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Shane Tilka, Mine Manager – Jacinth Ambrosia, presented this at the 13th AJM's Mineral Sands Conference, the key meeting place for Australia's mineral sands industry. For more information, visit http://www.informa.com.au/mineralsands2014
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Shane Tilka
Mine Manager – Jacinth Ambrosia
March 2013
AJM 13th Annual Mineral Sands Conference Operational Flexibility in a Changing Global Marketplace
2
Structure
1. Company Overview
2. Products and Industry
3. Operations and Assets
4. Jacinth-Ambrosia
3
Company Overview
• Principal objective: create and deliver value for shareholders
• Market capitalisation: ~$4 billion
• Approximately 1,000 employees
• 10 years reserve life; resources ~3 times reserves
• Strong balance sheet, net cash, $800m in undrawn facilities
• Operations in Australia and United States
• Royalty from tenements of BHP Billiton's Mining Area C (MAC) province, Western Australia
4
Iluka's Position in Mineral Sands
• #1 global producer of zircon
• #2 global producer of titanium dioxide
• Significant market share position in high value titanium dioxide products
− rutile and synthetic rutile
Major Zircon and Titanium Dioxide Feedstock Producers
Source: Iluka, TZMI
Note: Rio Tinto includes 100% of Richards Bay Minerals
5
Operations and Assets
• Mining and processing operations in Australia and USA
• Distribution warehouses located within major markets
• Zircon and titanium dioxide products supplied to more than 35 countries
• Major supplier in emerging and developing markets
− China, India, Middle East and South America
6
Australian Operations
7
Australian Operations Integration
J-A HMC
J-A HMC
J-A
Tutunup South
Eneabba
WRP
Non magnetics
from Tutunup South
Virginia Ilmenite
Mine WHIMS Ilmenite
Hamilton Ilmenite
8
Scope of Jacinth Operation
• Commissioned in November 2009
• Jacinth deposit
– 900m wide by 5 km long
– minimal overburden - strip ratio 0.5:1
– ore at average thickness of 20m
• Mining unit plant in pit:1300tph
• Wet concentrator:1000tph
• HMC production:120tph
• Fly-in-fly-out from Ceduna / Adelaide
• Village accommodates160 persons
• Water transported bore field to site 32kms
• Diesel power station (6.8 - 9.4 MW)
• HMC transported 270kms by road to Port
Thevenard storage facility
J-A Camp and Air Field
9
Jacinth-Ambrosia Physical Characteristics
1. Reported in accordance the JORC Code 2004, see Iluka Resources Limited, Iluka Review 2011, page 43-45
2. Refer Iluka ASX release, Ore Reserves and Mineral Resources Increases, 23 February 2012
• HM mineral resources1: 8.19 million tonnes
• HM ore reserves2: 6.38 million tonnes
• Average ore reserve HM grade: 4.5%
• Average HM ore assemblage: 50% zircon / 28% ilmenite / 5% rutile
• Development capex: $390 million
Production (kt) 2012 2011
Zircon 158 314
Rutile 50 56
Ilmenite saleable 87 172
Ilmenite upgradeable 204 3
10
2012 Safety Performance: Jacinth-Ambrosia
• Company wide improvement in safety performance in 2012, with year-on-year
– TRIFR rate declining by 30%
– LTIFR rate declining by 32%
• J-A operation currently has the best safety performance with a TRIFR of 4.56
• Underpinned by Safe Production Leadership Program
• Site is currently LTI free from project through to present day operations
11
Human Resources
Iluka Resources
• 70 Employees
• Local – (51%)
Exact Mining Services
• 50 employees
• Local – (36%)
Kalari Transport
• 39 Employees
• Local – (46%)
• Families relocated – 8
• Singles relocated - 10
12
Native Title Agreement
Far West Coast (FWC) Native Title Claimants - key objectives
• 20% FWC employment target for Iluka
– major contractors (EMS, Kalari, ACS)
– 20% target surpassed November 2012 with successful employment of our first
trainee operator
• Develop and implement an education and training program for the FWC:
– pre-employment plan completed – 18 participants this year on an 18 week course
– 5 scholarships providing full board/education through MOU with The Smith Family
• Develop and implement business development outcomes
– D10 dozer hire in partnership with Exact Mining Services
– excavator, dewatering pumps & lighting tower hire in partnership with Iluka
13
Red loam
White strand
• Ore pushed by dozer into mobile mining unit plant (dozer trap)
• 200m x 100m ore blocks
• Mining unit capacity up to 1400 tph
• Slurry (-10 mm) pumped to wet concentrator
• Secondary screening at concentrator (0.6 mm)
Project Overview
14
Ore Block Cross Section
100m
Southern
end of block
25-40% HM 10-15% HM
3-4.5% HM
3-4.5% HM 8-10% HM
HM%
0-5% Clay
10-15% Clay
15-20% Clay
100 metres
Challenge to supply a stable feed grade
15
Ore Block Blending Process
Ore Block Theory in practice
Floor
Grey mix
White
Slice - 3
Slice - 2 Slice - 1
Slice - 4
Red
White
Red
Grey
Slice - 5
Blending
(2 red: 3 white:1 grey)
Dozer-1 : push 2 red and 1 white (2 red from slice 4 or 5 and 1 white from slice 3)
Dozer-2 : push 2 white and 1 grey (2white from slice 3 and 1 grey from slice 2)
Prediction: 60tph HMC and 110tph clay
17
Flexibility of Mine Path Production response to market conditions
Option Indicative
HMC* (ktpa)
1 800
Base 620
3 550
5 500
8 440
11 350
* Mining schedules as at July 2012
` approx 3 years mining at this rate from starting in high grade area
18
Zircon - Production Optionality
Demand met from inventory
Increase J-A feed to MSP’s (immediate)
Max J-A feed to MSP’s and revise J-A mine plan (4-6 weeks)
2012 Matching Demand
• Low grade J-A
• Reduced MSP feed
• Expand HMC stockpile capacity Demand
MSP feed reduced J-A HMC stockpiled
Idle MSP for short periods (no employee impact)
Reduce feed to mining unit
Extend J-A low grade,
maximise stockpile
Time
19
Sustainability Major Projects Executed 2012
Sealed airstrip & haul road
• $10m invested into sealing 90km haul road & air strip
• Justified on financial return from reduced logistics expense
• Significant benefits for Kalari & community at large
• Demonstrates long term commitment to Eucla Basin
20
Jacinth-Ambrosia Brownfields Recent exploration results
1. Refer Iluka ASX release - Additional Eucla Basin Brownfield Resource, 28 January 2011
2. 2. Refer Iluka ASX release - Discovery of new Eucla Basin Brownfield Resource , 17 April 2012
• Two target styles (within 15km of J-A)
– Jacinth style (zircon-rich strands)
– Typhoon style (ilmenite dominated strands)
• Discovery of Atacama 20111
• Discovery of Sonoran ~9km south east of J-A2
• Atacama Resource increased by 4.3 mt of HM
• J-A + tie in deposits put current mine life at 2027
• Adelaide based projects team assessing
Sonoran, Typhoon and Atacama to provide
optionality
21
Mineral Sands Market Conditions - 2012
• Macro economic, country-specific and inventory destocking factors influenced demand
• Coincident cyclical weakness in both zircon and high grade titanium dioxide markets
• Demand conditions worse than in 2009 – height of GFC
• Weak high grade titanium dioxide demand in second half
– pigment plant capacity utilisation at historically low levels
• Multi-tiered pricing arrangement for titanium dioxide products
– Iluka sales impacted by continued availability of legacy contract tonnes
• Structural/cyclical reduction in zircon use in ceramics in China (~20% of global demand)
• Iluka zircon sales impacted by sharp price declines led by others
22
2012 Financial Characteristics
Sound financial characteristics despite challenging market conditions
• Mineral Sands revenue of $1,068 million
• Minerals Sands EBITDA/revenue of 67.9%
• NPAT of $363.2 million
• Operating cash flow of $368.7 million; free cash flow of $81.2 million
• Return on capital of 27.3%
• Return on equity 23.2%
• Debt facilities of $800 million with remaining 4 year tenor
23
Zircon – 2013 Outlook
• Signs of improved demand in China and US, significantly reduced production announced
– pre-conditions exist for period of price stability
• More favourable demand conditions expected to emerge progressively in 2013
– price stabilisation important to customer confidence and ordering patterns
• Current price levels expected to encourage re-introduction of zircon in some applications
• Current price levels expected to make investment for future production more challenging
24
High Grade TiO2 – 2013 Outlook
• Pigment plant utilisation continues at historically low rates – 65% to 75%
• Indications pigment inventory draw down is now advanced
• Pigment industry commentary suggests return to more normal outputs from 2H13
• US and European painting season a key influence
• Iluka high grade sales likely to remain sluggish in 1H relative to potential 2H recovery
• Feedstock pricing in 2013 influenced by end of legacy contracts
• Recent industry production curtailments an expected positive for market dynamics
• Iluka production cut backs also announced
25
Mineral Sands Cycle Characteristics
• Recent volatility highlights business cycle impacts on volumes
• Iluka 2012 Z/R/SR sales of 489 kt, ~half level of “high” cycle levels (>1mt), 1/3rd <2009
• 2012 - coincident low demand for both zircon and high grade titanium dioxide feedstocks
• Medium term fundamentals remain positive – medium term new supply challenged?
“High” cycle point
• Above trend GDP growth
• Strong end use demand
• Scarcity fears
“Low” cycle
• Below trend GDP growth
• Low end use demand
• De-stocking downstream
“Mid” cycle
• Trend GDP growth
• Average end use demand
• Re-stocking downstream
• Ore bodies high-graded
• Assets fully utilised
• Prices peak
• Zombie projects return
• “Normal” mining & processing
• Some spare capacity
• Prices trend up
• Growth capex
• Assets idled
• Excess producer capacity & inventory
• Prices seeking floor
• Investment stalls
26
Production Response/Cost Reduction Approach
• Iluka has been prepared to reduce production in light of market demand
• In combination with other major industry participant actions, production curtailments
significant:
- ~35% reduction in global zircon production (vs 2011 levels)
- ~20% reduction in high grade titanium dioxide production
• Iluka intent to optimise cash flow, maintain conservative gearing during 2013
• Significant activities announced designed to:
– reduce largest cost element = cash production costs
– maintain lowest practicable unit cost
– target finished product inventory draw down
– reduce overheads and capital expenditure
– maintain flexibility to respond to market recovery
– protect growth initiatives
27
Iluka Production Cuts and Cost Reductions
• Eneabba mine (Western Australia) to be idled from April 2013
• SR kiln 3 to remain idled until demand recovers, key staff retained
• SR kiln 2 to be idled from May until market demand warrants re-start, key staff retained
– high grade SR product demand met via rutile swaps
• Tutunup South mine (Western Australia) to be idled from May
• Narngulu mineral separation plant operating on reduced utilisation basis
28
Iluka Production Cuts and Cost Reductions
• Hamilton mineral separation plant operating at 50% utilisation
• Woornack, Rownack and Pirro mine output lower
• Jacinth-Ambrosia return to standard full face mining
– following approvals for increased HMC storage on site
– reduces unit cash costs of HMC produced
– idling planned for and an option dependent on zircon demand recovery profile
• ~30% reduction in Australian operations workforce (~200 positions)
• Virginia operations idled for 30 days over Christmas; reduced roster
• Reduction in corporate and overhead costs in train
29
Summary
• Iluka focus on optimising performance of operations based on market conditions
• Rapid production response capability as market demand returns
• Commitment to exploration and product development
• Enhancement to global marketing presence
• Pipeline of internal development opportunities (lower risk and lower capital intensity)
• Integrated and flexible production base
• Established market position as major and reliable supplier
• Sound balance sheet characteristics
30
Iluka Resources Limited www.iluka.com
For more information, contact:
Robert Porter, General Manager Investor Relations & Corporate Affairs
+61 3 9225 5008 / +61 (0) 407 391 829