I have prepared an extract of the key comments (and supporting slides) David Robb used in his key note speech to the TZMI Conference being held in Singapore on 22-23 October 2009.
As you may appreciate this is one of the mineral sands industry’s major annual customer and raw material supplier events and can be considered the pre-cursor of pricing and volume negotiations for the forthcoming year.
David’s full set of slides are on the Iluka web site. Click here to view.
Please note this is a customer-orientated presentation with a major part related to the history and evolution of Iluka. For the sake of conveying what I think are the most relevant sections of his comments for the investment market, I have prepared this summarised version. I have also highlighted in the text what I consider some of the key points. These include:
� Industry participants who seek temporary advantage or cash flow through lowering prices in the face of weak demand are confining themselves and their industry to a long and painful recovery process
� For those who think Iluka is under some kind of pressure to move inventory, you are mistaken. We will have nothing in our TiO2 inventory at the end of this year and will hold less zircon stock than we held at the end of 2007. With the production cuts we have made, and with sales picking up, we are drawing down zircon inventory and will continue to do so, but only as market demand allows. There will be no forced selling by Iluka…
� Pigment demand in the medium term is underpinned by global wealth trends and urbanisation and therefore by the rise of China and other emerging economies.
� China’s intensity of pigment consumption is only about 20 per cent that of the US
� China now represents about one third, or more, of global zircon demand and Chinese demand has been growing at about 15 per cent per annum. While that will inevitably slow in percentage terms as the base gets larger, China will, in absolute terms, drive global growth above historical trend levels.
� China’s intensity of zircon use is about 0.2 kg per capita versus 0.8 kg per capita in Europe. We expect this gap to close as China migrates up the quality curve in tile manufacture as it has done in everything else.
� Iluka runs “inducement assessments” on all known greenfield feedstock projects and prospects and, with one or two rare exceptions (which we nevertheless believe have specific issues), we struggle to see how acceptable returns could be generated at today’s mineral sands product prices.
� Existing TiO2 feedstock producers are working hard to maintain supply - the trend is for existing large producers to sustain rather than grow production.
� Moreover, the world is becoming leaner in terms of the zircon to TiO2 production ratio. Importantly, Iluka’s new projects merely maintain that historic balance of about 0.20 tonnes of zircon for each tonne of TiO2 – they do not increase it and there is no “zircon excess” created by Jacinth-Ambrosia.
� In Iluka’s view security of raw material feedstock supply will become an increasingly important issue - and that is before we even consider the possibility of China seeking to ensure its priority access to available supply, as it is doing in other raw materials.
� We also believe we can supply additional product to the market faster, cheaper and with lower risk for customers than other potential sources of new supply (for example via the latent capacity 20 per cent of extra capacity that exists within the JA concentrator, or via additional SR production).
Please let me know if there are any follow up questions.
Regards
Rob
Robert Porter | General Manager Investor Relations and Corporate Affairs
Iluka Resources Limited | Level 23, 140 St Georges Terrace | Perth WA 6000
Phone +61 8 9360 4751 | Mobile 0407 391 829 | Fax + 61 8 9360 4336
robert.porter@iluka.com