Iluka - Addressing supply in the medium term
Iluka Resources Limited
Matthew Blackwell, Head of Major Projects, Engineering & Innovation 13 November 2019
Move to Ambrosia, South Australia
Disclaimer and Compliance Statement | 2 |
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 document provides an indicative outlook for the Iluka business in the 2019 financial year. The information is provided to assist sophisticated investors with the modelling of the company, but should not be relied upon as a predictor of future performance. The current outlook parameters supersede all previous key physical and financial parameters.
This information is based on Iluka forecasts and as such is subject to variation related to, but not restricted to, economic, market demand/supply and competitive factors. It is Iluka's approach to modify its production settings based on market demand, and this can have a significant effect on operational parameters and associated physical and financial characteristics of the company.
Forward Looking Statements
This presentation contains certain statements which constitute "forward-looking statements". Often, but not always, forward looking statements can generally be identified by the use of forward looking words such as "may", "will", "expect", "plan", "believes", "estimate", "anticipate", "outlook" and "guidance", or similar expressions, and may include, without limitation, statements regarding plans; strategies and objectives of management; anticipated production and production potential;
estimates of future capital expenditure or construction commencement dates; expected costs or production outputs; estimates of future product supply, demand and consumption; statements regarding future product prices; and statements regarding the expectation of future Mineral Resources and Ore Reserves.
Where Iluka expresses or implies an expectation or belief as to future events or results, such expectation or belief is expressed in good faith and on a reasonable basis. No representation or warranty, express or implied, is made by Iluka that the matters stated in this presentation will in fact be achieved or prove to be correct.
Forward-looking statements are only predictions and are subject to known and unknown risks, uncertainties, assumption and other important factors that could cause the actual results, performances or achievements of Iluka to differ materially from future results, performances or achievements expressed, projected or implied by such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date thereof. Such risks and factors include, but are not limited to: 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; increased costs and demand for production inputs; and environmental or social factors which may affect a licence to operate, including political risk.
Capital estimates include contingency and risk allowances commensurate with international estimating classification systems.
To the extent permitted by law, Iluka, its officers, employees and advisors expressly disclaim any responsibility for the accuracy or completeness of the material contained in this presentation and exclude all liability whatsoever (including in negligence) for any loss or damage which may be suffered by a person as a consequence of any information in this presentation or any error or omission therefrom. Iluka does not undertake to release publicly any revisions to any forward-looking statement to reflect events or circumstances after the date of this presentation, or to reflect the occurrence of unanticipated events, except as may be required under applicable securities laws.
No independent third party has reviewed the reasonableness of the forward looking statements or any underlying assumptions.
Non-IFRS Financial Information
This document contains non-IFRS financial measures including cash production costs, non production costs, Mineral Sands EBITDA, Underlying Group EBITDA, EBIT, free cash flow, and net debt amongst others. Iluka management considers these to be key financial performance indicators of the business and they are defined and/or reconciled in Iluka's annual results materials and/or Annual report. Non-IFRS measures have not been subject to audit or review.
All figures are expressed in Australian dollars unless stated otherwise.
Mineral Resources and Ore Reserves Estimates
As an Australian company with securities listed on the Australian Securities Exchange (ASX), Iluka is subject to Australian disclosure requirements and standards, including the requirements of the Corporations Act and the ASX. Investors should note that it is a requirement of the ASX listing rules that the reporting of ore reserves and mineral resources in Australia comply with the 2012 edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore
Reserves (the "JORC Code") and that the Ore Reserve and Mineral Resource estimates underpinning the production targets in this presentation have been prepared by a Competent Person in accordance with the JORC Code 2012.
Information that relates to Mineral Resources estimates has been previously announced to ASX on 24 July 2019 in Eneabba Mineral Sands Recovery Project Updated Mineral Resource Estimate, on 20 February 2017 in Updated Mineral Resource and Ore Reserve Statement, on 21 February 2019 in 2018 Annual Report and on 27 February 2018 in 2017 Annual Report, all available at www.iluka.com/investors-media/asx-disclosures. Iluka confirms that it is not aware of any new information or data that materially affects the information included in the original market announcement and that all material assumptions and technical parameters underpinning the estimates continue to apply and have not materially changed. Iluka confirms that
the form and context in which the Competent Person's findings are presented have not been materially modified from the original market announcements.
Production outlook
Production outlook and the basis thereof are noted within the relevant disclosure. The outlook included in this presentation is indicative only and should not be construed as guidance. The information is subject to changes in market and operating conditions; political risk; and any significant unplanned operational issues.
Zircon and High Grade Titanium Markets
Zircon Market Outlook | 4 |
Key Features |
Global Zircon Supply and Demand Outlook - Existing Operations1
kt | Illustrative | Short term demand softness … | |||||||||
1500 | Demand CAGRs | ||||||||||
Demand CAGR | 2019-23 | ||||||||||
TZMI 2.7% | • Business confidence affected by trade tensions and | ||||||||||
2013-19 ~1.6% | |||||||||||
@ 1.5% CAGR | global economic uncertainty | ||||||||||
1200 | |||||||||||
@ 0% CAGR | • Destocking of zircon in downstream supply chain | ||||||||||
900 | … solid long term fundamentals | ||||||||||
Supply CAGR | • Urbanisation and growing middle class in Africa and | ||||||||||
600 | 2019-23 | ||||||||||
-3.6% | Asia over next ten years | ||||||||||
• Caution on quantum of demand growth | |||||||||||
300 | • Zircon will sell based on value in use with new | ||||||||||
technical specifications | |||||||||||
0 | • Declining supply from existing producers | ||||||||||
2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | • Iluka has project pipeline to maintain supply |
Iluka (sand) | Other operations | ||
1. Illustrative demand CAGRs (2019-23) are indicative only and not Iluka forecasts. 2019 demand forecast of 1.2mt is from TZMI (August 2019). Demand is underlying (net of inventories). Iluka (sand) production forecast is sourced from TZMI and does not represent Iluka's production forecast. In addition to zircon sand, Iluka also produces ZIC which is processed elsewhere and included in 'Other operations'.
Source: TZMI August 2019
Pigment Market Outlook | 5 |
Recent Global Pigment Price Cycles Analysis | Iluka's Pigment Demand Model | |||||||||
Demand recovery + capacity utilization | • | Uses a range of economic indicators | ||||||||
increase + inventory decline = Price increase | ||||||||||
% chg | • | Forecasts 12 month outlook | ||||||||
qoq | • Indicates pigment demand upturn by mid 2020 | |||||||||
10 | Restocking + | |||||||||
flattening demand + | • Consistent with industry forecasts | |||||||||
higher Chinese | ||||||||||
utilization rates = | ||||||||||
Price levelling | ||||||||||
5 | ||||||||||
0 | |||||||||||||||||||||||||
Destocking + flattening demand + feedstock price increase | |||||||||||||||||||||||||
-5 | + Chemours contracts = Price /Volume/ Margin Reduction | ||||||||||||||||||||||||
1Q16 | 3Q16 | 1Q17 | 3Q17 | 1Q18 | 3Q18 | 1Q19 |
Source: TiPMC and Robert Fry Economics
Long Term Pigment Demand Linked to Industrial Production
Industry consultant TiPMC shows link of pigment demand to industrial production, with some volatility of stocking and destocking cycles.
Source: TiPMC and Robery Fry Economics
High Grade Titanium Supply Outlook | 6 |
Key Features |
Global Rutile Supply Outlook
Positive dynamics in high grade titanium market
kt TiO2 | Supply tipping | |||||||||
800 | point from 2017 | |||||||||
Excludes Iluka's Sembehun | ||||||||||
600 | and Balranald projects | |||||||||
400 | ||||||||||
200 | ||||||||||
0 | ||||||||||
2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019f | 2020f | 2021f | 2022f | 2023f |
- Long term demand underpinned by pigment market growth and rising living standards
- Rutile and other very high grade feedstocks have unique properties and uses in niche markets as well as ability to increase pigment plant yield
- Increasingly important in reducing pigment plant waste footprint
- Declining supply from existing producers
- Iluka has project pipeline to maintain supply
Source: Iluka and TZMI
Implications for Industry | 7 |
- Economic growth, urbanisation and technology advances support long term demand
- Supply tightness in zircon and high grade titanium market developing / already evident
- recent mine closures, grade decline and short mine life of operations contribute to supply outlook
- Industry will require reinvestment to maintain supply to markets
- New projects under review (including Iluka's) will likely have higher risk, higher capital or higher costs owing to:
- distance to infrastructure and processing facilities
- ore body characteristics
- Iluka has well developed pipeline of quality projects and track record of project delivery
2019 Projects Delivered | |||
Key Features | |||
Zircon / Rutile / | Rutile | Rutile | Zircon / Rutile |
Synthetic Rutile | |||
Cataby, | Gangama | Lanti Expansion, | Ambrosia Mine |
Western Australia | Expansion, | Sierra Leone | Move, |
Sierra Leone | South Australia |
8
Synthetic Rutile
SR2 Kiln Major
Maintenance
Outage,
Western Australia
• | $270m capex budgeted | • | Doubling of capacity | • | Doubling of capacity |
• | Construction of new mine and | • | Duplication of existing design | • | Second mining unit and |
infrastructure | • | Delivered on schedule | doubling of concentrator | ||
capacity | |||||
• | Highway upgrade | • Reached design rates end H1 | |||
• | Delivered on schedule | ||||
• | Processing plant upgrades | ||||
• | Utilises existing processing | • Reached design rates late Q3 | |||
and kiln assets
- ~$35m capex in 2019 budgeted
- Commissioning complete - delivered ahead of schedule and under budget
- Smooths zircon production
- ~$35m capex budgeted
- SR2 kiln reline
- New rotary cooler shell and quench tower
- Ramp up rate exceeded expectations
Total 2019 Capital Expenditure of ~$215 million
Pipeline of Growth Projects
Key Features
Atacama, | |
South Australia | |
Zr | Satellite deposit to existing J-A operation |
Pre-feasibility study progressing | |
Potential to add material zircon | |
production |
Sembehun, | |
Sierra Leone | |
Ti | Expansion to new deposits |
Development of next phase at SRL | |
Re-scoping development options - focus on | |
optimising risk/ return |
Wimmera,
Victoria
Zircon and rare earth project
Pre-feasibility study progressing
Test pit completed product samples with
customers
SR1 restart,
Western Australia
Scoping study progressing
Detailed execution planning underway and long
lead time items ordered.
Potential for 110 - 120ktpa of synthetic rutile
Subject to appropriate commercial
arrangements
9
Eneabba Mineral Sands | |
Recovery, | |
Other | Western Australia |
Monazite-rich stockpile from | |
historic mining | |
Offtake secured, execute phase | |
Simple process proposed with low | |
capital expenditure | |
Balranald, | |
New South Wales |
Rutile and zircon rich deposits
Development of innovative underground mining method via directional drilling
Pre-mobilisation activities underway to
prepare for 3rd trial
Eucla Basin
Pipeline of Growth Projects | 10 |
2019
Historic Global Zircon and Rutile Supply | Projects | 2020-2022* | 2022-2024* | 2025+* |
Producing |
Cataby | |||||||||||
Ambrosia | Eneabba | Sembehun | Australian near- | ||||||||
Gangama | |||||||||||
SR1 restart | Atacama | mine deposits | |||||||||
Lanti | |||||||||||
Balranald | Sierra Rutile | ||||||||||
Zircon kt, Rutile kt TiO2 | Wimmera | exploration | |||||||||
potential | |||||||||||
1400 | |||||||||||
Cataby extensions | |||||||||||
1200 | |||||||||||
1000 | Zircon supply outlook | ||||||||||
excluding new projects | |||||||||||
800 | * Project timing and | ||||||||||
approval remains subject | |||||||||||
600 | to Iluka Board approval | ||||||||||
400 | Rutile supply outlook | ||||||||||
excluding new projects | |||||||||||
200 | Rutile | Zircon | |||||||||
0 | |||||||||||
2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019f | 2020f | 2021f | 2022f | 2023f |
Source: Iluka and TZMI
Project Funding
Cataby, Western Australia
Strong Balance Sheet Position | 12 |
- Iluka has funded recent projects (including Cataby, Sierra Rutile expansions) and Sierra Rutile acquisition (Dec 2016) from cash flows and debt
- As at end September had modest net debt and gearing (net debt $89 million, 6.9% gearing ratio)
- Retain significant funding headroom (total facilities ~$520 million)
$m | Gearing % | ||||||||||||||||||||||
1000 | 40 | ||||||||||||||||||||||
800 | 30 | ||||||||||||||||||||||
600 | |||||||||||||||||||||||
20 | |||||||||||||||||||||||
400 | |||||||||||||||||||||||
10 | |||||||||||||||||||||||
200 | |||||||||||||||||||||||
0 | |||||||||||||||||||||||
0 | |||||||||||||||||||||||
Total facilities available | Net debt (cash) | Gearing* | |||||||||||||||||||||
-200 | H2 17 | -10 | |||||||||||||||||||||
H1 14 | H2 14 | H1 15 | H2 15 | H1 16 | H2 16 | H1 17 | H1 18 | H2 18 | H1 19 | ||||||||||||||
Q3 19 |
* Net debt / net debt + equity
Iluka Mineral Sands Business | 13 |
Key Features |
Recently announced formal review has commenced to determine most appropriate corporate and capital structure of two principal businesses - Mineral Sands and Mining Area C Royalty
- A number of significant issues to be considered as part of the review and no certainty that it will result in change
Irrespective of outcome, mineral sands business remains strong
- $545 million underlying mineral sands EBITDA 2018
- Broad and valued customer base
- Quality assets producing high quality products
- Committed and experienced workforce
- Pipeline of exciting projects
Well placed to remain in market leading position within zircon
and high grade titanium feedstock markets
Deliver Sustainable Value | |
Key Features | |
Strong Market | Quality Mineral Sands |
Fundamentals | Assets |
Mineral sands demand linked to | Australia and Sierra Leone operations |
urbanisation, rising living standards, | Product mix weighted to premium |
increasing array of applications | |
zircon and high grade titanium dioxide | |
Value Driven Marketing | Capital Discipline |
Model | Framework |
Direct customer relationships | Strong balance sheet, disciplined |
Price driven by value in use | capital allocation |
Focus on shareholder returns via | |
Focussed on sustainable pricing | |
dividend framework | |
14
Project Pipeline
Sustaining and growth projects in
Australia and Sierra Leone
World-class Iron Ore
Royalty
Royalty stream from BHP's Mining
Area C hub in Western Australia
Growth from BHP's South Flank
development
Iluka Resources Limited
www.iluka.com
Ore trial at Ambrosia, South Australia
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Iluka Resources Ltd. published this content on 13 November 2019 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 13 November 2019 01:29:02 UTC