges
•
Environmental or social pressures which impact licence to operate
All currency referred to is Australian denominated unless otherwise indicated.
2
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
1. Iluka Overview and Investment Proposition
4
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 Australia
Objective
To create and deliver shareholder value
Key Deliverables
Capital efficient transformation of the asset base
- delivery of two new globally significant, high margin production sources
- Murray Basin (full production mid 2010) and Jacinth-Ambrosia (full production mid 2010)
Supply discipline through global economic crisis - especially as market leader in zircon
marketing and pricing outcomes in zircon and high grade titanium dioxide markets
Investment Proposition: Improved Financial Characteristics (2011 - 2013 vs 2006 - 2008)
Significantly lower capital expenditure Æ cash flow generation and balance sheet flexibility
Higher production / sales of higher value products (rutile and zircon)
Higher EBITDA / revenue margin and return on capital
Increased contribution from low risk Mining Area C royalty stream
5
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 equity
Short term incentives
linked to ROC, EBIT and profitability (60%); sustainability measures (10%) and defined growth
objectives (30%)
any awards 50% in cash and 50% in share rights (full entitlement deferred for 2 years)
- any share rights lapse if individual leaves the company
Long term Incentives
linked to relative TSR against two comparator groups and ROE (10% threshold and 14% target)
$1,000 share grant to employees (twice) not eligible for short or long term incentives
6
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 Mining Are C (BHP Billiton) iron ore royalty stream
5.
Significantly improved financial characteristics expected from 2011
7
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 - Growth Commitments
•
Balance sheet recapitalisation – debt and equity
•
Commitment to new growth projects in capital-efficient manner
•
Re-focussed marketing / pricing disciplines
2009 – Global Economic Crisis
•
Business re-configuration accelerated
•
Projects kept on track
•
Zircon supply response to protect pricing outcomes
•
Further balance sheet funding headroom initiatives
8
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 >20% above contract prices
2011 - New Iluka
•
First year of unconstrained titanium dioxide prices/contracts
•
Higher margins and stronger free cash flows
•
Zircon and high titanium dioxide markets tight
•
First instalment of objective – create and deliver value for shareholders
2012 - New Industry
•
Demand based on more broadly based global growth
•
Supply an acknowledged problem – contractual flexibility
•
New growth horizons – for shareholders, employees and customers
9
Iluka Physical and Financial Trends
2011-2013 vs 2006-2008
Physical Trends
Production (kt)
Zircon
Rutile
Synthetic Rutile
Total
2006 - 2008
average p.a.
2011 – 2013f
average p.a.
% change from
2006-2008
410
125
500
1,035
500
250
290
1,040
22
100
(42)
While indicative and subject to change, Iluka expects to deliver:
•
higher contribution of higher margin production relative to 2006-2008
•
synthetic rutile production levels dependent on Iluka decision on idling of kilns or otherwise
10
Iluka Physical and Financial Trends
2011-2013 vs 2006-2008
Financial Trends
Cash prod costs ($m)
Non cash costs
(D&A)
Operating cash flow ($m)
Net debt ($m)
Gearing (x)
2006 - 2008
average p.a.
2011 - 2013
average p.a.
585
127
510
175
120
468
35.9
↑
↓
↓
While indicative and subject to change, Iluka expects to deliver:
•
lower unit cash cost of production in 2011-2013 compared with 2006-2008, from new asset base
•
stronger free cash flow generation
•
lower debt, greater balance sheet flexibility
11
Iluka Capital Expenditure, Cash Flow and Debt Profile
2006
2007
2008
2009
2010
20112013
(average)
Capital Expenditure
A$m
156
111
198
520
~100
È
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 - 2008
È Decrease versus 2006 - 2008
1
Operating cash flow, pre cash flows from investing activities and financing activities
12
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
Jacinth-Ambrosia
South Australia
Murray Basin
Victoria
Zircon
~300
~130
Rutile
~45
~180
Ilmenite
~175
~130
~40
~50
~30
~40
Indicative Asset Characteristics
2011 - 2013 average p.a.
Production kt
Indicative EBITDA Margin %
based on 2009 average prices
90 cents
80 cents
13
Competitive Revenue:Cash Cost Position
Second Quartile
Murray Basin
First Quartile
Third Quartile
Fourth Quartile
Iluka WA
Iluka US
Iluka
Iluka Avg 2006-08 = 1.3
0
*
Other
Iluka Avg 2011-13 = 1.8
Ratio
JacinthAmbrosia
Industry Revenue to Cash Cost Ratio*
2011 -2013
25
50
75
100
% TiO2 + Zr (kt)
•
Revenue to cash cost ratio is key measure of competitiveness
•
Ratio highly dependent on product price relativities
•
Iluka well placed - Jacinth-Ambrosia and Murray Basin operations forecast to be in first quartile
•
A significant number of existing operations forecast to have negative cash margin positions
14
Based on constant exchange rates; Iluka pricing, production and industry cost forecasts
Jacinth-Ambrosia
Capable of Supplying ~25% of Global Zircon Demand
15
Source: Iluka
Jacinth-Ambrosia, South Australia
Name plate production reached July 2010
16
Murray Basin Stage 2, Victoria
Major Rutile and Zircon Production Province
17
Murray Basin Stage 2, Victoria
Long Life Rutile and Associated Zircon Production
18
Mining Area C Iron Ore Royalty
In-perpetuity Tier 1 Iron Ore Exposure
Background
•
Mining Area C (MAC) covers a part of BHP
BIlliton’s iron ore mining operations in WA’s
Pilbara region, operated by BHP (85%) under a
JV with Itochu and Mistui
Royalty based on:
•
1.25% of FOB sales less export duties and
taxes; and
•
$1m one-off payment per 1Mt increase in annual
production
Outlook
•
BHP has stated intentions to increase total iron ore output from WA
to 350Mtpa past 2015. MAC production at end of 2000 was ~40
million tonnes and is expected to be a significant proportion of this
total increase
•
Potential sharing of facilities under proposed Rio Tinto JV also
raises the likelihood of production increases from the region
BHP and Rio Tinto Pilbara Iron Ore Operations
Source: BHP
•
Source: BHP
BHP forecasts demand for seaborne iron ore to rise to over 1,200Mt
by 2015 and over 1,800Mt by 2025
19
MAC Cost Curve Position
MAC
Seaborne Iron Ore Fines Cost Curve 2010 (Business Cost USc/dmtu)
• 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
2.
Industry Overview
21
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 Leucoxene (60-70% TiO2)
Chloride Slag (80-85% TiO2)
Sulphate Slag and Ilmenite (50-80% TiO2)
Zircon
2008 = 1.2Mt
(2009 = 0.9Mt)
20%
80%
Typical industry zircon to titanium dioxide units in mineral sands deposits - 20:80
* 2008 Global Sands Mineral market is more representative than 2009 due to GEC impact in 2009
Source: TZMI and Iluka
22
Main Product Usages and Applications
Predominant End Consumer Applications - 2008
Zircon
2000-08
Average Annual Growth
Other, 5%
(8%)
Zirconia &
Chemicals,
18%
11%
Refractories,
11%
0%
Foundry, 11%
0%
Titanium
2000-08
Average Annual Growth
11%
14%
2%
Ceramics, 55%
4%
Main Attributes:
• Opacity, whiteness, abrasion resistance,
temperature resistance and inertness
Potential Substitutes:
• White clays, kaolin and feldspar (in ceramics)
Value in Final Product
• Tiles ~5% to 10% (dependent on tile type, quality and colour)
Source: TZMI and Iluka
Main Attributes:
• Opacity, whiteness, UV absorption (pigments)
• Strong, lightweight, corrosion resistant (metals)
Substitutes:
• No major substitutes
Value in Final Product
23
• Paint ~5% (dependent on paint application, quality and colour)
Industry Structure and Participants
Relative Industry and Geography Supply Consolidation - 2008
Zircon
Titanium
Major Producing
Countries
Major Producers
Including:
Indonesia, 6%
China, 5%
Vietnam, 3%
India, 2%
Including:
China, 12%
Norway, 7%
Ukraine, 7%
India, 4%
Vietnam, 4%
24
Source: TZMI and Iluka
Iluka Customer Structure
Consolidated Titanium, More Fragmented Zircon
Iluka Customer
Industries
Zircon
•
•
•
•
•
Zircon flour millers (ceramics), 60%
Casting material manufacturers
(refractories and foundry), 18%
Fused zirconia, 10%
ZOC chemical manufacturers, 7%
Other, 5%
Titanium
•
•
•
•
Pigment producers, 90%
Titanium sponge producers,5%
Welding rod manufacturers, 3%
Other, 2%
Other ~ 10%
Iluka Customer
Segmentation
Other ~ 55%
Top 5 ~ 90%
Top 5 ~ 45%
25
Note: Data based on 2008 sales
Key Characteristics of the Mineral Sands Market
Overview of Principal Product Streams
Global Mineral Sands Market Characteristics
Size of market (2008)
Zircon
Titanium
1.2Mt
6.0Mt
Sulphate
Slag and Ilmenite (50-80%
TiO2)
Historical
demand
4.1% p.a.
growth, 2000-08
3.0% p.a.
Major markets
Europe (30%)
North America (25%)
China (20%)
Other (25%)
China (40%)
Europe (20%)
Asia ex. China (20%)
Chloride Ilmenite and Leucoxene (60-70% TiO2)
Pricing (approx.)
~ US$800/t
Start of Synthetic
2010 Rutile (SR) (90-96%
TiO2)
End of 2010
> US$1,000/t
Rutile:
SR:
UGS:
Chl. Ilmenite:
Chl. Slag:
Note: Titanium product pricing constrained by “cap and collar” contractual arrangements in 2010
Source: TZMI and Iluka
~ US$550/t
~ US$450/t
~ US$550/t
~ US$100/t
~ US$400/t
26
Zircon Demand
End Use Demand and Regional Tile Consumption / Production
27
Source: Iluka, TZMI and Ceramic World Review
Tile Consumption
Developing Economies Constitute Major Demand
Source: Ceramic World Review
•
•
•
•
Source: IMF
China, Brazil, India, Iran and Indonesia consume over half of the world’s tiles
Zircon intensity of use in these economies remains well below developed economies
These economies were relatively immune from 2009 GEC impacts
Resilient demand indicated even if further global economic slowdown
28
China and India
Exemplars of Developing Economy Demand
Pigment and GDP per Capita (1980 - 2009)
Tiles and GDP per Capita (1997^ - 2008)
Pigment (kg) / capita
2.5
0.9
India
0.8
Tile sqm / capita
China
India
GEC impact
0.7
China
2008
2
2009
0.6
1.5
0.5
1997
0.4
1
0.3
0.2
0.5
2009
0.1
2008
1980
2002
0
0
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
0
1,000
2,000
3,000
4,000
5,000
GDP / capita (US$)
Note: GDP based on PPP
Source: TZMI and IMF
6,000
7,000
GDP / capita (US$)
^Note: Indian tile data only available from 2002, GDP based on PPP
Source: Ceramic World Review and IMF
•
Pigment and tile consumption increasing in China and India associated with GDP/capita growth
- India per capita usage masked by population growth 3x that of China
•
Intensity of use still significantly lower than developed economies
•
Higher intensity of use and wealth effect (higher value product usage) may create “turbo” charged demand
29
Titanium Dioxide
End Use Demand
Titanium Market Segments
~6,050kt (2008)
Other, 6%
Metal, 4%
Pigment, 90%
Source: Iluka and TZMI
30
Titanium Dioxide Demand
Rio’s Mid Cycle View – Similar Characteristics Apply to Zircon Demand
Infrastructure
Based Growth
Urbanisation
2007 Population
distribution in bands of
income levels**
Average Wealth per
capita in PPP terms
Inflection Point for
growth phase
Typically mid to late cycle demand characteristics
Urbanisation and increased GDP per capital
strong indicators to demand growth
31
Source: Rio Tinto TZMI Conference Singapore
3.
Supply / Demand – Market Conditions
32
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 global tiles
–
zircon intensity of use in ceramics still low in developing countries
Strong demand growth recently in zirconium and zircon chemicals market (10% CAGR 1998-2008)
–
China accounts for ~65% of global zircon demand in chemicals market
–
end uses include: pigments, abrasives, paper coatings, anti-perspirants, nuclear and industrial metals, fuel
cells, cubic zirconia and many others
Zircon Market Characteristics
Current demand (kt)
~1,150kt (2007-09 average)
Historical demand CAGR
3% p.a. (1980-2008)
Historical Price CAGR
8% p.a. (1980-2008)
33
Global Zircon Demand
Underpinned by Developing Economy Demand
Global Zircon Demand Scenarios
(1990 - 2020)
Demand Scenarios
1990-07 Average
Annual Growth
Total = 3%
China = 18%
RoW = 1%
Source: Iluka
•
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 1990-07
average)
•
If China demand growth is 8% (less than half
historical average) and RoW 0%, global zircon
demand growth would exceed historical levels
•
Difficult to envisage a demand scenario where
near term zircon demand is lower than historical
levels, given the major influence of developing
and urbanising economies
34
Zircon
Supply and Demand Scenarios
kt
2500
Iluka JA
Existing Produc ers
•
Low Demand (China 6% and ROW 0% )
2000
Base Demand (China 8%, RO W 0%, 4% CAGR)
Assuming China demand growth of 8% and RoW 0%,
results in a 2010-2020 CAGR of 4%
- should this demand scenario occur an additional 5060kt of new supply is required to meet the annual
demand increase
1500
- since 1990 Chinese zircon demand has grown at
18% p.a. (off a low base)
1000
•
Even in the Low Demand (6% China, RoW 0%)
scenario a considerable deficit is forecast
500
0
2000
Source: Iluka
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
35
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 zircon price required to
induce new projects
2015 Zircon Cost Curve
2015 demand, assuming
4% CAGR from 2010
Zircon (US$/t)
2,250
Existing
2,000
Inducement Curve
~30% higher high
grade titanium
prices
Inducement Curve flat rutile prices
1,750
1,500
1,250
1,000
750
500
250
0
0
1,000
1,250
1,500
1,750
2,000
Zircon (kt)
•
Horizontal axis represents zircon tonnes (thousands) produced by existing producers and potential or mooted projects
•
Analysis assumes concurrent significant rise in rutile prices. Additional zircon price growth would be required under lower rutile prices
•
The above illustrates potential, sustained price increases required to meet demand, if lead times for new supply can be overcome
•
Iluka has capacity to increase production ahead of mooted projects
•
Actual prices may vary from indicated levels – refer disclaimer statement at commencement of presentation
36
Industry Zircon:TiO2 Ratio
Despite Advent of Jacinth-Ambrosia, Industry Z:TiO2 Ratio Remains Stable
7.0
mt of TiO2 or Zircon
Ratio t Zircon/t TiO2
0.35
TiO2 Historical Supply
Zircon Historical Supply
0.3
6.0
Zircon/TiO2 Ratio All
Feedstock Producers
(including J-A)
5.0
0.25
0.2
4.0
3.0
0.15
Zircon/TiO2 Ratio
Excluding Iluka
2.0
0.1
1.0
0.05
0.0
0
1990
1995
2000
2005
2010F
2013
•
Decline in zircon:TiO2 ratio forecast from existing producers (excluding Iluka)
•
Despite Jacinth-Ambrosia (largest new supply source in 30 years) industry Z:TiO2 ratio stable
•
Given zircon demand growth historically > TiO2, zircon availability may come under further pressure if
projected TiO2 volumes do not materialise
37
Source: TZMI and Iluka analysis
Zircon
Substitution Risk
• Zircon typically = represents a low percentage of final products’ pricing
Overview
Ceramics
• 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 global production), zircon = 5-10% of final product cost
depending on tile type, quality and colour)
• TZMI study - low iron clays and feldspar cannot provide equivalent value in use
Foundries &
Refractories
Specialty
Chemicals
• Some evidence of substitution from chromite sand, cerabeads and kerphalite
• Fused zirconia: zircon increased from 25% to 60% costs (‘03-’07) yet no substitution
• Chemical zirconia: zircon increased from 25% to 50% costs (since late ’90s) = switch to lower
quality zircon
38
Source: TZMI and Iluka research
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 then a lead time
•
Substitution a low risk - zircon a small percentage of final consumer costs
•
Iluka investigating opportunities to fill some part of the supply deficit
39
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 has domestic titanium sources but is reliant on imports for high grade pigment, which accounts for ~30% of Chinese demand
– high grade pigments needed for automotive, whitegoods and other specialty applications
– China imports pigment from North America, Taiwan, Australia and Europe
• Titanium metal market displays favourable dynamics with applications in aeronautics and other specialty manufactured goods
– titanium metal properties include strong and lightweight
Titanium Market Characteristics
End use industries
Pigment (91%), Metal (4%), Other (5%) (2009)
Current demand (kt)
~5,900kt (2007-09 average)
Historical demand CAGR
3% p.a. (1980-2008)
- China 15% p.a., Rest of World 2% p.a.
Forecast pigment demand CAGR
DuPont (Sep09) = 5 to 10% (over 2009-15)
TZMI (Jun10) = 5.1% (over 2009-20)
Historical Price CAGR (%)
3.8% (1980-2008) (average Chl. Ilm., Rutile, SR, Chl. Slag)
40
Titanium Demand
Pigment Demand Forecasts
Global GDP per Capita and Pigment per Capita
1.2
Global Pigment Demand
Pigment (kg) /
Capita
8000
Pigment kt
7000
1.0
6000
0.8
2020
2010
0.6
2012-20
5000
3.5% CAGR
4000
2008
2009
3000
0.4
1980-08
2000
0.2
1980-2009
3.1% CAGR
2010-2020
1000
0.0
0
2000
4000
6000
8000
10000
12000
14000
0
1980
1984
1988
1992
1996
2000
2004
2008
2012
2016
2020
GDP / Capita (US$)
• Historically, pigment per capita demand increases with living standards, measured by GDP per capita
• Impact of China has accelerated global pigment demand growth
Industry Pigment Forecasts
Period
CAGR
DuPont (September 2009)
2009-15
5 to 10%
TZMI (June 2010)
2009-20
5.1%
Source: IMF, DuPont, TZMI and Iluka
41
Pigment Demand by Region, 1980 to 2009
Developing countries pigment use growing with GDP
Pigment (kg) / person
5
North America
4
3
1980
Europe
2
2009
Japan
1
China
Global
Asia
India
0
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
Real GDP / Capita (US$)
• Developing countries intensity of pigment use (pigment per person) expected to grow with living standards (rising GDP/capita)
• Developed countries show an intensity of pigment use ~2-4 kg per person. This level of pigment use in China would be a
significant increase from current levels.
Note: Conversion factor for US$ based on Purchasing Power Parity (PPP). Real 2008 Australian dollars.
Source: TZMI and IMF
42
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
− limit to technical switching to lower TiO2 feedstocks
• Iluka advantaged vis a vis rutile and synthetic rutile
position
− both products in tight supply
Source: Iluka
43
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 committed or idled
- industry economics would not support investment in additional upgrading capacity
•
The high grade titanium market has tightened significantly in 2010
•
Evident tightness of some products
•
Favourable factors for higher than historical titanium prices
- tight market supply conditions
- recovery in pigment demand
- China demand for imported chloride pigment
- recovery in niche markets (including titanium sponge / metal)
- unconstrained pricing environment
44
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 continue
•
Customers globally on minimal stocks
•
Demand from customers in excess of supply
45
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 Europe and planned for South America
•
Iluka has achieved 3 substantial price increases in 2010
•
Price rises advised to customers approx. 1 month in advance
•
Iluka seeking to allow customers to pass on price increases
•
Significant opacifier price increases reported globally
46
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 auction or sale
•
Currently both zircon and rutile auction on site
47
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
Z – 57kt
R – 71kt
SR – 52kt
Mdl. East
Z – 8kt
R – 1kt
SR – 16kt
Asia
Z – 44kt
R – 28kt
SR – 116kt
48
Notes: Data based on sales to September 2010. Asia includes Australia and Japan but excludes China.
Enhanced Logistics and Market Supply Arrangements
Warehouse and Small Lot Distribution Facilities
Antwerp,
Belgium
Qingdao, China
Zircon Premium
Zircon Premium
Castellon, Spain
Zircon Premium
Shanghai, China
Zircon Premium
Rutile
Wilmington,
Delaware
Zircon Premium
Xiamen, China
Zircon Premium
49
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 products under long term contractual arrangements
•
Small amount of additional un contracted synthetic rutile (SR) production sold at higher prices
•
Anticipated low stock position for all high grade feedstock at the end of 2010
•
Customers are very concerned over availability of high grade feedstocks
•
Significant pigment price increases reported globally
•
Reported rationing of supply occurring due to shortage of pigment
50
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
•
Iluka’s intent is to run SR3 as R&D kiln until mechanical failure
•
SR3 will require a major rebuild (circa A$15m plus) to commence a new campaign
•
Murray Basin and Jacinth-Ambrosia Ilmenite blends to be trialed
•
Technical success potentially provides a low cost ilmenite feed source
•
1 kiln operation in 2011 - ~ 200kt of SR production
•
Re-activation of an additional kiln in 2012 is under consideration
51
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 digits
•
All rutile legacy cap and collar contracts conclude in December 2010
•
Only 1 legacy SR contract remains until December 2011
•
This residual cap and collar SR contract considered immaterial to influence pricing
•
It is believed RBM titanium (slag) cap and collar contracts may extend beyond 2011
•
Exxaro reportedly has 80% of 2011 slag sales not subject to price caps
52
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 contract all planned production in 2011
•
2011 pricing negotiations are underway
•
All prices on initial 3 to 6 month volume basis only
•
A small residual volume held back and available for “spot” sales
•
Rutile has greater value in use than titanium slag to maximize output
•
High TiO2 offsets lower grade feedstocks i.e. 86% to 87% TiO2
53
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 offering both zircon and rutile
Ilmenite
www.ios.iluka.com
54
China Zircon Market
China Zircon Segments 2009
Other
7%
China ~ 40% of global zircon sand consumption
Zirconia &
Chemicals
29%
Ceramics
55%
Ceramics
~
43% of world
ZrO2 / Chemicals
~
65% of world
Casting
~
17% of world
Refractory
~
13% of world
Other
~
50% of world
Foundry/Casting
5%
Refractory
4%
Total China Market ~ 400kt zircon
55
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
- container shipments direct to nominated port (loose or in bags)
•
Sales Contracts
- price and quantity range from spot through to quarterly fixtures
- flexible but secure payment options
- sales transactions range from 20 tonnes through to 10,000 tonnes
56
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
07 Cum
Total Chinese Zircon Consumption:
Jun
08 Cum
Jul
Aug
09 Cum
Sep
Oct
Nov
Dec
10 Cum
2007 − 390kt
2008 − 410kt
2009 − 390kt
2010 − 460-500kt (supply constrained)
57
China Zircon Market
Iluka Zircon Sales to China
mt
% of Iluka Sales
60%
200000
180000
160000
140000
120000
100000
80000
60000
40000
20000
0
50%
40%
30%
During Q3, 2010 Iluka YTD
2010 sales exceeded FY 2009
20%
10%
0%
2004
2005
China
2006
2007
2008
2009
% China Sales
Iluka sales in China reached 180kt in 2008 (excl. CRL zircon sales)
58
China Titanium Minerals Market
China TiO2 Segments 2009
W elding and
Other
11%
Ti Metal
14%
Pigment
75%
Total China Market : 1.1-1.2Mt TiO2 units
>1Mt as sulphate ilmenite used directly or in
domestic slag
The rest as imported slag and domestic and
imported rutile and synthetic rutile
China ~ 24% of global titanium feedstock consumption
(in TiO2 units)
Pigment
~
20% of world
Ti Sponge
~
30% of world
Welding / Other
~
40% of world
Current Est. Annual Iluka Sales to China
Ilmenite
~
260kt (incl. CRL)
Rutile
~
10-15kt (incl. CRL)
Total
consumption
~
13% of China
59
China Titanium Minerals Market: Pigment
Chinese Pigment Demand
'000 tonnes
1200
1000
Pigment production and consumption likely to resume sharp
upward trend in coming years
800
600
Major producers predicting 2010 Chinese consumption to far
exceed 1Mt – perhaps even as much as 1.5Mt
400
200
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Pigment Production
Net Imports
Apparent Consumption
•
Imports of high grade pigment (250kt-300kt in 2007 and 2008) set to continue growth – fuelling
production outside China
•
Chinese pigment production almost 100% sulphate technology (requiring low grade / low value, mainly
domestic, feedstock)
BUT…
•
Major new chloride pigment projects are under construction (requiring high grade, mainly imported,
feedstock)
60
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 cored wire welding
•
Strong upside potential from new opportunities in existing and new Chinese operations
stemming from Iluka’s Product and Technical Development
61
Mineral Sands Price Relativities
Historical Prices to 2009
1000
US$ / tonne
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
For further information, contact:
Dr Robert Porter
General Manager, Investor Relations
+ 61 3 9225 5481; + 61 (0) 407 391 829
[email protected]
www.iluka.com
63
Appendix - 1st Half Financial 2010 Results Summary
64
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 margin
- unit cost inefficiencies during ramp up
- contractual price constraints in TiO2
•
Capital expenditure and net debt peak
•
Price increases achieved for zircon
•
Supply crunch both for zircon and high grade titanium dioxide markets
65
Group Results
$m
1H 2009
1H 2010
% change
Mineral Sands Revenue (pre hedging)
194.8
378.6
94.4
EBITDA
59.6
115.4
93.6
Depreciation and Amortisation
(83.5)
(101.5)
(21.6)
EBIT
(23.9)
13.9
158.2
(8.4)
(25.6)
(204.8)
Significant non-cash items
(67.6)
-
N/A
Profit / (Loss) Before Tax
(99.9)
(11.7)
88.3
Tax Benefit
33.4
5.1
(84.7)
Profit from discontinued operation
22.9
-
N/A
Net Profit / (Loss) After Tax
(43.6)
(6.6)
84.9
Average A$:US$ exchange rate
71.23
89.39
(25.5)
(11.0)
(1.6)
85.5
Return on Equity % (annualised)
(3.8)
(0.6)
84.2
Interest cover (EBITDA / net interest expense) times
9.0
6.3
(30.0)
Gearing / net debt (net debt + equity)%
21.5
28.8
(34.0)
Net Interest and Financing Costs
Financial Ratios
EPS cents per share
66
Mineral Sands Results
$m
1H 2009
1H 2010
% change
194.8
378.6
94.4
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
43.7
Depreciation and Amortisation
(83.5)
(101.5)
(21.6)
Mineral Sands EBIT (pre hedging)
(17.2)
(6.2)
64.0
Mineral Sands Revenue (pre hedging)
EBITDA
67
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 price increased by 23 per cent from pcp
- 60 per cent higher 2Q 2010 versus 1Q 2010
- reflects greater proportion of spot sales
•
$5.0 million of annual capacity payments to 30 June (2009: $8.0 million)
68
1st Half 2010 Cash Flow and Net Debt
$m
1H 2009
FY 2009
1H 2010
% change pcp
(215.7)
(215.7)
(382.1)
(77.1)
(94.4)
83.8
42.6
N/A
28.2
55.2
19.8
(29.8)
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)
Tax
(6.8)
(4.4)
(1.5)
77.9
(234.3)
(521.6)
(94.9)
59.5
Asset Sales
85.8
94.1
5.3
(93.8)
Share Issues Net of Costs
113.5
113.5
-
N/A
Dividends Paid to CRL Minorities
(1.8)
(1.8)
-
N/A
CRL Net Debt Eliminated on Sale
9.4
9.4
-
N/A
22.5
35.8
(9.6)
N/A
(Increase) / Decrease in Net Debt
(93.7)
(166.4)
(56.9)
39.3
Closing Net Debt
(309.4)
(382.1)
(439.0)
(41.9)
Opening Net Debt
Operating Cash Flow
MAC Royalty
Other
Capital Expenditure
Exchange Revaluation of Net US Debt
69